Ep. 1996: Growth, Value, and When to Retire

SPEAKER_05 0:09

Your questions, my answer's play. Making money makes sense. Friday to an day. Talking real money.

SPEAKER_06 0:25

That uh maybe the most unusual of all the musical genres that I've discovered in my musical genre exploration, creating little jingle bits for talking

Zoul Intro

SPEAKER_06 0:37

real money. Jingle bits, jingle bits. Uh that is the style of music, the genre, is a French invention, relatively recent in the last uh 50 years, uh, called Zool. I think that's how it's pronounced. They use a made-up language for some of the music, but since you couldn't understand it, I had to put English in for some of it too. Uh, but it's a really unique style of rock. Zul.

Friday Q&A Begins

SPEAKER_06 1:08

Hey everybody, welcome to the uh Friday edition of Talking Real Money, the QA edition, the Don and You get Together edition, kind of Don Solo edition. And you guys have been sending in lots of questions for Fridays. I mean a lot. So we're able to, I've got a couple weeks set aside already so that I'm good for a while with a six question podcast like we're gonna have today. Before we do that, though, just a couple of things like to share with you, because it's just me, so it's a little easier to share. Um, one of my latest projects, writing projects, something I started a while ago when AI was people were starting to get afraid of AI. I wrote an AI-based story that ended up being longer than I thought. It ended up being a novella. I was just writing it for for uh New Tales Told, my original short story podcast, but it was a little long, so I turned it into a special podcast that is just a four-episode serial called Care Protocol. And Care Protocol is now totally done. All four episodes are up, so you can binge it, and it's on all the major podcast services. And speaking of New Tales Told, New Tales Told, which is my original short story podcast, I write stories, but I don't publish them. I don't turn them into something made of paper because that's kind of a pain. I just turn them into podcasts. I narrate, I narrate classic stories on Lit Reading, and then I have a comedy classic fiction podcast called Humorous Stories. Uh then I have one for scary stories in this uh, you know, coming up on Halloween season called Frightly, and Lit Reading, my original one that I've been doing, geez, since like 2018, and New Tales Told, which is in its second season now with brand new stories that I wrote and narrated for it. So check all my little podcasts out. And please, if you like them, please leave a nice review. For example, on one of them, I somebody said I was AI. On Humorous, they said I was AI. That's an AI voice. No, it's me. You can tell. So, yeah. Oh, and by the way, Frightly is brand new. It doesn't have very many reviews. And I think it got like two five-star reviews and one one-star review, which makes the rating look terrible. So help me out. Thank you for all of that. I hope you enjoy the stories, and now I hope you enjoy the questions that came into talkingrealmoney.com by clicking on that mic button. And here is today's first one.

Growth Versus Value

SPEAKER_04 3:51

Hello, Don and Tom. This is Dan from the uh Tahoe area. I have a uh general question for you uh in the past. You guys would talk about value stocks and growth stocks and those indexes or ETFs that may lean at towards a value or towards a growth um kind of idea. And I'm I don't think I fully understand um what the difference is in terms of what individual stocks would be considered growth over value. And I appreciate uh your answer, what you guys do. Thanks.

SPEAKER_06 4:30

It is a really, really good question because we we know it, so we probably don't tell you what it means or they mean often enough. It's a relatively simple process, but I can get how you wouldn't understand it. It sounds a little industry jargonish. Uh a growth stock is a company whose sales or earnings, profitability are growing. They've grow or they're expected to grow faster than average. Uh a growth stock would actually be something like SpaceX. It has no earnings, it's really expensive, but the expectations for growth are very high. It's about expectations. And investors don't mind paying a high price, SpaceX, relative to their current earnings or losses, because they expect greater profits in the future. So they're buying this future expectation. That's a growth stock. A value stock trades at a comparably low price relative to what it's been earning or what its asset value is, its book value. Uh, the market doesn't expect much out of them, so they're not willing to assign that higher earnings multiple to the price, you know, bid the price up because they don't expect, they don't expect the growth to be as fast. Their expectations are low, but there's a lot of underlying value potentially there. And this often is companies that are unpopular for a period of time because they're just what their business is out of favor. You know, they're not in AI. Um, and sometimes people believe problems are worse than they really are, and then you can find value. So there are several measures of value, and there are several measures of growth that are used to build these portfolios. But the the easiest way to look at it is to say a growth investor says, this company looks expensive, but its business should grow enough to justify the high price. A value investor, on the other hand, is saying, this company may not be popular today, but I think it's too cheap based on what it owns and what it earns. I hope that makes sense. Uh it's a it's a very good question, though. And by the way, don't assume that growth stocks are necessarily good companies and value stocks are bad companies. Great companies can end up being terrible investments. Like potentially, let's say SpaceX doesn't ever get uh Starship off the ground regularly. The price today could look very expensive. And troubled companies aren't always bargains. I mean, you know, look at Kodak. It really isn't worth what it used to be when it was a growth company. So the best bet is to broadly diversify. We like a little value tilt, we like a little small cap tilt. The reason we do like those is because those are higher risk factors. Higher risks generally mean higher returns. Thanks for the question. Here's

Choosing Retirement Month

SPEAKER_06 7:42

number two.

