Fewer Questions

SPEAKER_05 0:05

You're gonna do a really great financial future. Tom and Don are talking real money.

SPEAKER_00 0:11

Well, welcome to another incredibly exciting Friday QA episode. No matter what day you listen, this podcast goes up on a Friday, so we call it Friday QA, which means your questions and my answers. And today we don't have as many as we did last week. Because again, I try to keep enough in reserve for the

Summer Q&A Kickoff

SPEAKER_00 0:35

next week. And as it sits now, we're kind of in the summer question doldrums. And I get it. It is the season for, you know, chillin', taking vacations. We the world sort of slows down in the summer. Uh in most of in most of the world. It's kind of a human phenomenon. Um I I I I guess it's because the weather's nice. Particularly if you're if you're like in Seattle or someplace like that, I get it. You know, finally, June, July, the sun came out. In Florida, we're just hiding indoors. It's too hot to go out. So anyway, I'm here to do the Friday show. Thank you all for listening. We appreciate you being there and send those questions in at talkingrealmoney.com. Actually, speak them in at talkingrealmoney.com, the new talkingrealmoney.com, where you see the little green microphone in the lower right hand corner of your screen. All you have to do is click on that and speak your question. And then it gets answered

Roth Annuity Trap

SPEAKER_00 1:41

just like this.

SPEAKER_01 1:42

Hi, my name is Robin. I have a question about uh whether you think it would be a feasible idea um to convert um an IRA, traditional IRA, into a uh Roth by using a fixed equity annuity that pays a bonus in interest, which pays for the taxes in that conversion over a five or six year period, let's say, um, so that you can avoid paying taxes later, which could add up to quite a bit when that's required to take the distributions. Um, this is for my husband's um traditional IRA, uh, which he has $450,000 in currently, and uh maybe consider doing $300,000 of that. Um, 85% of that's in Apple, 15% is in low-price stock right now. He said he wants to sell the um everything that he has, the $450,000, put it into cash um uh at retirement, uh, because he wants zero risk at that point, which I thought would be maybe not such a good idea. So um I was going to propose this option to him. And what are your thoughts on whether that might be a good idea? I have $300,000 in a traditional and a Roth for $175,000. Um, he'll also have a pension when he retires, and of course, Social Security at full retirement age 67. Um, so what are your thoughts on whether that might be a good idea to do that Roth conversion using this bonus and interest um plan? Thank you.

SPEAKER_00 3:24

Oh, I'm so glad you sent this question in before you did anything. You have a terrible advisor. You you have you have a terrible advisor if someone is suggesting that you use an indexed annuity inside a Roth and is somehow convincing you that this nebulous 20% bonus, which by the way, usually is not cash like now cash, uh, that suddenly you could take that out. Usually that bonus only applies at the very end when you annuitize it, and then they just adjust the payout so that it's not really money, it's funny money, it's play money, it's insurance company money, it's insurance company lying, it's insurance company prevarications. I can't tell you how much I despise most insurance investment salespeople because they lie with impunity, they sell products that are horrible, they return a lot less than they planned, they make 8 to 12 percent commissions that they never disclose. Oh, I'm sorry. This just makes me angry. I see this so often, and it's infuriating, and I despise what these people are doing to their clients and then holding themselves out to be advisors. Somebody who's in a position of trust. If anybody is selling an indexed annuity to anybody anywhere, anytime, they're not a fiduciary advisor. I'm sorry, they are not. Unless somehow they disclose the commission, the fees, the downside, the problems, and you know those all up front. You don't have to read disclosure documents that are 200 pages long. After all that ranting and raving, here's the bottom line. You guys are making and are going to be making a lot of mistakes. Almost everything you've talked to me about is wrong. Going to cash with the kind of security your husband has is a mistake. It's a mistake. It means you don't make any money. Actually, it means if you don't do it right, you guarantee yourself a loss every year as inflation erodes the purchasing power of your money. An index annuity is not the way to go. That bonus is a lie. It's a lie. Can you put it in? Can you put the money in, the three hundred grand in, and then uh take out three hundred and sixty thousand the next day? Of course not. Can you take three hundred and sixty thousand dollars out five years from then? Of course not. Can you take three hundred and sixty thousand dollars out ten years from then? Of course not. Well, the other thing is there's a I guarantee you there's a surrender charge on all that. You're being misled. You're being misguided. You of all people, you honestly, we I don't say this very often. Ma'am, you and your husband desperately you have the assets, you have the pension, you're not getting the plan. You and your husband need, if nothing else, a true financial plan by a 100% fiduciary advisor. They exist. They exist. What you have now does not is not that kind of a person. This is this is a mess. I I mean, all of it's a mess. I don't know what to do in in just this situation. You need real, real help. You do, you need it so badly. Honestly, I would suggest that you and your husband schedule a call, uh a meeting, a free. You're not gonna get pitched anything. You're not gonna get sold an indexed annuity that pays us an eight or nine or ten percent commission or twelve percent commission. You're not gonna get sold anything. Meet with Tom or one of our other advisors, please. I don't say this very often. This is not a plug. This is really a lifeline because you're about to do some bad things. You and your husband are about to do some things that are bad for your future, and I don't want to see you do them. So please go to our website and meet with an advisor and you know, put down meet with Tom. Or any of them, though, are going to be able to help you at least understand what's wrong with what's going on here and give you a couple of ideas as to what you might do right. And seriously, you might want to pay to hire somebody. You really should. Because hiring somebody at one percent per year is gonna be a whole lot cheaper than paying out a ten percent commission and then making almost nothing on your money and ending up backward in retirement. Please, I'm beseeching you to do that. Thanks for the question. Now let's grab the next

