Another Busy Q&A Day

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We're coming to a really great financial future. Tom and Don are talking real money.

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And on the fifth day, he answered your questions. Hello, everybody. I'm Don McDonald. Welcome to the Talking Real Money Exciting QA edition. So glad that you could join us on this exciting program. It's always exciting. Just never know what we're going to do, because that's the thing about QA shows. I never know what questions are going to be asked. I just take them in the order they come. And because they keep coming in at a reasonable rate, we are able to continue the five question episodes. We can't stretch to six because that would require a few more questions, but we can do five. You see, I like to keep enough in reserve for another week. That way, I don't have to cut back too dramatically if uh, you know, the question flow trickles. By the way, the typed question flow, holy mackerel, you guys, you do like typing your questions. And I bet a lot of you type type them on this little tiny phone screen. My wife does that. She types everything. Every thought that comes out of her head that goes to somebody else gets typed with either one finger or her thumbs. I don't like typing that way. I don't like typing at all. I prefer dictating. It's so much easier. I dictate a lot. Because uh, you know, the the transcription software is so good. But anyway, uh yeah, a lot of you are writing them. Tom's got a big old stack of dead trees. So um call some in at talkingrealmoney.com, speak some in at talkingrealmoney.com on the question form. Before we get to the questions, um I am going to I'm gonna make a blatant plug for something that I've got in the works coming up in actually just two weeks. Just two weeks. My very first, and this is something I've been meaning to do since I was in high school. My very first novel is coming out. It's loosely based on the life of my great-great-grandfather, John B. Anderson, who um enlisted in the Union Army at 14 years old and fought at Shiloh and Stones River and Chickamauga, and was captured, shot and captured, and uh spent a great deal of time in the notorious stockade at Andersonville, Georgia. Um so I turned that into a fictional novel, and that's going to be available for purchase on the 22nd of May, just in time for Decoration Day. What is Decoration Day? Well, actually, in 1868, the Memorial Day holiday was was was created to honor Civil War Dead, and it was called Decoration Day, became Memorial Day later. And the reason the date was picked, very interesting. The reason the date was picked was because there it was not the anniversary of any major battles. Because they didn't want it to memorialize a battle. So that's when it's coming out. And uh if you like historical fiction, then uh I think you'll like the book. The reviews so far have been really good, very promising. I don't know how to review my own book. You know, I read it and I went, uh, because you after you write it, you gotta read it, and then you gotta write it, and then you gotta read it, and then you gotta write it, and then you gotta read it, then you gotta get other people to read it, and then you gotta rewrite it, and then you rewrite it, you get people to read it, and you rewrite it, and I read it a lot, and I still liked it, but I thought, you know, that could be author bias. I'm supposed to like my own book. So it's called The Line Uncrossed. Uh, the Kindle version is available for pre-order. I think it may be available for pre-order at BarnesandNoble.com. Uh, Amazon, I'm not sure when the pre-order will come up. I don't know that, but it's coming out on the 22nd of May. So check it out. Let's see. Time for questions. Yeah, I know that was a commercial for me. I'm sorry. Let's go to the first one that came in from talkingrealmoney.com.

SPEAKER_00 4:42

Aaron Powell Hi, Don. I sent in a question a couple days ago about uh the so-called youth retirement accounts. And subsequently I heard you and Tom talking about it on the podcast. So that answered a lot of my questions. But what I would like to know is, assuming that your child does not have any earned income and you cannot convert to a Roth IRA, can the money be used to set up a 529? Is it necessary to wait until they're 18 years old? Because at that point it might be a little late in the game to be setting up a 529. I don't even know what the restrictions are on that. But if you can take the money out of the youth retirement account, pay the taxes, and then put it in a 529 before they're 18 years old, that would probably be a big help. That's my question, and I appreciate all your help. Thank you very much for informing us of the pros and cons of these various plans.