SPEAKER_01 7:43

My main question is what tips would you give to people when determining what month to retire? Let me give you my situation. Both my wife and I are in our early 50s, and we plan to retire before age 60. We are both high income earners, and due to living a frugal lifestyle and smart investing, we will not need to claim Social Security benefits until age 70. When I went online to calculate our expected Social Security benefits in the future, Social Security uses the top 35 earned income years to calculate the average index monthly earning, the AMI. Now the problem is both my wife and I will not be working for 35 years due to our early retirement. We'll be working for 31 years, which means we have about four years that will be counted at zero for earned income. In order to minimize the reduction in Social Security benefits, I was planning to work another six months. So instead of retiring in December, we'll work six more months and retire the summer of the following year. So we have one extra year of earned income, but also we have an extra year to contribute to 401k and also get company employer contributions. Are there any other things I am not thinking about in which retiring at a different month may be more beneficial? Thank you.

SPEAKER_06 9:20

Here we go. Your basic Social Security reasoning is good. Yes, they use the highest 35 calendar years. Uh with only 31, you got four zeros. Um into a new if you go into a new calendar year, you'll get your 32nd year and replace one of the zeros, even if you don't work the whole year. Uh it's recorded for the year, not the number of months worked. And because you make a lot of money, you s you might, with that extra six months, reach the taxable maximum. Uh so you know that's what in 2026, what's the taxable max? 184.5, something like that. Anything above that doesn't do anything for you. Um so other timing things? Hmm. Um it really comes down to things that may or may not exist in your situation. Uh if you you might have problems with 401ks if you leave before 55 because of the age 55 rules that exist. Um health insurance could be a problem. Cobra or getting a uh a marketplace plan, you know, that could really boy, uh retiring early and health insurance, one of the biggest, biggest problems in doing so. And it's becoming bigger every day. The prices are going out of sight for people who carry their own insurance. Uh let's see, you know, you gotta you make sure you can front load your contributions to your 401k so that you can get the company's annual contribution. Uh possibility, you know, the HSA eligibility is something to consider. Your vacation, you know, what you've accrued, all that kind of stuff. So, yeah, I mean, don't choose your retirement month based on Social Security alone. You could have some other costs that would make it change one way or another, the health insurance, the taxes, the age 55, all of those kinds of things. Thanks so much for the question, though. We appreciate it, and we have our next one

Inheriting a Nursing Home Home

SPEAKER_06 11:28

now.

SPEAKER_07 11:28

Hello, gentlemen. Absolutely love your show. I've gotten so much good advice from the two of you that I feel like I should be paying you. So here's my question for today. Um, I have a j a father who is in a nursing home and he still owns a home. I'm wondering he has a will, and so of course I will inherit the home once he passes, but I'm wondering if we should keep the home until he passes or go ahead and sell it now and just invest the money. He does have um several hundred thousand in cash um that we are using to pay each month for the nursing home. So I do not believe we will run out of cash to pay for him. So we don't necessarily need the cash from selling the home, but it does cost a lot of money to keep the home that no one's living in as we just maintain it. So should we keep the home until my father passes and take it as an inheritance? I know there's tax ramifications and capital gains, or should we sell the home while my father is still alive so that the capital gains and tax situation is on him while he's living. That's my question, gentlemen. My name is Aggie. It's been a pleasure to listen to both of you. Have a great day.

SPEAKER_06 13:02

Well, thank you for those kind comments, Aggie. And by the way, if you don't have to pay us, but if you like the show that much, you know, those five-star reviews like on Apple Podcasts, they really help because we get grumpy people who give us one-star reviews because we hate crypto. So, you know, if you want to help. Um home sales. Yeah, uh, can be tricky. First thing I would do, calculate what his adjusted cost basis is. And that includes all kinds of things that can be added into that over the years, major repairs and the like, and then figure out whether that nursing home exception preserves his home sale exclusion. So, you know, the exclusion from capital gains. If the exclusion wipes out most of or all of his gain, uh paying those years of expenses to preserve a future basis step up, well, it's not doing much for you. Uh I would absolutely, in this case, these we're getting into a territory where experts really start coming in handy. And that's the final part of life, is where lawyers and financial advisors really make their money, because that's when the complexity enters into our lives. So before you do anything, you need to get an elder law attorney where he lives to examine all the documents, this estate plan, uh helping calculate the Medicaid exposure. That's one of those things. Really, we there's a lot we can do ourselves, but this is one of those cases where just a few hours of really professional advice could end up keeping you all from making a very pricey mistake. It's time for a planning session. Good luck, and thanks again for listening. Here's our

Beware Infinite Banking

SPEAKER_06 14:51

next question.

