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Carl Stuart takes caller and text questions on pushing back against risky behavior when dealing with common dilemmas in the money world.
The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.
KUT Announcer: Laurie Gallardo [00:00:01] This is Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Thanks for listening. Money Talk is a broadcast and a podcast about the world of financial and investment planning where you determine our agenda by calling or texting. It’s a terrific idea to call or text at the beginning of the hour giving me the ample opportunity to do my best to answer your question. My order of taking things is I take today’s calls first and then today’s text, which you will hear coming in, and then text from previous broadcasts that I have not had the opportunity to answer or to answer fully. So here we go, five, one, two. 921-5888. Here we go, let’s just see. Hi Carl, I am 40 years old. I have two little kids and rent an apartment. I have about $100,000 in assets, including $70,000 dollars in stocks, and $30,000 dollar in the bank. I’m thinking of buying a $300,000 home, but it will be using all of my assets. I will be very frugal in the future. Should I use all my money to buy a home or keep the money in the stock market? What a terrific question. So please know what I’m about to say does not mean that I’m opposed to home ownership. I have owned a home and own a home currently. But a home is not an investment. Because in investment, if you sell your home, you still gotta live someplace. It’s illiquid, you can’t sell off a bedroom if you need a quick $25,000. It is a way to build equity, and the reason is, if you have a mortgage, you make the mortgage payment every month or else you lose the house, you pay a lot of interest and eventually the mortgage is paid off and the house is yours, free and clear. That’s terrific. But if you’ve got a house and you don’t have enough money saved and invested for your retirement, and in your case, for your children’s education, then it seems to me that that’s not a good thing. And so. I guess the two things you have to, I just mentioned the two liabilities you have, and I’m not saying your kids are liabilities, but from a financial standpoint, they are. And when they’re 18, you can’t say to them, gosh, I don’t have enough money to send you to university. Borrow all the money unless that’s what you want to do or come back when you’re 22. So I think you have something that’s going to happen that you can prevent them graduating from high school and then your own financial independence. And while $100,000 is a lot of money, particularly for the average American based on my reading, it doesn’t come close to what you’re gonna have to have to retire. And because you’re 40, the odds are you’re going to live a long, long time. Probably you need to plan on at least another 50 years. And you don’t know how long you’re to live. You don’t what’s gonna happen to the cost of living, but you can presume it will continue to go up. And you don’t know what the return is on your investments. But stocks, over long periods of time, because they represent ownership in human innovation, have outpaced inflation. The $30,000 in the bank, you may need that for emergencies or to be able to sleep nights. But after inflation and after taxes, based on history, that’s a negative return. It looks good because it doesn’t go down like the stock market. So I’m skeptical that purchasing a home and putting all your money in there is a good idea. It’s worth learning about how much could you put down out of your assets and have a mortgage and be able to afford to pay a mortgage while you’re letting your stock portfolio grow. But putting all of it into a house, in my view, would be a mistake. 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. I think I heard another text come in, let’s see. Carl. I have a friend who has a young adult child who is into trading. The stories I hear sound like he is basically day trading and I am worried that he is setting up his son to be gambling versus really understanding investing. I hear a lot of stories about gambling addiction related to this. Am I just being conservative or do you think he should be teaching his son patient long-term investing? I had this quote from a man named Paul Samuelson who won a Nobel Prize, he’s an economist, and it says, he says, investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas. You know, this ability for individuals to trade stocks with either no or almost no commission drag is a double-edged sword. If you’re a thoughtful investor and you want to do it yourself, the barriers to entry, which were high when I got into this profession 48 years ago, have disappeared. And there are big companies like Schwab and Fidelity and Vanguard where you can do that. The challenge is this. Most people think of real estate as a long-term investment because it’s illiquid. If you own an income-producing property and you decide you want to sell it, it can take weeks or in some cases months. If you own an exchange traded fund, say the total stock market, and you don’t like what’s happening in the news regarding the war in Iran, you can sell it immediately. That’s a huge mistake. So liquidity can both be an asset and a liability. I’m deeply concerned for this young person. And frankly for people in general who are caught up in this. And is it gambling? Yes, it is gambling. And we know from neuroscience that we get a dopamine hit in our brain when we have a winning. And so we continue to do it. It’s a bad, bad, a bad idea. We have had three and a half good years in the US stock market and a handful of stocks, particularly the so-called AI trade. Have driven a lot of the stock market gain. And so if you’ve been owning those stocks, you could easily think investing is easy. It’s not easy. So yes, I don’t wanna talk about what your relationship is with the friend, but I would highly encourage her or him to speak strongly in opposition to this. And if the young person is interested in investing, have him listen to Money Talk or the Money Talk podcast. And learn about long-term investing. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. And I’ve mentioned this earlier, you can catch past shows at kut.org slash Money Talk. Here’s a text. Hi Carl, my name is Alex. I’m 14 years old. Well, thank you for listening, Alex. I’ve been dollar-cost averaging into index funds and exchange-traded funds such as VGT and VXUS and our youth brokerage for about a year. Two questions. Besides continuing to invest, which is someone my age prioritize next? Also when comparing high-yield savings accounts, what should I look at besides the annual percentage yield? Love the show. Thank you. So let me take the second one first. High-yield savings accounts are obviously at credit unions, banks, and savings and loans. And they’re going to pay you a rate to keep your deposits. And I would just, because you’re already investing and you’ve mentioned two Vanguard funds, go to your Vanguard account and go to the Vanguard website and look up the Vanguard money market funds. There are three kinds. One would be called prime. The next one would be government. The next will be called treasury. The prime invests in high grade corporate securities with maturities of less than a year. The government invests and US treasuries and government agencies, primarily Fannie Mae and Freddie Mac, same maturities, and the treasurys and treasureys only. I like the middle one, whether it’s from Vanguard or Schwab or Fidelity, I’m not recommending a particular fund, But see what the yield is on that. And compare it to your high-yield savings account and looking at the annual yield is a reasonable way to consider it because you’re not looking at total return Because there’s no change in the value of the net asset value and money market funds, which is a dollar a share Now, let’s see you’ve been dollar cost averaging besides continuing to invest which should someone someone my age prioritize next gosh I guess I would think about money in three buckets. There’s the money that you’re going to spend in the foreseeable future. Then there’s the the money that you think you’re gonna need, but it’s a year to two years out. And then there’s some money for your future, whether that future is a college education or to start a business or whatever the case is. And at 14, you’ve got several years to build that up. That’s the place you put your growth investments and you’re absolutely doing the right thing. I would not say this is a priority, but if you find that you’re interested in the world of investing, I would suggest that you purchase a subscription to the Wall Street Journal. Obviously, at your age, you’re gonna read it online. I read mine today. And you don’t have to read every article, but just read the front page. And then go to each page and where an article is interesting to you, read the first paragraph. If it’s not interesting beyond that, you’ve learned the main theme of that. If it is interesting, you can continue to read. And I think what you’ll find is over time, you’ll gather a great deal of information. For example, last week I was reading and I learned an answer to the question of why is artificial intelligence not more effective in the development of pharmaceuticals? I didn’t know that. And now I know why the reasons are. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our telephones available, by the way. 512-921-5888. It’s a text. Carl, like a caller from last week’s show, I’m a recent retiree and trying to navigate the transition from saver to spender. Well, good for you. Sadly, most Americans have a hard time navigating from spending to savings. I very much liked your answer to the previous caller in which you stated one of the most important things in this transition is to maintain your asset allocation. That’s correct. That makes great sense and I agree. Almost all my holdings are on mutual funds, exchange traded and index exchange traded funds, mostly in qualified accounts. Can you please explain how? If you say that index funds and index ETFs don’t distribute capital gains and dividends, am I not simply depleting accounts by selling shares in accounts that don’t pay capital gains and dividend, since the shares are not being replenished? Thanks very much for your thoughtful advice. You’re welcome. No, you’re compounding your growth by reinvesting the dividends, and if you’re in index funds, they’re not going to pay capital gains, and what you want to do is when You want income, as I said, I hope I said last week. You you have a set asset allocation, and you take your income by selling shares of the funds so as to sustain your asset allocation. And you’re not hurting yourself because you’re, let’s just say you’re gonna take 3% a year. Your funds over time are gonna grow more than 3% of years. So you’re hurting yourself. If you need to have income and it’s going to come from a qualified accounts, then what I would do is Watch that asset allocation. Take that monthly directly from my qualified account to my bank account, and that way I can have it rebalanced. So if we have a great stock market, you’ll be taking more from your stock funds, certain stock funds more than others, domestic or international or whatever. That’s how I would do that if I were you. And congratulations. You’re listening to Money Talk on KUT News and on the KUT app. Call or text 512-921-5888. Carl, I’m 69 and my wife is 62. We are about to retire with $120,000 annually from Social Security and IRAs, plus another $800,000 in investments. If we have funds left over in the year, should we buy ETFs like VOO, VX, and VND? Or consider a Roth vehicle. If you are going to retire, then you won’t be able to put money in a Roth because you have to have earned income. So you continue to invest in a taxable account. You wanna do a joint account and then upon the first person’s demise, you change that to a transfer on debt. You wanna joint account because when the first, and because you’re older. When the first person passes away, all the gains in that account disappear for tax purposes. Let’s suppose you predecease your wife and you invested $50,000 over time and it’s worth $100,000 and you die. Her cost basis is the value at the date of your death or 100,000. Now she starts from a higher basis to grow it, or if she needs money, she has far less in the way of capital gains. Now, as regards V00, VXUS, and BND. That really is an asset allocation question. VOO is Vanguard’s ETF of the Standard and Poor 500. VXUS is Vanguard International ETF and BND. Is there a bond ETF? And so you’re looking at three different parts of the financial markets. So I would say buying ETFs is a good idea. But first and foremost, figure out what your asset allocation should be. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app, 512-921-5888. We have a call. Harry, you’re on the air, how may I help?
