Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on the importance of tax-efficient strategies like the step-up in basis, dollar-cost averaging when investing lump sums, and maintaining a diversified portfolio across stocks, bonds, and alternative investments. He also addresses broader economic concerns about AI spending, market valuations, and the bifurcated economy affecting different income levels.

**NOTE TO LISTENERS: The audio quality of this episode is poor and can be difficult to understand at times. We apologize for the inconvenience.

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, we’re coming up on our 33rd anniversary, is a broadcast and now also a podcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. It’s a great idea to call or text early in the broadcast. Giving me opportunity to do my best to answer your questions. I take today’s calls first, and then today’s texts, and then previous texts. 512-921-5888. And I got a text at the end of the broadcast last week, and I said that I would answer it this week, because it was important and complicated. Hello, Carl. I managed the finances of a parent with dementia. She inherited my father’s thrift savings, which is approximately $890,000, and making a 6.7% return. 100% of the balance can be withdrawn at any time. She also has her own retirement account at TIAA, which she is worth approximately $1.1 million. It is making slightly better than 6.7%. And has $450,000 available for withdrawal. I’m wondering if we should cash out and reinvest from either of these accounts. Is there any benefit to doing so now that will preserve assets later? She also has $450,000 in exchange traded fund and enough living expenses in cash and CDs for the next five years of living expenses. She is 77 years old. Expected to live five to ten years. Thanks Julia. Well Julia, first of all, see your mom’s lucky that you’re there because I know caregiving is really critical and it’s really complicated and stressful when the person has dementia. So congratulations to you. I have had a chance to about this and I the way I would approach this is how Do you want to think about the taxation? Because the substantial portion of the assets are in tax-deferred accounts. So whatever money comes out of their Thrift Savings Plan, or TIA, will be subject to income tax, because we have to presume that the money went in on a pre-tax basis. So you’ve got to be prepared for your mom to pay income taxes. Yeah. That may be enough of a block to leave it there. However, if you take money out and turn around and reinvest it or the after-tax proceeds, and let’s assume the rate of return is the same, this is a quite attractive rate of return, the money at seven percent will double in 10 years. At six percent it’ll double in 12 years. But here’s the important thing. When we own assets in our own name and not in some type of account like your mom does and we pass away, our beneficiary gets what’s called a step-up in basis, which means that the cost basis that your mom would have disappears and let’s suppose you’re the sole beneficiary for mom’s estate, you then inherit those assets. And your cost basis is not what your mom paid for it, say in 2026 or 2027, but rather what it was worth upon her passing. And that you can then, if you assume a growth of the money, you have really escaped additional taxation. I think this step up in basis, and of course it can be a step down in basis. I mean the value of the assets could decline and she could pass away. But given what you say about her anticipated life expectancy, I think that the odds are the assets would appreciate. Now, because she has TIAA and you say she can’t get her hands on all the money, TIAA stands for Teacher’s Insurance Annuity Association and there is, if you will, a block to full liquidity which I’m assuming she would then, upon her demise, whatever was left would be available for you. But she’s got enough money to live on. If I were in your shoes, I think I might start to take the money out of these tax deferred accounts, TSP stands for Thrift Savings Plan. Start to take them money out and pay the tax that she’s got enough money to live on. Don’t be afraid to pay the taxes out of her savings, out of her CDs, for example, and cash and go ahead and invest it. And then in the future, while she’s still living If you need additional money and if we assume that the capital grows, you can take money from her individual account that’s in her name and take it out at a more favorable long-term capital gains rate. If you choose to do this and she has this individual account like she apparently has now, please make sure that it has a transfer on death item on the account so that upon her eyes that will pass outside. Her probate. So I think that’s what I would do is begin to take the money out. You can keep an eye on her tax liability, but what you’re trying to do is build a larger pool of capital subject only to long-term capital gains taxes when you take the money out and then subject to the step up in basis. I think that would make the most sense. Thanks for the question. You’re listening to Money Talk on KUT News 90.5. And the KUT app, we have all of our lines available and no incoming texts at this moment. We will hear them if and when they come in. Call or text 512-921-5888. If you’re a regular listener, you know that I get month by month Austin metro area market snapshot of residential real estate. Oh, I’m gonna put that aside because we have an incoming call and I always take those. Here we go 9. Judith, you are on the air, how may I help?

