Money Talk with Carl Stuart

Carl Stuart takes your calls and texts on how to add savings to a State of Texas Teacher or Employee Retirement System plan (TRS or ERS), what to do when starting from scratch — even when retirement age is around the corner, what alternatives there are for trusts and college savings plans, as well as buying a piece of the toll road– individual infrastructure investments!

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] [00:00:02] 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]  [00:00:21] Good afternoon, and welcome to Money Talk. I’m Carl Stewart, and you’re listening to KUT News 90.5 and on the KUT app. Now in our 31st year here together, but our second month here on KUT, Money Talk is a broadcast about the world of financial and investment planning. You always determine the agenda by calling or texting 512-921-5888.

It’s a terrific idea to call or text at the beginning of the hour, giving me a chance to do my best to answer your questions. As always, I take today’s calls first, and then today’s texts, and any other texts that I haven’t had a chance to answer or fully answer in the past.

So here we go, 512-921-5888. BJ, you’re on the air. How may I help?

[BJ] [00:01:15] Carl I’ve been doing a tactical review of the asset allocation in my Roth IRA. Yes, and I have a few percentage is Unallocated. Yeah, so I thought that I would see what people smarter than me were doing

[Carl]  [00:01:30] Oh, well you called the wrong number, but go ahead. Ha ha ha. Well, I…

[BJ] [00:01:35] I’m calling you but I also called the, I didn’t call but I went to the website of the employees retirement system of Texas and they post their investing plan there on the website and I saw that among various things they invest in infrastructure and with a little investigation and I found out that there are infrastructure and mutual funds that people can invest in. Yes. And found one that was fairly diversified in terms of the types of infrastructure. And was rated low risk by Morningstar.

[Carl] [00:02:15] Mm-hmm

[BJ] [00:02:16] And just wondered what you thought about this in the diversified portfolio of a Roth.

[Carl] [00:02:23] For a retired person? Great question.

So what BJ is referring to is a relatively new phenomenon for the average investor to invest in infrastructure. It could be any kind of income producing structure, like a toll road, for example. And the argument for investing in these is twofold. One that you touched on, which is that the successful toll road has a stability of income, so it’s an income-oriented investment.

And the second is infrastructure, because of its very lack of liquidity, it tends to be a long-cycle investment. So, like real estate, for example, the cycle will be long. Uh, and perhaps great, but you’re always subject to the whims of the economy.

Certainly when, uh, COVID hit, uh. If you had an ownership of the toll road and people stopped going to work, then the tolls dropped and the toll Road had bonds that it had to feed to fees.

So it’s not, uh necessarily a simple thing to understand what you see. Uh, in the institutional portfolio, these institutions can afford to invest Directly in illiquid assets as part of their portfolio. They would probably think that infrastructure kind of straddles the difference between stocks and bonds. It’s probably subject to having rising income, like stocks can have and bonds cannot.

Also, it tends to be perceived as being more, less volatile than bonds. So that’s the theory behind it.

So my view is… I learned a long time ago that if you buy sector funds, biotech funds, energy funds, health services funds, and this would fit in that category as well. You have to understand that even though the fund may be diversified across a number of healthcare companies, if that particular asset class falls out of favor, you’re going to have more stock market-like kind of volatility.

I remember for years the Vanguard Health Science Fund was doing great. There was another company that had a communications fund that was doing good. And back in the 90s, there was a period when biotech funds were terrific. But what I realized was that they also had substantial periods of down market or losses.

So I tend to not personally invest in them. I think if you choose to do so, as you think about your asset allocation. You wanna make sure that I would put it in the equity sleeve, not the fixed income sleeve.

And the fact that it’s a mutual fund may mean that it is more subject to volatility because the type of infrastructure projects that a pension or an endowment would invest in would not be public, they would be private. They know when they invest that they can’t sell it, that they’re going to have to wait for the income and they may have the ability over time. When that toll road perhaps changes ownership.

So they’re okay, I understand the concept. I cannot criticize the idea behind it, BJ. I’m just not a big fan of using more of a rifle shot because I like the idea of broad diversification and then correlation. These are new enough that we don’t really, I don’t know how it’s gonna act in a stressed period. I don’ know how they did in say 2022. When the S&P was down over 20%, the Bloomberg bond index was down about 13, or even more significantly in 2008, 2009 during the global financial crisis.

So I think it’s okay. I personally would not invest in it for the reasons that I said, but the concept makes sense, so I hope that’s helpful.

[BJ] [00:06:28] Carl, thanks for taking my question. I appreciate it.

