Ep. 1981: Money Questions, Sorted

SPEAKER_03 0:10

Bring me the question carry on the one that gets heavy at night Nothing's too small nothing's too strange will hold it up to the light. Ask it out loud. Let's stay playing. Making money makes sense. Making money makes sense. Talking real money.

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It's Friday. Well, Friday's the day I put this

Friday Q&A Kickoff

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podcast up. So I guess it's Friday. If you listen to it today and it's the day I put it up, then it's Friday. I'm confused. Hi, I'm Don McDonald too. I'm Confused and Don McDonald. And welcome to the QA show, the best QA show going, because not only do we take your questions, we take your spoken questions at talkingrealmoney.com, or we, we, the royal we, that would be me, and try to give you answers that make sense and hopefully make your life a little better and then make you a little more money, which we hope will also make your life a little better, et cetera, et cetera. So go to talkingrealmoney.com and speak those questions in, and we'll do a bunch of them every single Friday. And this one's no exception. We got a bunch of them stacked up for you. And the cool thing about the questions on Friday is that even if the internet kind of makes them sound like that, um, I have technology that cleans them up and makes you sound pretty darn good. So if you were saying, I'm not going to sound good, yeah, you'll sound as good as I can make you sound. And I clean it up a little bit too. So um, I mean, I I kind of do a little editing. I don't change content, but I might get rid of some of those ums and ahs and big long pauses. Just makes it more fun to listen to. So welcome to Friday. So glad you're here. And uh let's get to the first person. It's not a question, it's a comment, but we put those in two.

SPEAKER_08 2:24

Hello, Tom and Don. Hey, excellent job, guys. This is Joe from Eamville, Washington. Um, just wanted to say, uh, Don, um, outstanding job adding the music. It kind of spices up the show. And, you know, for a couple old timers, you guys are you guys are hitting it up really good. Excellent job, both of you. Take care.

SPEAKER_00 2:44

It's one of the reasons why I don't want to retire because I figure if I retire, then I'm gonna start actually acting kind of old. If I keep doing this, I'm gonna hopefully act younger. I think that, and by the way, I think that making the music goes a long way toward that. It's it keeps my brain going. It makes, I think they're refreshing. I know some people disagree, and I apologize to all of you who disagree, but remember, you can fast forward. It's only about a minute. It's maybe a minute and a half. So you can whip through those really quickly, but thanks. I have fun making them. I have fun hearing them. I mean, you know, I actually enjoy listening to them. And some of them are kind of cool, and we've got some other unique ones, really unique ones coming up, because a lot of you make suggestions as to styles and genres, and I take those to heart and try to make a song, a jingle, based on that style. So we've got some very unique ones coming up, things that you probably have never heard of. And by the way, if you want to hear all the music after it's gone on the show, you just go to talkingrealmoney.com, and in the right-hand column, you'll see a button that says listen to the music. You can listen to everything on SoundCloud there. And also, my uh AI band, The Financial Physicist, has an album and a single up at most of the major music streaming services like Apple Music and Spotify and uh YouTube music and those kinds of things. So check them out. Thanks so much for the nice comments. I really appreciate it, and we are having fun, and we're glad you're there having fun with us. Here's the next

Bond Ladder Or BND?

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one.

SPEAKER_06 4:20

Hey, Don and Tom. This is Paul from Parker, Colorado. Don, I've been following you since the early 1990s when I listened to you on KCSJ Radio in Pueblo, Colorado. I would listen to you while I was out working in the garage, and I would write down the different no-load mutual funds that you would recommend, then proceed to go to the library and look at Value Line and Morningstar, Standard Poor's, and make my own little library of mutual funds I should put my money into. Boy, how things have changed now that we have the internet, no more legwork at the library. Anyhow, my financial advisor, a fee-only financial advisor, noticed I have over $50,000 in Vanguard's B D, and he would recommend I put that in a series of treasury ladders, U.S. treasury ladders, of three, six, nine, twelve, fifteen, and eighteen months, and then reevaluate every three months when it comes due and see where I want to put the money. I tend to want to keep it just in B and D so I don't have to worry about it. But if there is an advantage to doing a treasury ladder, how much of an advantage would it be over just keeping B and D? And if it would be smart to have a treasury ladder, what increments or time frames would you recommend I do? Look forward to having seen your answer and enjoy listening to your show regularly. And have a good day. Thank you.

