Q&A Big Day

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

Friday Q&A Kickoff

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Well, given it's a Friday, it's mainly just me. Okay, it's totally me. Well, me and you, because it's Friday. And that means it's the QA show, which means you ask questions and I try to provide answers. And we do this pretty much every Friday, except this summer there are actually a couple of preemptions on Fridays because of Friday holidays, the holidays that fall on a Friday. Uh so uh we have an unusually large number of questions for this episode and for the one right after the 4th of July. By the way, happy 250th birthday, America. Glad to be here, glad to be born here. I want to thank all my ancestors for moving to America way back when. Some of you, way back when. Some of you, like before there was a country. I've got relatives who had a plantation in Virginia prior to uh the Revolutionary War, quite a bit prior to. So thank you all so much, and thank you all for listening, and thank you all for all of your questions, because there were lots and lots and lots of them. So today, get this. This is a six question episode. I don't remember the last time we had one of those. So I'm very excited. And how do you send in those questions? Glad you asked. Go to talkingrealmoney dot com. And in the lower right hand corner, you'll see a microphone. The microphone implies speaking. So click it, speak, your question, and then listen to it. If you don't like it, re-record it. And also remember that even if your equipment is not of the best quality, I will take the extra time needed, along with the assistance of artificial intelligence, and turn you into pretty darn close to you're sitting in front of a thousand dollar mic like this one speaking. Maybe not that good, but close. So do it. Go to talkingrealmoney.com, ask those questions, and let's well, let's take

Bond Funds vs Indexes

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the first one.

SPEAKER_01 2:21

Hi, Don. I'm 62 years old and approaching retirement. And I need to work on my fixed income strategy in my portfolio. Currently, for my equities, I use Avantis and Dimensional Funds per year education on your podcasts, and I'm well diversified in that area. My question is about being diversified in my fixed income strategy. On your podcast, you talk about the Vanguard B and D fund, uh, but there's not a lot of talk about Advantises or dimensionals uh fixed income ETFs, such as Advantage's uh short-term fixed income or their core fixed income. And I was just kind of wanting to know your take about having a bond fund or fixed income that is managed versus a passive index fund like the Vanguard BD. I appreciate your thoughts and thank you very much for your time.

SPEAKER_04 3:21

Well, there's there's a trade-off. And when it comes to Avantus and Dimensional Funds equity portfolios, there is the potential for a huge advantage, at least history has shown us a big advantage in those tilts, those factor tilts, that provide or that should provide more than enough increase in, well, it's both risk and return to make up for the slightly higher expense ratio. And really, we're we're not talking about dramatic. When it comes to the difference between B and D, which is the Vanguard Total Bond Index Fund, and Dimensionals or Avantis's bond funds, the expense ratio differences are a little more dramatic. And I don't know that you're getting a lot more for the money. You might get more. And the history that we have of the actual performance shows a slide out performance for the Avantis and the dimensional portfolios because they're they're applying rules that eliminate some of the bonds that have been less attractive in the past. So there should be an advantage. However, you see that in really the the risk too. Uh in the one bad year we had, dimensional's core fixed income ETF underperformed the index pretty dramatically to the tune of, well, a couple of percentage points. So uh I would just stick with BND. I think it's just so much simpler. But if you wanted to go with the Vontus, again, we're not talking about a big enough difference to really quibble. Thanks so much for the question. And now here's

Senior Deduction Roth Moves

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our next one.

SPEAKER_00 5:04

Hi, and this is Joe from Kansas. I have a question about the $6,000 senior tax deduction being used for Roth conversion purpose. I'm a 70-year-old with about $1.5 million in IRA. My Social Security check amount is about $4,000 a month. My home mortgage is paid off and I have no debt. I have around $200,000 in high-rate savings accounts with no other income. I have no problems living off my Social Security income since I'm not a big spender. Would this $6,000 tax deduction do me any good for some Roth conversions? And how much would I be able to convert? I guess this would only be for three years remaining since it's already past the first year of the $6,000 tax deduction. I really enjoy your podcast. Thanks, Joe.