[Carl]  [00:06:30] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call with your questions or text me at 512-921-5888 and you can catch past shows at kut.org slash Money Talk. You’ll hear these texts coming in and as I said, I take today’s text first and then I, okay, what do we got here? I just got a text here. Okay.

[Text] Hi, I’m 65. I have a Roth IRA, which is over five years old. I plan to convert some funds from an IRA into a Roth. Does the five-year rule now again apply to the earnings of the conversion? If so, would it make sense to place those funds in a separate Roth account? Thank you, Ann.

Ann, it’s my understanding that you have already made the five-year hurdle, because it goes from your first… Investment in your Roth. So, when you make subsequent investments, whether that’s new money or conversion money, that does not start the clock over. So, you don’t have to worry about that and I would not, if I were in your shoes, I would go ahead and do the conversion into the one that you already have. Thanks for the question.

You’re listening to Money Talk on KUT 90.5 and on the KUT app. Call or text, 512-512-7000. 921-5888. Here’s another text.

[Text] Carl, for international equities you typically recommend a 25% allocation.

That’s correct.

[Text] Given the current price to perfection valuation levels of domestic equities and the forecast by many reputable investment firms such as JP Morgan, Blackrock, Schwab, etc., that international stocks will outperform domestic stocks for the next decade or more. Do you think now is a good time to increase the 25% international allocation? If so, to what level? 35%, maybe even 50%, thank you.

Well, I was telling my colleague, Lindsey, just this week that I had been recommending on the equity portfolio portion of your portfolio, 75% domestic and 25% International. And that felt pretty darn aggressive to me because for years, I’ve read that most US investors have little or no exposure to international equities and international equites had underperformed US equites for a long time and even though international stocks were by most traditional valuations, price to book, price to earnings, were cheaper by significant amounts than US equities, that did not keep US equities from outperforming.

We’re now in a period where, as you point out, international year-to-date has beaten domestic. There have been two factors behind that. One is changes in the EU where the Germans have committed to spending a trillion dollars and putting aside their almost, I would say, passionate aversion to debt at the government level, and also weaker dollar.

The Trump administration would like a weaker dollar because it makes our products less expensive to international customers. But the Trump administration or any administration doesn’t get to select the value of the dollar versus other currencies.

I agree with you. I think the outlook for international is better now than it has been in some considerable time. And I’m really pleased that I didn’t get out of my 25%.

Boy, I tell you, I knew it must be close because I was starting to doubt my judgment. That usually means. That I should stick with what I’ve learned over the last 46 years. I’d be okay with you going to 30%. I’m a conservative investor, and I’m always anxious about following momentum, but you do have the fundamentals on your side.

There are really two ways for you to consider doing this. You can buy a passive fund that would be, say, the total international stock market. And the passive I don’t know who has those. I know Vanguard does. I presume BlackRock does. I presumed that Fidelity and Schwab do. I don’t know that you get full diversification. They’re probably a market capitalization weighted so some of the bigger companies will have a bigger weight in there. But you will get the full broad you’ll get both that the developed markets and some of emerging markets as well I like that or you can choose an actively managed fund if you do that.

My experience is they’re going to be actively managed funds. They’re going do better than the index now when it’s going up, but they’re not going to hold as well in a decline. Or you can buy those that tend to outperform by not going down as much. I happen to do both. I like the passive, and then to select an international where I have confidence in the managers. Thanks for the question.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call me with your questions or text 512-921-5888. Here’s a text.

[Text] Hi, Carl. I am interested in starting a savings plan for my grandchildren’s education. What do I need to know to set up a 529? And is that the best way to go?

Well, I tell you, this is a terrific question. And I hope that I continue to get this question. You know, our political leaders, when they decide to change positions, say, well, my thoughts have evolved. Well, frankly, my thought my thoughts had evolved.

The idea behind the 529 savings plan was this. In case you hadn’t noticed, a college education is really expensive. And a lot of people are ending up going to college and having to borrow a lot money, because their families didn’t save or even have the opportunity to save money while the kids were young.

So, Congress established this 529 college savings plan and they had made it with some attractive features. You put the money in, these are generally state-sponsored plans, but you can buy it from any state. You put money in. They have a range of options, typically mutual funds. And as long as the money is in there, any dividends, interest, or appreciation is not taxed. And if you take the money out for legitimate purposes, and there’s a long list of these, you don’t pay income tax. Now they’ve added independent schools so you could even have a boarding school or an independent school. There are lots of things. It’s not now just a college savings plan.

