Q&A and Book Day

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

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I know we're supposed to be talking about money on talking real money, but you know, some of us we've been hanging out together for a very long time. Some of us going back like, oh, I don't know, 38 years. So we're

Book Launch and Q&A Begins

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like family. And today I just I'm excited. I I don't know if I have reason to be excited yet, we'll see. But this this is a big day for me because I've wanted my entire life, really, my entire adult life since high school, when I was the uh the editor of the creative writing journal at our or creative writing magazine at our high school, I've always wanted to write a book. Now I've written some short stories that I do on my podcast Lit Reading, but I've always wanted to write a novel. I wrote a book. I wrote financial physics, but that was a little financial book. So um this idea had been running around in my head for a long time about uh a fictional telling of the life of my great-great-grandfather John Anderson, who uh was who fought in the Civil War as a teenager, enlisted at 14, and was captured at Chickamauga and was imprisoned at multiple prisons, including Andersonville, which was the most horrible. And so I have spent the past close to a year working on this book to the uh I mean I haven't done any voice I've done any voice work to speak of that whole time. I put all my efforts in this. And today, the 22nd of May, when this episode airs, is the day it goes public. The day before Memorial Day weekend, which is coming up, or decoration day, it was as it was known just after the Civil War. So my new book is out. It can be purchased, uh, it's available at Amazon and at Barnes Noble as an e-book, as a paperback book, and as two different kinds of hardcover. So you've got a choice. Lots of choices. Uh and I I think it's good. Tom thinks it's good. My wife thinks it's good, but she's biased. Tom's biased too, but they both thought it was good. Uh it's a story of a young man, a teenager, who enlists in the Union Army from Indiana and goes on to fight fight at Shiloh, uh, Stones Mountain, Chickamauga, and uh is captured. And it's it's one of those bittersweet, you know, but anyway. Uh I hope you'll take a look at least. And maybe consider getting a copy. It's available today. This is the QA episode now. From here on, it's all cues and my a's. Your Q's, my A's. You sent them in at talkingreal money.com, you did it on the contact form, you spoke that question in, you recorded it, and then I made it sound even better, and then I put it in the show and I answer it. Or at least try to answer it. So let's get to that part of the program now, shall we?

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Hi, Don.

Bond Fund Diversification

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Um thank you for taking my call. I appreciate uh what you and Tom do. Uh, I had a question about um bond funds and particularly regarding uh BNDX, uh in which is the uh Vanguard International Bond Fund. Um not sure what your thoughts are on it, uh and if you find it to be necessary, uh versus just having uh the uh domestic uh total bond fund BND. Uh let me know your thoughts. Uh my personal opinion is it may be uh uh just auxiliary and not necessary, but uh I'd like to hear what you what you think. Thank you.

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There may be a modicum, just a tiniest little bit of diversification improvement in terms of portfolio stability by having both an international and a U.S. bond fund. It just gives you a little bit of a hedge against currencies, although BNDX and many other international bond funds currency hedge anyway. So the benefit is small. We use them at a pella in our clients' portfolios. We use uh some international bonds for added diversification. That's really the only reason. It's just for that tiny bit of added diversification. But if you're just trying to do a simple portfolio of stocks and bonds, and you're doing a well-diversified equity fund, and you just want bonds for their reasonable stability, then just having BND is fine. When your portfolio gets bigger and more complex and you're managing lots of different things, or if you're using an advisor, then you might want to have some high-quality bonds outside of the U.S. But it's not, generally speaking, it hasn't made a big difference. The the U.S. bond market is gigantic, but the international bond market is about the same size, all of the other markets combined. Um the benefit because international bonds, if they're currency hedged, correlate so well with U.S. bonds, you're not gonna see much in the way of added stability. You're just not likely to see it. So it's a little bit more complexity for little or no payoff for a smaller portfolio or somebody who's just getting started. It's not worthwhile. As your portfolio gets bigger and you want additional diversification and you start slicing it up into lots of different asset classes, there may be a little bit of a benefit, but it's not gigantic. Thanks so much for your question. Send yours in at talkingrealmoney.com using the contact form or the ask a question button like

Direct Indexing Worth It?

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this person did.

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Looking to get some info on doing a direct indexing for a taxable brokerage account that has roughly $2 million in it. We also have about $3 million split between traditional IRA and Roth IRA, uh, majority of it being in traditional IRA, 70 years old, retired, looking to do about $2,000 a month into a direct indexing uh fund or account on public.com, SP 500. Uh again, just seeing if you think this is worth it or if we should go another avenue. Uh just been hearing a lot about tax incentive or tax advantage to doing this with this much money in a taxable brokerage. Uh, thank you for your time. Aaron Powell At this point, why bother?