SPEAKER_00 14:52

Hey, Tom and Don. This is Casey from Albuquerque calling for a friend who uh works for he's a realtor in California working with Keller Williams. And it seems like Keller Williams has a partnership with uh an investing group called Factum Financial, and one of their um proponents is a dividend-paying whole life policy to improve the flow of money. I'd much prefer he have a term life policy, but I don't want to interfere in he and his family's finances. So um maybe you could check it out and give me some insight or maybe something I can share with him that might help him out and his family out. Thanks. Oh, you're welcome.

SPEAKER_06 15:40

This is that old stupid infinite banking, pay yourself first uh confidence job. I just despise these products and the firms that sell them. They're this is a uh a trick to sell you high cost permanent life insurance and make it sound like it's a really good investment because, well, you get your money, you can get it for nothing, you don't pay taxes. Uh the I just, you're you are so right to be skeptical, cynical. You should get involved. Your friend is not borrowing his own money for free. He's buying an expensive, permanent, whole life insurance contract, and then he pays himself interest to borrow against it. But he's paying interest, and the policy, the loan will continue to grow. Um whole life is a terrible investment. It and I don't care how you dress it up and how much lipstick you put on this pig, it is a pig. Although, no, it's pigs are better than this. Whole life has its occasional purpose when you need permanent insurance for a variety of reasons. You need permanent death insurance because someone will forever rely on you for their support or as an estate planning tool. It should not oh, Keller Williams should be ashamed of itself. How do they get involved with this? I mean, the company is basically saying, hey, go ahead, take advantage of our agents. We don't mind. I hope they're not getting a kickback. Oh, just this. You don't need this. You're right. Level term if you need death benefits. Oh, sorry. Am I angry? Of course I'm angry. This is just dumb. This is just bad. This is just irresponsible. Irresponsible. Thanks for looking out. And thanks for the question. And now, hopefully a calmer question.

Why Annuities Mislead

SPEAKER_02 17:59

Hi, Don and Tom. Thanks for everything you do for the community. I wanted to understand more about annuities. I know you don't recommend annuities in most cases, but I'd really love to know why when they're useful and what type of annuities are useful. Thank you.

SPEAKER_06 18:19

Okay, so now we jump from the the uh bank on yourself infinite banking fire into the hot pan sitting on the fire that is annuities, that are annuities. Oh, which is right. Okay, annuities again, like whole life, they occasionally have their purpose. The pro the reason insurance people like to sell them is because many insurance people don't have any legitimate investment products they can sell you. So they invented these insurance products that look like investments, but really don't behave like most good investments do. And they have extra fees and costs and expenses and high commissions and surrender fees and uh and obfuscation and uh opacity and confusion and frustration and big thick binders and all kinds of garbage. Yeah. Uh do you see me uh kind of getting on the same bandwagon again? When are they good? Well, they're good when uh actually, really in only one case relatively consistently, and that's when you're going to retire and you need to turn your money into a pension because you're afraid of outliving your money. Okay, let me go through the various kinds really quickly. Just let me you ask for a question, you ask the question about annuities. So we have the immediate fixed income annuity, that's the one I'm talking about, the single premium immediate annuity, they call them SPIAs, SPIAs. Uh it it will quote guarantee you a payment for the rest of your life, but you give up all of the money. You you don't own it anymore. So if you die a day after giving the insurance company this money, okay, maybe that's a little extreme, a year after giving the insurance company money, you're gonna get one year's worth of payments, and they get to keep the money unless there are writers attached. Then there's the deferred income annuity, which pays you some sort of a small return. It's not terrible, it's decent, uh, with the quote, insurance guarantee, which is not like a government guarantee. It's sort of like we promise. And you let that money grow and then you take it, then you annuitize it when you get to retirement age. Um and uh those are often called, they're they're often sold as retirement vehicles called a QLAC. It's just a deferred annuity. Uh, then there are multi-year guaranteed annuities or MIGAs, another cute name, uh, where you buy an annuity for a certain period of time, they give you a specific rate for that term, whatever that term is, and that is backed by the insurance company and a state pool, not by the full faith and credit of the U.S. government, which makes it not as safe as a CD or a treasury. It is not that safe. Then there are variable annuities, um, which use mutual funds and high fees. Then there are indexed annuities or index-linked annuities or equity indexed annuities, and these are all really complicated vehicles designed specifically, I believe. I honestly believe this. I believe they're designed to confuse the client so that the client can't ever really know what they bought or what they're gonna get in the future, but the pitch is appealing. Return to the market, no risk. That's a lie. You will not get the returns of the market. You will get, and they'll probably say thank you. Like market like or market based, but you hear the return of the market with no risk. So you don't get that. I I don't hate insurance across the board, but I do hate the way almost all investment type insurance is sold because it almost requires a little bit of prevarication to make the sale. Nobody's rushing out to buy an equity indexed annuity. No, they have to buy you a steak dinner to do that. Listen to the financial physicist song on all the major music services called That Steak's Not Free. AI by me. Um written by me. AI sang it. Not me. Oh gosh, yeah. Uh annuities. Gotta love them, gotta hate them. But thanks for the question. Final one is coming up, well, pretty

