Ep. 2006: Five Questions, No Magic Answers

SPEAKER_07 0:30

I thought for a Friday QA in October, what could be better than a bunch of idiots chanting at a football game?

Friday Q&A Intro

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I shouldn't assume they're idiots. They're just enthusiastic. Hi, everybody. Welcome to the Friday QA edition of Talking Real Money. I am Don. Thanks for joining me for the show. This is how we end the week with you calling in your questions at talkingrealmoney.com. Calling in. It's the best I have. Speaking them in, recording them at talkingrealmoney.com using the little microphone button that you punch and it records. You get like two minutes, and if you go over, just record the next part and I'll edit them together. And then I take them and I plop them in this program after a little digital enhancing to make them sound better, and uh I try to answer those questions for you. Now we have had a bumper crop of questions the past several weeks. The crop is still plentiful, it's just not as huge as it was. So today we're just doing five questions instead of six. Sparse. And since it's October, it is what they call the scary season, you know, the Halloween season. And so if you're looking for some scary stories, not jump scare stories, but you know, classic, kind of scary stories, both classic and some originals, go check out my relatively new podcast on all the podcast services everywhere. It's called Frightly. And it's Halloween stories, scary stories, ghost stories, horror stories, campfire stories, that kind of thing. So check them out. And it's wherever, wherever podcasts are well, where wherever you're hearing this one, I guess. Yeah. Don't been under the weather lately. Cutting some slack. All right. It's time for the QA day to get underway, and let's start with, of course, question number one.

SPEAKER_06 2:46

Hi, Don, Tom, and Roxy. Just started listening to your podcast and feels a great show with lots of solid advice. I love the new

Roth IRA Diversification

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music. My question concerns my daughter, who is in her early 30s, helping her start a Roth IRA by contributing $50 per week. She also has an employer 401k that she contributes to the corporate match. We started by investing in DFAE and A V G E. But now wondering if we should try to diversify to additional funds or let the value of the fund grow first and then maybe invest later on once she has some dollars in this uh new Roth IRA. Thank you.

SPEAKER_07 3:31

Here's the thing with investing new dollars. You invest them as you get them. When they come in, you put them in AVGE. You don't really need any kind of additional diversification if you have AVGE. As a matter of fact, DFAE is maybe overkill. You're overweighting to emerging markets, which makes it a more risky portfolio. I'd probably just leave DFAE alone. Keep it for the overweighting if she doesn't mind that extra volatility, which I think is fine. But just can continue to add money just to AVGE because it is massively diversified. You just don't need anything else. Don't overthink this. Simple is good. Simple is often a lot better because it makes managing the portfolio so much easier, which is why we like these funds of funds like AVGE, which gives you a tilt toward small. It gives you a tilt toward value already. It already gives you emerging markets, which a lot of funds leave out. So you've already got it with AVGE. You really don't even need DFAE, but it's fine. You can leave it alone. Thanks so much for listening, and I hope you keep doing it. And now it's time to go to our

Socialist Markets

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next caller.

SPEAKER_02 4:44

Hello. I wanted to ask a question about socialistic economies. In a socialistic economy, do you even have a stock market? If so, how do they do how well do they do? Any other thoughts you might have about that economic kind of system? I'd welcome your thoughts. Have a great day.

SPEAKER_07 5:03

Well, in a 100% socialist economy where the government owns all the productive businesses, there would be no need for a traditional stock market because there wouldn't be privately owned companies who would be needing to raise capital by selling shares for which they need a secondary market. So um I I guess purely socialist economies don't need them. But there really aren't any pure socialist economies out there, though. Uh there are degrees of it. Uh Nordic countries are are are have a variation on the socialist theme, but you know, with with public benefits and higher taxes to make sure that people don't fall between the cracks, that's their goal. But businesses in Sweden, Denmark, etc., are privately owned. They have stock markets. They actually there have been many years in which both the Danish, Swedish, and Norwegian stock markets have been among the best performing in the world. Uh Sweden actively encourages people to invest in their stock market. And even China and Vietnam, which are probably about the most socialist countries. Well, North Korea, okay? Yeah, North Korea is as socialist as it gets, and they have no private economy, and their economy stinks. Yeah, I wouldn't want to live in an economy like that. I don't think many people would. China and Vietnam say they're socialist, but they have private businesses and they have stock exchanges. I mean, China has thousands of publicly traded companies, one of the world's largest stock markets. I mean, the government controls some of the means of production, but they found that controlling all of them was incredibly inefficient. They're hybrids between socialism and or communism and capitalism. Because you really need capitalism to get people off their derriers and out doing something. So, you know, there's there's no real answer on as to how they do. Kind of socialist economies can do very, very, very, very well for investors. So there's not it's not black and it's not white, like the rest of our life. It's not black and it's not white, but thanks for the question. It was a unique one. Here's the

Treasury Risk

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next one.