Bond Fund in Roth

SPEAKER_00 8:18

one.

SPEAKER_03 8:18

Hi, Don and Tom. Hope y'all are enjoying your Friday. And Don, big congrats on the line uncrossed, your book. I know that's a lifelong effort, and it's a huge deal when you can finish and then share something like that with the public. So big props to you for that. My question today has to do with uh something potentially minor, but asking just in case it ends up being major. My emergency fund or liquid fund, whatever you want to call it, is held at Vanguard, and I have a portion of it in VFSTX. I believe that's the ticker, it's the Vanguard uh short-term investment grade bond fund. And it's in a Roth. I was advised by somebody at some point to do that because right now it's you know relatively small liquid fund. I'm 42, I had to think about that. So, you know, when it grows though, when it when there's a substantial amount of money in there at later points in life, I don't want to be hit with a huge tax thing. I guess my question is, would it be wise to have also have VFSTX in the regular brokerage as well? Because right now I just have the the rest of my emergency fund and a money market fund. Um, and I know that both of those, the money market and the short-term aggressive investment grade bond fund will grow. And there might be tax ramifications at some point down the road. And I just wanted to know if it's wise. I was thinking about buying VFSTX in that regular brokerage, so I'm holding that fund in both the Roth and the brokerage. That's it. Thanks, man. I hope you guys are both having a great uh spring so far. Cheers.

