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Carl takes caller and text questions on the importance of consolidating when it comes to retirement accounts, social security benefits, and how to put away money for the futures of your children.
The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.
KUT Announcer: Laurie Gallardo [00:00:02] This is Money Talk with Carl 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 [00:00:21] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Thanks for listening. We’re now in our 32nd year here together. Money Talk is a broadcast about the world of financial and investment planning, where you always determine our agenda by calling or texting 512-921-5888. It’s a terrific idea to do so at the beginning of the broadcast, giving me, I hope. Ample time to answer your question to the best of my ability. If you’re a regular listener you know that I take today’s calls first and then today’s texts and then any other texts that I’ve received and haven’t had the opportunity to answer. So we have all of our lines available and you can text me you will hear it come in on the phone at 512-921-5888 I did get a text today before the broadcast, so let me just go to that. It says, Carl, I’m a new listener so I apologize if you’ve addressed this in the past. I’m 67 and wondering whether to wait on taking my Social Security retirement benefit or take it now. I don’t need the money for living expenses at the moment, but I’m thinking it would offset my Medicare premium payments. I’ve heard both sides, that take it while you can, since we don’t know what the future holds, or hold out for the higher monthly payment. Thank you, Mary, you’re welcome. So, my general rule of thumb, unless you have some life-shortening disease, is that if you can live without the Social Security benefit, that when you’re in someone’s and your age cohort, I recommend you wait till you’re 70. And the primary reason for that is that the benefit from full retirement age until age 70 grows at a remarkable eight percent per year and that’s a guarantee and there’s no investment that you can guarantee and get eight percent per year. Now anyone who’s paying attention shares your concerns about the viability of social security. I happen to think that based on American history and my own life experience, that Congress will not do anything until it’s almost too late, and then something will occur. But I think people who are in your age cohort do not have to be concerned about losing the benefit. Also, I think the benefit of waiting until 70 is, when you’re retired, you can’t call Social Security up and say, you know, I wish you’d increase my, increase my monthly income. That comp, that calculation. Done systematically and there’s nothing you can do about it and if it doesn’t keep up with your personal cost of living there’s nothing you do about that. So I think if I were in your shoes I would wait until I was 70. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. We have a call. Larry, you’re on the air. How may I help?
Larry [00:03:44] Thank you carl carl i would say that i’m uh… Pretty pragmatic long-term investor uh… Albany i’d just have the kids in my portfolio and it’s done well i’m also a senior citizen but in thinking a bit about option trading maybe at the head five and never done that before and i want to get your pain on the pros and cons sure of option trading
Carl Stuart [00:04:10] The quote most conservative type of option trading is let’s say you own an ETF on the Standard& Poor 500, and then you sell a call option, and if the Standard& poor 500 during that period doesn’t go above the value that’s called the strike price, you simply keep what’s called the premium. It puts money in your pocket. So it’s a way of enhancing your return, and it’s the most conservative type of option strategy. The other types are really making bets on the direction of a particular asset. When you buy a call, you’re betting that the price of the security will rise. And when you’re buying a put, you are betting on the fact that you think the security’s will fall. And having done this now for 48 years, I can guarantee you that you can’t do that on a regular basis and do it profitably. The challenge on selling what’s called the covered call, which was my first comment, is in a rising market, you can end up losing the security or you have to go back in and buy the option back for more than you paid for it and therefore have a loss. So I’m not a big fan of covered call writing and I’m absolutely not a fan. Of buying calls or buying puts, Larry. So if I were you, I would just stay away, run away as fast as you can and stay away from it, okay? Good advice. Thank you, Carl. You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News in 90.5 and the KUT app. Call or text 512-921-5888. And by the way, I’m gonna try to remember periodically because I usually forget. You can catch past shows. At kut.org slash money talk. And we know that you can listen on Spotify because we had a texter last week who listens because he lives in Italy and listens to the broadcasts when it’s more time appropriate on Spotify. Five one two nine two one five eight eight eight. Here comes a call. BJ, you are on the air. How may I help?
BJ [00:06:27] Carl, I may be making this up, but I thought I heard you say something to the effect of you don’t recommend index funds for small cap stocks. Is that right?