SPEAKER_05 7:43

Hi, Tom and Don. This is Jerry from Stowe, Massachusetts. I'm part of the group that really love your musical introductions. It's amazing what you can do with artificial intelligence. I have a question about U.S. treasuries. You always indicate they are the safest investments there are. However, I'm nervous about the size of the U.S. debt, rising interest rates, and the portion of federal income that is now going to debt payments. U.S. voters seem to have no interest in reducing the U.S. deficit. Never mind reducing the U.S. debt. At some point in time, I feel this free ride will come to an end. Any thoughts on the long-term risk of U.S. treasuries? Any suggestions on other investments to protect against increasing interest rates and inflation resulting from a possible collapse of the U.S. dollar? Thanks for your podcast.

SPEAKER_07 8:40

Well, if the U.S. dollar collapses, we uh all we all can kiss our dairy ears goodbye, probably, because the global economy needs the U.S. and the US dollar right now, and I don't think the entire global economy could stand for it. So there would probably be no great investment. Not a one. Uh I tend not to be as pessimistic. We muddle through. There's a solution to this, and it's not a solution anybody likes. It's not a solution anybody likes. The reason we have a very large debt is because we spend a lot of money. And the bulk of the money we spend from our general budget. Remember, from our general budget, that's don't take Social Security and Medicare and factor them into it because they come out of a separate pool of capital, but it comes out of our general budget. That's things like the debt service, as you mentioned. It's a huge percentage of our budget now. Paying off paying interest on the debt. Defense, way up there. It's huge. We spend a lot of money on defense. Good or bad, we spend a lot of money on it. I I mean I believe it's essential. Uh we I mean those two items account for most of the federal budget. Everything else is like nothing. You could you could trim around the edges, but you don't really make a big difference. There's really only one solution. And it's not politically popular. More taxes. I know. People think I'm a socialist because I say that. I'm just being practical. You tell me where the big cuts are that don't involve Social Security or Medicare, because again, they're their own budget, and that don't involve slashing the defense budget. You show me, you sit down with the U.S. budget. Don't just say, oh, it's all that waste. Mmm, where is it? A lot of smart people came in at the beginning of Trump's administration and tried to find it, and they went, whoa, it the waste is missing. What we did is we gutted the IRS, and then they're not doing a great job collecting tax revenue, which isn't good for the budget deficit. Uh, they gutted the federal or the Food and Drug Administration, which was not good for the food supply. They they gutted a lot of the smaller parts of the government that serve a useful purpose, like, you know, drugs and health and uh roads and I hate to say even education, unless we we could leave that all to the states, but then the states are gonna have to raise taxes. So somebody somewhere is gonna have to raise taxes. Somebody somewhere has to pay more. You can't just pay nothing and get all the services we expect. It just doesn't work. Uh so how do you invest against this? Well, inflation, if you're worried about inflation, one of the best places you can invest is in the stock market. Because businesses can raise their prices, and then they have to raise their wages, and then that increases inflation, and then they raise their prices, and we get into that cycle. You remember that. If you're old, you remember that. It was called stagflation several decades ago. We had it. We didn't fall apart. It wasn't good, but the country didn't fall apart. A lot of people thought it was going to. There were survivalists then looking at, you know, piles of gold. There really isn't a good place to go. You diversify globally. If the U.S. economy doesn't do well, maybe one of the others will do a little bit better. You can diversify your bonds globally if you want. Although the U.S. tends to lead. And the nice thing about investing your bonds in the U.S. is that you're your dollar, you're dollar denominated. You don't have to switch currencies back and forth or currency hedge, but you can go international. That that will anything that adds diversification is likely to be helpful. Oh, and I forgot you could also add tips, treasury inflation protected securities if you want to protect against inflation. So there are ways to hedge, and and really it comes down to just owning a lot of stuff. But total protection against a dollar collapse, I just don't believe there is one. I think if the dollar collapses, the global economy is in big trouble, maybe for a while. Maybe forever. I don't know. Thanks for your question. And let's see, we're at number four now,

Widow’s Income Options

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I think.

SPEAKER_03 13:27

Yeah. Hi, Tom and Don. This is Bill from Phoenix. Thanks for a great podcast. I'm trying to help a friend, and here's her situation. She has recently become widowed. She's 67 years old and is collecting Social Security. Her house that she just downsized to is paid for and worth about $250,000. And the only other asset she has is $220,000 in a money market account. She collects $1,500 a month from Social Security and about $800 a month from the interest earned on the money market. But she would like more in order to live more comfortably. She mentions about $4,000 a month would be the sweet spot. She expects to live to be $90 and has no children, so she's not worried about leaving money to anyone after she passes. She mentions investing in an annuity that pays 12% in some crypto. But then she says she's worried about losing what level she has. I told her not to do anything worth her money for the time being, as it's too soon after the passing of her husband. And I do not believe that any annuity will pay her 12% year over year, and crypto is like choosing green on the roulette table. I'm concerned that she cannot afford to lose any principal, but since she is in a money market account, the account will never grow, and the eight hundred dollars she currently receives today will not be sufficient ten, fifteen, or twenty years down the road due to inflation. Do you have any recommendations from the money market account funds other than where it currently is? Even though I do not like them, do you think a reverse mortgage would be helpful in her case due to her situation? Thanks for all you do. Looking forward to hearing your answer.