Judith [00:07:08] Yes, I really first of all, thank you so much. I’m really in the blind on this one a year ago I bought several tips or inflation bonds And I did cash in to quite a long time ago And hopefully the guy claimed them on my on my income tax Yes, that was reading the implications of all that and it sounds like the third one that I have has not been cashed It’s just been sitting in the face all this time Now, if I were to turn those in, apparently there’s some pretty stiff penalties, not penalties, but taxes that are due on that. Something I wasn’t made aware of, something like you had to pay on the initial amount, even when you invested it and any proceedings. Can you straighten that out for me, and if I was to reinvest it, would that influence the taxes on it? Because I assume now would be a good time. Thank you so much. You’re very welcome. Did I make, did I make sense? Yeah, haha

Carl Stuart [00:08:10] I think you did. Let’s see if I make sense with an answer. Okay, okay, I just want to make sure. Yeah, so what you did was you bought to individual treasury inflation protective securities and they keep up at maturity, they are supposed to have kept up with this consumer price index. The thing that I hope your accountant has done is the annual accrual in value, Even though you don’t get cash may well have been subject to tax. If that’s the case, well, but if he did and that’s the case you’ll have a lot less tax to pay when you turn it in, when you cash it in. So I would go, before I did anything, just so you have clarity about the tax consequences, talk to your accountant and see if you’ve been paying any taxes on the quote accrual or if the taxes are due at maturity. There are other kinds of bonds that are not tips where you buy them at a steep discount to the ending value and then at the end you get it and you owe taxes along the way. Those are called zero coupon treasury securities. And so check with your CPA and see how she or he has been reporting it. If they’ve been reporting that and adding it to your income even though you’re not getting cash flow. Then you’re probably gonna have very little in the way of a tax liability when you turn it in. If on the other hand it’s the accrual has not been taxed, my best guess is it will be taxed when you cash it in, but I think you ought to go ahead and cash it. Now, what you do with the money is really a completely separate consideration. If you want to put it in bonds, or you want it put it CDs, or in a money market fund, or you wanna put it stock fund, That’s a function of what it is you want to accomplish. If you want stay in the bond market, then you can go and purchase a bond fund. And depending on how much money you have, do you handle your own investments or do you work with an advisor, Judith?

Judith [00:10:30] I don’t work with an advisor. I really don’t. I’ve mostly been involved in real estate. Okay. And my outcome has been really very lucky, you know, so far. But I did put this money out. It was recommended by an advisor back when that that would be a good investment, but I was not told about the tax implications. Yeah, yeah, it could be complicated, yeah. Yeah, yeah, I was stunned when I read that because I was thinking of taking it out Now if I live it in the estate and I pass away do the kids get there like the real estate? They would they would get and they would have to pay the tax

Carl Stuart [00:11:11] Yes, they would get a step up on anything that you owned outside of a tax-deferred account, outside of an IRA or an SEP IRA. They would get a step-up in basis. But I’m a little concerned about the taxation and whether or not this bond is continuing to accrue interest or whether or not the bond has matured and you’re making nothing on it. So you need to do some home.

Judith [00:11:36] I’m afraid it’s the second, I don’t know, I didn’t really, I really wasn’t very astute when I did that, about the taxes and everything, so I think I thought if you had it, it went on forever, but apparently of course it’s got an ending time and then it just gets there, so it has done nothing over all these years.

Carl Stuart [00:11:58] Right, exactly. I’m with you. I am for cashing it in. I would just check to see if I’ve been paying accrued income taxes on it or not. I will do that. And then what you do with the money is obviously depends on the usual, how much return and how much risk are you willing to take. But you sound like you’re a smart person, so you can determine that on your own, Judith.

Judith [00:12:22] Well, I’m sort of thinking, I don’t know if I’m able to do it or if this would be a good thing, but I have a self-directed IRA, and I’m wondering, I bought it with income when I was teaching, so I’m not sure if I can put that in. I’d take the tax hit initially, but that might, so to speak, fatten out my account there, and maybe that would be worth it.

Carl Stuart [00:12:47] You could put money in an IRA is are you still working? Do you still have income from work?

Judith [00:12:54] No, I’m retired teacher

Carl Stuart [00:12:56] then you can’t put money in the IRA then. It has to be earnings, it can’t be dividends or interest earnings, you have to have earnings from wages.

Judith [00:13:06] I knew that part, but I just thought if it had been purchased when I was working. No. But you clarified that. No, that doesn’t. That can’t happen. That cannot happen. But you do think it wouldn’t be a bad idea like I am of going ahead and cashing it in. I would, yes. Even though rats. I wish I had had it all these years of accumulating, especially now. You know? That’s a little too late, you know, but maybe someone listening will get something out of this. I still think they were a good investment. Thank you so much, Carl. You’ve been a big help.

Carl Stuart [00:13:39] Okay. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 in on the KUT app. When you have a question, call or text 512-921-5888. Harry, you were on the air. How may I help?

