Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on diversification, long-term investing, understanding tax implications, and realistic retirement planning. The importance of consistently advocating for low-cost index funds, automatic investing, and fiduciary financial advice.

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

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

Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. Money Talk is a broadcast about the world of financial and investment planning where you always drive our agenda by calling or texting 512-921-5888. It’s always a great idea to call or text at the beginning of the broadcast. Giving me ample opportunity to do my best to answer your questions you hear that noise that’s a text coming in which reminds me to tell you that i’d take today’s calls first and then today’s text and then previous text that i either haven’t answered or feel like i haven’t had an adequate chance to answer so let me give you those one more time all of our lines naturally are available at five one two nine two one 5 8 8 8. Here we go. Carl. I bought a high-tech stock in 1993 and the initial cost was $3,000. That stock has had six stock splits in those 30 plus years. It has grown to over $300,000 with my cost is now a little over $9,000 I’ve always reinvested the dividends but I’m nervous that this one and only stock in my portfolio is sixth of my total investments. My question is, is there a way that I can convert this stock to a mutual fund or ETF and somehow avoid some or all of the capital gains tax exposure? Well first of all, you are proof of the benefit of long-term investing and the fact that you bought this and then the stock market really, really went down. The NASDAQ, which is an index with lots of tech stocks. Peaked in March of 2007 years after you purchased the stock and did not come back to that level until 15 years later. So you showed the benefit of long-term investing. Also, please know that you now have a long- term capital gain. Your cost basis, obviously, is higher because you have been reinvesting the dividends. And I think that you will probably need to consider selling some of it. Your maximum capital gains tax rate will be 20% plus if your total income including the gain is over I believe it’s $250,000 so that may be filing jointly 125 singly. I’m not sure you will have an additional 3.8% so 23.8 percent tax versus as high as a 37 percent income tax. I think your concern is legitimate. I would tell you that in a concentrated portfolio, if you were to own say a mutual fund that was actively managed, the concentrated portfolio would probably have somewhere between 35 and say 65 individual stocks. So none of them would be worth one sixth. So I agree with your concerns. There may be some ways, there are some kinds of funds where you can put your highly appreciated securities into the fund and then have a diversified portfolio of stocks. It does not eliminate your capital gain, it simply allows you to reduce the single stock risk. So you can look into those, but you’re going to really have to decide if that’s what you want do based on your overall asset allocation, either begin to sell the stock and give yourself some guardrails. I talked about this recently on Money Talk. When you have such a large position, it doesn’t take a big percentage decline to really talk about some pretty serious money. So it’s certainly fine to begin to sell some of it and not all of it, but if that were the case, I’d wanna have some limit at which I would say, if this stock is $50 and it drops 20% to $40, I’m going to increase my sales. Simply because I don’t know when and if it’ll come back to 50. So thanks for the question and good luck to you. You’re listening to Money Talk on KUT News 90.5 in the KUT app. When you have a question, call or text 512-921-5888. We have a caller. Tariq, you are on the air, how may I help?

Tariq [00:05:03] How’s it going, boss? So yeah, my name is Tarek. I’m a 33-year-old male. I got laid off recently, and so really I’m just kind of starting from scratch as far as investing and everything like that. So what do you think is the best route for me to take as somebody who’s trying to start over and just really make something of what I’m working with right now?

Carl Stuart [00:05:25] So I think the thing to do is spend some time online. You can go to the websites of the large. Can you turn off your radio? We’re getting some feedback here on the air, please.

Carl Stuart [00:05:40] Okay, that’s great. That’s much better, thank you. I would spend some time on the websites of say Schwab and Fidelity and Vanguard or maybe some other good ones where that can be quite educational. I think what you want to start is a program of putting regularly money into something called an exchange traded fund. They’re very inexpensive and they’re also very tax-efficient. Pick a number that you can afford. You can set up what’s called an ACH with one of those companies where they will automatically draft from your checking account or savings account an amount of money every month into an exchange-traded fund. This is not a forever decision. If you get a new job and you can’t afford more, you can increase the amount. If you don’t get a job and need to eliminate or reduce the amount, you can do that. But if everybody in America did what I’m suggesting for you, Tarek, we’d be in a lot better shape in terms of preparing for retirement. The first fund I would buy, and all three of these custodians have a fund that covers the entire U.S. Stock market. Typically, it’s got a name like Vanguard Total Stock Market or Schwab Total Stock Market. That’s what you wanna buy and you wanna put regular amounts in And when the stock market goes down, and obviously none of us knows when that will be, your monthly contribution will buy more shares, which is good, and when prices are elevated, they’ll buy fewer shares. So you buy more share at lower prices, and over time have a lower average cost. So that’s the best way to get started. Once you have a good amount in there, whatever that amount is, is your decision, you can purchase another exchange traded fund. That buys stocks outside the United States would be a total market excluding the United States. But just to get started, get that total stock market exchange traded fund on a regular basis and make that a lifetime habit. I think it will be the best thing for you to do, Terry.