Harry [00:16:18] Hello Carl, got a question on when you have IRAs and stuff and normally you have the distribution at the end going to click-ins, etc. Is it possible to just shift it over to so it’s going to the trust? I do have a trust established.
Carl Stuart [00:16:42] So are you asking, I want to make sure I understand here. Are you saying your kids are the current beneficiaries of your IRA and you’re considering putting the IRA in a trust, is that correct?
Harry [00:16:57] Yeah, but well you can’t put an IRA in a trust. What I’m saying is that the distribution at the end of the trust, when I croak, what are the tax implications if instead of going directly to the kids, I’m now going to a trust?
Carl Stuart [00:17:16] I think the tax implications would probably be negative because the income tax schedule, the rates on trusts are higher than they are on human beings. So I don’t think that there would be a benefit to putting anything in a trust from a retirement count unless you didn’t have, you were worried about the beneficiaries in some fashion. But just from a tax standpoint, and I’m not an accountant, taking money from an IRA, which is taxable income, and putting it in the trust would only create, you know, eventually if the money isn’t distributed from the trust, the tax rate would be higher. So I think, Harry, I don’t think, I can’t think of anything that would be helpful for you to do that as far as I’m concerned.
Harry [00:18:03] Okay, you’re saying the tax rates are higher for the trust than they would be for individuals
Carl Stuart [00:18:09] When you have a trust and it has income and the income is not distributed to the beneficiary, the income taxed at the trust rate and the trust of income tax rapidly gets higher than that of a human being who would be a beneficiary.
Harry [00:18:30] Okay, where do I find out what those values are?
Carl Stuart [00:18:34] Yeah, sure, I just Google them. I mean, I would just go online and Google 2026 tax rates and it ought to be able to help you right there. I’ve got that individual and married and filing here, but I don’t have the trust rates in front of me. I know it’s just quite low, like maybe 15,000 or something like that before it really generates higher. So just do some homework online and see what makes sense, please.
Harry [00:19:00] Okay, thank you very much
Carl Stuart [00:19:02] You’re very welcome. Thank you, thank you. You’re listening to Money Talk. It’s time for me to take a break. It’s a perfect time for you to call or text 512-921-5888. I’ll be back.
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KUT Announcer: Laurie Gallardo [00:19:53] This is Money Talk with Karl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Karl.
Carl Stuart [00:20:07] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 in the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. And we have a call. Dave you’re on the air, how may I help?
Dave [00:20:28] Hey Carl, it’s good to talk with you. I’ve been listening a long time and this is exciting for me. Thank you.
Carl Stuart [00:20:34] You’re welcome.
Dave [00:20:35] I appreciate you. Question for you, doing some consulting with my 75-year-old mom. She owns her house, owns her car, a widow, she’s in Round Rock, we’re in Austin, and she’s sitting on a little too much checking and savings cash. She does have IRA, Roth, she has taken her social security and actually saved. Some of that every month i’m looking to get her some advice here you uh… With that cat that in there and also in the cd’s where to go with those monies so
Carl Stuart [00:21:15] There are two places I would go that are low and lower risk with, based on history, higher returns than money in the bank and CDs. The first one would be a money market fund. They invest in high grade securities that mature in a year or less, and it’s a mutual fund, but it doesn’t invest in stocks, and doesn’t fluctuate in value. The share stays at one dollar. The money market The funds come in three flavors. Prime Money Market Funds, PRIME, Government Money Market Funds and Treasury Money Market funds, I would recommend you look at a Government Money Market Fund. You can go online and look at the big custodians like Vanguard and Schwab and Fidelity, and they’ll have them there and they will explain it. The next one is a short-term, high-grade, or investment grade bond fund. Now, this will fluctuate a little in value, for example. But historically, you’ll pay higher income than the money market fund and higher income than the bank. So for example, one of the ones I follow just as a proxy. So far this year, the overall bond market is flat up about 0.29%, but the short-term bond fund I follow is up 2.54%. But over the last 12 months, the dividend yield based on the price yesterday. Was 4.29%. So the total return year to date is 4.99% plus 2.54%. And that gets awfully close to 7%. Now, understand that if we come into a period of rising short-term interest rates, that will put downward pressures on the bond fund, but it’s not gonna go down 15 or 20%. It’s gonna fluctuate a little, but my experience over time. The return will be better than the money market fund, and the money market fund will be a better than a CD or a savings account at the bank.