Okay, full stop. Is that a good thing? The answer is yes. But here’s where my thinking has evolved.

You could just as easily open an account. If you’re a do-it-yourself investor at Schwab, you open it at a Schwab. If you are an advisor with Merrill Lynch, you can open it with Merrill Lynch. But you can call it your name and college savings account. You invest, probably I would start depending on the age of the child, with passive index funds, both domestic and foreign. And as the money grows… If you’re buying passive funds, you’re going to have no capital gains distributions and only a little dividend income, but you retain total control.

And what I really like that, and when it comes time to take money out for education, it’s going to come out at the favorable long-term capital gains rate, and that’s not a very high tax for most people.

But I really liked the idea that you don’t have to spend the money on education. Maybe the child gets a full ride to Harvard. Or maybe they decide they don’t want to go to college. Or maybe you decide you want to help them buy a car. Or maybe, they get out of college, they get married, they start a career, and they start family. They want to buy a house, and you’d like to help with the down payment. None of that works with the College 529 savings plan.

I’ve become increasingly skeptical of them. If you are a saver, and you clearly are, you wouldn’t be asking the question. I’d lean toward opening. It’s nice to separate the account, because you can keep track of it. You can have other relatives put money in it, but I like the second option a bit better. Thanks for the question.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. It’s time for me to take a break. I’ll be right back.

[KUT] [00:15:17] 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] [00:15:53] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

[Carl]  [00:16:06] Now welcome back. I’ve got to tell you that music, Money Talk, I’ve just, I got this written down here. Money Talk’s theme, which is music for fedora-wearing dudes, was written, performed and produced by KUT’s Music for Fedora-Wearing Dudes Band. Thank you very much.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888.

Patrick, you’re on the air, how may I help?

[Patrick] [00:16:41] Hello, yes. My name is Patrick. I have my 401k, I have my Roth IRA, and some advisors are suggesting that I take a look at how I can do some investing with my HSA. And I have no idea how, what the advantages are with using an HSA for investment purposes.

[Carl]  [00:17:03] Great question.

So what Patrick is talking about is the health savings account, which allows you to put up to a certain amount of money. And if you don’t take it out, you don t pay any taxes. If it grows, interest, dividends, or whatever, you do not pay any tax. And if you take it up, say for the deductible portion of your health insurance, you don’t pay taxes bringing it out. So it’s a good deal. The limits are fairly low, given what health care costs are, so I think they’re a good deal.

Now, do I think investing the money is a good deal? I’m not so sure. Here’s why.

Your 401k is aimed at retirement, your Roth IRA is aimed in retirement, and you want to have exposure to risk because you want that money to grow faster than inflation, hopefully with an acceptable level of risk. But I think the Health Savings Account… You know, I need to know the money’s there. You know if I have a big medical bill and the stock market’s down 20%, that’s not a good look. And so my personal view is I would stay very conservative with it. I would look to invest for growth in those other spots that you have, but I would not be inclined to do it in an HSA. Thanks for the question.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512. 921-5888. Here’s another call.

Mark, you’re on the air. How may I help?

[Mark] [00:18:41] Hi, Carl. Yeah, I have a question. Love your show, by the way.

[Carl]  Thank you.

[Mark] This question is unlike any that I’ve ever heard on your show. We’re in a, we’re in, uh, a bad position financially. I just turned 61 and, uh. We’ve just been through the ringer and lost all of our, uh investments, 401ks, Roths, real estate, everything’s gone. So, I’m going to start over.

[Carl] Yeah,

[Mark] and I— What.. what would you do because I’m kind of I’m—  I’m kinda hanging in the wind here, and I have no idea if I really just want to find out what if anything I can do to someday maybe not have to work until I die.

[Carl]  [00:19:24] So first of all, I’m sorry to hear this.

[Mark] Thank you

[Carl] The first thing you’re going to do is start to keep a very accurate list of your expenses. What will happen in our consumer-oriented society is it’s easy to put it on plastic or whatever the case may be. But if you can get a real understanding of what your monthly, and semi-annual, and annual expenses are, because obviously you don’t pay car insurance every month, but what your expenses are. And you know what your revenues are, your income, okay.

So you have to have a, you look at yourself as a business. A business needs to know what their revenues are and what their expenses are and whether or not they have a profit. Okay, then you take that profit, if you will, you take the extra cash, and you think about starting over as a pyramid.