Tariq [00:07:51] Okay, my man. Thank you so much, man. You have a good day. All right. God bless

Carl Stuart [00:07:56] You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 Here’s a text. I’m 42 and looking to retire by 52. My wife and I have saved roughly $1 million in our retirement accounts. And are now considering directing funds into a brokerage account instead so that we can start drawing on these gains between retirement and the time we reach 59 and a half. Does this seem like a sensible way to split our investments in the market up across different account types based on our retirement timeline and aversion to penalties? So the short-term answer is yes, because if you invest in your own, say, joint account, and you invest in equities and stocks and if they go up you create untaxed long-term capital gains and when you retire in ten years and you begin to need additional income then you will be able to sell shares at the lower long- term capital gains rate and since you plan on being retired you may well then be in quite low tax bracket. I will just say this to you and this is always the downside of textings. I don’t know your total picture. For most people who are 52, if you don’t have other sources of guaranteed income, having a million dollars or having a million and say 250,000 is really frankly not enough to retire at 52 because people who save and invest generally have access to healthcare and you have to expect to live into your 90s and a distribution rate from say a dollars for a 52 year old person. Should be quite low and probably in my view in the say the 3% range so a million dollars generates $30,000 a year. Now if you have a pension or some other source of guaranteed income that’s another whole situation. But to answer your question specifically I really agree with your thinking in that you want to have two stools to your retirement preferably long-term three with a Roth IRA, but A taxable, we call a taxable or brokerage account that gives you maximum flexibility as to withdrawal and long-term capital gains favorable tax treatment. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text, we have all of our lines available, 512-921-5888 And… You can catch past shows at kut.org slash money talk. Also, we listened last week, we talked with a caller, really wasn’t a caller because he was from Italy. So it was a tech said he listens on Shopify. I understand it’s available on Apple podcasts and Amazon as well. Five one two nine two one five eight eight eight. Hi Carl. Thanks for your time. You’re welcome. There was a lot of discussion in the news this week about bond prices. Yes, there certainly was. Would you recommend to an average consumer based on the rising, what would you recommend to the average consumer, based on rising bond yields? I know you can’t predict the future, but does this signal something based on your experience? Not yet would be the answer I would give you. As you would imagine, I’m well aware of this and done a lot reading. And of course, it coincided with, kind of ironically, the news that the federal debt crossed $40 trillion this week as well. The Treasury and Treasury Secretary Scott Besant tried to get rates to fall and was pretty much not successful. The 30-year, what we call the 30-Year Treasury Bond got above 5%. I think it went to 5.2%. And that puts downward pressure on bond prices. I would tell you that we’re not close to the kind of interest rates that slow a good economy, which we happen to have, or slow stocks when earnings are good, and frankly, earnings are terrific. So I think we wanna be cautious in here, not just because of rising bond yields, but also because we’ve had three and a half terrific years in the U.S. Stock market. I was looking before I came on the broadcast today. If you own the ETF that invested in the S&P 500, even after last week’s decline, you have a return of over 12.8%. And if you owned the total domestic stock market, a return 13 and a half percent. So we’re still having another, in this case, fourth very good year. But I think the rise in bond yields is a signal. And I might add also decline in the dollar. And a rise in gold and silver, which were two of the best asset classes in terms of performance last week, tells you that investors are nervous, and in my view, well, they should be. Check your asset allocation, and I would say particularly, make sure that when you own bond funds, make sure you understand the duration of the bond fund. What do I mean by that? The duration is a mathematical, I would not say guess, but, estimate of the sensitivity of the portfolio to a rise in interest rates. So if you are in a bond fund with a ten percent or a ten year, and I’ll get it right here yet, a ten duration, that means if interest rates at that duration at maturity go up one percent, the value of your portfolio should decline ten percent. So you just need to think about that and make sure that you’re not weighted and longer-term bonds in my view. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. When you have a question, call or text 512-921-5888 and we do have a call. Jason, you are on the air, how may I help?