SPEAKER_00 5:46

I'm surprised you got KCSJ's signal all the way up in Parker. Uh yeah, that those were the days. My days uh of doing general talk radio before I got into financial talk radio with Business Radio Network, and it's a very different world. Done a lot of radio. Thanks for being a part of all that all those years. And yeah, it was a different world back then. I used to have in my studio the entire library of Standard and Poor's stock reports on paper. They were different colors for different markets, and I had the gigantic Morningstar book that uh would get they would send me new inserts every now and again, and I'd put them in the book, and I looked everything up on the show. And that was back during the day when we still almost everybody believed that active managers could make more money. We learned that we were wrong, and we changed. And the the technology has changed so dramatically since then. I'm thrilled to be a part of it. Let's talk about BND versus treasury ladders. I am an advocate of both ladders and BND. I I I have I don't use treasuries, I use CDs. I have a C D ladder in my brokerage account, and I have BND. B N D is just really nice for its simplicity and its mix between reasonable stability, not absolute stability, and keeping up with the new yields. And if rates are rising, a thing like BND is going to feel pretty good from a yield standpoint. The value is going to go down, but as new bonds come into the portfolio, the yield is going to keep creeping up. If you're going to emulate that with a treasury ladder, then I think the 3, 6, 9, 12, 15, 18 kind of sounds silly. It sounds like an awful lot of work for the advisor, but hey, if the advisor is doing it for you at no cost, that's not an issue. I think it makes more sense to go one, two, three, four, five in uh in treasuries. And I could see why you'd want to do treasuries. You've got a what, a 5% state tax in Colorado, which might give you a teeny tiny edge over CDs, but really not much. You might want to compare the yields on a CD ladder to a treasury ladder, or seriously, if you just want to keep B and D and you understand that in a in a rising rate environment, the value of the fund will fall some, but they're going to be buying new bonds at higher rates, so your yield should gradually rise, and it's a no-brainer. You don't have to do much with it. And literally, you own the whole bond market, so it does what a bond portfolio, a fixed income portfolio, is supposed to do, and it protects you from the dramatic changes in the market, and it certainly protects you from total loss. You can't lose all your money in that kind of a portfolio. It's every bond in the U.S. So uh if you wanted to stick with it, stick with it. Why not? There's no really great, powerful, abiding reason to make a change. Thanks so much for your question. I still want to call them calls. That's 40 years of radio. Appreciate it so much. And uh let's grab our next

Domestic Vs. International Split

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one.

SPEAKER_04 9:01

Hello, Tom and Don. This is Tim in Pasarobles, California. First, I've been loving the music that you've been doing every day with the different themes to them and the different lyrics. I think it's really clever, and it's made uh logging onto the podcast uh very interesting beyond just the content that you guys provide. So thanks for doing what you're doing. You're making it entertaining and fun, and I'm glad you're out there. My question for you is pretty simple. In the studies that you've seen, what is the split of the equity portion of the portfolio that you feel is appropriate for domestic versus international? I think that I saw many years ago from Paul Merriman that he believed it should be 6535 to be the most effective, and he usually based his statements on some kind of a study. I wondered if you had any opinion about or facts about that. Uh what is the appropriate allocation in the equity side of the portfolio? Thanks very much. Keep up the great work. Bye.

SPEAKER_00 10:13

Thanks. Thanks for all the kind comments. Um, this is an area of great debate between Tom and me. Um because I remember very distinctly, I guess it's a couple decades ago now, when the uh US international split was right at 50-50. Maybe it's 15 years ago. I'm trying I don't remember the exact time frame. And at that time, at that time, people like Paul were, because I was working with him, we were saying that 50-50 was the allocation. 50 U.S., 50 international, because that was the market cap waiting at the time. So if you had built a 50-50 portfolio back then and regularly rebalanced, you would still be at a 50-50 portfolio right now. You would have more of international in your portfolio because the U.S. has outperformed and international underperformed. And that's the whole idea of rebalancing is to own those out-of-favor stocks. So I am very, very skeptical of the 6535. I cannot find any empirical data that says 6535 is right, or that 6040 is right, or that 5050 is right. Uh but I do think you've got to have a pretty sizable percentage overseas. I think, and I would have to look at my portfolio and run the numbers again, but I think I settled in somewhere around 6040 or 65, 45, maybe not that far. But I I want to have decent international exposure in my portfolio. And I just I don't know how you can assign a fair value, except to say the US has certainly outperformed internationals. And is that alone a reason to overweight the United States? Once again, the all the answers still do not exist. I mean, I believe that you really have a dil you need to have a deliberately maintained international allocation of at least 35%. I really believe that, you know, if you d if you had not rebalanced that 50-50 years ago, you would have ended up at 6535. Well, wait, that defeated the whole idea of rebalancing then along the way. There's a dilemma here. And that's why I disagree a little bit with the 6535 as an absolute. Thank you so much. Appreciate your question, your comments, your participation in the program. And because the questions have come in at a pretty decent pace, we've got a couple more coming up. Here's

HSA Investing Questions

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the next one.