SPEAKER_06 6:54

Yeah, direct indexing might make sense for people with bigger portfolios, with complex taxes, who want some slight little tax benefits, but the bulk of the tax benefits come from tax loss harvesting. And that's not an all-the-time thing. As a matter of fact, tax loss harvesting, we hope, is something you don't have to deal with very often. Uh and you're doing it on a small basis, it's not going to give you any benefit. Plus, you're locking yourself into the S P 500, and I hope you have a much more diversified portfolio than that at lower costs than what public charges, which I think is 40 basis points, and you're limited to the S P 500. Uh just I really uh when you're just averaging into it slowly, it there's no benefit. I don't think there's going to be any benefit to you. So small as to be hardly noticeable. No, I would not even bother. Make sure your portfolio is properly structured as it is. If you're using ETFs, you already have some tax benefits there. And, you know, we can't get rid of taxes. We keep trying, but we can't, and we think too much about them. So I I vote no. Thanks for your question, though. And send yours in at talkingrealmoney.com, speak it on the contact form, and it becomes part of the Friday podcast.

Why Refi Looks Risky

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Hey Don, this is Phil in Virginia. I was wondering if you had any insight on this Y ReFi. From what I understand, it's a privately held company that invests other people's money into defaulted private student loans. With the frequency of the ads on television, uh that would be my first red flag. Uh they run about at least eight or ten every hour. Uh secondly, I just can't find any information on this. Uh they don't have financial statements. I don't really know how this quote investment works. But I just smell a rat, and I was wondering if you had any insight. So thank you very much. I really appreciate it.

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Aaron Ross Powell Well, as the eternal skeptic, I wouldn't touch one of these with a uh 100-foot pole that had to be made out of a really strong material, otherwise it would bend. Um I just wouldn't they may be totally legit, this Y ReFi. They're buying private loans and they're trying to buy them at really, really dramatic discounts to what is owed, and then they hope that they'll collect more than they paid for the notes so that they can make a bunch of money themselves and then pay their investors ridiculous returns. And the fact of the matter is they're quoting some ridiculous returns. And when you get quoted ridiculous returns, you know, eight to ten to twelve percent, you're looking at a high-risk endeavor. Even if it's legit, it's super, super high risk. Uh and uh there's no, you have no security, no safety, none whatsoever. This is a flyer. Would you take it? And then you know, when they're advertising it on TV, then I become even more concerned because if it's a really good deal, you don't need to advertise the heck out of it. So I think your instincts are good. This is one best avoided. And there'll probably be a lot of copycats if this works for them, and then some of these copycats will end up just flat out failing at this, like uh we saw back in the old day. Remember the old viadical agreements where they'd buy life insurance and they were going to pay these big returns? Well, what's happened to all of those? Oh, yeah, all the late night commercials went away. I'd skip it. Thanks for the question. Send yours in. Talkingrealmoney.com is the place. Here's our next

Medicaid Trust Concerns

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one. Hey, Don, this is uh Vic.

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Uh I'm in Lacey, Washington, and calling about um we had three members in our media family that have exhausted most of their uh investments because of uh major serious illness, ALS in two cases, and one Alzheimer's. So we're very cognizant of it. My wife and I, I'm 79, she's 78. We have a total portfolio of 1.2 million, of which about 500,000 is in Roth. We are uh working through to set up uh or at least transfer out the Roth, which is about 500,000, into a medical asset protection uh called MAP. That uh if we start that now, uh Medicaid, then in five years, we as a, you know, as you know, there's a look back. So we have five years to sit on that. But we then uh give up ownership and the Roth benefit, and it then becomes in the trust, be controlled by my son, who is the trustee. I just want to make sure in in his case that he is not gonna be burdened with having to make financial decisions. So my question, that the fact that that money is going to be used for our own health, and if it's not needed, then basically it would go to the heirs, uh, our our three children, is that I want to make it so easy that he doesn't have to even worry about it. So it just wanted your opinions about whether just to use a target date fund in and we're all in Vanguard, uh maybe a 2035, or uh just a good, uh honest uh blended bond stock fund in Vanguard that uh we could still make six to eight percent, but uh it's just there, it's accruing, and it wouldn't be used until needed if we needed uh serious health protection money down the road. So just would prefer your opinion about that, about uh not having to get a separate financial planner involved and just my son could just let the money slide through the target date fund. So that's it. And uh appreciate any of your advice on that. Thank you.

