Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on tech layoffs, market uncertainty, IPO warnings, and market corrections.

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 [00:00:02] This is Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:21] Welcome to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. If you’re a first-time listener, welcome. If not, welcome back. Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda. Now in our 32nd year together, the number to call or text is 512-921-5888. I always take today’s calls first. And then today’s text, you’ll hear those coming in, and then text that I haven’t had a chance to answer or answer fully in the past. So it’s a great idea to call or text at the beginning of the hour, making sure that I will have ample time to answer your question. 512-921-5888. Here’s one that I would just look for, it just came in. Okay. I’m 52 turning 53 soon I have 1.1 million dollars in the 401k, 1.2 million in a fully invested company restricted stock units, 1 point 1 million in Schwab brokerage, close to 95 percent on top tech stocks. Five percent of it is in, it gives three different ETFs. I have been stupid about investing, have been sitting on about $800,000 or close to that for many years in cash. Just sitting in a checking account. Part of it in CDs is safety due to job not being very secure. I’ve recently been let go from senior leadership role in tech. So Severance will bring cash reserves further close to $1 million. Monthly spend, my part, is approximately $3,500 per month. That includes mortgage payments towards a $400,000 balance, which my wife and I jointly pay into. How to invest the cash reserves. I want to stop being stupid about keeping dead cash for safety like I did so far. ETS, dollar cost averaging, I want, let me see here, I wanted to be average risk better than average return. Do I do it myself or get an advisor? How much cash to keep aside considering I’m between jobs? My wife’s 401k is separate, our son is grown up and gone working in tech. Thanks for the advice. Okay, that’s a long question. So let me go through parts of it. First of all, you’ve had a great run being in tech for the last three and a half years, in spite of what happened this past week. And it’s an industry that you know a lot about and you’ve been in a senior position. So I understand that. Having said that, I think that one of the things that immediately stands out for me. Is that you said you have close to 95% in top tech stocks. And that scares me. I recognize that when it works, it’s fantastic. I’ve seen this happen in biotech in the 90s. I saw it happen with energy in the 80s. But it generally comes back to get you, just like it did. With what we now call the dot com bus, but it wasn’t really just about dot coms, it was about technology in general. And so I would tell you that I would diversify some of that away from tech into other parts of the stock market, other industries. Also, I’m unaware if you have any international exposure, and I’m a big fan of having a solid allocation to international, something along the lines of 25%. International stocks as a group based on historic fundamentals and valuations are cheaper than US stocks and and I think also they will benefit in an overall weakening and the dollar which should happen over time given our federal fiscal situation so I would think you want to include international as it Guards your cash, yes, other than keeping some money. While you look for another position and you know more about that than I do, it is good to invest. I would dollar cost average if I were in your shoes. And when you think about whether or not you’re going to use exchange traded funds or mutual funds, I would not use individual stocks personally. I think there’s a couple of things you can do. You can go totally passive with ETFs that are just following a particular benchmark. Nothing wrong with that. They tend to be very tax efficient. Though that doesn’t matter in your retirement accounts, but they’re also very inexpensive. But I’ve also observed that there are, in the equity market, there are active managers who can either do better than their benchmark when times are good, or do better by not going down other benchmarks when times are bad. I like to have a bit of that in the equity portfolio. And I think as it regards taking, you might want to consider moving out into a short-term investment-grade bond fund, and maybe even doing the three bond funds for some downside protection to your overweight in equities. With the categories I like are short-term, core, or intermediate-term and multi-sector, and then the question you ask about doing this yourself or about having an advisor. I really think that’s a really important conversation to have, and you’ve accumulated a sizable amount of resources. Congratulations. And the question I would ask myself is, do I enjoy doing this myself? Do I have the time and the interest and the desire to do this? Because that is the first question. Some people are just by their very nature do-it-yourselfers across the board in everything they do. I said this last week, from mowing their own yard to doing their own investments. Others would like to have a sense of control over certain aspects of their lives, but they don’t want to do their own taxes, for example, so they engage a CPA. That’s the first one. If you decide that you wanna shop around, I would recommend that you look for people who are registered investment advisors who work on a percentage of your assets rather than on a transaction basis, who are legally fiduciaries under either the state or the Securities Exchange Commission and have to put your interest before theirs. And we have lots of those in central Texas. Going face to face makes a lot of sense. You’ve had experience, you’ve been an executive, you know. How to interact with people, have a face-to-face experience with those people and see how that works. So I hope that was helpful. Thanks for the long text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Text just came in. You heard that. Regarding foreign developed market stocks or bond funds. What are your thoughts about buying those that do not hedge against currency rates? This would be a bet that long-term U.S. Dollar would get weaker. I agree with you. I. Prefer international, let me back up a bit. When we talk about categories of funds, we wanna be careful that we understand the distinction between international and global. In the financial markets, international stock funds or ETFs only own companies headquartered outside the United States. They may do a lot of business here, but headquarter outside the Unites States. The term global funds on the other hand, can own stocks both inside and outside the United States. I prefer the international because I have more of a pure play there. I happen to think that over the next few years the odds are that the dollar will weaken versus other currencies and if that’s your view as well then you would not want to have a manager hedge out the currency risk because you want the currency risks because if the dollar does decline you get an extra tailwind on the returns when you do that. Now, international bond funds, I’ve never… Really own those. I like bonds for total return and I guess I’m just not thrilled with the currency component on bonds so I would not personally do that if you’re going to take some work on your part if that’s what you want to do. I think on the international side you can start with a core of a broadly based international index. Those are available in exchange traded funds, very, very inexpensive, maybe 5 to 10 basis points, 0.5 to 0.10 expense ratios. And then you can put around that, if you will, called the satellite and core, some people call it, where you could have smaller allocations to funds that have different return characteristics. I mentioned this a minute ago. I’m familiar with international funds that tend to be more defensive and do better and bear markets than the indexes. Well as those who are more concentrated on take bigger bets on the upside. I like those as well but those in much smaller pieces. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here comes a call. Lawrence, you’re on the air, how may I help?