Harry [00:14:00] Hello?

Carl Stuart [00:14:01] Hi! Hi!

Harry [00:14:03] Interested well my great grandkids got some of these new Trump accounts opened up and it’s kind of interesting well I tried number one my granddaughter got them on mine and I had some questions on it, but I tried to put some money into it, and it wouldn’t accept credit cards, it would only take debit cards, and I’m trying to figure out how to get money into them, what is the limit I can put into them and, well, generally, what else? Yeah. To find out about Trump.

Carl Stuart [00:14:46] Well, I’ve got to tell you, I don’t know very much about them because they’re limited to children born within a narrow period of time and so they’re not available for a lot of people. I have not read that there’s a limit as to how much other people can put in. I just haven’t read that’s there’s limit as how much you put in, Harry. The question I don’t have the answer to is how do you fund it? In other words… Do you have to write a check? Can you do a wire transfer or a bank transfer? Obviously you’ve learned they won’t take a credit card. I’ll tell you what, I’ll see if I can do some homework this week because I really haven’t studied them enough to feel like I can answer your question carefully. So stay tuned. I’m gonna have to do some home work on this, Harry.

Harry [00:15:37] And there is one other thing, you said there was a very limited age group that could get them. I think that might not be totally true, they’ll put that $1,000 fund in, supposedly, but I have one that was born, one of the great grandchildren was born within the bracket and there was no problem that money showed up in her account. Good. But the other one was just a year old from the initial dates. They opened the account, but they did not get the funding.

Carl Stuart [00:16:16] Okay, so you can open the account for any child. It’s just the only ones born during that period of time who get the funding.

Harry [00:16:24] That’s what I’m understanding, but yeah, I do need to find the information to have upon it. Yeah.