Jason [00:14:22] I’m a brand new kind of man to the job market and the stock market, I’m 22 and I recently discovered about a year or so ago that I had broke very lucky with some Nvidia stock that I purchased a while ago and I’m feeling a lot very anxious about, you know, the terms of the economy, in terms of the economic and how the AI market people are talking about a bubble. And I’ve yet to diversify that stock, and I’m very new to all this, so any kind of suggestion, any kind tip would be appreciated. Sure.

Carl Stuart [00:14:57] Well, first of all, congratulations on your experience with NVIDIA. What you have experienced is what I experienced early in my investing career, but the ones I invested in went the other way. Because we had had something back in the 70s called the OPEC oil embargo and everything touching energy was going up and Texas was booming and all the experts said that we were never going to be able to control the price of oil because the Opec nations did that. And in fact, the price went all the way down and the Houston economy went in the tank, so did the Texas economy. I learned a lesson, which is when you own individual companies, like you have, Jason, if you’re lucky, you have these huge positive returns. And if you are unlucky, you can lose vast sums of money. So I completely support your anxiety. I don’t really support your anxiety about the outlook for the economy. I’m not an economist, but right now, there are signals are not that the economy is weakening. What we do have is a very different economic experience between people on the lower end of the income scale and people on higher end. But in terms of corporate profits, frankly, they’re as good as they’ve been in a very long time. Having said that, I would absolutely either reduce or eliminate my position in Nvidia because of the single stock risk, and I would diversify. Luckily. There’s a very simple way for you to diversify and that is you can purchase something called an exchange traded fund that owns say all the U.S. Stocks. You can buy an exchange-traded fund from Fidelity or Schwab or Vanguard that has a total stock market. It’s extremely inexpensive, 3 or 5 basis points.

Jason [00:16:47] Pardon me? Oh, go ahead. Sorry, you cut out for me.

Carl Stuart [00:16:50] Okay, I would start with the total stock market index. Once you get that, they don’t historically distribute capital gains. If you have enough money, I would also recommend that you have an international total stock markets. So now you have exposure to the global stock market. My favorite allocation would be 75% in the sum total stock exchange traded from, from one of those companies. And 25% in the international. So bottom line is yes, I understand your concern. I think it’s legitimate. I’d liquidate that and do what I just said if I were in your shoes, Jason.

Jason [00:17:33] I really appreciate it, man. Thank you. It definitely gives me some ideas on what to do.

Carl Stuart [00:17:37] Good, thank you and thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. You know, I think we have a call coming in and Alyssa, rather than get into this and get past the 19 minutes, why don’t we take a break now? You’re Listening to Money talk on Kut News 90 point five and the kut app. And while we take this brief break, it’s a great time for you to call or text 512-921-5888 I’ll be back.

Taylor Wallace [00:18:12] Support for Money Talk comes from Better Business Bureau, Heart of Texas, offering accreditation to businesses.

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KUT Announcer: Laurie Gallardo [00:18:51] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:05] 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, call or text 512-921-5888. Let’s go to the line. Bob, you were on the air. How may I help?

Bob [00:19:27] Hello Carl, how are you doing?

Carl Stuart [00:19:29] Good, thank you.

Bob [00:19:31] Just a couple of topics I want to talk about. If you could comment, probably on our Treasury Secretary Besit, and he pulled a playbook out of the Genet playbook and tried to manipulate the long end of the bond, and we saw that didn’t work very well. And then, one other follow-up topic is… What do you think is going to come out of the fishing trip the Federal Reserve is going to take up the decks and hold? Yeah, right. So, so. I’ll hang up and listen to you, buddy. Okay, Bob. Thank you. I’ll stay on the line. I’ll be on the lines.