SPEAKER_04 6:02

Thanks so much for your uh your question. Taxes! I hate taxes, I do. I hate thinking about them, talking about them, dealing with them, and the government just makes them more confusing every time they add a new deduction or little thing to the code to make us more confused. So let's look at your scenario. All right, so let's say you don't do any Roth conversions. You're gonna you're in the area where your social security is taxable, but not the full 85%. You you don't have a lot of taxes, you're in really good shape. Now, if you did a Roth conversion of, let's say, $25,000, pretty much all of your Social Security is gonna be taxable. Uh that 85% taxable gets uh gets kicked in there. So um really if you want to convert to avoid the RMDs on some of that money, you can do probably about $25,000 a year in Roth conversions because of that to so you don't you don't lose that six thousand dollar deduction. So maybe thirty, you know. I'm just kind of roughing this up. So uh and it and it will help you with the RMDs down the road. It will help you with the RMDs. Um and that senior deduction sunsets, I believe, in 2028. And the next year is when you start your RMDs. So yeah, I think I I I would probably tend toward it because it's gonna save you on RMDs uh on on the on taxes on uh on those required minimum distributions come 2029, I believe, is when you have to start taking them. So yeah, 25,000, 30,000 should be a pretty safe amount. Thanks so much for the question. Now here's another that came in from the little mic button on talkingrealmoney.com.

Whole Life for Young Adults

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Hi, Don. My name's Sarah, and I wanted to get your opinion on whole life insurance. I'm 24 years old, and I don't currently have any children or a partner who is dependent on me. Uh my plan costs $28 a month and provides $25,000 worth of coverage. I look forward to hearing your response. Thank you.

SPEAKER_04 8:30

Well, you don't have any reason to have any kind of life insurance. Apparently, somebody sold this to you. That's okay. I mean, it's not a big amount. But uh, you know, basically you're just saying, hey, 20 28 bucks a month in death lottery tickets. So that somebody wins $25,000 should you die an untimely death, which you know, you're $24, odds are good you're not dying. Uh and while it's only $28 a month in your 20s, that's real money for most people. And that $28 a month invested over, I don't know, let's see, you're $24, so let's say 45 years at, well, let's say 10% a year in, say, a Roth where there's no taxes, which you could certainly do, which you ought to be doing. That's at 10%, that's almost a half a million dollars when you were um 74 years old, when you know you probably are gonna want to have some money to live on. It's kind of like a bonus. And I'm confident that the whole life policy will not be anywhere near that number. I mean, it's probably oh, let's see. Let me run it at 3% and see what that would be, assuming they're gonna get 3%. I don't think you'll get that much, but let's see. Let me just run that calculation real quick. Uh at 3%, it would be $40,000 after 50 years. At 10%, it could be $485,000. And, you know, the the average annual return for U.S. stocks over the past 100, almost 100 years has been about 10% per year. So, you know, be aggressive in your 20s, do a Roth IRA, stop the life insurance, and um, I think probably be better off. Thanks for listening and thanks for the question.

Money Talks Before Marriage

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Here's another.

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Hi, Tom and Don. Thank you so much for joining the podcast. I actually heard of talking about money through the Stacking Benjamin show. I believe Don made an appearance, and I've been listening to you guys ever since. My name is Anna. I'm from Maine. I am 36 years old. And a fun little fact about myself, I'm going to be marrying uh the love of my life um in a couple of months. So, talking about talking real money, I'm curious from two wiser gentlemen, if you guys have any advice. Uh we are both 36, and because we are getting married later in life, we have different levels of wealth accumulated. Um, I started really early and have been investing since I got my corporate.