You have to have the base of the pyramid where you’ve just been through some terrible experiences and you recognize how uncertain life can be. And so you wanna have in that pyramid money that you can get to on a daily basis that will pay you interest, but when you need the money, you don’t have to worry about it being down 20%.

And in today’s world, the best place to start. Is to open up a money market account. Not a money-market account at your bank, but a moneymarket fund, F-U-N-D. It’s a mutual fund. You can go look, do your shopping online at Schwab and Fidelity and people like that. They have moneymarket funds. They have low minimums. You put the money in there.

Right now you’re making about 4% or more, and that’s your base of your pyramid. For most people I would say— what I don’t care for most people is there’s this some kind of rule that’s out there that you’d have six months of expenses and savings. That’s a bad idea for you because you’re, as you know, you’re way behind the curve here and if you had six months there that’s money that’s not growing for you.

So put aside some money for an unexpected emergency.

The next thing you have to think about is we’re just coming out of bankruptcy. Do we see in the next two years? Significant expenditures are we going to have to purchase a new automobile or something like that. That’s money that you that you can afford a little risk in uh, but not the risk of the stock market that would be something that you would have. I’m going to use a lot of jargon here it’s- it’s an intermediate term bond funded intermediate core bond fund this is a bond that invest in investment-grade bonds, not speculative bonds. It’ll pay between four and 5% dividend yield. You’d reinvest the dividends.

Eventually interest rates are gonna come down in this country and when they do, those bonds are gonna go up a bit and you could be getting a total return today and they’re up a couple of percent and the yield’s about 4% so there’s a total of about a 6% total return.

Then as you move up the pyramid, if you ever wanna retire, there’s where you have to learn to take some risks. Because you’re not gonna retire if you don’t grow the money faster than inflation.

That money market fund will not grow faster than inflation, the bond fund will not grow fast than inflation, which means you’re gonna have to stick your toe in the water and own risk. And the best way to do that is to get a broad-based U.S. Stock index fund, either the total stock market or the S&P 500.

The good news out of all this bad news. Mark is that you’re going to start slow, you don’t have a lot of money, and when you get to this part of the pyramid, you’re gonna put money in every pay period or whatever works for you in small amounts.
The stock market is gonna go up some years, it’s gonna go down some years. Nobody knows when, but over time, the general direction is clearly up, about two out of three years, and what will happen is in those down years, that money will buy more shares and lower your average cost. In the up years, you’ll have to buy fewer shares.

And that’s where I have to start. A cash place for savings, a money market mutual fund, they have different names, prime, government, and treasury. I recommend the government money market fund. And then an intermediate bond fund, you can use an index fund.

I don’t make recommendations on Money Talk, because I don’ know your situation enough and I’ve got what’s called fiduciary responsibility and I can’t exercise that over the radio. But an intermediate term bond fund. And then ultimately a stock index fund, the S&P 500 or a total stock market.

That’s the order in which I would be in if I were in your shoes, Mark.

[Mark] [00:24:13] Thank you so much Carl, I sure appreciate your help.

[Carl]  [00:24:16] Okay, you’re very welcome, good luck.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Well, you’ve been hearing the noises going off, so let’s just see here to the text.

[Text] Carl, I’m a school teacher just trying to begin navigating my finances more intentionally, and I have no idea where to start. I don’t speak the language. And work 10 to 12 hour days. My goal is to use my summer studying and portioning out what little you can from the paycheck. Please help.

Well, first of all, thank you for being a teacher. I gotta tell ya, the older I get, the more I admire teachers. A good teacher can change a person’s life. And I just wanna salute you and all of our teachers out there.

Ms. Kurth, in second grade, kicked my butt and taught me to read. And I forever am in her debt. And Mr. Reynolds in 11th grade kicked my butt, you might imagine, I was not the most, shall we say, pliant student, and taught me how to write and how to think critically. I owed them an amazing amount of debt. And you’re doing that. So what you’re really doing really, really matters.

Now, let’s get to my answer. I just needed to say that. Your goal is to use your sum you’re studying and portioning out what little you can from your paycheck. Now this gets to the answer that I just gave with Mark.

The beauty of this today is, you don’t have to be a financial guru to get started. And because you’re starting with a small amount of money, and because you are an educated person, I would go to the websites of the big do-it-yourself broker dealers, like Charles Schwab and Vanguard, excuse me, and Fidelity. They all have index funds, stock funds.

Because the thing about being a teacher is, if you spend your career in that, you’re likely part of the teacher’s retirement system of Texas. And that’s gonna be a wonderful thing cuz that’s guaranteed income.