SPEAKER_01 6:03

Well, let's start with the fact that as of the date this is being recorded in early May, there is no 530A account. They don't exist yet. Now we do know some of the proposed IRS direction that's going to be taken, but it's not cast in concrete. 529 transfer is not one of them. There is, I can find no provision in any of the proposals, in any of the the talk about these accounts that allows them to be moved into a 529. Yes, they can be moved to a Roth or a regular IRA. Well, when they exist, they can be. But they can't be put into a 529. So here's if you're going to establish a 529 for a kid, the earlier you establish it, the better it's going to be because the longer it, longer time it has to grow tax-free. So the earlier you can do it, the better. But even if you do it late, you'll still get a little bit of tax-free accumulation, particularly on those dollars that don't get spent until the end of the educational process. So there is some benefit to starting them anytime. But the earlier you start them, the better it's going to be. And again, these accounts don't exist yet, so you can't do anything with these things. And we'll see how it shakes out in the final draft and the final, well, the the final proposal. I don't know yet. Thanks so much for your question that she sent in by going to talkingrealmoney.com and clicking on the button that says ask a question. If you have a longer question, you can also click the button that's pretty close by that says meet an advisor, and you can sit down and have a meeting with one of our 100% fiduciary advisors, and they're not going to charge you anything, and they're not going to try and sell you anything. That's not what we do. Okay? All right. And here is the next one.

SPEAKER_04 8:06

Hey, Tom and Don. Mike from Colorado calling. Hey, hey, Don, I just wanted to let you know I went to my first free steak dinner, and of course, it was about annuities. And I just kind of wanted your take on this. This guy that presented it talked about fixed income annuities. And um he basically he wouldn't even use the word annuity. He would use green line as what he was referring to because a chart he showed showed a red line from the for the SP 500 and then the green line that kind of flattened all the uh the big increases and big decreases of the market over the last 25 years. And my question is the the one he talked about was leaving the uh the money in for 10 years, but you got a bonus of 54 percent. And the way he described it was you can put a million dollars in and with the 54 percent bonus, which expires in June, by the way, but you're gonna end up with 1.5 million, and then the limits that he said would be if the market lost money, you would you would have a 0% return. If it gained, he said you'd have a max of 10%. So, you know, a lot of people in that room, I think, were all like, wow, I get to put a million dollars in and they get 1.5 after the bonus, and uh, you know, not worried about all the market fluctuations. Um, but the stake was good, and I I did confront him. I asked him what he he got compensated, and he said 10% was his uh commission, and I I think that was a surrender rate as well. And then I did ask him on because I I know you brought this up on the chart that he showed the SP 500 returns. Um, I asked if it included dividends in in that chart because I thought that would show a larger discrepancy if it did include dividends, and he said he didn't know. And the other thing on the chart, he didn't even have the returns for 2024-2025, which as we know are up market. So that would have showed that red S P 500 line a lot higher in comparison to the green line, which was the annuity line. Anyway, I'll never go to one of these things again. Like I said, the stake was decent, but I think there was a lot of fine print that this guy did not want to go over. And of course, he wanted to set up a follow-up meeting, which I declined. But uh that was my take on the free state dinner on annuities. What do you think, Don? Thanks. Have a good day. Love your show.