Dave [00:23:17] Awesome. Always appreciate your insight.
Carl Stuart [00:23:21] Okay Dave, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Rebecca, you are on the air. How may I help?
Rebecca [00:23:40] Hi, so lately for the past like year or so, I’ve had to dip into my IRA a little bit. I’m 41 and I’ve been dipping into it to pay off credit card debt to just kind of keep my family afloat. I know that goes against conventional wisdom, but I’m wondering how bad it really is when high interest credit cards like cash back rewards type cards. The only other kind of savings option I have is cryptocurrency savings and that’s actually really down right now so I haven’t wanted to sell that or touch it yeah um and I try to kind of reap back at tax time what I can but how bad is it actually for my future to be dipping into that IRA?
Carl Stuart [00:24:21] Well you’re going to pay extremely, a whole bunch of us are going to go away in taxes. And that’s just the way it is. Are you a single tax payer or married filing jointly?
Rebecca [00:24:32] I’m doing Single Ahead of Household.
Carl Stuart [00:24:34] Okay, single head of household. And what is your taxable, your annual taxable income?
Rebecca [00:24:42] About 1.55.
Carl Stuart [00:24:44] Okay, so I’m looking at the 2026 tax rates and I’ve got three choices, married finally and jointly and qualifying widows, stop, single, stop or state and trust, so, I’m going to tell you the single. If your taxable income is above $105,000, which yours is, 34% of that money is going go away, 34% because you’re in the marginal 24% tax bracket. And because you’re under age 59 and a half, you’re gonna pay an additional 10% penalty. So if you take $10,000 out, for example, $3,400 is gonna go to income taxes. Yeah. Yeah, yeah. I would tell you, I’d sell the crypto.
Rebecca [00:25:28] What options are there for someone in the position that doesn’t really have cash savings but needs to keep a family afloat right now?
Carl Stuart [00:25:38] This is radio, so nobody knows who you are, so you can be honest with me. What’s your outstanding credit card debt?
Rebecca [00:25:49] I’m sorry, cut out there.
Carl Stuart [00:25:51] I said, what, how much have you helped?
Rebecca [00:25:53] About twenty k about twenty so the question i have is loading like a few thousand i’m trying not to float any that’s my total now
Carl Stuart [00:26:03] Okay, so my question to you is, if we had this conversation and you took, you have to take $30,000 out of your IRA to get $20,000 after taxes, right? So now, if you called me on Money Talk a year from now, would you be back in credit hard dead again.
Rebecca [00:26:27] Mm-hmm. Yeah. Ha, ha.
Carl Stuart [00:26:29] So what’s the point? I mean, I don’t, I mean you, obviously I don’t mean to be disrespectful, I’m just trying to help you. But your expenses are exceeding your income and you’re making $180,000 a year. So the only way you’re ever gonna get out of this is to change your spending behavior. That there’s no alternative because these credit cards are gonna keep you from ever being able to retire or ever being able to help with your kids’ college education because they’re charging you 20% to 30% interest. And you know, you’d be forever in the hole. So I would say to you that I would sit down, you’re a smart woman, I can tell from your questions, you sit down and you take every charge that you make, every check that you write if you write checks, every cash purchase that you made, and you keep a record of it. And once a week, you sit down and put those into categories and look at how you’re spending your money. And what you’re looking for are small ways in which you can reduce your spending and change your lifestyle. Because if you don’t change your life style, you take $30,000 out of your IRA and you’re back in credit card debt a year from now. You just, I’m sorry, but this is terrible, Rebecca. You’ve got to make significant changes. I don’t want you to end up being, instead of being a young woman, being an old woman and never being able to retire because you have debt.
Rebecca [00:28:05] I hear you, thank you, I need that advice.