Carl Stuart [00:06:39] Now, what I was talking about is I was talking about an article I read in the Wall Street Journal. And it had to do with how various indexes or indices are constructed. And it took an example of two small cap value indexes. One was a Russell index. And I forget what the other one was, BJ. And they had completely different returns because of the makeup of the stocks and the index. And so what happens is one of them had, because two of the best performing stocks, which were tech stocks, happened to have brick and mortar, so they showed up on their book value calculation. And I think one was SK Hinex, and the other one, I forget, was another tech stock. Whereas the other index fund, small cap value, had a different selection criteria, and consequently had very different returns. I am a fan of broad-based indexes, like the S&P 500, the total stock market, the NASDAQ, the XUS. If you’re going to follow an index that’s not one of those, like the Russell indexes the Russell 3000, 1000, and 2000. That’s probably okay, although I’m not familiar with those, but the minute you start slicing and dicing them, you run into this problem that you can think what you’ve got is one thing when in fact you have something completely different. And that’s what I was talking about, VJ.
BJ [00:08:20] So if I’m understanding you right, you’re saying a Russell 2000 index might be more reliable.
Carl Stuart [00:08:30] Yeah, because somebody’s not making a value and a growth, not putting your fingers on the scale, so to speak, for value or growth. Every year, it’s my understanding that Russell takes the companies and does a market capitalization, which I know you know is the price per share times the number of shares outstanding, and it takes whatever, however many of those should fall into their criteria that come to the total of 2,000, that’s what it is. So if a stock price goes up substantially, then the next time they do the calculation, let’s assume it’s a year later, that stock will no longer be in that index because it’s tapped out. It’s moved from being a small cap to being a mid cap or a large cap. So it’s more complicated than just buying the total stock market, the total XUS, the S&P 500, or the NASDAQ in my experience, PJ.
BJ [00:09:25] Well, this is helpful conversation. Um, I had looked at the returns on some small cap, what they call it index funds. Yeah. And they varied the returns very wildly. Yes, they did.
Carl Stuart [00:09:37] Yes, they do. Yeah, they sure do.
BJ [00:09:42] I’ll take the low expenses, but I’m going to have to take the volatility.
Carl Stuart [00:09:46] Yeah, yeah, for sure. I think you might want to run as fast as you can to the other direction. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here we have a call. Barry, you’re on the air. How may I help?
Barry [00:10:11] Local hi uh… I have a question i you may have heard an answer from somebody but i’m not sure let’s just say a coin collection from like two thousand ten to now
Carl Stuart [00:10:24] Mm-hmm
Barry [00:10:25] And the person said the cost basis, if I go to sell it, is going to kill me. So he says put it in your estate and let my daughter inherit it. And she gets a totally new cost basis. What do you think?
Carl Stuart [00:10:43] Well, first of all, what this person is talking about is generally referred to as a step up in basis. Step up, okay. Step up. And it doesn’t have anything to do with the coin collection. It’s any capital asset. So it could be real estate
Barry [00:11:00] So it’s all action, whatever right?
Carl Stuart [00:11:02] Stock, you have stocks, bonds, mutual funds, exchange traded funds, as long as you own it in your name, right, not in an IRA Roth IRA or anything like that, upon your demise, your beneficiaries new cost basis is the value of the day to your death. So it could obviously, you know, if somebody had, had a stock, somebody had a, I don’t a stock portfolio. And they died in 2008 and they bought it in 2007, they might, their basis might be a step down rather than a step up in basis. I get it. But it’s absolutely, it’s what we call marking to the market. When it comes to publicly traded securities that have daily valuations, it is really simple. When it come to say investment real estate or various commodities, there’s more work. But that is the most effective, the most attractive.
Barry [00:11:57] I put it in my estate, she inherits it, and she gets it valued at when I die.
Carl Stuart [00:12:05] Yeah, and when you say put it in your estate, if you own it, it’s already in your estate. There’s no having to put it into anything. It’s already
Barry [00:12:13] Okay, well, I think the lawyer says it should be specified in there that she gets it.
Carl Stuart [00:12:20] Yeah. No, that’s different. I didn’t say no. If it’s in your state, if you own it, it’s in your estate. The person to whom you want to give it should be, that is a bequest, and that should be in your will. That’s absolutely true. Got it.
Barry [00:12:32] And in fact, it is a good idea, because the value has gone up over 50 to 300 percent. You bet. Step up, huh?
Carl Stuart [00:12:43] Uh-huh, you bet. All right. Hey, good guy.
Barry [00:12:46] A quick quickie if you sell a piece of gold now and it’s like you know three times more yeah who reports that
Carl Stuart [00:12:54] It’s a great question. Here’s my understanding and we’re really out here on the edge. I learned that if you sell something like gold and the sales price is less than $10,000, you’re on your own. That’s not reportable. If it’s greater than that, my understanding is that the seller has to report the transaction. Just like
Barry [00:13:22] Oh my goodness, so you can do it in little bits at a time!