Lawrence [00:10:36] Well thank you so much paul on seven seventy years young i’ve got basically two portfolios one portfolio has managed by professional broker in that portfolio uh… Inconsistent and i think i present equities of this person bonds the other one which i meant myself uh… Consist of about ninety eight percent equity Now, making money in the market, long-term is very important to value, I don’t want to lose money, but in your opinion, what proportion of a portfolio should consist of bonds and is there any, like, fixed rule to that?

Carl Stuart [00:11:16] Sure. So I think the best way to think about it is to look for bond funds in three different categories. The short term, the core or intermediate and the multi-sector. And then you want to go back to 2022, which was a very bad year for the bond market. The Bloomberg Ag was down between 13 and 14 percent and see how those funds did when bonds went down first and foremost. Secondly, I would take time and look at other strategies. I’m just gonna give you the Morningstar categories that are deliver bond-like returns but are not correlated positively to bonds. One of those is called event-driven. That’s a category that when the bond market was down to 2022, it was down about 1% versus 13. So that’s terrific outperformance. And there’s also another category called market neutral. That’s a category that attempts to deliver positive returns regardless of whether the equity market is rising or falling. I like that very much. So I would say, and then I’ll get to your question. The way I think about it is to stress test your portfolio. Take your portfolio and say, okay, if the portfolio drops 20% and Bonds are flat. Let’s just, we’re getting really conservative here now. They don’t go up, they’re flat. What’s that gonna look like, both from a percentage point in the portfolio and a dollar? So let’s say I’ve got a million dollars and I’m 80% in equities and 20% in these other strategies. Bonds, event-driven, market-neutral, they all are flat and 80% goes down 20%. The portfolio’s down 16. Is 80% of 20%, 16%. So you can test it with downdrafts of 20, 25, 30, 35%. That tells you what is likely to happen to your portfolio. And then you can ask yourself honestly, does this really fit my risk tolerance? Can I take, if I’ve got a million dollars, can I take $160,000 hit because I’ve 80% in equities? If the answer is yes, because I am a long-term investor, then your 80% is okay. Knock it down 500 basis points, what about a 75% portfolio, and I beg your pardon, 80% portfolio with a 25% decline or a 30% decline, you begin to get a sense of what it would look like when the inevitable bear market occurs and then you can fit in those non-correlating assets to get to the amount that seems reasonable to you while you still retain a long-term commitment to equities. And that’s what I would do if I were in your shoes.

Lawrence [00:14:17] Carl, fast question. I just wonder, are there certain kinds of bonds to hold in the up market and certain kinds to hold on the down market or is it all neutral?

Carl Stuart [00:14:29] I would say that if you thought that interest rates were going to go down, you’d make a call on buying longer-term bonds. I don’t do that. If you thought the economy was going to really be robust, you could add high-yield bonds. They have a very high correlation to the stock market. But the purpose in buying bonds, in my view, is to reduce and tamp down risk, not to increase risk. So. I don’t own high-yield bond funds as a result of that, and that’s how I would think about that.