Mutual Fund Dividends Explained

SPEAKER_06 22:56

much right here.

SPEAKER_03 22:56

Hello, my name's John from Texas. You guys have a great show. Thanks for all you do. Question about capital gains distributions. You could use D-O-D-G-X. D-O-D-G-X Dodgercox Stock Fund as an example. Long-term performance does not add up when you look at a chart. Um, because I guess you get more shares once that capital gain is distributed. Could you could you talk more about how a mutual fund will drop in price three or four dollars, and then you'll have more shares and what that looks like on a long-term graph of the stock. Again, thanks for all you do. You guys are funny as heck.

SPEAKER_06 23:41

Funny as heck. How funny is heck? I know, I know I'm at least I'm not getting heck old. Okay, bad but all right, let's talk about dividends. Same thing happens with stocks, by the way, just individual stocks with dividends. The uh dividend gets paid out and the value of the stock goes down by the amount of the dividend. Huh. That's funny. Why? Because the way the accounting works is that as you earn money toward the dividend, that is built. They they figure that's being added into the stock price, that that dividend is accruing to the value of the company over the period uh for over the period for which it has not been paid yet, that quarter. Same thing happens with mutual funds. Dodge and Cox or any other stock fund, or well, almost any fund that has growth components, is going to accumulate their income or their dividends over the course of a quarter. And then when they do their dividend payment, uh monthly or quarterly or whenever it is, it's going to reduce by the value of that dividend. The assumption is that money was sitting there waiting to be paid out, in other words. And so the minute they pay it out, the fund is worth that much less. Like, let's say the fund is $10, they pay out a $1 dividend, it drops to $9. Now the fund could have been $10 at the beginning of the quarter and $10 at the end. They're not actually adding in the dividend. The assumption is, though, that that dividend, that investors knew it was there. And so when it gets paid out, it is reducing the value of the shares. And then you buy more shares, but only if you reinvest. If you're not reinvesting, it goes into your account as cash and then gets put into your sweep account or whatever is there. But that's why it looks confusion, it looks a little confusing on a chart because you'll see it go up, then you'll see the dividend kill it, and then you'll see it go up again, and then you'll see the dividend kill it. It may go flat. It may go down. I mean, a stock or a fund could go from 10 to 9 and pay a dollar dividend at the end of that period and go down to eight. Because again, it's not saying it changed the price. It's saying it was sitting in there and it came out, and now we have to reduce the price of the shares to account for that missing money that was just paid out to you. I know it's kind of strange, but that's the way it works. So as long as you know that going in, then you you're g it's not like it's hurting you. It just looks weird. And it also means that it doesn't really w pay to wait until the dividend gets paid out. A lot of people do. They oh I'm gonna wait until the dividend. No, they pay the dividend, and then it goes down in immediately by the value of the dividend. I think we're out of questions. I think that wraps up the show. Oh, okay. Hey, thanks so much for listening. And again, if you like what you hear, leave a five-star review at Apple Podcasts or five star rating at Spotify or I don't know who else does ratings. At Apple you can write reviews. At Spotify, I think you just do a ranking. And please check out my literature podcasts. They're all at shortstoryverses.com. That's the catch all for them. I made like a multiverse of short story podcasts. That's my hobby. I don't golf. I write stuff and read stuff. That's my hobby. And then I do this for a living. Thanks for being there. Please tell a friend or two or ten uh and keep sending those questions in at talkingrealmoney.com. You can type them at the ask a question button or you use the mic in the lower right-hand corner to record your question. They go on a future Friday podcast. We're only two weeks out, so if you put your questions in, you can figure it's about two to three weeks before it gets answered. Could be less if the question count goes down, but that's about right. Two to three weeks from when you send it in. Thanks for listening. I really appreciate you being there, and we are talking real money.

SPEAKER_08 27:51

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. 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 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. 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 Apello Wealth, a fee-only registered investment advisor. Please see Apello Wealth's ADV Part 2 and on our website for information regarding Appello's fees and services. Apelled 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 requirements. Registration with the FCC or any State Securities Authority does not imply a certain level of skill of 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. The lawyers get richer.