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Job, I'm sure I I think that's what she was going to say. It cut off because she was making the call from a car. You should have heard it before we ran it through the uh through the regen, the I AI. It was pretty bad, but it's good now. And and I just it's fascinating. The last two questions were from people in their twenties and thirties. Thanks for listening, and congrats on marrying the love of your love of your life. Easier for me to say. And uh you phrased that very nicely with the wiser, you didn't say old. Thank you for that. Uh you sort of recorded it twice and there were bits and pieces, but what I gleaned from this is you you're kind of looking for some getting started advice, and that's really a good idea. Starting off on the same financial footing, uh, at least with an understanding. And that's something that you really should do before the uh vows and the license is signed, and then you are now legally attached. And you well, your assets remain your assets technically, but once they get commingled, then it gets messier. And as time goes by, it can get messier. And so if you have a situation where one party has more assets than the other, it certainly needs a conversation. Maybe a difficult conversation, it's probably a conversation you want to have in a comfortable place, on a date or something, you know, glass of wine, not too many, just one. Um, but you need to maybe even, and again, I don't know what you have, what the asset disparity is, but you might want to consider some sort of a prenuptial agreement that spells out the expectations. Who's gonna, who owns what, who will own what in the future, and for how long? Uh, how will assets be commingled in the future? Uh, who will own what? Who will be responsible for what part of life? Some of the biggest fights come about because there wasn't a very clear understanding of who would pay for what, who was responsible for what aspects of married life. And those really ought to get discussed in advance. And it would probably be wise, these these actually exist now. Financial advisors who are also marriage counsel counselors or therapists, uh, or financial advisors who specialize in premarital counseling. They they exist. Uh, you might want to look around online to see if you can find any in your area. I would look for a fiduciary advisor who would be willing to sit down with you for a fee, an hourly fee, to discuss this premarital counseling kind of thing. Uh it's it's not about getting the right portfolio or any of that. It's making sure that you guys align on money. Because you can marry the love of your life and you can end up not loving them as much after some really heated money fights. And money is, well, it's one of the two biggest things couples fight about. So the more you hash out in advance, the better off you're likely to be. And I know it doesn't feel romantic, but the romance fades, and you don't want this to destroy a good relationship that could last forever. And they can last forever if we go into it with a clear understanding of what's involved. So I think a counselor would make a lot of sense. Certainly you want to some sort of a prenup, and you definitely want to have a a conversation, even if you don't get a therapist between the two of you, about expectations and ownership and assets and all of that and you know earnings in the future. Thanks so much. Good luck with the uh the marriage. I wish you all the best, and let's grab our next question.

SPEAKER_02 15:48

Hey, Tom and Don. Love the show and appreciate all your good advice.

Do Mid-Caps Matter?

SPEAKER_02 15:52

My question is on mid-cap funds. I often hear you talk about small cap funds and large cap funds, growth, value, et cetera, but I haven't heard you discuss mid-cap funds. I have a portfolio primarily of index funds of small cap, mid-cap, large cap, value, growth, et cetera. And I'm wondering if having mid-caps are just a waste of time and I should reallocate to just small and large cap funds, or am I getting something by having the mid-caps as well? Thanks very much.

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Aaron Powell I would argue for an even simpler approach. Um, because there's no we the reason we don't say grab mid-caps is because most total market funds that we suggest have the proper allocation of mid-caps. There's no need to grab mid caps, and there's really no need to build a large, mid, small portfolio when none of the evidence points to any advantage uh worth overweighting mid-cap. So I I just that's why we don't talk about it. That we just don't find any need for it. And I'm a huge fan of the simplest approach being the best. And I I practice what I preach. The number one holding in my 401k at work is the dimensional target date fund. So, you know, uh and and probably the biggest holding in my brokerage account is AVGE. I'm pretty sure it is. I haven't looked in a while, but simple is good. Go simple. And and again, no big advantage to mid-caps. So if you just went large and small, great. As a matter of fact, one of Paul Merriman's plans is you you buy a target date fund for your diversification, and then you throw a small value fund in for the for the uh added potential growth that comes from those asset classes. Thanks for the question. Thanks for all the nice comments, thanks for listening. And here's the last one for today's episode.