Carl Stuart [00:28:08] Okay, good luck to you and thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. And you can catch past shows at kut.org slash money talk. Here comes a call. Larry, you were on the air. How may I help?
Larry [00:28:35] Hi, Carl. I’m calling about gold. I’ve been watching it. I thought gold was a hedge and for hard times, inflationary times and bad times. I noticed that the price of gold dramatically dropped from its high and now it’s like going between $3,900 and $4,000 an ounce. What’s going on.
Carl Stuart [00:29:02] Well, there’s two or three things, in my opinion, that are going on. First of all, it was up 64% last year, which is, when you think about it, a ridiculous return. So anybody who bought it in January of 2025 has got this massive profit. So you’ve got, anytime you see weakness in an asset, you have a lot of people who are probably considering taking some profits. Secondly, They may be using borrowed money, leverage. That happens in the stock market as well. Also, the dollar has strengthened. And typically, when the dollar strengthens, that’s a headwind. That’s not good for gold. And third, there’s no consensus yet on the outlook for inflation. The economy is good. The employment outlook is positive. Corporate earnings are, frankly, terrific. And so the safe hedge or the safe harbor that gold plays in bad times has worked over time, but it’s not a one-to-one relationship. If you go back to 2022, we had the stock, S&P was down 19, NASDAQ was down 33%. And interest rates spiked up high because of inflation. We had 9% consumer price index. Bonds were down 13% or 14%. Gold was flat, between 0% and 1%. It wasn’t up, but it was a store of value. So I understand your disappointment in gold. I just don’t think it’s a trade. I think it goes as part of a portfolio. I wouldn’t buy the bullion. I wouldn’t buy the coins. And I would not buy the gold mining stocks. I don’t have a problem with the gold mining stocks, it’s just that they don’t track the price of gold. They do better than gold when it’s a bull market and they do worse than gold and it’s the bear market. When you can own gold in an exchange-traded fund that actually owns the gold and all you’re paying is nine basis points a year, 0.09%, and you have daily liquidity, that’s by far and away the best way to buy gold. So if I had a position in gold that was my target position, I’d leave it alone. If I had a position, if I wanted, I’m just making this up, 5% in gold and I’ve got 3% in goal, I’d be starting to put it in a little bit at a time. But we may be in for a period of time after that huge increase where gold may not be a good performer. And if the dollar continues to be strong, that’s gonna be a headwind for gold, in my experience, Larry. Okay, thank you very much. You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi Carl, I am very recently retired, congratulations. I have a health savings account for a future medical costs with $60,000, which is all in the money market. What are your thoughts on whether to invest a portion for some growth? Thanks for your great show, you’re welcome. I must tell you that I know virtually nothing about health savings accounts other than you put the money in pre-tax and when you take it out. For medical purposes, expenses, you don’t pay income on it. But I don’t know what your range of choices are. I don’t know who the carriers are, if you will, the custodians, and what their investments are. I would say if you are in good health, and your health savings account provider offers stock and bond funds, putting some in that makes a whole lot of sense. Absolutely. If you’re over 65, You’ve got Medicare and if you’ve got a supplemental plan you probably have very low out-of-pocket expenses and could you invest some of that money for growth? In my view the answer is absolutely yes provided that the HealthSavings account provider offers you that. Good luck. Thank you. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi, Carl Stewart. I like listening to your show. Thank you. Some brokerages offer the ability to lend shares that you own through something called stock yield enhancement program. Do you recommend doing this? I would only do this if I understood. What could go wrong, that’s always the best thing. You know, you’re lending stock that you own 100%. So it’s not as if you have a problem if the stock goes down. Now, the question I would have if I were lending stock is what’s the liquidity, right? And is this a secure firm? If you’re dealing with, you know, Merrill Lynch, UBS, Morgan Stanley, Raymond James, the household names, and you’re confident that either you have liquidity when you want it, or if there’s an illiquid feature, you’re completely comfortable that you know what that is, and they’re lending your stock out. Remember, they’re doing it not because you’re such a fine person, which I’m sure you are. But to make money. So they’re gonna charge X and then pay you something less than that and the difference, the spread, so to speak, is their profit. I don’t have a problem with it conceptually. 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. Ken, you are on the air. How may I help?
Ken [00:35:16] Hi Carl, thank you for taking my call. You bet. As a way of introduction, I’m not one of your long lost tennis friends that has a massive estate problem. Ha ha!
Carl Stuart [00:35:28] That was an amazing text. That’s crazy. I actually know who that person is and we played tennis probably, I don’t know, 35 years ago. Ha, ha, ha.