SPEAKER_01 11:02

Mike, you did such a good job. And I'm glad you enjoyed the steak. You got something out of all your hard work. This is so great. Everything about this is great because I've gone to these and it and this is it. This is the pitch. It's got the bonus pitch, which is really funny. I'll get to that one in a minute, the 54% bonus pitch. Oh my gosh, this is just full of um quarter truths. They're not even half truths. Let's start, let's start at the very beginning, shall we? First off, it the it's a fixed indexed annuity, not a fixed income annuity. If he said fixed income, he is purposefully misleading because these are indexed annuities. Fixed-indexed annuities, equity indexed annuities, they go under a variety of names, EIAs, FIAs. What they are is a convoluted, complex product that has an annuity wrapped around it that gives you a percentage of the return of some sort of index, generally not the S P 500, which is what they use for comparison purposes, but that's usually not the index they use. It's often something far more devious. But uh let's start with the green line, red line. Green line, red line. You look at the red line and you go, oh my gosh, the stock market is so scary. I can't, how could I be in that? And then you look at the green line and you go, oh, look at how smooth that is, and the returns are just the same. Well, that's lie number one. The red line was probably the S P 500, and it was definitely the S P 500 without any dividends. Because the return on indexed annuities has, since they've existed, historically been in the 3 to 5% range approximately. Right about there. Because they're capped. You see, later on you talked about they in a good year you'll make 10, in a bad year you'll make zero. Well, when you balance out good and bad years, your average annual return is at best probably going to be six percent. But the way they they do this, because they have crediting periods and all kinds of really convoluted stuff, they can get it down in some cases to three or four. And that's buried in that fine print that you would never read. And if you did read it, you would go, what does that mean? Uh so uh the that that's an illusion. Dividends make a lot of difference. Dividends are uh, you know, about two and a half to three percent of the regular annual return to the market. So the 10% that the market's been giving over time, well, 7.5% of that has been growth on average, and two and a half has been dividends. You remember they don't give you the dividend portion of that with these weird indexes. So that's that's lie number one or two. Is that two lies already? Kinda. Uh let's talk about oh, by the way, you got him to admit the commission? Good for you. And you see, usually I'll say eight or nine percent. But I'd like to say ten, because I know it's ten, but I kinda hedge a little bit because ten sounds ridiculously high. But this is how he can afford to buy you a steak dinner, you and the other thirty people in the room. Because one of you buys and he's rolling in dough. And you can see by the pitch why these things are selling like hotcakes. Fifty four percent bonus? What a deal. You don't get fifty-four percent. At least not in real money. Maybe it's kind of monopoly money. Because here's the deal that fifty-four percent can't be taken out ever, period. Cannot be removed. You can't say, Oh, give me my$1.5 million. They will not give it to you because it's not real money. What the only way you get that perceived balance is if you give them the$1.5 million forever. You say, Okay, you take my$1.5 million and you pay me an income off of that. Well, here's what they're gonna do. That$1.5 million, remember the 0.5 is fake. So instead of giving you, say, 7% monthly, they're gonna give you five and a half. They're gonna adjust the numbers so that you think you got more money, but every month you get you still get the same amount as you would have gotten if you gave them all the money and you took out an immediate annuity. This industry is uh the indexed annuity industry, in my opinion, and and I and this is based on information just like this, and of course, all kinds of data and and articles that have been written about this over the years. Indexed annuity salesmen are slimy. They are smarmy. They are they are overcompensated, generally incompetent, I believe, again, because they wouldn't be selling this if they had half a brain. Well, unless they were just greedy. And maybe that's it. Maybe they're not incompetent, maybe they're just flipping greedy. Because I can tell you, if we took all the money that we manage at Apella and we just sold everybody an indexed annuity, we we would all be so filthy, filthy, rich. These things are massively, massively lucrative for the salesperson. Again, one sale, and they're in clover. So, Mike, you did a yeoman's job. Really exceptional work on this one, and you d you deserved every bite of that steak, and I hope you had a good dessert to go with it. Now, we spent a lot of time on that. Let's get to the next question, shall we?

SPEAKER_03 17:09

Hi, Don and Tom. This is Brian from Kerry, North Carolina. I'm a big fan of your podcast. I've also always been a huge fan of Vanguard, but I've noticed they've announced a five-to-one stock split on their megacap growth ETF. It seems a little bit gimmicky to me. And I was wondering if you could tell me your thoughts on how Vanguard is developing as a company and if there's any concerns. I always appreciate your advice.