SPEAKER_00 10:07

Thanks very much for the comments. Yeah, it was a it was a it was a labor of love. I'm so glad it's out there. And and what I'm really glad about, and it's not the money, because I'm not gonna make any money on this book. It's not about the money. I'm getting such pleasure from the fact that people are reading it and enjoying it. I've had so many nice comments when people could really just have blown me off and said, Oh yeah, it's fine. I mean, just I'm so touched by it all. Thank you. Taxes, least of your worries. Stop worrying about taxes. Don't even think about taxes. Who cares? You're not making enough money to worry about it. You're not gonna pay much in taxes. And by the way, on a bond fund or a money market fund, outside of a Roth, you're paying taxes along the way. You're not paying taxes after it accumulates. You pay taxes every year on the income. There's no capital gains exposure to speak of. And that leads me to part two. What are you doing with the Roth? A short-term bond fund does not have a place in a 40-year-old's Roth IRA at all. You don't want liquidity in your Roth. You want that Roth to keep going for 30, 40 years, to grow for 30 or 40 years tax-free. You have no tax ramifications whatsoever from a Roth IRA. That is the place where you should be growing your wealth. That's the place where you should have a stock fund. If you're gonna use Vanguard, use VT or something like that. It would be so much better than what you have. Yeah, if you want to use a short-term bond fund as part of your emergency money in your brokerage account, that's where emergency money belongs. That's where short-term needs belong. But only, only for maybe the next year or 18 months of expenses. Beyond that, at your age, you should be looking for growth unless you're horribly risk averse, which I mean it doesn't sound like you are, but you know, I can't tell from your voice. I would definitely go to talkingrealmoney.com and take our risk quiz just to see where your risk tolerance lies. But taxes, stop worrying about taxes. You don't have you're not making enough money to pay much in the way of taxes on your investment portfolio. In your Roth, you don't have any taxation. But you should not be in a short-term bond fund in a Roth. At your age, I don't think any of your money should be in a short-term bond fund. I think your money should be in DFAW or AVGE in your Roth. That's where I think it ought to be. But it depends on your risk tolerance. If you can't stand a lot of risk, then maybe that's not a good choice, but it maybe you have some in a stock fund and some in a longer-term bond fund like BND, but not the short term. That's for super conservative money. Not as conservative as the money market, but pretty darn conservative money. So no. Get the short term out of the Roth. Yeah, sure. Put it in the brokerage. Stop worrying about taxes. Period. Stop worrying about them. You have no real liability. Thanks so much for stopping by, and we still have do we still have two more left? Yeah, I

Windfall and Roths

SPEAKER_00 13:22

think we do. Let's go to the next one.

SPEAKER_04 13:25

I have kind of a complicated uh multi-part question, but I'll try to break it down for you. I uh have 175,000 my uh TSP and life cycle 2040, a 20 life cycle TSP fund, it's a mix, and then I also have um uh some money set aside in other investments, namely A B G V. I have a six-month emergency fund, and I might possibly receive 200,000, possibly, and I was thinking of investing half of it in A B G B for growth and the other half for I want to travel. And so I'm thinking of um maybe instead of uh with the AVGB part, putting that in a regular brokerage or a Roth IRA, or maybe putting my future contributions and my TFP to a to the Roth side, all of my TFP money is in uh PECs deferred.

SPEAKER_00 14:32

Thanks, guys, keep up good work. Okay, the the TFP is is you know, the investment is fine, the the the target date. Um it depends on your current financial situation, your income situation, your tax situation. But you know, if you're younger, Roths are advantageous. If you're not, if the tax deduction doesn't really mean much to you, then being in the Roth is probably better, at least going forward. I don't know that I'd make the change, but yeah, at least going forward. Uh as for the $200,000 nebulous dollars, well, i i if you get it, I mean $100,000 for travel? That's a lot of traveling, but more power to you. It's your money. Do what you want with it. That the travel part I would keep in very short-term vehicles, like we talked about in the previous call, money market and a short-term bond fund, possibly. The uh other $100,000, if it is for long-term purposes and you can tolerate the risk, which it sounds like you think you can. AVGV is very aggressive. That's their more small, more value total world fund. Uh but if you have many years and you're comfortable with volatility, uh the prospects should be good. I mean, it's done it's done well so far. And it and the asset classes in which it invests have had good histories, but again, we don't know the future. But yeah, I I and you could do some, but you can you can't put the whole hundred thousand that you're getting from the two hundred thousand in a Roth. You can only put it in as the contributions are allowed year after year. So you're gonna want to do the bulk of that in a brokerage account, probably initially, and then you could gradually fund your your Roth IRA

Two-Fund Strategy

SPEAKER_00 16:14

from there. Uh hope you get the money. Thanks for the questions. And now let's do the last one.

SPEAKER_02 16:23

What do you think about Paul Merriman's Two Fund for Life strategy, where you use a target date and a small cap value fund. Currently in one of my accounts, I have retirement accounts, I have about 90% in a 2055 Schwab index target date fund, and then 10% in AVUV. Um I like the simplicity of this, and I'm curious to get your take on whether or not this is a good uh set it and forget it strategy. I'm also intrigued by the Merriman for fund strategy, but it seems a little bit more complicated. I appreciate it. Love the show, and I'm about to be 40 years old, too, by the way.