Carl Stuart [00:16:31] That’s very confusing. All right. Let me do see what I can dig up this week. I appreciate the call, Harry. Thank you. Thank you, have a great day. Bye bye. Okay. You too. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay. Here’s a text that came in. Carl, love your show. Thanks. Please give us your overall view on the economy. And how that might affect your listeners’ investment decisions. Thanks, Robert. Well… I always say, if you’re not worried, you’re not paying attention. I just think approaching investments from a position of humility is the way to go. I have learned, having done this and lost money in every kind of asset you can think of, that making investments because you have some view of the future can be pretty darn dangerous. So now I just, I’m gonna preface it with this. Uh, the big question, frankly, for the U S economy and based on my reading, the global economy is the outlook for spending on artificial intelligence. Right now, countries which are investing in artificial intelligence, and that’s across the board. That’s not just data centers, that’s semiconductors, that servers, that’s all kinds of things. That’s really providing a real tailwind to the overall economy. And you see that in the stock market where a small group of companies have really driven the returns in the U.S. Stock market. So the question that Wall Street’s been struggling with in the last few days, and September was a down month, is… Will this be profitable? In other words, if we’re going, there was one estimate that over, that we’re gonna spend in the next few years, 10 trillion with the T dollars on this, but yet we don’t know how it’s going to play out and whether it’s gonna be profitable. Companies are borrowing billions upon billions of dollars of debt to build up their capacity in artificial intelligence. We don’t yet know how profitable or if profitable it’s is gonna be. And so I would tell you that we’ve had a robust economy. The corporate earnings are just ridiculously good. I was on a call from New York this week with the people at JP Morgan and they said, earnings this year for the Standard& Poor 500 will be up 30%. Now they’re not across the board, of course, that tells you a lot of AI earnings in there. And they anticipate earnings next year growth of 20%. I mean, that’s way above trend. But what we know is we have this, if you will, to use the fancy term bifurcated economy where you have people in the high earning area doing very well and the people in the low earning area really struggling with the rising cost of living. And that’s playing out in our midterm election campaign. I am cautious. I think the enthusiasm over artificial intelligence has stretched some valuations. Now, by most measurements, it’s not like it was at the top of the dot com thing, but it’s still expensive. And I am cautious. I think it’s time to have some other assets that are not exactly linked to the U.S. Stock market. Having said that, it’s entirely plausible that we could have a good year next year, but boy, it is very seldom we have five consecutive good years in the stock market, it really, really is. So I’m cautious. On the general economy, I’m naturally concerned about what’s going on in geopolitics, and I would want to have a balanced portfolio where I could say to myself, okay, if the stock market drops 20% and all these other things I own, whether it’s bonds or cash or CDs or alternative investments, if they hold their value and I drop 20%, how much Is this, are my assets gonna go down? So if I have 60% in stocks and 40% of these other conservative investments and they don’t go down, and the market drops 20%, my overall portfolio is down 12%. Can I live with that? That’s a good way to test your asset allocation. So I would say, I think we’ve stretched the rubber band pretty far. I’m cautious. I recognize Wall Street’s very optimistic about corporate earnings. I’m a little concerned about the enthusiasm. On Wall Street for Artificial Intelligence. Thanks for your question. It’s time for me to take a break. It’s a perfect time for you to call. We have all of our lines available. Or text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:22:10] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:22:24] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. And oh, by the way, you can listen whenever you want to by either going to where you get your podcasts and ask for KUT Money Talk, or you can go to our website. We have a spot there that says podcast. You can find Money Talk and listen to any of those that you would like. Right now, it’s a perfect time to call or text. There comes a text, if I’ve one too. 921-5888. Let’s see what we’ve got here. Carl, I’m looking at a possible market correction. Should I invest in ETFs at this time, wait for the correction, or do a bit of both, assume $200,000 in short-term high-yield savings? Well, there’s an old adage on street about waiting to buy at the bottom which is which is called trying is like catching a falling knife. You never know where the bottom is. And when I have a sum of money that I know I want to grow over time, and I have that three to five year holding period or longer, and what I would do with $200,000 is I would divide that just off intuitively into six parts, and then I would invest every month. Or if you want to take longer every six weeks, maybe but on the same day of the month and I would do it automatically I’d set it up with my custodian or my advisor and the reason I would Do it automatically is it gets the whole market timing? Thing out of the out of just out of way because you can’t time it I mean September has historically been one of the weaker I think the weakest mark a year in the equity market and we’ve had a disappointing September this year But we’ve also, if we closed out the year today, the S&P is up almost 13%, and that’s after three consecutive years of, I think, close to 18 to 20 plus percent. I mean, we’re due for some kind of pullback just because of a reversion to the mean. So I think it’s a perfect time over the next six months or so to dollar cost average. And so I would invest in exchange trade if we’re talking stock funds. I would invest in exchange traded funds. I particularly am cautious about narrowing the exchange traded fund down from say a total stock market fund, a total international stock market, maybe an S&P 500. But I’ve read some things about how the other indexes can be very, very different one from the other. So once you start slicing and dicing and saying, I’m going to do the the small cap value or the mid cap growth or whatever, you’re now starting to get more active choices as to what’s in there and you can have huge dispersion in returns. But as long as you’re going across the total stock market, maybe the S&P, if you wanna take some risks, the NASDAQ, and then the total international. And do that over a six month period to an eight month period. I think that if I were in your shoes, that’s what I would do. Thanks for the text. If you’re listening to Money Talk on KUT News 90.5 and the KUT app, call or text 512-921-5888. Here we go. Okay, here’s another text. Hello Carl, do you answer non-investment questions? My question is how best to protect a credit card? When making online purchases, use payment options like Apple Pay, Google Pay, etc. Or is it safe to use a credit card because it has fraud protections that the others don’t have? Or do you have other suggestions? Thank you. I’m going to tell you that I do answer what I think of as financial planning questions and not investment questions. Here’s