You may not have social security, some school districts participate in Texas, some do not. But the risk to the pension person is that you don’t know how long you’re gonna live and you don’ know what’s gonna happen to the cost of living. But the odds are that the cost to living is gonna go up. And you can’t make, you can call TRS and say, I’m running a little short this month, can you increase my pension state, pension payment?

So you need to invest for risk, because that pension is gonna be like a giant bond fund. You can’t sell it, but you don’t have to worry about it. You don’t to worry the economy, you don’ have to to worry to the stock market. You’re gonna get that monthly check.

What you need do is build up a separate pillar of risk assets that grow over time, because eventually when you retire, and you get that pension and it begins to be not quite enough to meet your income needs, you can sell small portions of that other pool of money, I might add a low long-term capital gains tax rate, and build over there.

So start with a domestic stock fund, probably what’s called a total stock market fund, and then add a total international fund. These are dirt cheap. They can cost as little as three basis points, 0.3 that’s 0.03 percent So it’s birch and they don’t generate tax liabilities other than for dividends. That’s where you ought to start.

Set up an audit, what’s called an ACH. It’s an automatic comes from your checking account to the investment account and get started and do it on a regular basis.

Do not pay attention to the financial news. Don’t look at the statement because you’re doing this for your long-term financial independence. Thanks for your text.

You’re listening to Money Talk on KUT News 90.5. And on the KUT app. Call or text 512-921-5888. Oh, and by the way, you can listen to fut–  ha, you can’t listen to future ones. Ha! But you can also listen to past KUT money talk shows at kut.org slash money talk. 512 921-5888. Okay, let’s just keep going here.

[Text] Hi Carl, I’m interested, let’s see. Oh, thanks Carl about my 529 question. You are the best.

Well, thank you. Okay, let see. I got a lot of them here, I’m just trying to do them in order.

[Text] Is now a bad time to invest?

The answer is no. Here’s the thing. Investing is a long-term process. You put money in investments for a minimum of three to five years. If you’re gonna need this money six months from now, now’s a bad to invest, always a bad a time to investment. Because I have no idea what’s gonna happen in the economy over the next six months.

I don’t know what’s going to happen to tariffs. I don’t know what’s gonna happen to interest rates. What I do know is that over the next three to five years, I’m willing to bet on human ingenuity, whether it’s inside or outside the United States.

So it’s a terrific time to invest. If you have a large sum of money, do not invest a dollar at once. Put it out on a monthly basis for three to six months. The odds are during that period of time, we’re gonna have some down months and you’re gonna be buying more shares. If you’re just getting started and you don’t have a large sum, then do what I’ve just talked about with Mark and also with the person who texted me, set up a regular withdrawal into those funds. That’s why it’s a good time to invest. If you play by the rules and you broadly diversify, it’s good time invest.

You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 here we go we’ve got another one Marianne you’re on the air how may I help

[Marianne] [00:30:24] hi carl i think that i had would like a little information on track for those of us who are older and have finances that need to be protected and uh… Yes so far would you like give a little uh… Sure information to all of us who might be that same category

[Carl]  [00:30:41] So they’re different trusts for different purposes. So I’m gonna talk about one that an older person might consider as part of her estate plan.

If you have people to whom you want to leave assets, and let’s just say, you may pass away and they may be 19 years old, and you want them to get the assets, but you don’t want them get it. At that age, you set up what’s called a revocable trust, a testamentary trust actually, because it goes into effect through your will and testament, and you say who the trustee is, and you explain who the beneficiary is, and you can even identify if it’s for education purposes and whatever’s left over when they’re 25, I’m making this up, it’s their money. That’s a very common thing to do. What happens is, you live a long time. They’re over 25 years of age, and by the time the money’s available, they can go ahead and get it. That’s one kind of trust.

Then there’s also the kind of Trust where you put the money in and take it out of your estate. This is a much more significant thing. This is called a living trust. And the idea is that when you put assets in a living Trust and you die, they are not part of your Estate and therefore they’re not subject to probate. Probate in Texas, and I’m just basing this on talking with lawyers over the years. For the average person, avoiding probate may not be a big deal. Going through probate, may not a big a deal. You can take your securities accounts at Vanguard or Schwab or Merrill Lynch or UBS, and you can put Marianne TOD, transfer on death. And that account can go directly to that other person who doesn’t pass through probates.