Carl Stuart [00:20:10] Okay, fine. Yeah, I think other than in extreme circumstances like the global financial crisis, Fed, the Treasury has a long track record of not being very effective. I mean, when everything went to heck in a handbasket and Ben Bernanke and Hank Paulson at the Treasury basically invented the quantitative easing, that probably, I’m not a historian, but probably kept the financial system both domestically and globally alive. But I think what Treasury Besant showed, not because he wanted to, is you’re talking about a multi-trillion dollar market which is Treasury securities. And not only do governments keep capital there, but they’re also used as collateral for a lot of activities on Wall Street, some speculative, some not so much. And as a result, doing what he did for 10 or 30 or however many billions of dollars frankly was just putting, in my view, just throwing a pebble in the ocean. I think the bond market is going to do what global investors think about the outlook for inflation, the outlook for the federal deficit, and the outlook for the U.S. And global economy. So I think he, I don’t know if he learned a lesson. He’s a Wall Street guy. You know, he was on Wall Street. He shouldn’t be too surprised by this. As it regards, every year what Bob’s talking about for everybody else is the Kansas City Federal Reserve hosts a confab in Jackson Hole, Wyoming. And it’s extremely followed by the financial press. I would say it’s right up there with the Davos a Switzerland conference every year. This is a particularly unique one, and Bob knows this because he obviously followed this. This will be Kevin Warsh’s, the new head of the Fed, first opportunity to be at that conference and to make public remarks. I mean, he’s going to have to make the public remarks based on what he said so far. I think he’ll likely disappoint people who are looking for hints at upcoming Fed policy, because he said out loud, he thinks his predecessors talked too much, gave away too much. Talked about where they thought the direction of interest rates were going. They had this thing called the Fed dot plot where all the members of the Federal Open Market Committee speculated, in my view, predicted in their view the future direction of short-term interest rates. I think he’s going to say none of that kind of thing because he’s been very, even during his testimony in front of Congress, he said, I think that we need to let the market speak and not have the Fed speak. So I think we need temper our expectations. I think if the market, that is, if investors think somehow that he’s going to raise interest rates. I think you can see a fairly significant sell-off in fixed income. I don’t think he’s going to do that. I think because of the latest economic data, I think he can keep his head down and his mouth shut. So there may be disappointment and the markets may reflect that, but I think there’s not going to be any big news because he’s talked about not wanting to make big news, Bob.

Bob [00:23:50] Yep, Carl, I agree with you and I like both men, I think they’re good.

Carl Stuart [00:23:55] Good. Okay. Well, thank you for, you bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. Here is a call. Andy, you are on the air. How may I help?

Andy [00:24:20] Hey, Carl. First, let me say I really appreciate your program. You’re giving me valuable advice to people out there. I don’t have a question so much as I ran across a financial planning tool that I think is really cool. Good. And I thought I’d share that. Sure, sure. Um, you know. I’ve seen financial planning tools before. They have them embedded in your bank app, stuff like that, but they’re always sort of limited in the scope of what they look at and the output is Questionable in terms of like the value. This thing is really great It’s called and I’m not pitching it, but I think it’s so good. I wanted to call him. It’s all called Bolden It costs you like a hundred and thirty bucks a year, but you know if you’re in my position where you’re planning for retirement, you don’t know if you have enough money, or you don t know how long the money will last.

Carl Stuart [00:25:27] Mm-hmm.

Andy [00:25:30] I think it’s well worth it. It did let you connect all your accounts Savings accounts, investment accounts, major financial institutions.

Carl Stuart [00:25:41] Uh huh.

Andy [00:25:42] It goes and knows the current balance. You can put in other assets and debts you have that aren’t reflected there. Real estate, when you plan to sell real estate, if you have mental real estate that you have an expected plan to settle on, or even if you’re planning on moving, like you’re We’re going to retire and we want to move to Canada, you can kind of put that in. Uh, it’ll, it will consider your Medicaid situation based on your age, your Medicare put in. Yeah. I’ll put in, you can put in your, you know, it, it knows why you can’t put in um, your projected uh, social security income, all that stuff. And then you get these graphs that just show you like your burn down rate on what you’ve got in your retirement and you can. We get to see if I think I’m going to spend this much in retirement or have a house that costs whatever in retirement, it automatically just adjusts on the fly and kind of shows you how long your money is going to last.

Carl Stuart [00:27:00] Good. OK. More treatment.

Andy [00:27:02] Advice on things you ought to try to address if it sees a problem.