my experience and I’m not advertising. I want people to know I don’t work for Mastercard or Visa or American Express or anybody else. But I have used my American Express card and have had good experience with it. I actually go through my, here’s what I do, I go through my monthly statement and last month I discovered that there were multiple charges for Starbucks gift cards and I knew they weren’t mine and so what did I do? I went online and of course you got to sit down and be patient because you know what happens. First thing you do is you talk to a bot and then the bot says, well, I’m going to have you talk to Esther and I don’t know whether Esther is another bot or not and then that didn’t work and I got a human being and I had a very positive experience and the individual said you can continue to use your card and we’re going to send you another card and you don’t have any liability for those Starbucks gift cards. So I’m really comfortable with that. I also think that The security behind Apple Pay and Google Pay is so strong, just like with your bank. They have so much to lose if they get hacked. I think if you stay with the big names like that or with MasterCard or Visa or American Express, my experience has been quite positive. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text, 512-877-9000. 921-5888. Okay, let’s see what this says. I hear it starts by saying grandkid, so I’ve had to stop these accounts. I tried number one. My granddaughter got mine. I don’t know what that means. I’m sorry. Okay. Here we go. Hi, Carl. I have stocks and bonds. You spoke about diversification. What asset categories would you recommend to do not closely correlate to stocks and bonds? What a terrific question. Now I’m going to give you the categories as they appear by Morningstar. One of the things about once you get outside stocks and bonds there’s a lot of jargon and not everybody agrees on what they are. So I think what I do is when I’m looking at mutual funds and exchange traded funds that don’t correlate with stocks or bonds. I go to the categories, the Morningstar categories. If you are a serious do-it-yourself investor, you can buy the entry level, and again I don’t work for Morningstar, you could buy the level Morningstar and get their analysis of a lot of different funds. Or you can just go to Morningstar.com and start plugging in things and you can get some answers there. So what we’re talking about here, and this is really important, is there’s a between diversification and correlation. I’m going to give you an extreme example, but it’s accurate. Let’s go back to 2008, which was the worst year for investors in a very long time. That was what, in the world of investment, we call the GFC, but a global financial crisis. We really, really got to the edge, frankly. If you don’t know that, I suggest you go watch on HBO if it’s still up there. Too big to fail because it’s really powerful, or read the book by Andrew Ross Sorkin. Um If we had had, let’s just take a big number, a million dollars, whether it’s in our own account or IRA or whatever, we’d had money in U.S. Stocks and foreign stocks and high yield bonds and real estate investment trusts and commodities. And let’s suppose, let just suppose they were all passively invested. So we’re not trying to pick a good manager. We own exchange traded passive index funds, for example. U. S. Stocks were down 40%. Peak to trough, they were down closer to 50%, but they were down 40%, international stocks, 50%, high-yield bonds between 25 and 30%, real estate investment trusts peaked at trough 55%. And in the commodities, oil went from $130 to $30 a barrel. You were fully diversified. You had five different assets and you lost your shirt and your trousers and everything else because what happened? Everything turned out to be correlated. With each other positively. So what you’re looking for, this is a sophisticated question. You’ve asked what you are looking for. Are there assets that I can own that like can have daily liquidity? I can follow them that aren’t correlated. So there are, you got three risks. Okay. I’m really digging in the weeds here, but that’s a good question. And if I get a call, I’ll abbreviate this. By the way 512-921-5888. So what happens is you’ve got three risks. The academic terms are equity, credit, and duration. What does that mean? Equity risk means the stock market goes down. Credit risk means that the bonds fail and duration risk means interest rates go up and bonds go down. Okay. So let’s take each of those. If you, let’s start with the easy one, credit risk. I don’t care for high yield bonds as a specific investment, why is that? Not because they’re bad, but when you study their correlation to stocks, it’s extremely high. The last time I checked, a perfect positive correlation is 1.0 and they were 0.84, because they tend to follow corporate earnings and the economy just like stocks do. So the way to eliminate credit risk is not to own a high yield bond fund or a series of high yield bonds. It still leaves you with equity risk because if you’re going to make the money grow, you’ve got to have the money in the equity market. So are there, are there strategies that don’t go down necessarily when stocks go down and the answer is yes. And, um, what, what a Morningstar calls trend following trend following. So, when all that happened in the last time… Was 2022 when the standard of 4500 was down 19% and the NASDAQ was down 33% and the bond market was down between 13 and 14% using the Bloomberg index. These strategies were up between 15 and 20%. That’s trend following. Okay. Then are there strategies that tend to hold value when bonds go down and interest rates go up? The answer is yes. And those are called event driven, event driven. Then there’s another category which is market neutral and they tend to their objective is to deliver a positive return whether stock or bond market is going up or down so those are three trend following event driven and market neutral thanks for the question you’re listening to Talk on KUT News 90.5 and the KUT app 512-921-58. Let’s just see here. I worked for the state for one year. I was surprised at how much money I got in my pension fund. I would be surprised too because generally it really doesn’t add up if you’ve been there a short time. After I left the job, the pension fund told me I needed to reinvest it or pay tax on it. The growth rate is not very good. Meanwhile, my new employer has a 401k plan that is doing well. I recently increased my contribution, I’m 62, would you have any suggestions of what I should do? This is Nick in Manchuk. Nick, see if you can take that money from the pension and do a trustee to trustee transfer to your 401k plan. Start by going to your employer and seeing if they will accept money from state defined benefit plan. If the answer is yes, then go to, you work for the state, go to ESP, Employee State, yeah I think it is, go to the state pension fund and tell them you want to do a trustee to trustee transfer. They should have a form. They must get these requests all the time and if they allow it you can do the paperwork. They will either send the money directly to your current employer or they’ll send you a check made payable to the employer’s 401k plan and you won’t have any income tax consequences. So is it plausible? Yes. Certainly from one 401k to another yes. The defined benefit plan to 401k is a little dicier so see if your employer will participate and then see if the state will do it. 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. Stephen, you’re on the air. How may I help?