SPEAKER_01 17:38

Thank you. It would be gimmicky if it was a mutual fund because there are no shares. But when it's an ETF, I get why they're doing it. Stocks split not for any inherent economic reason. Not, you know, it doesn't make them more valuable, it doesn't do anything to the stock. You just have more shares at a lower price. The reason most stock splits are done, most, some are done because they're trying to trick the market a little, but most are done, and Vanguard's is done for the same reason, and they've even said so, to make the price appear more affordable. It makes it easier for smaller investors to get into the ETF because they can buy one share at a much lower price. So I don't know. Yeah, it's about$400, so it's going to be about$80 a share. Think about it. If you're a small investor and you're you're putting$100 a month into an ETF like this fund, which I wouldn't own because it's mega cap, but let's say you were, uh you can you can buy an$80 share every month and put$20 in the money market or something, but you have to wait four months to buy one share at the current price. Because unless you have a broker who do who will do fractional shares. So it just makes it easier. It makes it easier for small investors and it makes the price appear more affordable. It's an illusion. It is a little gimmicky, but not gimmically in any nefarious way. Unlike gimmicky in a nefarious way for those indexed annuities, that's gimmicky in a bad way. This is just a way. Thanks for the question. We still have a couple more to go. Here's the next one.

SPEAKER_06 19:19

And a recent 2025 Retari and listener for two years. You described dimensional and Avantis as having a rules-based investment approach. In the Wall Street Journal recently, I read about something called quantitative investment strategy, which uses AI and other analysis tools to determine investment strategy. Is this meaningfully different from the aforementioned rules-based approach? If so, please describe the key differences.

SPEAKER_01 19:52

Before I get into the differences between quantitative and rules-based or factor-based investing, I just want to make a comment. I take all of the questions that come in because the internet quality sometimes is horrible. And I run them through a program, I've mentioned this before, called Waves Regen. It is an audio cleanup AI. And that question right there was illegible. As a matter of fact, let me just play you a little bit of the original so you can hear the difference. This isn't a plug for them because I pay for the service, but this is fascinating.

SPEAKER_05 20:25

In the Wall Street Journal recently, I read about something called quantitative investment strategy.

SPEAKER_01 20:32

Unbelievable. Wow. That's just an amazing tool. Anyway, on to the question: What's the difference between quantitative investment strategy, quantitative investing quants? Have you ever watched billions? They had the little room that is where the quants lived. Quants are using AI and algorithms and all kinds of data to try to predict where markets or stocks or whatever they might be investing in is going to go. It is a predictive system. The rules-based or factor-based systems that dimensional and Avantish use, they use data, but they use it very differently. They're not trying to beat the market. They are not trying to predict the market. They are trying to apply decades of academic research that has shown certain factors of investments have delivered higher expected returns over time. Not higher returns necessarily, but higher expected returns based on higher returns in the past. So some of those factors are things like value. Those are cheap underpriced stocks or size, small cap. Smaller companies have outperformed over time, larger ones in aggregate. Whether a company is profitable. Or not. That is a factor. If you're profitable, you're more likely to make money. Hmm. Wonder why. And they also have a discipline. They have rules. They won't sell at a certain time when everybody else is selling. They won't re- or they won't move something out just because it leaves an index. They won't, certain stocks are just not allowed, like initial public offerings. So they have clear rules. They're very patient. They rarely trade. Quants trade all the time because they're a prediction thing. They are miles apart. As a matter of fact, they're polar opposites, both using technology. So they're big. There's a big, big, big difference between them. Thanks for your question. And I'm so impressed with the way it cleansed up. Now, the last one of the day. We're running a little long for a QA, but that's okay. It was good stuff. Here's the next one.

SPEAKER_02 22:55

Hi, Tom and Don. My name is Jason. Um, been listening for the last few months. I just wanted to let you know when I got in my car after work yesterday, I went to listen to the latest podcast, War versus Markets, and it was blocked by my company. Um, it looks like there's an E on the podcast due to explicit warnings. Didn't know if you were aware. Now I'm kind of intrigued what you guys had to say. Um anyway, just uh a heads up um for future podcasts. Thank you. Have a good day, keep up the good work.