Also, we have something in Texas called independent administration, which assumes that the person handling your estate is honest and gonna do the right thing. They’re gonna go to the probate court. It’s gonna be a relatively inexpensive thing. And if you’ve done a good job of leaving everything so that this person knows where your assets are, they can then distribute it pursuant to what your wishes are and the will. Now, if you have a large estate or you’re concerned that maybe someone would take advantage of the beneficiary and you want to keep it out of probate, you can do a living trust because then, when you pass away the assets in the living trust, go percent the way you want and it’s not subject to probate.

Any other kinds of trust would be very unique, a special needs trust, because you have a beneficiary. Let’s say this person has a lifelong condition, like say Down syndrome, where you want leave money to take care of them the rest of their lives. I actually had a friend who died in her 90s, and she had some grand nieces and nephews that she wanted to be sure got a college education. And it was a regular trust like the first one I told you about because she identified a corporate trustee. We invested the money and went on down the road. So those are three examples of trusts, Marianne.

[Marianne] [00:33:53] Well, thank you. I appreciate you going over that and the sooner you get it in order, the better it sounds like.

[Carl]  [00:34:02] Yeah, sure is the case. And thanks, you’re a long-time listener and thanks for following me to KUT.

[Marianne] [00:34:08] Oh, I’m glad you’re there, thank you.

[Carl]  [00:34:11] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. It’s time for me to take a break. A great time for you to call or text 512-921-5888.

[KUT] [00:34:32] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

[Carl]  [00:34:46] Welcome back to Money Talk, I’m Carl Stewart and you’re listening to KUT News 90.5 and on the KUT app. And oh, by the way, if you’d like to listen to this broadcast again or previous KUT broadcast, you can go to kut.org slash money talk. Here is a text.

[Text] Carl, my wife and I are retired at 74 years old. And between the pension and social security, our expenses are covered. Besides this, I have about $3 million in liquid funds. I’m thinking of that $3 million, I should $1 million in possibility of convalescent care for one of us, which would mean very conservative like T-bills. And the second person requires convalescent Social Security and pension would cover that. And that leaves $2 million that should be invested kind of aggressively from my heirs. What do you think?

And by the way, he says it was nice to hear your voice again. And then he said, by the, my net worth got there because I manage my expenses, minimal cell phone, minimal web connection, practically nothing like no Netflix, cars held at least 10 years.

Why that’s practically un-American. Congratulations. So, first of all, I mean that, congratulations, good for you. So, I think, well first of it’s a terrific question.

The odds of, based on my reading, the odds of both of you going into a convalescent home are extremely low, and the odds one of you are going into a convalescent and being there for a really long time frankly are really low too.

Nobody gets up in the morning and says, I can’t wait to go a convalescent home. Now I understand that things like dementia, my mother had Alzheimer’s for many, many years. So, I understand what I’m just saying. I’m looking at the kind of the statistics. And the other thing is you’re in a position to be what I consider a legacy investor. And that is you have done such a good job of saving and investing. That the odds of you spending these three million dollars are extremely low.

And so I tell this story, and longtime listeners will know this.

Many years ago, I had a client, his name was Lou, and he was in his 90s and he had 60% of his money or 65% in stocks. And I said, Lou, you know, all the textbooks say you ought to have your age in bonds. And he looked at me and he said, Carl, I’m not gonna spend all this money. I can’t, I’ll never gonna spend all this money. And so, I’m really investing from my grandkids and ultimately my great-grandchildren. And he looked at me and he smiled and he said, I’m a long-term investor. And he died when he was 102.

So, my point is, you’re a legacy investor. You’re in a position to make a really significant difference, whether that’s to family members or to your church or synagogue or mosque or your alma mater or some social service agency. So, I think that $2 million… Should be invested, it’s your endowment. You can get your hands on it if you need it, but it’s really your endowment.

And if you think about how endowments are invested, and I happen to be on a Big Ten investment committee for an endowment, we invested in a balanced portfolio of growth assets and some conservative assets. I think that’s what you oughta do. I think you ought to have a balanced portfolio, I like, for example, 55% in global equities. I’d have maybe six or seven or eight percent, say seven percent in gold. I’d 20% at least in bonds. Of the equities, I’d at least 25% internationally. I’d some things that didn’t correlate with stocks and bonds. I’m getting down to the weeds here. But I really think that what you want to accomplish, which is one in the endowment and pension fund once, is you want the money to grow, but you want it to do it with an acceptable level of risk.

The fancy term is a risk adjusted return that you’re trying to get. And that’s how you want to handle that $2 million. On the million dollars, yes, you can do T-bills. Nothing wrong with that. And you will go up and down with short-term rates. That’s fine.