Carl Stuart [00:27:09] Terrific. Good. Well, Andy, I appreciate it. Thanks for calling. So I would follow up on Andy’s commentary. And he’s right. There are plenty of financial planning tools out there. There a couple of things that if you’re going to do this on your own, there are a couple things that I wouldn’t want to make sure of. Because the real question that Andy’s talking about and that you listeners are interested in is what are the answers to three important questions? How long am I gonna live? What is gonna happen to the cost of living? And what will be the return on my investment? And of course you don’t know the answers to those things. So you can find financial planning tools where you can plug in your age and gender and health status and they will give you anticipated longevity. You can plug in your income and get a projected social security benefit. And there are two or three things I would want to look at. One is, when they say how long will your money last, in my view you want to make sure they’re using something like a Monte Carlo simulation. I know that sounds pretty weird to have something financial planning with the term Monte Carlo, why not just call it the Las Vegas simulation. And nevertheless… It takes into account maybe a thousand different scenarios based on history in the financial markets. You plug in your asset allocation and you plug in the amount that you think you can take out as a percentage or dollar amount and it will give you the probability of meeting success, okay? However, there are also ones that I like which are called gold space because you may put, some will let you put in. I’m gonna buy. A new vehicle in five years, or I want to pay this much to my grandchild’s college expenses, or we wanna help pay for our daughter’s wedding in five year or whatever. So you can actually put in specific goals in addition to the income that you’re going to get, and then it gives you a probability of success. So I think There’s obviously a proliferation of these programs, and I think they’re wise to do, but you wanna make sure that you understand what the assumptions are in there, and also recognize that they have to. They can’t do anything about forward-looking, because that program can’t tell the future any better than anybody else can. So they are backward-looking. And the last thing I would say about these programs. Is that they frequently do not give, if ever, what’s called sequence of return risk. And the best way to describe this is to give you two extreme examples. Let’s suppose that you ran this program and that you retired in 1995, and that the program, that you told the program that you wanted to have 60% of your money in U.S. Stocks. Well, it turns out from 1995 through 1999 that U.S. Stocks, measured by the standard and poor 500, were up over 20% a year, even greater if used than NASDAQ. And you could end up with really healthy withdrawal rates knowing you’re not going to kill the proverbial goose that lays a golden egg. But by the same token, through pure bad luck, you could have retired. At the beginning of 2008 and the S&P 500 peaked a trough drop 55% at the same time that you’re taking money out. Now you’ve got a real problem and it can’t adjust for that unless you input that. So you also want to understand there’s always a sequence of risk, a sequence of return risk when you think about this retirement planning. You’re listening to Money Talk on KUT News 90.5. And the KUT app. Call or text, we have all of our phone lines available. Call or Text 512-921-5888. I’ve got some texts here, so let me look at these. Let’s just see. Okay, I’ve already done that one. Here we go. This is from Alex in Austin. How are shareholder voting rights impacted by the mass investment in exchange-traded funds? What happens is, makes BlackRock and Vanguard and Schwab and Fidelity and all the other sponsors of the big ETFs, which typically so far have been the indexes, the NASDAQ, the S&P 500 and the XUS and the Bloomberg AG. Those companies, those sponsors, are going to respond to shareholder voting. They just are. And so you have raised a really, really interesting topic. There’s some conversation among activist investors that these custodians can be, shall we say, passive. They don’t wanna rock the boat. They may turn over the analysis of the shareholder proposals. To a third party and then it’s that third party’s responsibility and they’re doing this for a fee obviously. I think one of the big ones goes by three letters, ISS. So the thrust of your question is really valid in my view that because of those trillions of dollars invested in exchange traded funds and particularly the index passive funds, You’re going to have a handful of companies being very impactful. Shareholder proposals. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and by the way you can catch past shows at KUT.org slash Money Talk. Call me now or text at 512-921-5888. Here’s the text. Hi Carl, I am 53 years old and married with two kids. We have zero debt, house paid off, congratulations. We are do-it-yourself investors. Index funds? Fine. My wife and I will have pensions. Teacher, I’m 53 years and married, zero debt no mortgage. My wife looks to me like a duplicate. Here we go. I expect to work with a certified financial planner on or before I reach age 60. Do CFPs act as wealth management fiduciaries? In other words, would our do-it-yourself funds get rolled into other investments? P.S. Each of us will have pensions. Teacher and city of Austin. So here’s kind of the lay of the land. There is something called the Financial Planning Association and it has a board and there is a test. That’s a rigorous test. For all aspects of financial planning. And a person then who passes all those can call herself a certified financial planner because it’s true. And the question then is, can you find someone with this designation who will work with you but will allow you to continue to be a do-it-yourself investor? The answer is yes, a qualified yes. Here’s my experience of the marketplace. Doing this on a fee basis in the long term is not a profitable enterprise for the financial planner. This is why many people consider the financial planning process as part of a suite of their services which include management of your investments. Now, it’s a fact based on my observation that people who are younger in the business, whether they’re younger chronologically or not, newer in the businesses who want to build their practice and have few clients may well do what you’re asking for as a way to build a reputation, a source of referrals, and hopefully gather assets because that’s where the profit is. So, if you’re going to do this, What you gotta be? You know, skeptical, or at least careful, that you’re visiting with someone who has experience. I mean, I think you would agree with my life experience, which is if they have passed the exam, they’re obviously bright, and they have made a commitment to it. Do they have experience? Have they had the opportunity to lose money as well as make money, no doubt like you have, in the financial markets? Because that kind of qualitative experience… In my experience is priceless, and so can you find these people? Yes. There is a financial planning association here in central Texas. I’m sure they have a website. You can go there and look at that. I am sure there are many, many people who are members of that, and that’s a good place to start, but I think given the fact that you are a do-it-yourself investor, you and your wife are thoughtful people, you’re educators, you are frankly looking friend educator. And you’re gonna wanna have that face-to-face interaction with them to make sure that it’s a good fit for you. So good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. It’s time for me to take a break. Be a perfect time for you to call or text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:38:17] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:31] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a financial or investment planning question, give me a call or send me a text at 512-921-5888. Here’s a text that just came in. Hi Carl, love your show and your practical advice. Thank you. Here’s my question. I have set up five 29 accounts for each of my grandchildren. Is there a similar tax-free investment that I can use for my four adult children? Thanks, Russ. The answer is kind of yes. How’s that for wishy-washy? In other words, the 529 plan is a statutory plan provided for education money. It grows on a tax- free basis, and provided it comes out for a long list of educational purposes. It is not taxable, but there are things you can do through gifting for your adult children. You can simply put money, write them a check if you want, put money in a brokerage account, and you can invest it in tax-efficient exchange-traded funds which, based on history, don’t distribute capital gains and they must distribute the dividends from the underlying stocks, but you just have them reinvest that and increase their cost basis. It’s virtually then tax-free. And the real benefit is, unlike 529 plans, which are really constrained, as I just indicated, by the purpose for which the funds are used, this is not that case. As long as those assets are held for a year or longer. Your adult children are going to be able to accumulate wealth over time uh… And uh… Be able use it in a tax-efficient manner by doing that so uh… I would encourage them to open an individual account or if they choose and they’re married to joint account that’s their decision you would then uh… You could write them a check they put it into the account or that would seem to be logical, but you could also write it to their custodian or brokerage firm as well. So I think that’s what I would do if I were in your shoes. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here we have call. Linda, you are on the air. How may I help?

