Q&A Overload

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

Friday Q&A Begins

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Well, welcome to the new normal for the QA show on Friday, at least for now. And a surprising new normal it is, too, because summers tend to be our quietest period here at Talking Real Money. And now, now it's busy. We have so many questions. Tom's got a ton of printed ones, and I've got a bunch of spoken ones that came in at talkingrealmoney.com using that little green button that looks like a microphone in the lower right hand corner. Good work getting those questions in. And they're fine questions. So here's the deal. Today we have seven of them again. And it looks like next week we'll have seven again. So if they keep up at this pace, this could be the new normal. If you like a little longer episode, you're gonna love this. And uh thanks for listening. By the way, not only thanks for listening, but thanks to all of you who uh went over to check out Lit Reading. It boy, during the period that Apple featured it, it kicked up into like the top ten fiction podcasts in the country, which was thrilling. Um, you know, it means people were listening to my stories, and I love doing these short stories. And the sales of uh The Line on Cross, the my book, my novel, have been going very well too. Thank you for for reading. So thank you for listening and for reading and for sending in your questions. And let's do the first one.

SPEAKER_05 1:39

My name's Dave from Ohio, and I have a question for you. So I listened to another podcast, No Names, where they talk about credit cards like they're the most evil thing in the world. And you don't need credit, shouldn't have credit, credit's bad, etc. My wife and I are in our 60s. We have saved for retirement, we have emergency cash, but we also have credit cards. The credit cards get used here and there. There are some perks with them. We never carry a balance, we've gone through problems in life, cancer diagnosis, etc. We've never had to or want. Do you agree that credit cards are evil? Or do they have a place in your monetary life?

Credit Cards Aren't Evil

SPEAKER_02 2:49

Thank you. Well, I'll name names. I know it's Dave Ramsey. The Ramsey folks are a little strident on credit. Now, I it for good reason, in part. The good reason is that if you carry balances, the interest rates aren't just usurious. They they almost feel criminal. When you're getting up to a 29.99% rate of interest where for every dollar of a balance you carry, you're paying 30 cents in interest over the year. That's just bad. And that's what's bad about them. But debt isn't bad. Debt is a tool. Credit cards are a tool, they're actually a very powerful tool. I have a lot of credit cards. How many of them have a balance that goes past 30 days? Zero. Ever. Period. Exclamation point. However, uh, I get some really nice little perks. I like the perks. I like the simplicity of using credit cards. I like, for example, my Apple card I use all the time because I don't swipe it. It's I use Apple Pay with the Apple card. I get points, I get dollars, I get real money back, and I can just wave it at things uh as opposed to it and it and it does a one-time uh uh number. So I'm protected. Plus, credit cards have greater consumer protection than do debit cards, and certainly better than cash. You steal somebody's credit cards and they charge up your credit cards, you're protected. You don't have to pay it. Somebody steals your cash, you can't get your cash back. It's gone. Debit card, less protection. Credit cards aren't inherently evil. If they're used as a tool properly, like you're doing it, there's nothing in the world wrong with them. Here's the next question that came in at talkingrealmoney.com by somebody who just clicked on that little green mic.

SPEAKER_00 4:52

Hi, Don. I would write this uh question to Tom to make him feel a little better, but it requires filling out a form, and that is cumbersome.

SPEAKER_02 5:04

I totally agree with you, by the way. It's cumbersome, and Tom is fine.

Emerging Markets Simplified

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Don't worry about Tom. Go on.

SPEAKER_00 5:10

My question has to do with the Emerging Markets Fund. Um I am under the impression that if I have a uh international stock fund that includes all the stocks in the world, that that also includes emerging markets. Is Don, I mean, is Tom saying that you should have additional emerging markets? I I know he's not saying run out and buy everything that is mentioned, but the implication is that there should be maybe a heavier weight to emerging markets than uh one would get in a um uh total market fund. I don't particularly want to complicate my portfolio, especially because I do believe in a balanced portfolio, and I currently have a 70-30 uh mix. So I don't want to have to make things more difficult. And I believe you guys are pretty strong advocates for keeping it simple. So I just want a little clarification on how much emerging market I have in an international fund, a total international stock fund. Thanks. And thanks for all you do. Keep up the good work.

SPEAKER_02 6:29

Don't worry about it. You keep it simple. What you're doing is giving you some exposure to emerging markets. Now, emerging markets might have a slightly higher expected return because they're more risky. That's the way the market works. So if you don't have much in the way of emerging markets in a portfolio, you you might want to add them. But if you've got funds like, well, Vanguard is going to be very light. Their total market fund is going to be very light in emerging markets because it's market cap-weighted. You might end up with more at uh dimensional, you will end up with more, I should say, at a total fund with dimensional or avantis. But is this a big deal? There really isn't a factor premium that I can quote you. So I'm not saying emerging markets is like value or small cap or profitability or or or uh moment momentum. So I'm just not going to push it very hard. Keep it simple, keep it sane, keep it doable for you, and I think what you're doing sounds good. Thanks so much for your call and keep them coming, or type them into Tom if you don't mind

Chore Pay and Child IRAs

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the form. Now for the next one.