SPEAKER_07 12:59

Aaron Powell Thank you for helping me understand discipline investing. This is Kenneth from Virginia. I have questions regarding HSAs. The first group Should an individual approaching retirement keep HSA money in an all equities portfolio, or should bonds be added? If bonds should be added, at what age should they be added and at what mixture?

SPEAKER_00 13:22

All right. The HSA is really not supposed to be a long-term savings account. It's a way to get uh tax-advantaged health care payments. It's a way to pay your deductible. So if you anticipate using this money to pay for health care as you work your way towards your high deductible, which you had to have, then no, it shouldn't be equities at all. There should be no equities. No, too risky. You want very, very short-term money. You want heck, you want money market funds. That's what you want. Um, the only way you want an HSA in any way, shape, or form to be in equities is if you've gone, you've saved and saved and saved, you haven't spent any on medical care, and you've got a portion of it that you're relatively confident is going to go out to long, long, long terms and you're comfortable with the volatility. Otherwise, HSAs are one of those places where I know there are huge advantages, but because they might be spent, fixed income needs to be the primary investment in most HSA accounts. And uh if you're using them for current, current medical costs, it should all be very short term. And I noticed you have three questions, so I'm gonna split it up into three little parts. Here's the second part.

SPEAKER_07 14:37

Upon one's death, what happens to the HSA account?

SPEAKER_00 14:41

Well, uh it depends. Depends on the beneficiary. It depends on who is the is going to be getting the money. If it if it's your spouse, then the account simply becomes part of your spouse's HSA and it retains all the tax breaks, continues to grow without taxation. If the beneficiary is anybody else, at the date of your death, it stops being an HSA and all of its value is taxable to the beneficiary in that year. And if it's an estate that's the beneficiary, the value goes to the deceased owner's final income tax return. Um, there are ways for a non-spouse beneficiary to reduce the amount using uh if they're paying the qualified medical bills of the decedent, and if they're paid within a year. So you can get out of some of it if there were medical bills that have to be paid that are paid out of the HSA. But if anybody else gets it, then it's taxed. If the spouse gets it, it's not yet. And now your final quick question.

SPEAKER_07 15:45

Is an individual able to have two HSA accounts as long as the total combined contributions does not exceed the annual limit? Thank you again for your insights.

SPEAKER_00 15:57

You can have as many HSAs as you want, but you can't exceed the limits. So uh yeah, you can own two or more HSAs, but the contribution limit is the contribution limit, is the contribution limit. It's this you can't have multiple HSAs with all with their own contribution limit. But uh, yeah, sure, absolutely. Thanks so much for your question. I'm looking, I think we still have two more. So let's grab the next

Preparing For RMDs

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one.

SPEAKER_05 16:24

Hi, I have $800,000 in a Roth IRA, $850,000 of Fidelity in a traditional IRA, a $1 million TSP account, I get $2,600 a month Social Security, I get a $140,000 pension. I currently work and make $230,000 a year. Last year I had $444,000 taxable income. I have $2.7 million at Vanguard with $800,000 of that in Treasury money market, and I have $600,000 in capital gains. I have no debt. I put $1,600 a month in $529 program for my grandkids. Can you give me any advice how to move my money around and my IRAs and uh get ready for the uh reams next year? Thank you.

SPEAKER_00 17:18

I'm gonna assume reams means RMDs. I'm guessing. How do you get ready for RMDs? Well, okay, you by the way, wow. Um you're doing very well. You've done very well. You're in a massively comfortable situation. I guess. I don't know what your cost of living is, but I mean I would be comfortable where you are. It's too complicated. We try to answer all of your questions on the show that we can. This one is impossible to answer in this forum because I don't have enough information. This is why this is why Tom and I started an investment advisory firm. Really, it's you. Because when you get to this point in life, you you need a written financial plan. You need something that takes into account your current tax situation, your future tax possibilities, your income needs in the future, your risk tolerance, your current portfolio, your plans for work and when you're not going to work, all of those things to come up with a plan as to what to do next. And that's what you're asking for is what do I do now? How do I best position this portfolio to make the future taxation less painful? That's really what the question sounds like. And the only way to know that is to go through this thing with a fine-tooth comb and try to estimate, guess what your future will look like and what you want it to look like. You are absolutely the perfect candidate for a 100% fee-only fiduciary advisor. Period. That's what you need. It is worth the money in this case because the money you save alone will probably make it worthwhile. But the improvement in in your future life situation is priceless, to paraphrase the commercial. So you and that's not a pitch for our firm. There are lots of, well, not lots. There are several very good fee-only financial advisors out there. Um and uh heck, we'll, you know, if you meet with one of our advisors, we'll even give you the names of a couple. You know, we're like, we're like Santa Claus in Miracle on 34th Street. You know, go to talkingrealmoney.com and meet with an advisor, meet with Tom so that there's somebody can look through all of this and talk to you, have a conversation about it. This requires, that's the best answer of all, Don. This requires a conversation. Thank you for uh for at least bringing it up and thinking about getting something accomplished. Good for you. Now, it's the last question for today's QA