Lawrence [00:15:04] Thank you. Thank you so much

Carl Stuart [00:15:06] You’re welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available. You may call or text 512-921-5888. Okay, let’s see here. Another text from last week. Carl, I’m a 68-year-old male, combined with my wife’s savings. We have a net worth of around $200 million, not $200, $2 million, which includes cash, investments, and real estate. My wife is eight years younger than I am, and we were looking at a, just a second, working here on my phone here. Bear with me, bear with me. Mm-hmm. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Well, I struggle here with my, here, we’ll just go, let’s do this. Sorry to keep, here we go. My wife is eight years younger than I am, and we were looking at a long term care policy for myself. If I have several medical, I have several medical conditions which have made it difficult to get approved for a policy. Can you give some advice about the need for a long-term care policy for an individual in this general situation? Yeah, I can. This is a really, really difficult question. So for everybody else, long- term care insurance is expensive. Back, I remember when the long-terms care policy business really came about, and the premiums were very reasonable, and it looked for a lot of people like a pretty good thing. Then what happened was the insurance companies realized that they didn’t know how to calculate the risk. Life insurance, they know how many people are gonna die this year. They know them by gender, they just don’t know them by name. But long-term care, they didn’t know how many people are gonna access it, how long are they gonna access, and what’s gonna be the inflation rate in long- term care. And as a result, I remember Connecticut General said, we’re not gonna do this anymore, they quit offering it. Jenworth which was a subsidiary of General Electric said nope too much risk for us and as a result the remaining players If you will in the long-term care business Ranked what they do they did two things because they’re a business They raised the rates and they diminish or limited the benefits now I would say to you that if you if you have the ability to self-insure then The benefit of that is if you don’t need it, you’ve still got your capital, right? If you have enough money that you could take 4% a year from the previous year value, and that would be enough for long-term care, then there you have it. You probably would be better not doing it. Secondly, given how expensive it is, you may not be able to get it because of your medical conditions, or it may just be really, really onerous. And I would tell you, and I’m not an expert on this, that just based on my reading, generally the long-term care claim is for a relatively short period of time that people use it before sadly they pass away. So this is not a simple or easy thing to do because I’ve left out one really important factor, which is the psychological factor. Some people have long-terms care, not because frankly they need it from a financial planning standpoint. It just helps them sleep nights and I get that as well. So thanks for your question. You’re listening to Money Talk. It’s time for me to take a break and a great time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:19:08] 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 [00:19:43] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:57] Welcome back. You’re listening to Money Talk. I’m Carl Stuart. We’re here on KUT News 90.5 and the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. Here is a call. John, you’re on the air. How may I help?

John [00:20:20] Hello, Carl. Thank you for taking my question. You bet. I would like to hear your thoughts, an opportunity for you to bloviate on the virtues or non-virtues of IPOs. We have a few of them coming up soon, big ones. Yeah.

Carl Stuart [00:20:38] Big ones, very big ones.

John [00:20:40] And they’re in the news and people are, anyway, what are your thoughts? Yeah, so…

Carl Stuart [00:20:48] And of course, I have no idea how Anthropic’s going to do or SpaceX or OpenAI, which of the three you’re talking about. But I will tell you what my experience is. I have learned to avoid initial public offerings. Typically, what happens is, if you’re, let’s say, you’re one of the underwriters. You’re Morgan Stanley. The people who are going to get the stock at the offering price are going to be the best customers of Morgan Stanley, and that’s. Not bad, that’s just business. So if you’re a large institution or you generate a lot of fees from Morgan Stanley, guess what? Those are the people that are going to get the stock. My experience is when John Q. Public could get the stop at the initial public offering, you don’t want it because it means that they quote smart money passed on it. They didn’t want. Secondly, there’s a fairly good set of historical data. That on these hot deals like SpaceX, these hot deal which open and then go up after the opening. So now the price that the individual would be paying would be that higher price because he couldn’t get the initial shares. That a year later, the vast majority of the time, that’s been a losing strategy. So personally, I avoid them. I think the ones you’d like to get, you cannot get, and the ones that you can get, you don’t want. So if I were the average investor listening to Money Talk, I would run as fast as I could in the other direction.

John [00:22:22] Yeah, I just read something about Apple whenever it went public 40, 50 years ago, whatever, it was $22 a share, but it didn’t turn a profit for 20 years.

Carl Stuart [00:22:33] Yeah, there you are. Yeah, I mean, I remember when Dell went public, the stock went way down. They got stuck with this before they changed their just-in-time manufacturing strategy to that strategy, and they had a bunch of chips, and then Intel came out with a new generation, and they were stuck with chips and weren’t worth very much. So you’re exactly right. That’s a good point to stay away from, in my view, John.