SPEAKER_01 7:45

Hey, Don. Just want to get your thoughts about a website that my friend told me about. The website is called halfmore.co, h-a-l-fm-o-r-e.co. And this is a website where parents can create an online account to document household chores that a child did and how much they were compensated for doing those chores. The website would then run payroll and generate a W-2 tax return uh to uh uh uh to use for uh documentation for earned income. The child would then take the earned income to create a child's IRA account at the brokerage uh company of their choice like Fidelity or Vanguard. Um just want to see what your thoughts are regarding this website, if you had any experience with it or similar websites that do the same thing. Um almost seems a little too good to be true. Um appreciate your thoughts. Thank you for the good work.

SPEAKER_02 8:44

Aaron Powell You know, it's not too good to be true. Uh and by the way, I was not aware of half more until you brought it up. It's uh I think it's ten bucks a month. It's you know reasonably priced. It's if you're using it more like an accounting tool, I think it's fine. You've got to be very, very careful with this chore job divide. What's a job and what is a chore? The IRS does not allow you to pay your children a W-2 or a 1099 wage for regular old household chores, like making their bed or doing their dishes. You know, I I guess you could if if your kid is doing yard work or heavier household cleaning. Yeah, maybe, because the IRS does say that certain household tasks can be recognized, uh, and it's I think it's under their publication 926. If it was something you'd hire somebody to do otherwise, and that you're and you're paying local market rates, and then of course you use half more to do what is required in the documentation. And you've got to meet state, you've got to meet uh federal and state labor laws, too. So can you do it? Yeah. Do you need to be careful? Of course. Uh and yeah, if your kids are doing extra work over and above their their regular, just it's part of the household chores, stuff that you might hire someone to do, that's legit. But if you've if you've got a three-year-old and you're paying them to put their fork in the dishwasher, no, no, that's just regular kid training. So I just think you have to be a little careful and a little sensible about it, not try to game the system. All right, we have another question standing by. Of course, this one came in at talkingrealmoney.com using the button in the corner and a microphone in your computer or your iPhone or whatever you have. And even if it sounds terrible, have you noticed everybody sounds good? AI made everybody sound good. I've got this cool tool that makes everybody sound good. So let's make the next

Covered Call ETFs Exposed

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one sound good.

SPEAKER_07 10:58

Hi guys. My name is Dave from Texas. I had a question today about covered call ETFs. Uh, I've been listening to you for a really long time. I'm completely on board with just broad, broad coverage ETF index funds that are low-fee. I've got my U, I've got my international, I've got my US um little dividend and a little uh a little bond, and I'm happy with my completely vanilla safe investments. But these covered call ETFs just keep coming up as a stream of income. Um I know uh I think I think uh Don one time was like, oh, they're great right till they're not, and they stop. But uh as long as I've been aware of them in my adult investing life, uh, for example, Jeppy, J E P I has been cranking out 8% for two or three years, month after month after month, um of of real income. So anyway, I was wondering if you just go deeper, a deeper dive into uh covered call ETFs, which seem to be uh kind of all over the place. Thanks.

SPEAKER_02 11:58

Your conclusion is flawed. It's not income. You're giving what you are doing when you write covered calls is you're giving up your future growth potential for a portion of that uh and some semblance of downside protection. That's what you're doing. You're not, this is not an income stream. This is just a way of basically taking out some of your capital gains along the way. And and let's do a fair comparison. Let's go way back, let's find a covered call writing fund that's been around around longer than JEPI. Let's use PBP, which is the Invesco S P 500 buy right e buy right ETF. So they buy stocks, right call calls. Uh that one goes back to 2007, so we've got a long history. Let's compare their 15-year returns uh with the 15-year return of, well, since this is the S P 500, let's be very comparable and use, I was going to use VTI, but let's use VOO. I think VOO. Yeah, yeah, V O O is a good one. Because that's the S P 500. So we'll go as apples to apples as we can. The 15-year average annual return for VOO, the S P 500 fund, has been 14.2% per year. The 15-year average annual return for PBP, the covered call writing fund, has been seven percent per year. Half. Half. You're giving up upside to get those call premiums. And there is some downside protection, but how great is that downside protection? Well, it's not that great. Th the the good news is that uh PBP goes clear back to 2007, so we can look at what its worst case scenario has been at 2008. And when we look back to that chart, you'll discover that PBP lost about 41% between the high of 2008 and the low of 2009. So that was better than the SP 500 did. The SP had a uh high to low decline of about 57%, but it still was a pretty substantial, pretty scary scenario. And you gave up huge returns, doubling your returns over that period of time. Is that worth it? I don't think so. And the thing is that these funds work really well in markets that are sideways to slightly higher. They don't work real well in rapidly rising markets or in rapidly declining markets. They're gimmicky. You don't need another gimmick. Why do you need another gimmick when you could just, let's say you just did the SP 500, which is not what we would suggest, but you just did that every year and you took out half the gains, half the average annual return. So essentially, you have your cake and you're eating it too. You would have been taking out about 7% and you would have been adding to your portfolio about 7% per year. Not saying that's what you should do again, but I'm just saying, look what you could have done. No, covered call writing funds are just a big gimmick, and there are always gimmicks that are being sold to somebody somewhere for some reason. We believe and are huge believers and will continue to be huge believers in the total return scenario. Make your portfolio make as much money as you can comfortably make within your risk profile, and then take from the profits, whether they're income or growth profits, take from both. Thanks for the question, and we have another.