But I would say you might want to take at least $500,000 of that million and extend your maturity. I like three different kinds of bond funds. I’m using Morningstar categories here. I like the Ultra Short Fund. And then I like The Core Fund. And then, I like Multi-Sector Fund. And the reason is, they will have different performance characteristics, depending on what’s going on in the bond market.

And so, for example, today, the Ultra Short has had a year-to-date return to 1.4%, but it has a 5% drilling 12-month yield. The Core, you can either do passively with something like AJG or BND, or you can do active management. That’s up about 2.25% with about a 4% dividend yield. And then the multi-sector, which can go anywhere, is up about 2.8% but has about a 6% trailing 12-month yield. I think doing $500,000 in there, you have daily liquidity if you need it for the convalescent home.

I think your returns over the next three to five years will be far superior in that balanced portfolio than they will be in treasury bills. So, I would give that some consideration if I were in your shoes. Thanks for the text.

You’re listening to Money Talk. On KUT News 90.5 and on the KUT app, call or text 512-921-5888. Gay, you’re on the air. How may I help? Gay, you’re on the air. Gay, say you’re husband and have a child. I’m just sitting here, hold on, that’s my mistake, Gay. I apologize. Let’s just see. Gay, I’m sorry. I’m looking here and I don’t see how I’m, there you are. Gay, can you hear me now? Let’s try this again. Gay, you’re on the air. Can you hear? Okay, I just gonna answer your question. I’m so sorry, I got it on the, hit the box here and I’m not getting it. It may just be user error.

My husband and I have one child. We’re 80 and 82. We don’t have a trust, but he’s an only child. And I think you have hung up. Thank you, Mark. Mark, the producer, said you may have hung up– and he’s an only child. So I’m not sure what your question was about what to do. So I just gonna, I’m gonna try to answer that because it just, I don’t think that’s something I should do because I don’ know what your thrust was.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Okay…

[Text] Carl, you mentioned to a caller to start up a total stock market fund. What was the other fund?

It was an international total market as well. So the total stock is the total U.S. Stock market. I think it’s 3,000 companies. I’m not positive on that. And then the total international. They give you that broad diversification. They’re tax efficient and cheap and then you can decide whether or not. You would like to add some active management to that. So that’s what I was talking about. Thanks for the question.

You’re listening to Money Talk on KUT News 90.5 and on the KUT app, call or text by 512-921-5888.

[Text] Is this Money Talk?

It certainly is.

[Text] Any financial advice for a 65-year-old woman whose husband left her a year ago, Works full-time, has a mortgage, $10,000 in savings. And $5,000 in a 403B. Yeah, I think, first of all, I’m sorry you’re going through this.

–Oh, and oh, Gay is back. I’m gonna go get her right now. Gay, you’re on the air. How may I help?

[Gay] [00:43:03] Have been told by many of my friends that we should have a trust but we have my husband’s 82 I’m about to turn 80 we have one child who’s not a child 41

[Carl] [00:43:16] right

[Gay] [00:43:16] He’s financially fine. We have wills, we have a million dollars in investments, we have money coming in every month. We had a transfer upon death on the house. We have set it up so our cars will go directly to him upon our death. Yes. I don’t know, we both have will. Yes. What are we missing that would cause us to need to have a trust.

[Carl]  [00:43:45] You’re not missing anything. You’ve done a terrific job. You’ve raised a person, an adult, who’s financially fine. You’ve got your house to transfer on death. Your million dollars in investments. Are those investment counts transfer on death as well, Gay?

[Gay] [00:44:03] Yes, everything goes to him.

[Carl]  [00:44:05] That’s terrific.

[Gay] [00:44:07] There’s no need for a bank account to set up so that he gets them when we’re

[Carl]  [00:44:12] Yes, you are really set up perfectly, beautifully. You do not need a trust and don’t let anybody talk you into it. Especially, there are some people out there saying, oh my goodness, my goodness. You got to have a living trust to avoid probate. That’s baloney. It depends on your situation. So, you and your husband have done a terrific job. Congratulations.

[Gay] [00:44:35] Will there be much probate to do?

[Carl]  [00:44:38] No, there won’t be because you’ve done transfer and death. You’ve got a really clean situation. You’ve done a terrific job. And the next time that someone says, now Gay, you need to have a trust, you say, well, we talked to this fellow on the radio and he said, we’re doing great.

[Gay] [00:44:53] Well i think thank you i think that you know i get concerned but i know some of my friends their situations are different there have been that there’s marriages that have caused children on both sides of the only

[Carl]  [00:45:05] That can be, yeah.