Stephen [00:35:55] Uh… That uh… You’re talking about credit cards and then i guess uh… An interesting piece of information of uh… Fidelity honor for decades uh… They came out they came up with that their own credit card about three years ago yeah and they pay they pay three percent you know what the rewards and that three percent goes into the fund of your choice

Carl Stuart [00:36:22] I’ll be darned.

Stephen [00:36:25] And we spend enough that my rewards are about $1,000 a year, which is not a lot of money and the whole thing, but hey, it’s going into a mutual fund of my choice and growing from there. Sorry, just uh…

Carl Stuart [00:36:44] That’s really, that’s really a terrific deal. I bet that I, you know, I prefer to get money to go into the mutual fund, as opposed to get, you know, points to, I don’t know, get an air, get it, you know, you get an airplane ticket or whatever, cause you can really over, over, it over a long period of time, it’s a painless way to, to grow your wealth, isn’t it?

Stephen [00:37:04] Exactly.

Carl Stuart [00:37:05] Well, I think that’s a terrific idea. I’m glad you called me. Thanks, Stephen.

Stephen [00:37:10] You got it, bye.

Carl Stuart [00:37:11] Okay. Thank you. You’re listening to Money Talk on KUT News, 90.5 and the KUT apps. Time for me to take a break. It’s a great time for you to call or text. We have all of our lines available and no new incoming texts. 512-921-5888. I shall return.

Jimmy Maas [00:37:39] Money Talk airs every Saturday at 5 o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:38:09] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:24] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. When you have a financial or investment planning question, give me a call or text at 512-921-5888. Here’s an incoming text. Let’s just get this, see if we can get this open here. Okay, let’s see, we have to work on my phone here. Here we go. Hello, I am a 50 year old solo mom with a 10 month old daughter and I need to create a will for her. I’m getting advice that I should make a revocable trust, but I wonder if that is over complicating the situation just because lawyers want to do maximum thing. I have about 4 and 1,000 in my retirement. Okay So I think what you want to have, you can have a very straightforward will and you want to have someone who will be a custodian for your daughter should you pass away. That’s the most important thing is to have some one step in and be the parent and you have obviously have the best view of who that is. Then secondly you want to have an executor Two, take care of all your affairs and wind up your estate. And then third, if you die and have assets for your daughter, you’ve got to have somebody take care that. And that’s where this idea of a trust comes in, where you can identify a person to be the trustee for the benefit of your daughter. This is not an expensive process. And you can say that trust will exist. Until she reaches a specific age and that’s of your choosing and during that time if you’re deceased the trustee can disperse money and you can say there’s a phrase like, I can’t remember it, my colleague Lindsay does, but it’s a specific phrase that gives the maximum flexibility to the truste to provide for your daughter. So when you have a minor child Even though as a 50-year-old female the odds of death are very, very low, you do have to set these things up just in case something terrible would happen. So I don’t think it’s just really about the lawyer. This is not a fancy, like a living trust or something like that. So I think based on my understanding, that’s probably a pretty good idea. Thanks for your text. You’re listening to Money Talk on KUT News 90.5. And the KUT app. Call or text 512-921-5888. Here’s a call. Nadia, you’re on the air. How may I help?

Nadia [00:41:26] Hi, I have a house that I bought in 2019 and then refinanced and I have a 2.4% APR on my mortgage. And I have, yes, and I have a neighbor down the street in a similar situation, but she wants to downsize and I want to upsize and she has a larger house and I have a smaller house. But we don’t want to give up these low interest rates. We brainstormed and thought maybe we could rent to each other. But I don’t know if you know of any other creative solutions where we could try to retain our lower interest rates and trade out instead of trade out.

Carl Stuart [00:42:14] I have to think about it from the lender’s standpoint, from the lenders that lent you the money on the house and looked at you and looked at the value of the property and said, we’re prepared to lend Nadia that money. There’s no way to transfer that mortgage to somebody else because the lender is not involved in that. And certainly, if you tried to do that, they’d love to get out from underneath that. Cheap mortgage, of course, and lend the money out at 7.4 percent, which is the national average now. There really is no way to do it. I mean, you can rent from each other and that’s strictly the thing about that is the mortgage is still your liability. And I think there’s a little risk because when you go from having your owner occupied to a rent, in theory, the interest rate would be high. I mean, if you went to buy a new house today, Nadia, and you said, I’m moving into this house, this is my personal residence, that would be one rate. If you said I’m buying this house as a rental property, it would be a higher rate, just because there’s greater risk to the lender. So I don’t know of another way around it, because the lender is not going to transfer the mortgage to anybody else. So I think that’s what you and your friend are doing is a creative thing, but it’s still your liability on your house and her liability on hers. I don’t think there’s any other way I can think of, frankly.

Nadia [00:43:47] Okay, thank you for the feedback.