John [00:22:59] Yeah. All right. Well, thank you.

Carl Stuart [00:23:00] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. And I forget to do this and I shouldn’t. You can catch past shows at kut.org slash money talk. It’s a great way to go if you want to. What did Carl say about this? Or perhaps you’ve got a friend, a spouse, a colleague who you think would enjoy the broadcast. Tell them to go to kut dot org slash money Talk. 5-1-2 nine two one five eight eight eight here comes a call michael you’re on the air hi i’m how may i help uh… Well yes

Michael [00:23:42] I somewhat unintentionally ended up with $150,000 in a high-yield savings account.

Carl Stuart [00:23:49] Mm-hmm.

Michael [00:23:50] And I’m wondering, I mean, I have heard that the market is overvalued and that we’re due for a correction and I’m just wondering your thoughts on waiting to invest that or how I should go about that. Yeah. Well,

Carl Stuart [00:24:04] I would argue against waiting, but I would also argue against putting all of that money in Monday. The fact is that people have been saying that for at least a year and a half. I mean, you think about it, 2023, 2024, 2025, and 2026 have all been very good years for the stock market. And all along the way, people have been saying, look… We’ve got a war in Ukraine and now we’ve got war in Iran and we’ve got inflation and we have tariffs. All those things are absolutely true. And yet people who own us and stocks and ultimately foreign stocks did very well. So what I would do is I think the odds and that’s all we’re talking about. Cause I can’t see the future. The odds are that we’re going to have some weakness in the stock market this year. I don’t know. Why do I say that? Several reasons. One is… The number of times in the last 50 years that the stock market, now I’m talking about the US equity market, the standard of 4,500, the number of times it has delivered four consecutive positive years in the last 50 year is two. That’s right, two. And so you have a real headwind to get four great years in the stock markets. The second is that when I studied this, How does the US stock market do in each four years of the presidential administration? And it turns out you would think the year of the general election would be the one that might be the most volatile, but it’s not. The one that does the worst is this one, the midterm one, has the lowest return historically. And then the third thing is, we’ve had terrific three and a half years, and as a result, people are sitting on a lot of big profits. Last week, things really went to heck in a handbasket as people took profits. So I would take that $150,000. I’d determine at the end of the day, how much of this 150 do I want to be invested in the stock market? All of it, or 125, or 100, or whatever. I would then take it and I would divide it. It’s probably enough money if you do the 150. You could probably put an equal amount. Every month for that, see this would be June, so let’s just say for the next six or seven months, put an equal amount in. Pick a day of the month and do not guess by the headlines or the market went down or the mark it went up. Pick a date, I’m making this up, the 15th of the months or the next business day at the 15 on the weekend and put the same amount in, you can actually, in many places, you can automate that. Or it goes from one cash account into that. That’s what I would do if I were in your shoes, because you’re not invested now. If you told me I’m completely invested now, but I want to make the changes, that’s different. But you’re coming from a cash position. So take at least the rest of this year and put equal amounts in. I think that would be a good idea, Michael.

Michael [00:27:15] Okay, cool. Thanks so much.

Carl Stuart [00:27:17] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s another call. Bob, you’re on the air. How may I help?

Bob [00:27:35] Oh, Carl, how are you doing, buddy?

Carl Stuart [00:27:37] Good. Good. Thank you.

Bob [00:27:39] I’d like to have a little conversation about the feds, and basically, can you give me your perspective on when the comments that started having such an influence on the market? I remember back years ago when we’d look at the briefcase and see how thick it was, And then, and then, we, we would, we’d be judged then. If there’s going to be a raise or a fall on interest rates. And also, I’m perfectly happy with Kevin Warsh dialing back the rhetoric because… Cutting down on noise, because I don’t think it helps anybody. And it would generally make, uh, make me, uh. Investing easier for me. Yeah. So if you can comment on that, I appreciate it.