Carl Stuart [00:13:27] That’s, again, I understand this. I’m not a lawyer, but that’s the best answer I can give you.
Barry [00:13:37] So if you just do it in drizz and dreds, nobody knows anything, yeah?
Carl Stuart [00:13:40] You would you would be under the 10,000. That’s my understanding. Yeah
Barry [00:13:44] You earned your wages today. Thank you. Okay.
Carl Stuart [00:13:48] Okay, thank you. I paid the big bucks here. You’re listening to Money Talk on KUT News 90.5 and the KUT app. If I’m wrong in that $10,000 and you’re an expert, don’t hesitate to call. And if you’re not an expert on that but you’d like to ask a question, call or text 512-921-588. Here is a call. Chris, you are on the air. How may I help?
Chris [00:14:17] Hello carl thank you for taking my call one thing before i ask you my question i’m under the uh… I am under the understanding that when someone would still gold as this fellow was talking about if he continues to put it under ten thousand dollars this will draw some attention from our or the banking system that he’s working with I may be wrong about that. But there’s a certain way that falls under the purview of money laundering. Yes
Carl Stuart [00:14:51] Yes, they’re called AML, they are called anti-money laundering rules. This will happen, I’ve seen this happen where someone was frankly paranoid and he thought he had to sell, whenever he wanted money, $9,000. And he would not, even when he wanted more money, he would break it into smaller pieces. And frankly Chris, what happened was his custodian, whether it was Charles Schwab fidelity or whomever. Fired him, told him we’re not going to bear the liability that you look like you’re trying to avoid and evade the law, even though you’re not, you’re gone. And they told him he had to move his account. So yes, we know banks keep close track of that. Custodians in financial assets keep track, and presumably dealers in commodities like gold have to do that as well. I agree with you.
Chris [00:15:47] Well, now I get to ask my question. Okay. I may be a little long in this, so if you’ll bear with me for a moment and then I’ll hang up and listen to your answer. Okay.
Carl Stuart [00:15:57] Okay, we’ve got about two minutes, so go ahead.
Chris [00:16:01] The past week has been consumed with stories about the bond market. I’m looking at past week’s articles, the one by Stanley Druckenmiller.
Carl Stuart [00:16:12] Yes, that was a great article, yes.
Chris [00:16:15] And the drama between Besant and Warsh, who both worked for Druckenmiller at one point. Yes. And I’m wondering, can you, can you elucidate on what is going on with these guys and what is Sure. Going on with the bond market? It’s full of bad news, it seems.
Carl Stuart [00:16:33] I’ll hang up and listen, Carl. Okay, you bet. You bet. Thanks for calling. Let me just get rid of this. Thanks very much. You bet! So, the Secretary of the Treasury, Scott Besant, announced that the Treasury would be buying some long-term bonds in an attempt when bond price, and when you buy enough something, guess what? The price goes up. That’s supply and demand. And that would cause bond prices to rise, longer maturity and yields to fall. Okay, that was the theory. It worked, they went up, the yields went down and then they came back, so it was partly it worked. The controversy is that that whole strategy was designed to help out when there was a liquidity problem in the longer end of the treasury market. Where the treasury would step in if somebody wanted to, some institution wanted to sell and or buy and they would make a market in those longer term securities. It’s not designed based on my understanding and reading of what Mr. Besant did. The thing about what Kevin Warsh is talking about is he’s the chair of the Federal Reserve. They’re responsible for monetary policy. They have two mandates, full employment, and inflation and their inflation targets two years and it’s been over five years above 2%. And he spoke as much as anyone expected him to speak last week in Jackson Hole, where he said that they would allow the data to tell them that there weren’t enough data points now to suggest where they were going on interest rates and he wasn’t gonna tell anybody anyway. But the market believes that, based on the futures market, that he and his comments increase the odds of a Fed fund rate going up sometime between now and the end of December. So is it confusing? Yes, it’s confusing. One commentator said that Besant behaved like he slapped Warsh in the face. This is all inside business and politics, so we’ll just have to see how it plays out. Thanks for your question. It’s time for me to take a break. It’s a perfect time for you to call or text 512-921-5888. Stick around, I’ll be back.
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KUT Announcer: Laurie Gallardo [00:19:41] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:19:54] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. And when you have a question, call or text, you hear that, that’s a text. Call or text 512-921-5888. Here comes a call. Tony, you are on the air. How may I help? Hi, Carl. Hi.