Linda [00:41:21] Hi there. So I have an anxiety question. I’m 53 years old. I have my own business and I have about $400,000 in investments. I don’t have any debts at all. And I, I just want to know, am I going to be okay if I stop working around 60 and 53?

Carl Stuart [00:41:46] Probably not. Ha ha ha ha!

Linda [00:41:49] Well, that’s no good. Okay.

Carl Stuart [00:41:52] HAHAHAHAHAHAHAHA

Carl Stuart [00:41:54] Here I am, Debbie Downer. Here’s the way to, here’s the way to think about this. You’re 53. Uh, you’re not going to take social security at least until 62, but generally that’s a very bad idea because the benefit is so small when compared to if you wait until for a full retirement age, which by, by then is probably around 68. And if you weight till 70, it grows at 8% per year. After full retirement age, which is terrific. So the really good news is that you have no financial liabilities, but when you retire, the general thinking is that if you’ve properly invested that money, which means not in the bank and not in CDs because it won’t grow, particularly after inflation and after taxes, your distribution rate, if you’re 65, would be about four percent. So if you have $400,000 and you had it then, 4% of that is $16,000 a year. And I don’t think that’s enough for you to live the way you wanna live. So if think about a target, you think about how much money would I want to have when I close down my business. To live on. And today’s dollars, that’s all we can think about is today’s dollars. Take that number times 25, that will tell you how much you would like to have invested and saved to take a four percent withdrawal rate and not run out of money. You’re a female, you have a very long life expectancy. You’ve got, even though you may, you know, die at 65 or 70, You can’t plan on that and you don’t want to be 82 and broke And so you have to plan on living a long time. So I’m really glad that you have no liabilities. That’s the number one thing, is that you can have maximum control over your expenditures when you don’t have required payments for mortgages or credit card debt or auto debt. So that’s great, but you do have a long ways to go. I will tell you that frankly.

Linda [00:44:12] Okay, alright, well I’ll keep saving and putting it away and investing in my Roth IRA.

Carl Stuart [00:44:22] And I would tell you, your Roth IRA is a great place to go, and then it would be nice if you had kind of two legs to this. You have the Roth IRA, and the good news is you don’t have to take the money out when you hit a certain age, there’s no required minimum distribution. And once you take the amount out, provided you’re over 59 and a half, I know you know this, it’s tax free. The other place is to maybe also put some money away. In a Linda individual account and invest that as well, you have maximum flexibility. You don’t have to wait to 59 and a half. And if you make the same good investments and you wait a year or longer, he comes out at a low tax rate. So you might think about that as Well.