Ken [00:35:38] Hey, I’m a regular listener, sometimes texture and less frequent caller, and I’m following up on the text that came in earlier today. Have I understood you to say in the past that index funds and maybe ETFs sometimes do not pay capital gains distribution and therefore they’re more well suited in a taxable account.
Carl Stuart [00:36:07] Sure, so when index funds started, when Jack Bogle started Vanguard, one of his two features that he wanted in terms of the security was daily liquidity and no capital gains distributions. But the underlying assets, let’s just assume we’re not about stock funds now, the underlying assets, pay dividends, and you reinvest them, that’s a taxable event. But today, the standard and poor 500 has gone up so much the dividend yields about 1%. And if you own a bond mutual fund, index fund, same deal. The key here is whether they’re actively managed or not. If you own mutual funds, not exchange-traded funds, that are actively managed stocks, they’re required by, well, all mutual funds are required by statute to, at some point in the year, usually late in the third quarter, early fourth quarter, they add up all their gains and all their losses, and if they have a net capital gain, unrelated to whether you have a gain in it or not, they’re required to distribute that, okay? Whereas in an exchange traded fund, there are now actively managed exchange traded funds. These are pretty much brand new, and so they’re intending not to pay capital gain. You notice I use the verb intending. So far they haven’t paid capital gains, but this is relatively new. What’s happened is some of the legacy big managers of stocks and bonds are under pressure because money is leaving active management and leaving 40-act mutual funds and moving into ETFs. So every time I meet with an asset manager, stock or bond asset manager like I did this week. Almost always, they tell me, we have or we’re coming out with an exchange-traded fund because of the lack of capital gains distribution. So yes, that’s a long-winded answer, but ETFs now have not been paying capital gains. That’s correct.
Ken [00:38:21] So for that retiree, if they don’t want to just deplete the shares in an account, should they be in actively managed funds or not or balance it?
Carl Stuart [00:38:32] In my view, the answer is when you’re retired and you’re taking money out, you should take it not from dividends or capital gains. You should reinvest dividends or cap gains, and you should it in such a fashion as to keep your asset allocation. So let me just give you a hypothetical example, and I’ve got to take a break here so I’ll do it briefly. Million dollars, 60% stock ETFs, 40% bond ETFs. The stock market has a real strong run. And now they’re 65, 35, okay? It’s a million dollars are taken, $2,500 a month, $30,000 a year directly from their IRA or from their individual or joint account into their bank. Whereas the stock market goes up, more of that 2,500 comes out of stocks. Now we get into 2022 and the stock markets stinks it up and the asset allocation falls below 60% down to 55%. They’re then taking more of their income needs out of their bond funds. Because asset allocation determines return. That’s the number one determination. And that’s how they ought to do it and not look to dividends and capital gains, but look to asset allocation in my view, Ken.
Ken [00:39:42] Okay, Carl, thank you very much.
Carl Stuart [00:39:43] You’re welcome. Time for me to take a break, and time for you to call or text 512-921-5888. I’ll be back.
Jimmy Maas [00:39:57] 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 [00:40:33] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:40:47] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT App. When you have a financial or investment plan in question, give me a call at 512-921-5888. Charles, you’re on the air. How may I help?
Charles [00:41:07] Anything taking my call you that um… I have a random question uh… Uh… Without getting into the broader details uh… I’ve a situation where i was just diagnosed with a left life-threatening to be and the cost of care may not be covered by insurance so i should look at it out of out-of-pocket expense to cover that care okay to be a couple hundred thousand dollars Is there a way of I’ve got about it million dollars in a TIAA CAREF account. I’ve got Schwab, IRA, and brokerage investments. Is there a way of leveraging those resources without paying the penalties of pre-retirement you know, withdraws to pay for those medical expenses.
Carl Stuart [00:41:53] Let me ask a couple questions. How old a man are you, Charles? Okay, so my recollection is that there are certain exceptions for taking money out of an IRA. And I think a health emergency may be one of them. You hear doubt in my voice, it’s because I’ve not personally experienced this. Also in the case of a 401k, it will depend on probably the plan document may have a lot to say about it. But a 401K is, as you may know, you can take a plan loan as well. So you could take a loan, provided that the plan sponsor offers a loan provision, and most plan sponsors today do, you could borrow money from the 401K and then continue to make your pre-tax contributions to reduce the loan. If you have your own taxable brokerage account, you could. And it’s in stocks and bonds and mutual funds and exchange-traded funds, you could move from what’s called a cash account to a margin account, and the custodian or broker dealer would loan you money up to 50% of the market value. Those rates are quite high, but this is an emergency. So the first thing I would do is homework on my IRA As to The circumstances that I can take the money out. I think you’ll pay tax on it when you take the money out, but I think you may be able to avoid the 59 and a half year old 10% penalty and the first place to go would that would have the least tax consequences is if your TIA 401k allows policy loans. I suspect they do so I’d look first at the 401k Then to the IRA for special circumstances and not have a penalty, but you will pay the taxes. And then to a margin account for your taxable securities if I were in your shoes. OK.