Carl Stuart [00:28:36] Sure, you bet. So what Bob’s talking about for everybody else is the way in which the Fed has articulated their policy over the years has really changed. There was, we had a famous Fed chair named Alan Greenspan. I believe, he’s in his 90s, I believe he’s still alive. And he would go up to Congress because he’s mandated to twice a year to and twice a year to the Senate. And the financial committee would grill him, and after it was over, they’d look at each other and say, what the heck did he say? No one could figure out what he was talking about. He did that on purpose. He thought that keeping the Fed’s deliberations confidential was a terrific idea. He also said the stock market was overvalued about in 1993 and the market went straight up for the next two years. If you may recall, he coined the phrase irrational exuberance and he was wrong until he was right. But when we had the global financial crisis and Ben Bernanke was chair of the Fed, completely changed everything. So when they worked out something called quantitative easing, they were very, very open that the favorite phrase is a word is transparent. They explain, this is what we’re going to do. And these are the reasons why. And when Janet Yellen followed and Jerome Powell followed, they’ve been much more open about their deliberations. Now, during the Powell administration, and as I recall Yellen as well, they like to present a uniform face to the public. We all think this is gonna happen. Well, things are changing on that, Bob. That’s just not gonna happen now because you’ve got Warsh, who is a classic hawk, he believes in keeping rates high to fight inflation, got the job by saying to the president, oh, I’m for lower rates. But if you look at what’s going on in the economy and you look the public comments, one of the things that I really like is that the various Fed governors actually go out and make speeches pretty darn regularly. And each person shares her or his own opinion. And there is starting to be a about this. The financial futures market has gone from anticipating a few months ago to Fed interest rate cuts this year to now no Fed interest rate cuts with some of the public speakers of the governors indicating they might be for raising it. So I think we’ve got more transparency than we’ve ever had and if you want to, because I know you’re a student of these things, you can see that thing they put out. After every meeting called the DOT, dot, dot plot, where each Fed governor predicts where he thinks the Fed funds rate’s gonna be in the future. It’s fun to watch. It doesn’t make, you would never make an investment decision on it, because as Jerome Powell says, and I really love this phrase, he says we are data dependent, meaning we’re gonna behave with Fed policy based on what all of our information coming in tells us. So I think we’re more transparent than we’ve been in the past. I think Bernanke really started that. But I just don’t make bond investments betting on the outlook for Fed policy. And I know you’re a regular listener, but I will tell you, for example, I did this before I went on the air today. So if you look, the ag was up last week. 0.49 percent and now it’s virtually flat of 0.08 percent and if you look across I used proxies for short intermediate or short core short bond core and multi-sector and the short bond was down I beg your pardon the core bond is down 0.14 the multi-sectors flat 0.30 to the But the short’s up to 2.06 because short-term rates have gone up and they took advantage of that. So I’d spread it out, find the Fed, I think we’re in an interesting time. I think that they’re gonna, I agree with the consensus, they’re unlikely to raise rates, a bigger part in cut rates this year. And if these inflation numbers don’t come down, and we’ve had this above their 2% target for a heck of a long time, I think it’s gonna be really hard for wars to get the majority. To lower rates, so I’m a bear on interest rates. I think they’re gonna stay here or go higher. I’m not bullish on them at all. So that’s my view, Bob.

Bob [00:33:36] Hey, Carl, one last comment. I really like the Secretary of Treasury and Warsh. I think they’re going to do great for this country and I hope Trump doesn’t fire them because we know what’s going to happen, right?

Carl Stuart [00:33:53] Yeah, that’s always a risk, Bob. Thanks for calling. Excuse me. You’re 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. Here’s a text. Hi Carl, I’m in my late 40s with about $2.2 million to save, congratulations. $1.1 million in traditional, $300,000 in a Roth, and $800,000 into taxable, so I think the traditional must be an IRA,$ 300,000 a Roth and$ 800,000 taxable account. I’m looking for some holistic planning for my portfolio for the future. What and who should I be looking for? Estate planning, estate planner. Financial planner, CPA, or all of the above. Okay, you say you’re looking for a holistic planning for your portfolio. Okay, that’s portfolio strategy. That’s investment strategy. People who are estate planners are not in that world. They’re to help you design your will if you have special needs trust or you believe you’ll have a taxable estate or You want to make specific bequests or you have philanthropic intent that you want to make planned gifts after your demise. That’s what an estate planner does. A financial planner, now that’s interesting. That’s a term of art just like financial advisor is, it’s not a legal term. And financial planners, it is perfectly reasonable to seek out a financial planner. Some people will do what And again, this is just industry jargon. This isn’t something that there’s a firm definition on, in my view. Some people are what we call comprehensive financial planning. I mean, they are going to look at your life insurance, they’re gonna look at you will, they’re going to to look your investments, they’re looking at everything, and they may even have a software program that they will put together with your information. That’s comprehensive financial plan. A part of that can be investment strategy. What I have observed in my career is some people who are financial planners of the comprehensive type are drawn to it for the long-term planning. They don’t find the investment strategy particularly interesting, and so they frequently will farm that out. It’s not a bad thing. You just need to determine if that’s them. On the other hand, there are some financial planners who really, what really, if you excites them is investment strategy. This sounds like that’s what you’re looking for. Now, as I mentioned earlier, you can engage these people on a transaction basis or on an asset-based fee basis. I would prefer the second one. These people are investment advisors. That is a legal term. That is the legal term, the real legal term is the firm they work with is a registered investment advisor and a human being is the investment advisor representative. Those people. In my experience, by and large, are the people who are really going to focus on the portfolio strategy, which is what you said you were looking for. A CPA is not the person you’re looking for, there can be some CPAs that do basic tax work, there are some other CPAs, that really specialize in sophisticated things like ranches and farms or closely held businesses or generational transfer of wealth. Bright bright people, but by experience not people who are going to look and help you with your portfolio. That’s what I would look for if I were you. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 in the KUT app. I’m going to take a break. It’s a great time for you to call or text 512-921-5888.