SPEAKER_07 15:09

Oh my goodness. I hate answers like this because the answer is she can't do what she wants to do. She cannot do it. There is no way in the world she can be sure of spending four thousand dollars a month with two hundred and twenty thousand dollars. Uh yeah, the reverse mortgage is looking very attractive. They're much better than they used to be. So much better than they used to be. Better transparency, better fees, uh they're they're they're just far better products. So yeah, I think that's something that needs to be concerned. She needs to get with the Social Security Office and verify her survivor benefit. Uh, if he made more than she did, if he had a bigger benefit, shit that that's gonna help right there. That that could be you know another thousand a month or more. Um wow, um $2,500 extra a month above what her or $1,500 um is just not possible. Even that 12% crypto annuity wouldn't cover it. No, never, do not do anything with cryptocurrency. Yeah, you're right. It's like going to the casino. Crypto interest accounts don't have any protections associated with them. These things are incredibly dangerous. Um there may be a hybrid approach, and and that might be, for example, take $150,000 and put it in an immediate annuity so that she has $70,000 of money market money for rainy day funds. And that's going to get her total up to, you know, maybe a thousand or more from her savings, and then add to that a reverse mortgage, which, given what she can take out of it, which is probably less than a hundred grand, um, is you know, in an annuity, would add another $700 a month. So she's still gonna be well short of that four thousand. She's just gonna have to adjust her lifestyle to less money. That's the only option. There's no magical income out there, and I would advise against taking any risk with that two hundred and twenty thousand dollars. Any risk. Thanks for the question, and thanks for helping out. And let's go to the

Bond ETF Rollovers

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last one.

SPEAKER_04 17:39

Hi, Don and Ron. I recently purchased six Vanguard Target Maturity Corporate Bond ETFs for my IRA. The maturities are 2027 through 2032. Equal amounts for each year. I chose the reinvestment option. Exactly what happens when each of these reaches maturity. My thought is to reinvest the entire amount for a six-year period as each comes up. Is this something I need to personally administer, or should my broker be able to handle it? Thank you.

SPEAKER_07 18:13

Well, if you if you have someone managing the account, yeah, they should you should be able to give them orders to when each fund matures, each maturity comes due to invest that back out to six years. You just continue the ladder. That's a good idea. You want to make it automatic. And this is just another way to build a ladder with these definite date products. It's a reasonably priced product. The only beef I have with it is that the credit quality is not stellar. 80, 90% of the portfolio is in lower-rated investment grade bonds, triple B A, which are still fine, but they're not the highest quality. They're good and it's well diversified. So I don't have a big beef. I just want to mention that. They're very inexpensive. These are these are big corporations. Goldman Sachs, Microsoft, T-Mobile, Amazon, Apple, you know, these are big companies, and the yield is good. The yield is a little bit higher than you're going to get on CDs, so which makes sense. The risk is higher. So the yield should be higher. But yeah, they a good broker could just make you put in the order in advance, say every time they come due, just roll it right out. Or you can do it on your own. And this is a fine strategy. It's not as safe, but it's good. I don't have any problems with it. Thanks for listening. Thanks for all the great questions. Thanks for all the lovely comments about the music, which folks I truly enjoy doing. Um it's such a fun challenge to come up with something new and uh different. And sometimes they're big hits and sometimes they're not, but they're all kind of fun. And if you want to listen to some of the full-length songs, I decided after making the little short jingles that I wanted to try some full-length money songs since I couldn't find anybody who was doing money-themed music, you know, money music with messages. So that's why I created the Financial Physicist, which is a AI band, band, in quotes, that has an album and a couple of singles out on all the popular music services like Apple and Spotify. So, you know, if you want some money music, it's kind of fun. It's sort of an art prog rock thing. Check it out on your major music service. And of course, check out all my short stories at shortstoryvers.com or uh on your favorite podcast service. And go to talkingreal money.com. Ask those questions. Click that mic button and speak some more questions for me so I have a lot more so we can do longer Friday episodes. And if you want to meet with one of our advisors, even Tom, just go to talkingrealmoney.com and click on the button that says meet an advisor, and you can meet with somebody, and it won't cost anything. You're not even gonna be pushed to become a client. You don't have to go like, I don't want to meet with somebody, they're gonna try and sell me something. No, we're not gonna do that. We help. We believe in help. We've always believed in help. And when we stop believing in helping everybody, that's when I stop doing this. But I don't think that's gonna happen. Thanks for listening. Thanks for being there. Thank you all for spreading the word. Oh, and click follow on your favorite podcast service. Whenever you listen to a podcast you like, click follow. It really, well, it makes sure you get the next episode, and it actually helps the show. So thanks. Take care of yourselves. I'm Don McDonald.

Podcast Disclosures

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The opinions and news expressed in 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.

SPEAKER_00 22:15

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SPEAKER_01 22:24

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SPEAKER_00 22:57

See Apello Wealth, ADB, to any other website for information regarding Appellate's fees and services.

SPEAKER_01 23:02

Apollo Capital, LLC DBA Apollo 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 exempt from registration requirements. Registration with the SEC 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 quoted in this podcast. I think I need a nap.