SPEAKER_03 15:50

Hi, Don and Tom.

Beware of Annuity Sales

SPEAKER_03 15:51

This is Russ from Memphis, Tennessee. Love your show, been listening for a long time. Um I have a question dealing with money matters and relationships. I have a good friend that is coming into 300k from inheritance. She's a teacher, and the investment person at her school that handled her 403B has her thinking hard of uh investing in her 300k into a non, I think it's uh qualified uh annuity. I suspect this is not her best move. Can you can how can I get her to consider other options? And uh, what would you suggest she do? Thanks. Uh I hope you can come up with some good answers on how to keep everything headed in the right direction.

SPEAKER_02 16:43

Well, generally speaking, we believe that insurance and investing should not be combined. We're not against insurance, per se. I don't like it for some cases, but I don't believe that insurance and and investing belong together in 99.9% of instances. Adding insurance to an investment doesn't make it better, it makes it worse, it makes it more expensive, it makes it uh more profitable to the people who sell them, though, because they're so easily missold. The regulation of insurance products is really lax when you compare it with securities. Plus, the the fees can be, well, very opaque. They're not easily disclosed or deter or determined. So I would steer clear of anybody who's selling any kind of a product, period, but particularly if it's an insurance product, there's probably no benefit. Here's what I would suggest. I would suggest you get her to listen to this podcast. Maybe, maybe she'll uh start to see what we believe and why it's so powerful. That if you pay less, you should make more. And you have to build a portfolio that's right for you. That you can't, there's no such thing as high returns and and low risk. They just don't exist. But it's a lie that insurance people like to say. They speak it with their mouths because they know no one is going to read the 200 pages of disclosure documents in which they say, yeah, there's risk, but we we don't really want to tell you what it is. It's not real clear. Uh it's obfuscation. So uh I would suggest that. You might want to get her a copy of uh my book, Financial Physics. You can get a Kindle copy for three bucks at Amazon. And uh just please have her run it by any decision by somebody else who doesn't have a vested interest in selling her a product. And that is tricky in the financial industry because everybody's selling something. I mean, to be honest, even we are, but we try to make that what we we try to make what we do for a living very transparent. And I can tell you that if she was to call us with the particulars of the product she's being pitched, we could probably find something that was a whole lot better for her and give her a lot of great questions she can ask. Uh like, what kind of an annuity is this? Is this a an indexed annuity? Is this an income annuity? Is this a variable annuity? What kind of a commission does the person selling it get? They'll lie and say none. That's a lie. If they say none, then then you know they're a liar right off the bat. So, but have her listen. I think we'll help. Thanks for your question. And I think we have

Avoiding SpaceX in Indexes

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two more. Yeah, we do, two more. Here's the next one.

SPEAKER_04 19:49

Hi, Tom and Don. This is John from Florida. I see that the indexes are adjusting their rules and putting SpaceX into more than one index right away. How can an index investor avoid being forced into buying into this big money loser?

SPEAKER_02 20:05

Thanks. Don't be a straight index investor. That's the only way, because the uh the total market indexes are going to have it in because it's part of the total market. It's part of the uh the NASDAQ 100, so it's in the Nasdaq 100. It isn't, I don't believe, in the S P 500, because that's a selected index. But indexes that just emulate a market, like the total market indexes, they're gonna have it. Now, you could go with some rules-based funds, which is why another reason why we like dimensional and Avantis. They do not buy IPOs in the first year because there is academic research that shows that IPOs, generally speaking, of course, there's always the exception to the rule, that story that gets everyone excited. They're generally speaking, IPOs don't add value. They are hyped at the beginning, and they're best avoided for a while to let the dust settle and see where they end up in the various factors that Avantis and Dimensional use to choose their stocks. They're rules-based, but they don't just blindly put in every stock in a particular market. So that's really the best way to do it is to have rules-based funds like those from Avantis or DFA. And there are a few others, but those two are the big, big, big players in that space. Thank you. And let's grab the last question that came in at talkingrealmoney.com using the record your question

Bucket Strategy Basics

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button in the corner. Hey guys.