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KUT Announcer: Laurie Gallardo [00:38:42] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:56] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT app. By the way, you can catch past shows at KUT.org slash Money Talk. And right now, when you have a question, call or text 512-921-5888. Here’s a text that came in. How can we protect ourselves from the SpaceX IPO? It sounds like a number of rules have changed and retirement accounts will be used as exit liquidity for bigger players. I don’t want to be forced to invest in this company. You will not be forced to invest this company in buying the individual stock. What you could be forced to do is if the stock goes into an index, it’s my understanding that it’s going to be listed on the NASDAQ. And that it’s likely, I haven’t read that this will happen, it’s like that it will be added to the NASDAQ index. Now, The NASDAQ index and the Standard& Poor 500 index are market capitalization weighted indices. What does that mean? It means that NASDAq doesn’t pick this one, sell this one and do this. They take the stocks that fit into their index and they rank them, or one through however. Let’s just say it’s the S&P 500 and it’s 500 companies. And they rank them, the number one company is not the most profitable company, it’s not the company with the most employees. It’s the company whose outstanding shares times the number, the dollar price, the product of that multiple, multiplication, determines whether it’s number one or number seventy five. So what happens is when a particular group of stocks, let’s just say tech stocks recently, Move up. Fast and move up long and move apart okay and now they have real high valuations not related necessarily to their earnings or revenues but the price of the company stock times the number of shares outstanding creates that place in the index. So if the SpaceX goes into the Nasdaq and you own the Nasdac index in your personal account or your retirement account you’re going to get pay sex. That has nothing to do with the big players getting out. Big players getting in could drive the price of the stock one way or the other, but it’s not that you, personally, are left holding the bag. If you find out that SpaceX is in a certain index and you do not want to have SpaceX, then don’t own the index and won’t have it. Thanks for the text. 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. Roy, you’re on the air. How may I help?

Roy [00:42:04] Hi, how are you? Hi, good, thank you. So, I’m 56. I’m about nine years out, I guess, from having to make some decisions regarding Medicare. And I’ve been reading a lot about Irma, I-R-M-A-A. And it’s a fact on the payments that you’ll be making on Medicare for basically the rest of your life. And so I’m wondering whether or not I see all these commercials about putting your assets in a trust whether that be revocable or irrevocable I’m, wondering whether or not um I should consider those do a little more research as a avenue toward avoiding the penalty that that Irma brings to the table based I guess on your your income and or your

Carl Stuart [00:42:56] Okay, so for everybody else, what happens when you’re on social security, and remember you don’t have to go on it at 65, you don’t have to on it when you are 67, the only time you have to is go on at 70, Roy. And by the way, the social security benefit, the monthly benefit, from the full retirement age to 70 grows at 8% per year, and there’s no investment that you and I can make that as a guaranteed 8% per year. So when you’re long-term planning, you might be thinking about whether or not to go on Medicare that early. If you can afford not to, and you’re a healthy person, you probably ought to consider switching it on until you’re forced to.

Roy [00:43:39] Well, I really won’t have a choice because prior military service and right now I have VA healthcare and Tricare and I guess at 65 you’re required to go on Medicare for those It is to continue

Carl Stuart [00:43:57] Okay, well the answer is that. Good to know. I never knew that. Thank you. For everybody else, you get your social security benefit and deducted from that is your Medicare premium every month and the balance is wired into your bank account. Now, the more money, the taxable income you have then you get a point where they raise the premiums and it works like a cliff. In other words, it’s not gradually goes up. There’s one level of a premium, then when your income hits a certain level, then the premium goes up. And I will tell you that, in my view, people get wrapped around the axle on this deal, unnecessarily. Frankly, if you are retired and have a good income, I just don’t get it. I’ve been paying the highest one for a long time and I don’t even think about it because… It’s just part of, you know, paying taxes. It’s part of the deal. Now, I will tell you this trust deal, they’re just trying to sell you something. Your skepticism is justified. Because if you put your assets into trust and they generate income, and you don’t distribute it to yourself, so you’re the trustee and the sole beneficiary of a grantor trust, and that trust generates income from dividends, interest, capital gains, or whatever. And you don’t take it out, guess what? The trust pays the taxes. So what’s the point? I just, you get a little savings maybe on Irma, but trust tax rates are really high.