[Gay] [00:45:07] We don’t have, we don’t HAVE that.

[Carl]  [00:45:09] Yeah, that’s good. No, if you have a marriage where you’ve got kids from two different starting points, that can be really complicated, but you’re in great shape. Just keep doing what you’re doing, okay?

[Gay] [00:45:20] We will, we will. Thank you so much, I appreciate it.

[Carl]  [00:45:22] You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Let’s see, what time is it? Yeah, you have a chance. If you call now 512-921-5888. Harsha, you’re on the air. How may I help?

[Harsha] [00:45:47] Hello, um, hey, can you hear me?

[Carl]  [00:45:48] Yes, I can. Please go ahead.

[Harsha] [00:45:51] Hey Kyle, thank you. We just moved to Austin, Texas from Canada and I was just wondering what’s the best options that we have for saving for a college for our son who’s going into 8th grade and what’s available locally, what’s available federally and what should we watch out for? Thank you.

[Carl]  [00:46:17] Shoot, you bet. So there’s two, I have two answers.

You can do a college savings plan called a 529 or 529 college savings plans. And if you do that, the benefits of that are you set it up, your son’s a beneficiary, and you are the owner of it, and you go to the state plan that you like and they give you a choice, some choices for investments. You put money in, if it grows, you pay no income tax on it. And when you bring it out for educational purposes, there’s no taxes. That’s fine.

However, I will tell you that I’ve become some, I’ve became skeptical of those because I like, if you just went and opened a mutual fund account at Vanguard or Schwab or Fidelity or with your financial advisor and just started putting money in there, you could even call it the, you could call it The College Savings Account. You can call it whatever the heck you want to.

But you have the much, much broader sense of investment options, and you can take the money for non-college purposes, or let’s say that your son goes off and gets a scholarship and graduates college, and he doesn’t need all that money, it’s your money. And if you wanna help him get a down payment for a home or buy an automobile, you can do that. The 529 College Savings Plan does not allow you to do that. It is for, they call it college savings plan, but it’s actually, you can use it for high school as well, independent schools or whatever the case may be.

I tend to favor just opening a regular account, you can call it the harsh education account, and putting money in there regularly. I think that’s what I would do, having done this now for about 46 years, and watched the college savings plans, the 529 plans. There’s nothing wrong with them. I just like this other. Others approach and if you buy index funds you don’t have any capital gains to worry about and when you sell it you pay a lower long-term capital gains tax so that would be the way that i would go if i were in your shoes

[Harsha] [00:48:24] I’m sorry, Carl, this is very helpful. Why would I pay a lower capital gain if I just went with…

[Carl]  [00:48:32] If you did own, you’d pay a long-term capital gain when you sold it, which is at a much lower tax rate than an income tax rate.

[Harsha] [00:48:41] Only if I have retired or something like that.

[Carl]  [00:48:44] Well, besides, you only pay tax on the gain and you don’t pay income tax, you pay a long-term capital gains tax. So it’s a pretty efficient way to accomplish your objective, in my opinion.

[Harscha] [00:48:58] Thank you so much, thank you.

[Carl]  [00:49:00] You bet, you bet. I’m gonna take this real quick. Chad, you’re on the air. We got a couple of minutes. How may I help?

[Chad] [00:49:08] Okay, thank you. I have, I’m 65. I had roughly $300,000 in a retirement account and I’m still working, working maybe two or three years more, maybe more. So I have that with a financial advisor and who manages it actively, but he charges 1%. I don’t know if that’s high.

[Carl]  [00:49:32] No, I can answer your question in the short time that we have. So what you’ve got is an advisor who charges an advisory fee. The benefits of that is that she or he gets no commissions when they do the trades. They have what’s called a fiduciary responsibility to act on your behalf. And it gives them the widest range of assets to choose from.

I really like that model better than the transaction based or commission based. If this person is a person of integrity and intelligence and experience, then they’re compensated. That’s a very much of an industry standard. And at $300,000, 1% is right at the market. You are not paying above the market, if you told me you were paying 2.5%, I would say that you were playing too much. But 1% on $300 thousand in today’s world is a perfectly reasonable fee to pay, Chad.

[Chad] [00:50:29] All right, I appreciate that. Thank you.

[Carl]  [00:50:31] You bet. Thanks for calling. Well, to wrap up the show, I want to thank Mark for doing a great job. I want thank you for listening and to remind you that next Saturday after the news at five, be sure and tune in to Money Talk.

[KUT] [00:50:45] 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.

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