SPEAKER_06 13:27

Oh, where to start. Okay. Uh the the investments, yeah, if you want to keep it simple, uh have a uh target date product in there. But uh I hope I I'm sure you've considered this carefully. You can barely take any money out of this to live on if you don't end up in a nursing home. I I hope you weren't counting on this money to live on, because basically all you can take is dividends or income from bonds. Can't touch the principal. Can't touch the principal. Otherwise, Medicaid's gonna count it. Um and then there's the there's the whole I don't know, the ethical issue that has always bothered me, and I've been talking about these for nearly 40 years on one of my various shows. Um you're sheltering assets to make taxpayers take care of you. Why so you can give assets to your kids? That really bothers me. And you're not using them for yourself. My big plan is to spend down my assets if I'm in long-term care, and if they go away and they're all gone, then I or my wife or both of us qualify for the last resort, which is supposed to be Medicare. Medicare is not supposed to be a financial planning tool. It's supposed to be a tool of last resort. So that's why I'm they're legal, but boy, you gotta they you they've gotta be written by a very good, usually very expensive attorney to make sure everything is done right. And then the the trustee has to manage them right, uh, the distributions right, and it becomes his responsibility to manage those distributions right. Or you're gonna have to pay back a bunch of money. I uh boy. I I these have these don't come up a lot anymore. But I have issues with them, but yeah, in terms of investing it, you're you're right where maybe an advisor would help. And an advisor might be able to help your son manage the the the trust itself too, given their expertise. So that might alone make it worthwhile. But target date fund, sure. You you're not gonna get much money out of this. You guys are not gonna be able to collect any money to speak of, to live on, if you're healthy. It doesn't feel comfortable to me. It strikes me as just a way to pass through assets to kids who probably don't need them as much as you might need them. And then the rest of us have to pick up the tab. Um just it makes me uncomfortable. Thanks for the question. Now we go to our last one for the day that came in through talkingrealmoney.com, of course, and

Adult 529 Strategy

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was spoken. You you'll know that right away when you hear it.

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Hi, Don. I have another question about 529s. Um I was listening to Clark Howard the other day, and someone called in and said that they were an adult who wanted to start a 529 um so that they could save for graduate school. And I started thinking that maybe that might be an interesting concept because I have 529s for my grandchildren at the Utah 529 program, where they have very good options for investments. And if in a given year I was unable to contribute to a Roth, my Roth IRA, because either high too much income for that year, or um because of um not having earned income, for instance, either of those reasons, uh could I not just put it into a 529 and as long as I kept it there for 15 years and um and uh did not exceed the $35,000 limit, I would have uh account that was growing tax-free, like a Roth. It would, you know, it would be it would be a tax-advantaged account. What do you think about that? And thanks for your thanks for your advice. Appreciate it.

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Adult self-funded 529s are actually not a terrible idea, particularly if you plan for any kind of education. Uh it can be group not just graduate school, it can be uh uh trade school, uh flight school, continuing education classes, whatever. And then, of course, you got the $35,000 rollover into a Roth after 15 years. And yeah, you're right. You're gonna get tax-free money as long as you don't exceed that $35,000 in the account. Now, bear in mind, you can only put it into a Roth at the allowed amount for the the year in which you can for each year you can contribute. So you've got to be careful that the money does not exceed $35,000 in the account at any point, because if it does, and you've used up all your $35,000 IRA rollover and you don't use it for education, that extra money is going to be taxed and there'll be a 10% penalty because it wasn't used for education. That's really the only downside. Otherwise, sounds like a pretty good strategy. Don't put too much in and be sure and wait the 15 years. And even if it exceeds it somewhat, it's still kind of like fountain money. So uh yeah, why not? Do it, have fun, knock yourself out, and if you have questions, go to talkingrealmoney.com, then click on the little contact form there and send us a question. You can type your questions in, or you can speak them in. There's a place to speak them in right there on the form. And then the spoken ones come to me. I answer them on Fridays. Thanks for all the calls. Go check out my new book. It's called The Line Uncrossed. It's available at Amazon, BarnesandNoble.com, and other places too. So check it out. Hope you like it. I really do. Thanks for listening. Please tell a friend or two. And uh if you want some help and you need more of it with an advisor, just go to talkingrealmoney.com and click on the button that says meet an advisor, and we'll set you up to meet an advisor. Thanks for listening. I'm Don McDonald, Talking Real Money.

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