Roy [00:45:35] They’re really yeah, that’s kind of what I was thinking because you know you see these commercials and they’re everywhere these days Yeah, your assets in the trust and I’m yeah like Yeah, the else is you know managing my money

Carl Stuart [00:45:48] Yes, I think your skepticism is totally and completely justified. I happen to agree with you, so I appreciate your call, but I agree. Just stay away from them.

Carl Stuart [00:46:00] Thank you. Appreciate it.

Carl Stuart [00:46:01] You bet. Thanks for calling. You’re 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. Here is a text that came in. Hello, Carl. I know you are an advocate of several types of liquid alternative investments, like managed futures, market neutral, event-driven, and momentum. What do you think about fees on these funds, and can you at least list different investment firms to consider? For example, Pimco, Vanguard, BlackRock. I know that you never recommend specific investments. So, what we’re talking about here. This is from Steve in Lake Travis. Thank you, Steve. What we’re talking about here is this big bucket of investments that are not stocks and not bonds, and nobody can figure out what to call them, so they call them alternatives. And there are a bunch of them. I mean, my infrastructure ones, for example, are another one. I look to alternatives, why? Because I think your portfolio, It has three, without me knowing anything about anybody’s portfolio, it has three potential risks. Two of them are permanent or systemic. That’s called equity risk, duration risk, and credit risk. Credit risk is you own high-yield bonds, we go into a really bad recession, the bonds fail and you lose money. You can avoid that by not owning high- yield bonds. But equity risk? What’s that? The stock market goes down. Yeah, guess what? The stock market goes down. And so you have risk that that occurs, and it will occur if you’re a long-term investor. And then duration risk is if you own bonds, and we go into a period of sustained higher rising interest rates, that puts downward pressure on bonds. So are there strategies that look like stock when they work well, but are not correlated? Are there strategies they perform like bonds when they do well and they’re not correlated to bonds? And that’s where I get these different strategies. They are expensive. Okay, you can own a total stock market fund and your entry costs are 0.03 percent that’s virtually free and they don’t deliver Realized capital gains that I’m talking about smaller portions in these other strategies and They’re expensive because they are really sophisticated. They use a lot of Technology a lot a quantitative work and yes They’re more than 1%. The ones I’m familiar with are less than 2% per year. But you’ve got to decide if this fits your portfolio. In 2022, let me use another one. 2008, the year from you know where. S&P’s down, these are generalizations. S&Ps down 40%, the international market’s down 50%. Real estate investment trust peak to trough are down 55%. High yield bonds are down 25%. Commodities go in the ditch. Oil goes from over $100 to $30. And the trend following index, okay, that’s managed futures, the index, so I’m not cherry picking, was up 17%, okay. 2022, the S&P’s down 19%, the NASDAQ’s down 33%. The Bloomberg Ag is down 13%. The trend following up. 16 to 18 percent. Do you get that every year? Absolutely not. This is your these this is your homeowner’s insurance. You don’t want to have hail damage every year, but if you do have hail damage you want to Have insurance. That’s the way these work. And will I consider will I least list different investment firms to consider? Absolutely unequivocally. I will not. Thanks, Steve. You’re listening to Money Talk on KUT News 90.5 and the KUT App 512. 921-5888. Here we go. Joel, you’re on the air. How may I help?

Joel [00:50:12] Hey, I was wondering about investing in a certificate of deposit or doing stocks. What’s your bet?

Carl Stuart [00:50:22] So there are apples and oranges. If you do a certificate of deposit, the value doesn’t fluctuate. You get whatever short-term interest rates will pay you. If you stay under $250,000, you have FDIC insurance. And based on history, after you pay taxes on the interest, and after inflation, you will lose money. You will have a negative return. The stock market on the other hand, over long periods of time. Will probably give you somewhere between 7 and 9 percent, but over short periods of time you can lose 20 to 40 percent of your money. Yes!

Joel [00:51:01] What kind of short period are we talking about? What’s the short period?