Tony [00:20:18] My question is this, I’m 64 and I want to retire at 67 and I’ve never been, I am not an educated investor in investing and I have never been good at choosing investments. And the question is, I have always been a fan of target date funds just for their simplicity. That’s true. Right now I have a 20-30 target date fund. I had it with my 401k and it seems to do okay and I’ve now rolled it all into a fidelity account. But how do you feel about target date funds investing in target date funds solely? Sure.
Carl Stuart [00:21:05] So for everybody else, what Tony and I are talking about really goes back to before target date funds and the department of labor was looking at how people in 401k plans and four or three B plans were investing. And it was a mess. Uh, a lot of people stayed in cash because they couldn’t figure out what the heck to do. The other thing that was actually worse was they put all their money in. Company stock and they happened to work for Enron and it went bankrupt and they lost all their money and so they encouraged Wall Street to make these funds. Sometimes people call them life cycle funds, others like Tony is saying are target date funds and the concept is, as you point out Tony, it’s a one stop shop. You pick the date that you want this to quote mature and then the company, Vanguard, Fidelity, Schwab, T. Rowe Price, JP Morgan, American funds, whomever they, they. Trade, not a lot, between generally stocks and bonds. And so the key to this is, is it better than sitting in cash or company stock? Absolutely. Having said that, you should really look under the hood to see what that allocation is. You are a young man, and 2030 is only four years from now. And if, if you do this. And you end up with one of these funds that now has you heavily in bonds, that’s, in my view, without knowing your personal situation, that’s a mistake. Because when you think about your retirement, there’s three things you need to know. How long am I gonna live? What’s gonna happen to the cost of living? And what’s gonna be the return on my investments? The obvious answer is I don’t have a clue about all three. But the risk you have is you either outlive your money or the value of your money declines because of the rising cost of living and inflation. So some target date fund sponsors understand this and they will keep you more in stocks longer. Some believe, no, we have to assume this is all the money Tony has and we can’t take stock market risk and we’re going to substantially reduce Tony’s exposure. So the risk is that the asset allocation of the target date fund is not appropriate for you. They’re almost always inexpensive funds, many times with funds like Fidelity and Vanguard and Schwab. They’re index funds, which are very cheap. There’s nothing wrong with the funds, but you better be very comfortable with the asset allocation. One thing you can do is you can say, okay, it looks to me like in 2030, I’m gonna have 75% in bonds and I don’t think that’s right for me is you can pick a target date further out. In other words, you can fool the target date and say, yes, I’m going to retire, but I want a target day 40 or a target a 35 or a targeted day 45, depending upon your risk tolerance and your goals and objectives. So they’re not bad. I just think at times they can be insufficient.
Tony [00:24:38] Okay, so are you talking about a glide path?
Carl Stuart [00:24:42] Yes, I am talking about a glide path. That’s a term that I wasn’t going to use. So that’s exactly right. You can get in a big argument with people in the finance world, the academics, about how you should have an asset allocation. I would just say my anecdotal life experience over the last 48 years is people by and large who have money in the financial markets and have been using target date funds and have had 401ks. Generally have longer life expectancies. They have access to quality healthcare. They’re less likely to have morbidities like obesity and heavy tobacco use. And when you see life expectancy, that’s very different from longevity. And what you don’t wanna do is be 83 thinking, if I don’t die in the next 18 months, I’m out of money. So that’s the risk, the longevity risk is there.
Tony [00:25:35] Okay, so I’m going to consider pushing my target day out further. But then, yeah, I have 400 about $400,000. And what do you feel about just investing everything solely and or should I, you know, get a financial advisor and
Carl Stuart [00:25:54] It’s up to you. Yeah, great, great question. I think the biggest decision for getting a financial advisor is that you have to let go of control. And I always say this, I’m gonna use two extremes. The extreme is a person who’s made her money owning rental real estate. She owns the rental property, she takes care of them, she collects the rent, she goes over and fixes the broken toilet. She’s a do-it-yourself type person. She should never have a financial adviser because should constantly saying to him, why’d you do this or why’d do that? The other extreme is the person who doesn’t wanna do his own taxes and doesn’t want to do his own investing and he wants to turn over that really awesome responsibility to someone who has fiduciary responsibility, they have legal liability and you give them discretion to act on your behalf. So it’s as much of knowing yourself as it is anything else in my experience, Tony.
Tony [00:26:50] Okay, so it would be okay just to put everything into a target date fund.
Carl Stuart [00:26:56] Yeah, if that fits your personality, then that’s exactly what you should do, Tony.
Tony [00:27:01] Okay. Well, thank you, Carl.