Retirement Portfolio Transition

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session. Here it is.

SPEAKER_02 20:09

Hello, I am Tom in Hampton, Virginia, marrying 69 years old, and I have a really good job making decent money as a truck driver, but now I want to retire by the end of the year. We love your podcast. I listen to everyone, and I have gotten Tom's advice on uh my portfolio. It's just over 100K. Uh it's 60% in A, B, G, E, and 40% in B and D. I'm thinking about taking all my portfolio and putting it in a Vanguard 2030 once I decide to stop working and maybe just work part-time. Is this a good idea or should I just leave it the way Tom has set it up for me? And oh, by the way, I don't mind his his dad jokes, but uh we we enjoy everything you talk about, and uh you have some really good advice. I I appreciate your program and the way you helped me, and Tom has been a tremendous help. So just wondering if I should um put this in a Vanguard 2030 once I retire, has more stable uh retirement fund for another couple years trying not to spend this money and live off what we make in Social Security. Thank you very much. I look forward to hearing from you.

SPEAKER_00 21:58

Thank you very much, and We're gonna have to agree to disagree on the dad drugs, okay? Um just I I try, I try, I try to be tolerant, I try, I try so hard. Thank you so much for your call. Um glad you met with Tom. Um if you're getting ready to retire, a 6040 AVGE to BND might be, particularly if you're getting ready to start spending. I shouldn't even say might be, it's probably a little aggressive. I I wouldn't have a problem with you going to the Vanguard Target 2030 fund. It is it's about I take that back, it's about 6040. So uh AVGE is still gonna be a little bit more aggressive, but as I'm getting closer to needing the money, I would probably start to reassign some of those assets and maybe get it closer to 50-50 AVGE and BND, because essentially you're gonna have a portfolio that's very, very similar to the target retirement and not much more work. Unless it's important that somebody else handle that glide path and make that portfolio more conservative for you as time goes by. Uh sticking with the the AVGE and the B and D is not a bad thing at all. It's it's very good and it's it's gonna fluctuate. Um you could probably take out oh, I don't know, five thousand dollars uh a year out of that towards your living expenses, and very uh it'd be very unlikely that you would dent that long term. I mean the market could go go down for a couple of years, but you'd be taken from the bond fund if it is, so why worry about it? I I I think you're fine. I would probably just leave it alone. It's it's a good portfolio, two very good funds, massively diversified. You actually have more diversification with this than you would in the Vanguard target retirement, I believe. Thank you so much for being a part of the program. Thanks for listening. Thank you all for the questions that you sent in by going to talkingrealmoney.com, and then you look down in the lower right corner and there's a microphone. And then you punch that microphone, you click on that, and you use a microphone, like on your phone or on your computer or your tablet, to ask your question. I get them, I take them and put them on the show after running them through a a voice improver program, and uh hopefully we get you some answers that you can use that can help you live a better financial life. And that means probably a better life overall. And again, if you want to meet with an advisor at Apella, it truly is free. I'm serious, it's free. It's free. You're not gonna get a high-pressure sales pitch either. This is not a sales lead thing, it is we want to help everybody, and sometimes the questions are complicated. Just like uh the last listener did. He met with Tom. Tom helped him, didn't charge him, didn't push him to become a client. It's not the way we work. So do that. Go to talkingroll money.com, click on meet an advisor, and please tell a friend or two or ten about the podcast. We're consistently in the top 100 investing podcasts on Apple Podcasts, and we want to consistently make it to the top 50. It would just make us feel really good before we're too old to appreciate it anymore. And yes, we are old. We've been at this a long time, but we feel young. And I want to tell you how much I appreciate you being a part of it as we are talking real money.

SPEAKER_01 25:51

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