Carl Stuart [00:51:05] Uh… All two years three years So that’s the question. In my view, you ought to have three buckets of money. You have the money that you’re going to buy the groceries and buy the gasoline. That’s in your checking account. You don’t care what the rate of return is. You just want to know the money’s there. Then there’s a bucket for money that you know you’re gonna buy a new car or take a trip or you want to have enough money because your job is uncertain or you need a little money just so you can sleep nights. That’s a good place for CDs, okay? But then there’s that third bucket, which is that I went. I want you and I want everybody to have a moment in your life where when you get up in the morning, whatever you do that day, you do because you want to and not because you have to. You may decide you want work the rest of your life, that’s what I like, but a lot of people have other things, other people want to play golf, take a trip, read a book, do volunteer work, whatever. You got to have bunch of money put aside and that money has to grow rather fast Because what you don’t know is, number one, how long are you going to live? Number two, what’s gonna be the rate of return on your investments, and number three, what’s going to be inflation? If you put all the money in CDs and it loses money after taxes and inflation, you’re taking one step forward and two steps back for your future financial independence. There you have it, my friend, okay? Okay.

Joel [00:52:27] So let’s say it’s in your future, then CDs or should we put it in stocks and bonds?

Carl Stuart [00:52:34] You should put it in stocks. There’s no question that over a 10-year period the odds that you will lose money Over a 10 year period are very very small because you remember why is the stock market go up? Why because it’s human innovation. You didn’t have an iphone until 2007 You didn’t have an internet until 1994. You don’t have artificial intelligence for the last two years So you are you are placing your bet your wager, your capital, your future on innovation, human beings coming up with new ideas that are profitable and you’re gonna be along for the ride.

Joel [00:53:12] Okay, okay, so we just said stocks and bonds, and you said stocks, and I’m talking 10 years, what about bonds in 10 years?

Carl Stuart [00:53:20] Bonds typically will not grow faster than the rate of inflation. Bonds are safety valve because not always, this did not happen in 2022, but frequently when the stock market goes down, the bond market will stay flat and sometimes it goes up. So they’re a cushion to the stockmarket, but they do not outpace inflation.

Joel [00:53:41] Okay, thank you very much for your help.

Carl Stuart [00:53:44] You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Laura, you are on the air, how may I help?

Laura [00:53:58] Yes, thank you. I really enjoy your show. So thank you taking my call. Thank you Um, I’m a teacher at a private university and so my retirement is all going into TIAA

Carl Stuart [00:54:09] Uh-huh.

Laura [00:54:10] And I have about $500,000 in there right now. I’m 61, and for some personal family reasons, I need to retire about two months before I turn 64. And so I’m wondering, I have enough in an HSA to pay for health insurance to bridge me until I can get on Medicare. Good. So, how, when should I, my TIAA has done wonderfully in the last couple of years, because I have it pretty aggressively in stock. When should I move that to something that is less possibly something that’ll damage it? Like, should I put in something more mature soon? No. I’ve got two years.

Carl Stuart [00:54:53] Yeah, but you’ve got two years before you get Medicare, but you could live to be 90 years old or 95 years old. And if you get too conservative too early, this is one of the, in my opinion, it’s myth about this thing, is I’m gonna be 65, I need to put 65% of my money in bonds. Unless you have millions of dollars, that’s generally a bad idea because the cost of living goes up. The cost of groceries, you can’t go to… The grocery store and say, I’m retired now, I want a discount on my eggs. It doesn’t work that way. And so you wanna have, you gotta have growth. Gotta have growth, whether it’s with TIA or somebody else. And so what you can do, if you’re aggressive, how much do you have in stock funds in TIA right now? Laura.

Laura [00:55:40] Uh… And and i’d like all of that all of what i’ve got the five hundred thousand

Carl Stuart [00:55:45] Here’s what you do, you take $100,000 of that and you put it in a short-term, take$ 100,000, that’s 20% of your money, put it into a short, if they have a short term bond fund and an intermediate or a core bond fund, now you’ve got 80% in stocks and 20% in bonds. Leave it alone. Now we’re going to have a bad year, we’re gonna have a back year coming along here, Maybe it’s this year, maybe it’s next year. But you are a young female and you have a long life expectancy and this money has to grow faster than inflation so when you get older you can take more out of it because it’s grown. If you get too conservative too early you could get in real trouble in my view.

Laura [00:56:31] Okay. Okay. I got it. I appreciate it. Thank you very much.

Carl Stuart [00:56:33] Very much. Okay you’re welcome. I love this show. Well we are running out of time and I want to thank Alyssa for doing a great job. Your first day on the job. Thank you for doing that and I’m and remind everybody else that next Saturday at 5, tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:56:51] 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.