Carl Stuart [00:43:49] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi Carl. I like your show. Thank you. Thanks for the dude called in about the Fidelity 3% card. Good question. How worried would you be having an amount of money much more than FDIC limit? Savings account and Morgan Stanley or another solid bank, I would not lose a moment’s sleep. Here’s what I think of, I go back to the global financial crisis and I mean, if you happen to watch that movie, Andrew Ross Sorkin, when he wrote the book, he went to every person that appeared in that book, whether it was Ben Bernanke who ran the Fed or Hank Paulson, who ran the Department of Treasury. Or the heads of the big banks. And he said, you were in the room, this is what I’m gonna write about that was said in that room. You tell me if that’s your recollection. And he didn’t put it in the book unless they affirmed it was. And what happened was that the government stepped in and shoved money into those bank balance sheets, whether they wanted it or not. In the movie, the Wells Fargo president didn’t want it because You’ve got to have faith in the system. The whole system operates on confidence and faith. You and I both know that if we go to the bank on Monday and we ask for cash for all of our savings and everybody did that, it wouldn’t be there because the bank takes your money and my money and turns around and lends it. Their idea is they pay you one rate and they lower it out at a higher rate and that’s how the money and they pay their operating expenses and hopefully make a profit. So I believe that the big banks… What we call the systemic banks, too big to fail, are completely safe over the 250. Now, to my knowledge, banks, there’s a couple of different things that banks will do. They will participate, I think there was some kind of enterprise called CDARS, C-D-A-R-S, where they can take your money and spread it out among other banks so that you stay under the 250 limit by having CDs in other banks. And when there are smaller banks, where it’s not Morgan Stanley or Bank of America or JP Morgan or whoever, those banks also have a similar program with other banks. So if you really press your banker, you can get CDs from other banks, but my confidence is extremely high for those large, large banks. 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. Carl, how to best not panic? How to best do not panic when the market goes up and down, especially when it goes down. Yeah, I don’t people panic when it goes up. So, I will tell you this. I’ve learned the hard way that the really good news about investment real estate is that you can’t see what it’s worth. Right? I mean, you just can’t and so you don’t worry about it. If you buy a rental property, you can look up online and see how it’s doing. You have some sense of whether your cash flow is positive or not, but you can have your finger on the market. That if you’re in but also You can’t get up in the morning and sell it that day just because you want to. So you ought to get a higher return because there’s something called the liquidity premium. You should make more money when you can’t get your hands on the money. On the other hand, financial assets, stocks and bonds, mutual funds, exchange traded funds trade five days a week and then the way things are going to make trade 24 seven and you can find out what it’s worth. I would tell you, I don’t look at what it is worth. I know that sounds weird, but I just don’t. I don’t even know how the stock market does until I come home at six o’clock and turn on the PBS NewsHour. And they tell me about the Dow, the NASDAQ, and S&P, and that’s it. Because I don’t think it matters. I have learned to take that part of my brain and push it aside. There’s a lot of academic study in the area of something called behavioral finance, particularly two people, Dan Kahneman, who sadly passed away, and a man named Richard Dick Thaler. They both got Nobel prizes for doing a lot of experimental work with people around the issues of risk and reward. And what they learned is when we, when we get tied up looking at our portfolio and we see it going down like it did in 2022, we, we experienced loss at a much greater strength than we experienced gain. In fact, about a two to one. So you look at your portfolio, it’s up 2%. You have that experience. You look at your portfolio, it’s down to 10%. It feels like it’s now 20%. So I have learned to disassociate my feelings, my emotions from my investments. And the best way to do that is to not pay attention. What I wanna pay attention to is do I have the right mix? Is my asset allocation, because that’s the single biggest determinant of the risk I’m taking and the reward I hope to get. Am I taking the right amount of risk for what I’m trying to accomplish? Now, do I periodically rebalance that? Of course I do. If I’ve had a great year in the stock market, and I’m now out of balance with more in stocks than my target, then I can cut back. If I had a rotten year in stock market and now my other investments are a bigger percentage, I can take my, pardon me from them, and invest back in the Stock Market. But that’s a strategy. And so I just don’t, you know, some people look every day, big mistake. Maybe if you want, you can look at your monthly statements, but if that drives you around the bend, then maybe look at you quarterly statements. The important thing is all the planning and coming up with a coherent strategy, implementing the strategy and then don’t look because there shouldn’t be anything that you can do about it. Great question. You’re listening to Money Talk. We’ve got about another seven or eight minutes. We have all of our lines available. No incoming text 512-921-5888. So what I’m going to do is start like I did earlier today and if I get a call or a text I will stop in the middle of this but I do every month get the up-to-date information on the Austin metro area residential real estate market and this is the end of September. The median sales price, this is a pretty big number, $413,000. That’s down 6.3% on a year-over-year basis. The median price per square foot at $205 is down 5.5% year- over-year. And then you go down to the total number of houses sold and the $2,516, that’s down 3.8% year over year. The median days on the market. 86 days, that’s up 1% year over year. The supply of inventories up, that wouldn’t surprise you, given all these other numbers. 5.8 months, that up 3%, 3.6% year-over-year. The number of houses sold above list price, 9.5%. And the new listings are up. Again, that not surprising given the softness of the market, 3,800, and that’s up 4.7% from the same time last month. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Abby, you are on the air. How may I help?