SPEAKER_00 17:09

Thank you. You know, I narrated the book uh about the two-fund solution. You want to be a you want to make a million? I can't remember what the title of it was. I can't recall, but I narrated it. Uh I've been a big fan of Paul's for a long time. And uh the two-fund solution that he has with the target date fund and then a small cap value. The math looks great. I mean, the the back-tested math looked great. Shouldn't say that past tense. Uh and it makes a lot of sense. You've got a portfolio that is automatically rebalanced for you in the target date fund, and then you have this little smidge in small cap value for the crazy, crazy, crazy growth that it has at times provided, and the crazy, crazy volatility that it often gives you, which you have to be aware of. As long as you're comfortable with that, that's fine. I don't think the four fund solution, having four different funds that you rebalance every year, is all that complicated. It's just four funds. But uh Paul always Paul is a an advocate of the Fama French factors uh approach. So he he believes in small cap, he believes in value tilts, and that's basically what all of his portfolios do in various levels of complexity. So the two-fund solution, of course, that's the easiest. And it makes a lot of sense when you think about it, because you've got a target date fund, which is taking care of the stability, the the proper stability in portfolio for most people's age. And they're not a panacea for everybody, but they're they're okay. They're very vanilla. And then you add the small cap value to give you that extra kicker that could really, and and again, looking at Paul's back-tested numbers, has done very well. It would have made you a lot of money. So I'm uh I'm fine with it. I'm good with it. Absolutely. Yeah, why not? Sure is simple.

Wrap-Up and Resources

SPEAKER_00 19:14

And that brings us to the end of another episode. Thanks for all the great questions. It really was a fascinating mix today. And so if you want to ask a question, it's really easy. You just go to our website, talkingrual money.com, and you'll see a green microphone in the corner. Click on it. You record your question. If you don't like it, you can record it again. You can listen back, you send it to me, even if the quality doesn't sound great. I'll improve the quality as best AI can do it, and then we'll put it on a Friday podcast, usually within a couple of weeks of when you call in the question or speak the question. Bear in mind that we don't do shows on market holidays. And so in June and July, there are a couple of those that happen on Fridays, which is actually really good because right now I don't have a plethora of questions sitting in the file folder waiting to be incorporated into a show. So uh probably works out for the best. But please do send your questions in at talkingrealmoney.com. And as I mentioned earlier, if you want to meet with one of our advisors at Apella Wealth, we used to be Vestry, we merged with Appella. We've been doing this for a long time. We've been giving people truly free help for years, over a decade. And that means free. You're not gonna get a high pressure sales pitch. I promise. Nothing. You're just gonna get help because you need it. Now, some of you may need to hire an advisor. We're not the only good one out there, but we're one of the good guys, the fiduciaries, the 100% fiduciaries. Some people may not agree with all of our approaches, but they it's hard to disagree that we are always acting in our clients' best interest. We put you guys first, not us first, you first. We don't make commissions on anything. So uh go to talkingrealmoney.com, click on the button that says meet an advisor. Thanks so much for listening. Please tell a friend or two or ten. Uh check out my uh my my historical fiction novel, The Line Uncrossed. Uh I appreciate all of you who have ordered it. I see a lot of you have. And uh, you know, please do leave an honest review at uh Amazon or I think you can review it at BarnesandNoble.com too or BN.com. But uh yeah, I'd appreciate that so much. I enjoy the reviews. Take care of yourselves. Talk to you again uh what not next Friday, because that's Juneteenth, but the Friday after, where you'll be sending in your questions and I'll be answering them here on Talking Real Money.

SPEAKER_05 22:00

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 are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. 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. Information presented on the podcast is not personalized investment advice from Apollo. 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. Performance does not guarantee feature 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 yourself any financial products or securities. Instead, the program is provided as a public service by the Pellow Wealth, a fee-only registered investment advisor. Public capital L C D B A Pellow 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 expected from registration. Registration with the SEC or any state securities authority does not imply a certain level of skilled training. Apollo 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 TalkingRailMoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast. The lawyers get richer.