Charles [00:44:04] And so with the policy loan that was basically taking a loan out against the 401k.
Carl Stuart [00:44:09] That’s correct. It’s against the assets in the 401k. That’s exactly correct.
Charles [00:44:13] And the idea there is that basically interest on that loan would be less than the burdens of the pre-retirement withdrawal.
Carl Stuart [00:44:21] That’s my, that’s my experience. Yes.
Charles [00:44:25] All right, very good. I appreciate your time and thank you for your advice.
Carl Stuart [00:44:28] You’re very welcome and good luck to you and good luck with your health. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. Hi Carl, we wanted to set up something for our grandchildren. Only one so far. We were looking at a spendthrift thrust because I have a nephew who is an addict. And want to protect future generations from blowing an inheritance like he did, but still make sure they get money for their future while they’re young. What options would you suggest? I would go to a lawyer who specializes in these types of trusts, special needs trusts, Ben Thrip trusts, to make sure that you understand all of the implications, the liquidity, and the tax consequences of it. And the reason I say that is you could also set up a custodial account, but the problem with that is when they reach, if it’s under the Uniform Transfer into, you see, is it, yeah, Uniform Transfers into Minors Act, the money becomes theirs at 21, so that really doesn’t help you there. Yeah, I think a special trust, if you, is, you’re right about that, but. You never want to do a trust on your own, because it’s complicated. And you don’t want to go to just any lawyer. You want to a lawyer who does a lot of work and trusts. And maybe an estate lawyer, because they know a lot about trust, even though this isn’t an estate planning issue. But I know that there are attorneys who do a lot work for people who have, say, a handicapped child or some other circumstance like the one you’ve mentioned. That’s what I would do. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 and you can catch past shows at KUT.org slash Money Talk. Carl, I have $200,000 earning about 3% a month. What’s a smart way to earn more interest? So okay, so when you say interest, then I’m understanding that you don’t want to take risk with the principal value, which is going to sharply reduce your options. I would look at a money market fund, three types, prime, government, and treasury, I like the middle one, government money market, paying I think around 3.5 to 3.65 right now. It will fluctuate with short-term interest rates. If short-term interest rates stay the same, you would expect a similar yield. If rates trend up, you would expect over time your return to go up. And if rates trend down, you’d expect your return to go down. That’s, your $200,000 is not gonna change in value. You can do this if you have an advisor, or you can do at the do-it-yourself custodians like Vanguard and Fidelity and Schwab. The next thing out is a short-term bond fund. It will fluctuate some, okay, but it’s not gonna fluctuate a lot and it will pay a higher yield. The one I use as a proxy, the last 12, if you take the price on Friday and you take that monthly dividend that it’s paid out over the last twelve months, that yield was 4.29%. It happens to be up 2.5%, so the total return is seven. No past performance is certainly no guarantee of future return. The money market fund will stay stable in terms of its principal value. The short-term investment-grade bond fund will fluctuate a bit and ought to have a higher return. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi Carl. We are 70. We have $200,000 in the stock market, 30 in cash, and a $1 million property with no mortgage, and own our business and have enough to live off it, and our social security. Thinking about selling the home and investing, is that a good idea to put this all in a trust? I don’t… Based on what you’ve told me, see the need for a trust. The fact that you are a we, that you, I presume, are married, the benefits of owning everything jointly in Texas is when the first person passes away, the cost basis of the investment disappears, and you get it at the market value. I think it’d be hard for me to come up for a reason for you to put it in a trust. Some people will say, oh, you’ve got to avoid probate. That is, for most people, an unnecessary concern. If you have your assets in joint account and the first person passes away, the other person is the beneficiary in your will, there’s nothing there to worry about. And then you set that up with a transfer on death to your kids, your grandkids, whoever you want, then that means that that does not go. Then that doesn’t go through probate. And so I think spending thousands of dollars on a living trust would not be to your benefit and I would discourage you from doing that. And remember these are texts I’m having to do a lot of suppositions about your situation. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. CJ, you’re on the air, how may I help?