SPEAKER_01 23:44

Yeah, I'm sure you didn't intend it, but you just messed up my whole afternoon. Because um when I post a podcast, I there's a button on our podcast hosting service that says this episode contains explicit content uh content. I don't check that because we don't say any bad words. Well, um after a great deal of time, there was a long pause between when I finished listening to this call and when I came back to record this. Long, like a couple hours. I've been through every the podcast is marked at my end not explicit. The podcast in its RSS feed is it says explicit quote false, which means no, it's not explicit. Apple shows the explicit box, and uh I know he's listening to Apple Podcasts, by the way. I'll tell you why in a minute. Apple has the explicit box unchecked. So but I see the E on the episode. Now we did talk about war, but not really graphically, and certainly not explicitly, and I've gone through the transcript twice, and there's nothing, nothing at all. So I finally got to the episodic link inside Apple's podcast service, which was difficult to find. Got there, and in the bottom right, there's a button that says explicit content, and it says edited. It says yes, edited. And I click on the edited button and it says, it originally said it was not explicit, but we decided it was. Huh? We decided it was? Sometimes sometimes Apple either throws their weight around a little too much or loses their mind, their collective mind, because there's nothing explicit about it. So I I decided I needed to finish the episode so it gets into the queue. Uh, but we have not solved that particular problem yet. That one episode, War versus Markets, is still marked in Apple Podcasts only as explicit. If you have some explicit restrictions in your system, well, you might want to try listening to it on Spotify or some other podcast service, or just go to talkingrealmoney.com and uh it's shown non-explicit there, and it's not explicit in Spotify and others. Because there's nothing explicit in it. We generally don't do explicit. I mean, we could, we're a podcast, but I've never understood the need to do that. It's not like I'm apprude, I say bad words. But I say them privately. I don't need to say them publicly. There are enough other words I can use. So I try to use those. So thanks for the heads up. Now I have to fix it. Hopefully, Apple, I sent him a nice note. I said, please, there's nothing explicit, please check, please. Hopefully they'll do something, but they don't do anything really fast, so it may take a while. Thanks. Thank you all. Thanks for the all for the great questions and the comment or the heads up. And if you would like to send in more comments or heads ups, go to talkingrealmoney.com, find that little ask a question button or the contact form does the same thing. And uh speak it in. Speak it with a mic. I'll make you sound pretty, but speak it with a mic. Even if your mic's garbage. Even if you have a junky old phone, speak it into the mic. Because Tom gets all the questions. He's got twice as many as I do, and it's not fair. Okay, I'm kidding. Uh and please tell others about the podcast because we really do enjoy having more listeners join us. It helps us out. It also encourages us to stick around for a long time. The more, the merrier, literally. And if you want some help, go to talkingrealmoney.com and click on the Meet and Advisor button. You can get some free help with no obligation, no high pressure sales pitch. Oh, I did check. My new novel coming out on the 22nd is available for presale, only in the hardcover for some reason, not in the paperback, but it is available for resale both as a Kindle and a hardcover on Amazon, and it's available for resale on Barnes Noble and a few other places. So uh if you're interested in a new historical fiction novel written by this guy here, my first novel, check it out. And thanks for listening. And we will, in addition to writing fiction, or I will, in addition to writing fiction, keep talking real money.

SPEAKER_08 28:46

The opinions and views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and our subjects change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions.

SPEAKER_07 29:00

Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy.

SPEAKER_08 29:09

Information presented on the podcast is not personalized investment advice from Apollo Well. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect, or other considerations which might be material to you when entering any financial transaction. Past performance does not guarantee future results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. The podcast is not trying to get you to buy or sell any financial products or securities. Instead, the program is provided as a public service by Apello Wealth, a fee-only registered investment advisor. Apollo Capital L O C D B A Apello Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in the states where it is properly registered, or excluded or exempted from registration. Registration with the SDC or any State Securities Authority does not imply a certain level of skill or training. Apello does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund voted in this podcast. I think I need a nap.