Carl Stuart [00:27:02] Okay, you’re welcome. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. And, by the way, you can listen to past broadcasts at KUT.org, Spotify, and wherever you get your podcasts. Here we go. I just dropped a doughnut. Okay, Alyssa, I hope that person calls back. You would think… So for everyone who’s listening, I’m sitting here thinking and answering questions and I go over to the software and I click on the box and I’ve clicked on the wrong one. So let’s hope that person calls back. And now we have all of our lines available at 512-921-5888. Well, you’ve been hearing these texts come in, so let’s go to those. Hi Carl, love your show, thank you. I’ve learned so much from being a regular listener. That’s great. I make all my 401k contributions as Roth because I’m still in my 30s and I like the idea of all that tax-free growth plus the flexibility of no required minimum distributions. Good for you. My understanding is that the employer match is considered a pre-tax contribution. So my question is first, is it possible to convert the employer-match to a Roth in plan and do you think it would be worthwhile to do that? Maybe once a year considering, I personally prefer a Roth over a traditional. So first of all, what we’re talking about here, this person is well-educated. If you have an employer-sponsored plan, if it’s a for-profit company, a 401k, that plan may or may not have a Roth 401k option. If you put money from your paycheck in the Roth 401K option, there will be no tax deduction for you. The money will grow. As you say, with no taxation, and when you retire or you leave that employer, you can then roll that over to your own Roth IRA, and then when you take the money out after five years or longer and you’re over 59 and a half, there’s no income tax on that, and you are not required to take that money out when you’re in your 70s. The employer match is always pre-tax. Now, that you… The question you ask, I’ve never been asked, and the one place to go to make sure of this is go to your employer and ask, may I convert my employer match to my Roth 401k and pay the taxes? Frankly, I am skeptical. If you can do this and you’re a regular listener, if your employer says yes, please contact me, send me a text next week or whenever you can. I’ll share that with our audience. I’ve never been asked that, and I’d be very pleasantly surprised if you’d be allowed to do that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hello, you’re on the air. How may I help?
Mother [00:30:24] Yes, I am out of Texas and I have very little to no means but we have a child and I have you know maybe five eight thousand dollars that I could dedicate to trying to set something up for her future. She’s you know around the age of five and I’m just wondering what general advice you have for setting something up.
Carl Stuart [00:30:47] Sure, so There are two or three options. The one that has been around the longest that I’m not particularly fond of is that you can set up a custodial account where you’re the custodian and the child is the beneficiary under the Uniform Transfer to Minors Act, UTMA. The money grows if it has any dividends or interest. You said we, so I’m assuming you’re married filing jointly. It’s your… Dividends and interest are your tax liability and when the child turns 21 They own the assets now. Here’s why I don’t like it. It’s important. I know you know this I’m not talking about your wonderful child. Let’s just use mine. For example I didn’t know at five if they a would want to go to college could go to College or if they’d prefer a life of sex drugs rock and roll and so I didn’t want them at 21 because I remember how remarkably stupid I was when I was 21. Now granted, I’m a boy, so that’s even worse. Nevertheless, I didn’t want that money to be their property. So let’s just assume you’re not going to do that. You can open a separate account. You go to one of the do-it-yourself custodians like Vanguard or Fidelity or Charles Schwab. You can open an account. And you can call this account education account. So if your name is Jane Smith, you can go with the Jane Smith education account and then you invest as I’m about to tell you. You can open a joint account if you choose with you and your spouse. This way you retain complete control. So if it turns out that you want to hire a tutor for her when she’s in eighth grade, you can do that. If you wanna buy her a used car when she’s 16, you can do that. Or if it turns out that she’s a spectacular student and the best tuba player in the band and she gets a full ride to Harvard, you still got your money. So you retain control of it and it grows over time. Because she’s young, you wanna put this money and this I’m gonna be very particular with you. You’re gonna wanna put this in two exchange traded funds. And you can listen to the podcast. And come back and listen to what I have to say. Two exchange traded funds. You should put 75% of the $5,000 in something called a total stock market fund. It’s a total U.S. Stock market find. And the other 25% in a total international fund. These are very, very tax efficient. You’ll have virtually no capital gains tax based on history and the dividend income will be quite, quite small. That way you retain control, the money grows, you have the ability to take it out in any amount that you want, and if you’re fortunate enough to save more money you can add to this education account. This is what I recommend a lot of people do and I think it would be a good idea for you.
Mother [00:34:00] Thank you so much for your time and expertise.