Abby [00:52:17] Hi, so my name is Abby and I am somewhat financially literate. Save in my high-yield savings account. I contribute to my 401k. I also have a brokerage account. Mm-hmm

Abby [00:52:42] I have a life insurance. Mm-hmm

Abby [00:52:45] account and I also contribute to my kids 525 plan. Good. I have a big bonus coming and I am expecting a lot of money, about 200k. Aaron?

Abby [00:53:05] Um in this economy um so i i do have a home um a family home um but i am looking to figure out um i want to invest in real estate um but i’m not sure if it would make sense to with the interest rates um so yeah go ahead and put all of my cash towards the mortgage, so that… So pretty much I wanted to ask, in this economy, if you had that kind of cash that you could invest in, what would you recommend?

Carl Stuart [00:53:43] Okay. So there’s an old statement about real estate, which is all real estate is local. And that’s true because if you’re in an area where the economy is in a long term downtrend, no matter how attractive the price is, you can’t raise the rents. The key to buying investment real estate. Is it, you absolutely believe that you will be able to over the next five to 10 years, be able raise the red. Because if you don’t raise the rent The value of the property is unlikely to go up, because the value of the property, is based on the net profit that a buyer can get from it. So you have to have confidence about the growth of the particular area in which you’re looking, number one. Number two, you have look and see, run the numbers. If I put $100,000 down, or $150,000, what are the operating expenses? This is complicated. What are the operating expenses? Not just the mortgage. But the insurance and what’s about the upkeep and what happens if I have three months without a renter? These are really critically important questions. Right now, we’re in a softer market and you’re right, interest rates are high and in my experience, a mortgage to a rental property will be more expensive than a mortgage for a personal residence because there’s more risk to the lender. So, I’m not talking you out of it, I just think there’s a lot of considerations. And my experience with people who have done very well over the decades with investment real estate are hands-on kinds of people. They have the time and the interest and the desire to manage their property. If they have that and they’ve run the numbers and they have good cash for those when they have a problem with the roof or they don’t have a renter for three months. So be very, very careful that you’ve got that fully considered, because you’ve got to run the numbers and say, can I afford to operate this? Will I be able to make money or will I be losing today in this market with a seven plus percent interest rate on mortgage and a soft market? You better be cautious because you may end up, um, if you don’t, you may end up buying a piece of property that will cost you a lot of money for upkeep. Yourself. That’s my word to the wise. I’m not opposed to it, but you have to really game out what you think the future expenses and revenues are heavy.

Abby [00:56:19] Okay, but besides real estate, do you have any other recommendations on what?

Carl Stuart [00:56:26] Yes, if I had $200,000 and I was a long-term investor, I would divide it into maybe six parts and I would invest in a combination of U.S. Stocks and foreign stocks. I’d probably have 75% in U. S. Stocks, and 25% in foreign stocks if I’m a do-it-yourself investor, then you can go do your homework at the do- it-your-self custodians. The big names are Fidelity and Schwab and Vanguard. And what you want to look for is something called exchange traded funds where you can own the entire U.S. Stock market for next to nothing and it doesn’t pay capital gains taxes. You can own the international market and not have to worry about capital gains taxes and divide the money up and pick a day of the month and put the money in that same day every month whether the stock market is up or down. Based on history, obviously I can’t see the future. That would give you an excellent rate of return. And that’s what I would do if I weren’t investing in investment real estate.

Abby [00:57:29] Okay, what if I what if already I have index funds I already have a brokerage

Carl Stuart [00:57:34] Well that’s good. Keep getting them. There’s no limit to it. I still think that’s a good idea because you’re diversifying across the global economy as long as you’ve got that international exposure. I’m sorry, we’ve got to close the broadcast. I’ll hang up. Thank you for your call. And I’m going to have to say to Evan and to Ian to call back next week and for everybody else, as I always say, oh I forgot, thank Alyssa for doing a terrific job. Thank you for listening. The next Saturday at five o’clock, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:58:06] 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.