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Hello, Don and

Rebalancing in Retirement

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Tom. Uh this is Steve from Massachusetts, and here's my situation. Um I have uh about one and a half million dollars in Roth um Roth IRA stuff that uh that I'm thinking of reallocating. Uh that's been in target date funds, which have done fine over the years, but I'm thinking of retiring. I'm in my mid-50s, uh. thinking of retiring in the next maybe even year or so. And uh hopefully if this goes well, I've got another whole 30-year time investing horizon in front of me, so I'm thinking I should probably actually get that stuff out of target date funds and maybe get it in something like a like a VT ETF. Um in order to do that, of course, you know, you can if you're getting out of a mutual fund and into an ETF, uh you can't direct transfers. You're gonna be you're gonna be out of the market, right, for some period of time in between. Uh and basically I'm kind of hung up on this. You know, I don't like being out of the market. You hear all these things about, you know, if you if you miss the largest updates, the damage that that can do to your portfolio. And so I get kind of hung up on that. And I'm just wondering what you would tell me. You know, does it make sense to sort of do that a little bit at a time, like 50,000 or 100,000 at a time or something, uh, to kind of limit or, you know, if you're going to hit some updays, you'll also miss some down days, and maybe that evens out sort of my own funny little version of dollar cost averaging. You know, how do you generally recommend that people handle that when you're kind of required to be out of the market at least for some little period of time? Would really appreciate your perspectives on that. Thanks so much.

SPEAKER_04 19:35

Oh, like so many other smart people, and this says you're a smart person, you're thinking too much. You're really, really, really, really overthinking all of this. Okay? One, the most glaring thing I see is that you have no plan. You're totally winging it. I'm in my 50s, I might retire. Maybe next year. But then I have a 30-year time horizon for building wealth. Well, wait, the two are contradictory. If you're retiring, you're gonna be going into well, I mean, I don't know everything about your situation, but most people are going into a period when they start drawing down their wealth. It's not building as much as it is drawing down. Now I would imagine you had the target date fund for a reason. Probably for the glide path that it provides, the fact that it becomes more conservative as you get older. What changed? I don't know which target date fund you're in, but I would assume it was a target date fund geared to about the time you retired. Why are you thinking about a change? I honestly think it sounds like you you have you've saved well. You need a plan. Actually, you're probably to the point in your life where if you're thinking about retiring soon, you at least need a financial plan, if not a true advisor that you pay either with a fee or hourly, however is it's best for you. But you need not just guidance now, but you're gonna need ongoing guidance. And I think that this this worrying about being out of the market for what literally could be just minutes. I mean, if you if you do a simultaneous, if you do a sell order and you see what you're what you what you got, if you do a market order, within a few minutes, you'll know what you got. Then you take that amount and you immediately do a buy order the same day, you're gonna be out of the market for a few minutes. That shouldn't be enough. But I wouldn't do that until there's a reason why you're doing it. And I didn't hear anything about the why. What little I got didn't make sense to me. So you need to think about that why, and you might want a little guidance in doing so. Probably at this point in life, particularly if you're thinking about retiring, you need a plan so that you can make sure you can afford your retirement and then it's in the right places to make the money last for as long as you need it with less psychological risk. You know, there's we're not gonna No good advisor is gonna put you in a portfolio that puts you at real risk of loss, but that psychological risk is the biggest potential downside, and it's the thing we think about. Thank you for all the great questions and the really nice comments, which we appreciate. And if you want to send us questions, it's so easy to do. You just go to talkingrealmoney.com and you either uh click on the button that says ask a question, you type it up, send it to us, we put it on the other podcasts, or you click on the mic button and it becomes part of the Friday podcast if you record your voice. Every Friday we do it this way. And we have another break for the Fourth of July, which is on a Friday, so that's a holiday. There won't be a QA that day, but there'll be another right after that. And uh, so please keep the questions coming. I love them. And uh without you, well, we would not be talking real money.

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