Carl Stuart [00:34:03] You’re very welcome, thank you for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay, let’s go here, let just see. Go back and start with these texts and let’s we get a call. Hi Carl. I currently have converted most of my IRA to cash to $600,000. Because I wanted to lock in the current gains. I now have that amount that I want to reinvest back into an exchange-rated fund. I’m looking at the Vanguard Total Stock Market ETF and the Total International ETF will also consider the same bonds. My question is, how I determine whether to do dollar cost averaging purchases or whether to go ahead and make my purchases outright now that the market seems to be elevated. And I’m concerned that it’ll be going down the fourth quarter especially, since it is an election year and I hate to pop by at the peak rather than spreading it out over the next three to six months. I appreciate any input and explanation of when to dollar cost averaging versus an outright purchase. So I have a rule of thumb. And the rule of the thumb is if I have lump sum of money like you do and I was already fully invested and all I was doing was changing investments, then I’m not increasing my risk by going from fully invested to fully invested. But the way in which you have articulated your text, you’ve gone from fully-invested to cash. So if you’re going to do that and you want a dollar-cost average, I think it’s a perfectly reasonable thing to do. As I’ve said on previous Money Talk broadcasts, historically… The third year of a presidential cycle is the weakest of the four. Secondly, you might know, but September is the weakest month of the year. And next is, if we end up this year, if today were December 31st, the Vanguard total stock market, and I am not, not making a recommendation, is year to date up 13.84% and the Vanguard XUS is up 16.65. You should be very happy getting that return after what those two funds have done in 2023, 24, and 25. So I agree with you, given the way in which you asked the question. I would take six months, I would divide the $600,000 into $100,000 pieces. I would pick a date, because I’m not timing the market. I’d make the 10th of the month, the 15th, it doesn’t matter. And you decide your asset allocation. If you’re a regular listener and you’re all stocks, you know my recommendation. If you wanna put bonds to determine how much you want in bonds, you can dollar cost average both into the bonds and into the stock exchange traded funds. Then that’s what I would do based on the way you’ve asked the question and good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available. You’re welcome to text as well. At 512-921-5888. Okay, here’s one. Structured transactions. Keeping transactions below 10,000 separately so as to evade the reporting. That gets you in trouble. And the dealer, if he knowingly participates. Good news. Even if the transactions are below the limit, the profit is still supposed to be self-reported. Chances of one small transaction being caught? Quite low. But still supposed to be self-reported. This is from Cal in Northwest Austin. Cal, thank you very much. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text, oh by the way it’s time for me to take a break. Call or Text 512-921-5888 and stay around for our last segment of Money Talk.
Jimmy Maas [00:38:44] 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 nonprofit 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 [00:39:14] This is Money Talk with Karl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Karl.
Carl Stuart [00:39:28] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. Thanks for listening. When you have a question, call or text 512-921-5888. Here’s a text. Hi Carl, I retired from UT five years ago. I’ve been fortunate and have not needed to withdraw money from my UT retirement accounts. One of my accounts has approximately $140,000 in a TIACREF annuity. It is done really well because about 70% of the funds are invested in equity index funds. I’m considering rolling this fund over into my Vanguard or Schwab account because as I understand it, the fees are quite high, usually on annuity accounts. I’m not sure if I’m paying those fees now, or I will be paying them if I took annuity payments. I don’t see the fees on my statements. Of course not. Part of me, color me skeptical, no no, cynical, part of me wants to just leave it there because it’s performing so well. Would it be best to go ahead and roll it over if I do not intend to take annuity payments? Thanks for your consideration. You bet. So if you like the index funds in the TIA-CREF, buy the same index funds in your own IRA because TIA stands for Texas, not Texas, Teachers Insurance Annuity Association, and CREF stands for College Retirement Equity Funds. And TIA CREFS in business, frankly, to make a profit. And so they can buy really inexpensive index funds. That’s great. But they’re gonna layer it with their operating costs and their profit. So if you rolled it over into an IRA and you were in, I’m just doing this hypothetically, you were a Fidelity or a Vanguard or a Schwab index 500 fund at TIA CRIF, then just replicate that at one of those custodians and you will reduce your expenses because all the academic data indicate that When you are making a long-term investment, and you’re in this investment for, say, five, 10 years, whatever, that the… One of the factors in returns is cost, particularly true when it comes to indexes. You want to get the cost down as low as you can and you can do that. So I don’t see the benefit of staying at TIACREF. I’m glad it’s doing well. It’ll have the same returns if you buy the same or what we call clone funds in your IRA rollover. Thanks for the question. 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. Gary, you are on the air. How may I help?
Gary [00:42:41] Thank you, Carl. I was telling your producer there. Yes, it is a mutual funds versus ETS. Yes. Brokers says that mutual funds, you can’t time the tax consequences, gains or losses that they report every year, whether it be with the ETS, you can decide how to play the games, the loss game. Yes. For saving taxes. I thought that was a pretty good point she made.