Linda [00:45:04] Yeah, yeah, I do have like my individual Linda, you know, find a Roth and I also have like just a regular Roth and yes, we’ll see. Yeah. Okay.

Carl Stuart [00:45:15] Okay good luck thanks for calling you’re listening to money talk on kut news 90.5 and the kut app call or text 512-921-5888 all right here is the text i haven’t had a chance to Greetings Carl, this came in this past week. This year I worked at our favorite large box Arkansas based retailer, gosh I wonder who that is, for about three months and they just mailed me a check saying to force me out of their 401k retirement plan. This came from Merrill Lynch. It’s addressed to me, I see here, and I think this is a situation where as you suggested before you want to have it made out to Vanguard Trust in the name of blank blank blank. Then I don’t have a tax implication. But let me know, Carl, the check is only around $200 or just a little less. Should I bother worrying about any tax implications on that amount anyway? So bottom line, I haven’t cashed it yet. I’m gonna try to call Maryland if I can. Do, if I could do it, I’m going to ask them to put it in the name of Vanguard in my name or so I’m just wondering if you think it’s the best route because what I’m concerned about is a measly $200 cost some. $800 tax bomb to go off or something and honestly, I wish they had just asked me first if I wanted to be cashed out because I’d like to keep things like that around and roll them over later at my discretion. Thank you. Well, David, you’re right. It is a small amount and employers are allowed to do that when it’s what’s called a de minimis amount and it’s not going to cause you to have a tax bomb. It’s just going to add a little less than $200. To your taxable income in 2026, which frankly is just not a big deal. And so otherwise you would have to go through opening an IRA and seeing if you could put that money in there, even though it came from your retirement plan, it was made payable to you. You might be able to do that. I just don’t think it’s enough money to make a difference. I think if I were in your shoes, I would cash the check and move on down the road. Thanks for your text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have lines available, call or text 512-921-5888. Here’s another one. Hello sir, I love your show, thank you, and I’ve been listening for years, thanks. I have an IRA of $650,000 and I want it to be managed by my broker, he’s charging or she’s charging by one percent. A reasonable, wanting to know, I think, if this is reasonable. So in the more legal jargon, if a person is charging you a fee based on the assets, then she or he is not a broker. When the broker buys or sells a security for you, the broker receives some transaction-based compensation, just like if you buy a house from a real estate agent or real estate broker and they receive a commission based on that transaction. When you are in a relationship with a financial advisor who is charging you an asset-based fee, they’re not a broker, so just for your own information. They may be part of a large company or they may be on their own. The large company may be the registered investment advisor and they’re the investment advisor representative. Or they may have their own registered investment advisory, either under the state of Texas or if they have enough assets under the Securities and Exchange Commission. In my experience, if they’re charging you a 1% fee, that means they also have fiduciary responsibility, which is a very good thing because they have to put your interest before theirs and they have what the law calls a duty of care. Is 1% a reasonable number? The answer is yes. Standard around, if you will, is to have graduated fees. There may be a higher fee on smaller amounts of money, and then a lower fee on larger amounts of money, and then at another step, a lower fee again, so. The marketplace is efficient and so if you’re paying 1% on $650,000 based on my knowledge I think that’s a reasonable fee. 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. Here is a call. Jim you are on the air. How may I help?

Jim [00:50:12] Thank you for taking Mark.

Carl Stuart [00:50:14] Carl you bet

Jim [00:50:16] uh… Retired some years ago i had a four one k i’ve managed it myself i think it’s vanguard and uh… Yes vanguard and uh.. I’d i’d i was kind of playing fifty percent here fifty percent there but i kept doing it for a couple three years and you know what tech is just killing it so i want everything on on tech so i’ve been on tech for three years now.

Carl Stuart [00:50:43] Uh-huh.

Jim [00:50:44] Uh… After retiring and My balance now is about $425,000, and the first year I got $14,000 RMD, then the next two years I got 16,000 requirements and distribution, and my capital’s growing, which is not bad. What I want, my question for you was, I know there’s always risk involved in anything, but is that a, how am I doing? Am I doing average? Great. Could I do better with a… Maybe have someone manage my account? Do you know a ratio?