SPEAKER_06 21:43

I just started listening to your show about a week ago. Um, and uh I'm already excited about what I'm hearing and I'm looking over some of your uh past podcasts and really really excited to get into what you provided here. Um I'm actually Calling you here on what would be my first day of retirement. It just started today. I've been planning on things for a bit, but I have a question around the bucket strategy. I've been reading Christine Benz and How to Retire book. My question is in she's provided some sample or model portfolios. Some of them are split by fund families or fund types. My my curiosity is if most of my funds, retirement funds, are going to be in Fidelity, is there any reason why I should not reach over and follow some of what her picks are from Vanguard? Are there extra expenses? I just don't know what that will look like. So that's the that's the first part. And then second part is if if you know of any other resources, whether they're books, other things I can read about the bucket method, um, it just seems to be a little bit um more simple uh and something streamlined and something that I think is going to be easier to wrap my head around and keep track of. So if you have any recommendations, I'd appreciate that as well.

SPEAKER_02 23:09

Aaron Powell Well, the bucket thing, it's just sort of a way of making it sound easier than it is. Instead of saying you need a fund that does this and a fund that does this and a fund that does this, you want a bucket that does this and a bucket that does that and a bucket that does this other thing. Uh buckets are fine. Uh I'm not a big fan of a lot of the bucket. Oh, how how do I say this? There are a bunch of bucket books out there, and I'm not real fond of their particular way of doing things. Uh there's there are there's a lot of confusion too that comes with it. I think Christine's work is very good. I think um Larry Swedro's work is not bucket focused, but it's really it's really good stuff on how to build portfolios. If you want the basic, basic, basics, check out my cheap book, Financial Physics. Uh it's very basic. And what it basically says, all of the good stuff out there says, is build the portfolio that's right for your situation, for your risk profile. That's an important term. Risk profile. That means how much risk you can stand taking. And by risk, we when we're dealing with mutual funds, diverse portfolios, we just mean volatility because there's little or no inherent risk if you have a properly diversified portfolio. We're talking about the ability to withstand volatility and to stay invested, and the need to take risk. A lot of people don't need to have all these buckets of various risky securities because they're set. Why take risk? You don't need to take. You're not gonna win the richest man award. Musk already has that. He he's wrapped that up for now, anyway. So uh uh build a portfolio that that makes sense for you, and it can be as simple as emergency money and then stock, fixed income ratios that fit your risk profile. That's it. Now, as far as Vanguard or Fidelity, you're gonna get fine funds from Fidelity if you're dealing with mutual funds. If you're dealing with ETFs, then the good news is at Fidelity's brokerage, you can use Vanguard's ETFs, you can use Dimensional's ETFs, you can use Avantis's ETFs, you can use all of these products that we think are very, very good products. As a matter of fact, we would suggest you lean more heavily toward Avantis and Dimensional for the equity side, and maybe more toward Vanguard or Fidelity for the bond portfolio, probably Vanguard for the bonds because they're so cheap. But use their ETFs. You don't have to be loyal to Fidelity's products if you're a Fidelity customer, because they like Schwab are a broker or like Vanguard's brokerage. They're a broker. You can own anybody's ETFs. So uh let's see, was there anything else I think again? Larry Swedro's stuff is great. I think Christine Benz is great. Um I I I really I like Morningstar's research, not necessarily all of their suggestions. Um, but I don't think you need to focus too much on buckets. Really, there are three buckets. There's the the emergency bucket, the income bucket, and the growth bucket. That's all. You don't need a speculative bucket, for example. That's just why do you why do you want to play with your money? Isn't it too important to play with? Unless you like going to Vegas, and then that's not a bucket, really. That's entertainment. Thanks for your question. Thank you all for your questions. Keep them coming at talkingrealmoney.com. Use that little green button in the lower right hand corner or click on the button up top that says ask a question. And if you need some help, you would like to spend a little time talking with a fiduciary advisor who is not gonna charge you or sell you anything. We promise you you can meet with one of our Appella advisors for free for nothing for a few minutes to kind of take a peek at what you have, to maybe compare that annuity with maybe better alternatives out there. Uh see if you're on track for where you want to be in the future. Just go to talkingrealmoney.com and click on the button that says meet an advisor and set up an appointment. You can even set it up with Tom because guess what? He's back from vacation finally. Doesn't mean he isn't going on another one in a month, because I think he is, but he's back for a little while. Thanks so much for listening. I appreciate you being there. I'm Don, and every Friday I'm taking questions in which we're talking real money.

SPEAKER_08 27:47

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