Carl Stuart [00:43:11] Well, I think she’s right, but she’s not completely right. What she’s comparing are actively managed stock mutual funds with passively managed exchange traded funds. That’s her primary comparison. And if she’s talking about actively managed equity funds that are in ETFs, she’s, right. But most, and those are relatively new. But if you owned, I’m just going to give you an example. If you owned a Fidelity or a Vanguard or a Schwab S&P 500 index fund, or an exchange traded fund, neither of them would pay capital gains. If you own a mutual fund, let’s just pick a Fidelty actively managed stock fund, like say Contra Fund, or you owned similar Fidelity ETF, the Contra would have to pay. Capital gains distributions, if at the end of their taxable year, they have net gains that are required by law to distribute them, she’s absolutely right, whereas in the exchange traded fund, there’s a mechanism that keeps them from doing it. Having said that, so far, most of the actively managed stock ETFs are not exactly the same for legal reasons as the mutual fund. So if you are Looking at actively managed stock funds compared to actively managed stock exchange-traded funds, she’s right. If she’s talking about passively managed index funds, it does not matter whether they’re mutual funds or exchange-traded funds, in my experience.
Gary [00:44:57] Well, he was just talking about passively managed index any mutual funds or index.
Carl Stuart [00:45:10] Well, if it’s an S&P 500 index fund versus an S& P 500 exchange traded fund, I’ve never seen the S &P 500 mutual fund pay a capital gain. On that, based on my experience, I don’t agree with it. I stand by what I said. If it’s a actively managed stock fund and an actively managed exchange traded fund, the exchange rate of fund will be more tax-efficient. But if you buy the Vanguard and Index 500 mutual fund or the Vanguard Index 500 ETF fund, they’re both equally tax efficient in my experience.
Gary [00:45:51] Okay, the first is passive that I kind of look at there
Carl Stuart [00:45:56] Yeah, that’s the thing you that’s what you have to look at. Active versus passive.
Gary [00:45:59] This is MFS or T-Roll price, you know, type funds, are they actively or passively? Yes, yes. They all have different stuff.
Carl Stuart [00:46:07] Yes, yes. T-Row Price, MFS are actively managed stock and bond funds and now in the last couple of two, three years, they’ve come out with exchange traded funds and if you compare an MFS actively managed stock fund to an Mfs actively managed exchange traded fund, this is where your advisor is absolutely correct. The exchange rated fund is designed not to pay the capital gain. That’s correct.
Gary [00:46:38] Okay? Okay. Thank you, Carl.
Carl Stuart [00:46:40] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We’re running out of time. Oh, we’ve got another 12 or 13 minutes. If you have a question, call or text 512-921-5888. Okay, let’s see here. There’s a text. My mom needs to take her first required minimum distribution this year. She has social security, rental income, and a 401k. She doesn’t need the required minimum distribution income. What is the best way to reinvest and minimize the increase of her tax rate? Would creating a trust help minimize her tax rates? Thanks, Kim. P.S. She does not have a Roth. There is no way to avoid the taxes on a required minimum distribution. Even if she gave up ownership and put that in a trust, there’d still be tax liability. And she can do a Roth conversion with money, but that will not eliminate the required minimum of distribution. The government’s point of view, which is in my view, completely understandable, is the money went in. Her retirement account pre-tax. It grew with no taxes and now they want some of their taxes. That’s the way it goes. So if she’s going to take the required minimum distribution she’ll pay the tax with one notable exception. If your mother is charitably inclined, she’s philanthropically inclined, She’s a regular donor to her church or synagogue, she has special organizations that are Qualified charitable organizations what are called 501 c3 organizations She can take that quality. She can that required minimum distribution and do what’s called a qualified charitable distribution Qcd she can can she goes to her custodian and says I want to make this check payable to the Girl Scouts Okay, then they will send the check directly from the custodians of the Girl scouts or what I prefer They will send the check payable to the Girl Scouts to your mother and then she will be able to take that and either deliver it or put it in a letter so she gets credit. I have seen situations where when people do qualified charitable distributions but the custodian doesn’t tell the University of Texas or Baylor Scott and White or whatever, I’m just making these up, where the money comes from. Now, You’ve avoided, as the taxpayer, the tax liability, but you’re not getting the credit you so fully deserve for your generosity. So I like getting the check, making sure that the institution knows that I’m the one who gave them the money. Qualified charitable distribution. You don’t even have to be in required minimum distribution status. You can do this once you’re 70 and a half, and you can do your full required minimum distributions. You can do up to $100,000. That’s my understanding. So thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay, here’s