Carl Stuart [00:51:20] Sure, of course. So what you’ve become is a sector investor and what we call a momentum investor where you saw a particular sector of the stock market and a sector of the economy that was doing particularly well and you placed those chips on there and you’ve been extremely well rewarded. Based on history and my 48 years of doing this, that will not last. And when it, and when it doesn’t last, you will have a massive amount of loss because when things go in one direction for a really long time, there’s something Jim called the reversion to the mean, and I’ve seen this happen in energy I’ve seen it happen in tech stocks. I’ve seen it happen in biotechnology companies. I have seen it happen in so-called consumer non-durables. The benefit of having done this so long is what I’ve learned the very hard way early in my career is good things when it comes to the stock market like what you’ve experienced last longer than any of us anticipate and when they go down It lasts longer than any of us anticipate. You’ve been remarkably fortunate. And because you’re not paying any taxes on gains, I think now is a great time to substantially reduce the exposure, your exposure to that industry and become much, much more diversified. Now, you can do this on your own or you can hire somebody. But what I’ve observed in my career is there are people who just buy their own personality. Are do-it-yourself people, and there are people who are not. And you have to really know yourself before you go and engage an advisor because she or he is gonna wanna take control of this to do what they think is best for you. And if you wanna have a hands-on situation, don’t go to an advisor. Do it yourself because you can do it for next to nothing at Schwab or Vanguard or Fidelity, or you have enough money. You can go find somebody who will work on a fee based on the value of the assets, not a commission, maybe one, one and a half percent of the asset. So if it’s 400,000, that’s between four and $6,000 a year. If you do that, you really wanna understand three things. How are they gonna invest your money? How do they think the world of investment works? What is their investment strategy? Because if that doesn’t agree with yours or it doesn’t make sense to you, That’s the wrong person for you. Secondly, if you hire them, if engage their services, what does a happy and healthy client relationship look like in terms of when are we gonna meet, what’s your communication with me, okay? And third, what is their business model? Do they own the business? Do they work for somebody else? Do they have full range of investment choices? Or do they have a limited range? These are questions you wanna know, but the fundamental one is, I’m a do-it-yourself guy, be a do it yourself guy, but you need to substantially, you’ve been very, very fortunate, you need substantially reduce your exposure to one sector of the economy in my opinion based on my experience, Jim.

Jim [00:54:57] Right that’s great advice i i i kind of knew that and i’ve been writing it it’s like i’ve in writing this way yes you have eventually they get to the shore

Carl Stuart [00:55:07] Yes, it’s going to crash on the shore, and you want to be off the board before it happens.

Jim [00:55:12] Well, as a follow-up question to that, what if, so I’m aware of a stock that I actually have some of this. I have another account, a Schwab account, and I have a stock pays dividends and it pays 1.59, I think it’s $1.59 a share, quarterly.

Carl Stuart [00:55:36] Yeah, I have no opinion. I don’t follow individual stocks. The risk in individual stocks is just too great. I just don’t do that. So you’re on your own there.

Jim [00:55:45] You’re on your own there. Yeah, yeah. This is a utility.

Carl Stuart [00:55:49] Yeah, I mean, utilities, there’ll be periods when they’re great, but in periods of rising interest rates, they’re not so great because they’re dividend payers, they are not growth companies. So, I’m not going to, I just don’t have an opinion on that, Jim.

Jim [00:56:03] Okay. All right. Very well.

Carl Stuart [00:56:04] You bet. Good luck to you. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Luke, you are on the air. How may I help?

Luke [00:56:17] Hi carl thanks for taking my call you bet i’m i’m just i have a mother who is going into assisted living facility yeah uh lots of financial issues associated with that solar home uh in california moving her here to central texas yeah she bought the home for 125 000 Yeah. For over $800. Any recommendations with regards to how to minimize her capital gain stat?

Carl Stuart [00:56:54] First of all, she has $250,000 tax-free, okay? So you take the cost basis, add 250, that’s not taxable. You take the rest of it and you pay the tax. You’d have no choice. There’s no way to do that because that’s a financial transaction. She’ll pay a maximum 23.8% tax on that and you just need to go to an accountant or do that yourself, figure out how much she owes on taxes. Put that in a government money market fund, a Schwab or Fidelity or Vanguard, and then take the rest and either use it for living expenses or invest it. But there’s no way around the fact that she’s going to pay taxes. But if she’s a single homeowner, the first 250 is not subject to tax, and the rest is, Luke, and there’s simply no way round it.

Luke [00:57:44] Alright, is it based on your income? Meaning is your capital gaining?

Carl Stuart [00:57:48] You have to add the capital gain into your income, and that determines what level of capital gain tax you play. You pay. Okay? Thank you, Colonel. You bet, you’re welcome. Just in time, we snuck under the time. I wanna thank Alyssa for doing her usual terrific job, and thank you for listening. And as always, remind you, next Saturday at five, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:58:14] 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.