CJ [00:50:36] Hi, I’ve got a hundred ounce silver ingot bar Yes, and I need to know if I should hold on to it or or cash it out
Carl Stuart [00:50:45] I would tell you it was up 140% in value last year, it’s down about 20% in value this year. It’s an illiquid asset. It tends to be much more volatile than the stock market. It’s much more volatile than gold and it tends to follow more sensitively to the economy. After a huge year last year if it were mine I would sell it if I were in your shoes CJ.
CJ [00:51:13] And where’s the best place to sell?
Carl Stuart [00:51:16] I think what you want to do is, I did this, oh, maybe a year ago, someone came to my office and had inherited gold coins, and I just did a Google search of dealers in central Texas, and came up with five or six different places that would buy back precious metals, and that gives you the opportunity, CJ, to do some comparison shopping. And you want to ask what the transaction costs are, because they may or may not be the same, and maybe you can get a more competitive bid the more you look around. But there are several places in the greater central Texas that are coin and precious metals dealers that I think you can do business with.
CJ [00:51:59] Okay, thank you, Matt.
Carl Stuart [00:52:00] You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5. If you’re gonna call, you better do it darn soon at 512-921-5888. Hi. My child wants to invest part of her savings, about $5,000. She’ll be going into the military in a year after finishing college. Is a Roth IRA the best option? She doesn’t take too much risk, thank you, Anna. If she has income, a Roth IR is a terrific idea. She’s gonna go into the Military. If she chooses to make that a career, she will have. A defined benefit pension plan, an annual income that she can’t outlive, she will qualify for Social Security, and both of those are going to be subject to income tax. If she starts earning income, she should put her money in a Roth IRA because it will grow without any taxation, and once she’s older, she never has to take it out if doesn’t want to and if she wants to take money out provided she’s over 59 and a half. It will be income tax free. And I just think that’s a terrific idea. And in the military, until you get way up in the ranks, doesn’t pay a lot of money, and so she’ll probably be eligible to do a Roth. Once you make a lot money, you cannot do a roth any longer. So I think getting started with a Roth when she has income, if she’s got $5,000 in income, put the 5,000 and a Roth, I think that is a terrific and good luck. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Send me a text, don’t give me a call, 512-512-921-5888. Carl, what are coupons that are paid at the end of the year? Isn’t this essentially dividends? A coupon goes back to when you owned an individual bond and it paid interest every six months. If this is paid at the end of the year from a bond fund or a stock fund, they’re called dividends because the dividends from the underlying stocks in the portfolio or interest in the underlying bonds, they still show up on a 1099, form 1099 as a dividend. That’s my understanding. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Carl, love your show. Thank you. Thank you for helping us. You’re welcome. You don’t have to read all this out loud, but I wanted to provide lots of details. Well, I’m gonna see if I can get through it. If I can’t, we’ll do it next week. Do you have some overall suggestions? Should I see an advisor at my credit union? I will retire in August 27 and close to age 73. I’m a widow and I’ll have a retirement pension before taxes of about $5,200 a month. I started collecting Social Security at 70. It’s about 3,000 a month… After 12% is withheld from taxes. I have $37,000 sitting in savings at the credit union and $3,100 in a 403B at TIA Creft. I won’t pay off my townhome. I still owe about $120,000, but it’s a 3% mortgage. I have 64,000 in debt, including $30,000 at 5.99 remaining on a new hybrid car I bought in the spring of 2025 and selling the car in. A 2012 car that was costing too much. I have three credit cards totaling $14,000. Pay them off. Followed by one 6,800, pay it off. And one totaling 3,100, 650, pay if off. I have a line of credit totaling 32,3200 at 15.9. Pay it off! I need to wake up and work on paying down my debt by paring down my spending. I do need some repairs on my town home. That mice cost $7,000. I actually don’t know the total amount yet. My plans are retirement are uncertain. You know what, I’m running out of time. I may have to move to France. I’ll tell you what, I will read this afterwards, but let me just say this. High cost debt is, it’s a pernicious financial cancer. And the first thing you do is you pay off the highest cost and then the next one and then next one and the next. Having a 3% mortgage is a terrific deal. You don’t wanna pay that off. That you want to be absolutely otherwise debt-free. So that’s what I would do if I were you. Well, we’re out of time. I want to thank my producer, Alyssa, for doing a terrific job. I want thank you for listening. And next week, I invite you to tune in at five o’clock and listen to Money Talk.
KUT Announcer: Laurie Gallardo [00:56:54] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. And this is KUT and KUT HD1 Austin.
This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.