the text. Let’s see. Hi Carl, I’m a single 60-year-old disabled veterinarian, sorry, veteran, 2,000 monthly from the VA, disability, retired with no other income, only a $4,000 car loan in debt column, $600,000 in stocks, 75% in Apple stocks, oh boy, and $200,000 cash. No 401k or Roth, benefits to setting one up, living simply and looking to spend one third to one half of the year outside the USA in an inexpensive destination like Vietnam. Thinking of buying physical gold to move cash from savings is I have no income, I think I’m capital gains tax free of stock up to 47,000 question mark. Benefits of setting up a Roth or tax exempt gold fund, looking to diversify away from the U.S. Dollar so not interested in bonds. Thanks, that’s a lot of stuff. Okay, first of all, there’s something in your situation called concentration risk. You happen to have been in a terrific performing stock, which is Apple. I would tell you that if… All of a sudden, I were your trustee, and I had a legal obligation for your benefit. The first thing I would do is sell the Apple stock. Now, why would I do that? Is that because I think Apple’s a bad stock, or the outlook for Apple is bad? It’s because a 10% move, when you have 75% of $600,000, a 10 percent move down is thousands and thousands of dollars. We have had three and a half terrific years, thank goodness. You are over-concentrated. Would a professional investor do this? Under no circumstances. Even actively managed stock fund managers that maybe only own 35 companies or 40 companies, that’s considered a concentrated portfolio, they might have 5% of the portfolio. Maybe 6%, but not 75%. The huge risk you have in your portfolio does not have to do with the dollar or gold or anything else. Apple can drop 40%, okay? Well, if you have three quarters of your money in 600,000, you’ve got $400,000 in Apple. If it drops 40%, that’s $160,000. Poof, gone. Do not do this. You have $200,000 cash. I hope it’s in a government money market fund. You can get these at any of the do-it-yourself custodians, Probably paying between three and a half and three point seven percent You have daily liquidity, and on $200,000, 4% over a year is an extra $8,000. So you ought to do that. You can’t do a 401k because you’re not in an employer-sponsored plan, right? And I’d Don’t know, I’m just thinking out loud, your income is not from labor, so I don’t think you can do a Roth IRA, so, I would not do that. I think investing that money in gold would be a huge mistake. I am in favor of owning some gold. I am not in favor owning it in physical gold. I think that’s a big mistake. You pay an arm and a leg to buy it. You pay an arm and a leg to sell it. And it’s illiquid. You can own gold through an exchange traded fund, dirt cheap, for like 0.09% per year in expenses. You can add to it or diminish it easily. And so I would have maybe 7% in an exchange rated fund that owned gold. And then because you don’t want bonds, you ought to take the balance of it. If you’re an active investor, you can select the mutual funds. If you’re not and you want to keep it tax-efficient and not think about it, then you pick one of those do-it-yourself custodians and you do 75% in a total US market and 25% in international and you leave the Apple at a 5% position, you put 7% in gold without knowing your situation more than this. And remember, I don’t make specific stock and bond recommendations because I don’t know you and your total situation. My attorneys are going to listen to this broadcast. I want to be sure I say that, but based on what you told me, 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 the KUT app. I wouldn’t give me a call, but you can give me a text at 512-921-5888. Hi Carl, I have four retirement accounts across my past four companies. Would it make sense to make those into one? I look at it as diversification, but I could be wrong. I think you’re wrong. I think diversification is not the various accounts. Diversification is how the money is invested. I think for simplifying life, and frankly for simplification for your beneficiaries and heirs. You ought to pick one custodian and then you ought to be able to put all the money in there because you’re the same person with the same goals and objectives and you can go ahead and make your, either do it yourself or engage a financial advisor. You’ve heard me say what the decisions are around that but put it in one custodean. It’s gonna make your life much simpler. You are not getting a diversification by being at four different retirement accounts. Thanks for the text. Okay, we’re running out of time. Carl, let’s see, QCD were 100,000 but are now indexed. I think it’s 103. Good, it’s a 103, thank you. I talked to my charity before sending them anything. So they were expecting it and sent me a letter and an email after. That way Fidelity sent the check directly to them. Good, as long as you make sure that they know who you are because I did actually see that happen and it worked out that it was not a good thing. I’ve got one more text, but we are running out of time. So let me just take this opportunity to thank Alyssa for doing your usual terrific job. Thank you for listening and as always remind you that next Saturday at five o’clock, be sure and tune in to Money Talk.
KUT Announcer: Laurie Gallardo [00:57:10] 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.
