Question Onslaught

SPEAKER_00 0:05

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

Questions, Questions Everywhere

SPEAKER_02 0:11

You guys are freaking Tom out. He's on vacation, and I cannot convince Tom vacations. But he doesn't vacation. He has his computer, and he tends to look at it a lot. He has a hard time cutting the cord. Well, you guys have been freaking him out with all the questions. Apparently, he got just inundated with written questions. And we say he loves them, but it's right now it's sort of a love-hate relationship. So uh fair warning, some of those questions may be a bit delayed. I have also seen a commensurate rise in the number of recorded questions too, which means that at least for the next couple of weeks, we're going for record numbers of questions on the Q ⁇ A Friday edition of the Talking Real Money Podcast, which of which this is one. This one. So we got a bunch of questions today. We'll get to those in just a minute. Um, but uh I want to thank you for all those and thanks for listening and all that stuff. We really, really appreciate you. And also uh I just wanted to brag a little bit. I I don't think it's still there, but uh just about a week ago, Apple Podcast featured not talking real money, talking real money has a huge audience. Uh it featured my short story podcast, Lit Reading, as a great place for summer stories. So uh I hope some of you got a chance to check that out. If not, go check it out. Hopefully we'll keep it in the uh in the top hundred fiction podcasts in the country, because I think last I checked it was uh number 15, and that's pretty good from not being rated at all. So a little bragging. Now we're gonna get to a little questions. These questions are sent in at talkingrealmoney.com using the little microphone button in the lower right hand corner. It's so easy. You just click on that, you record the question. Then I run it through some cool AI stuff to make you sound like you're in the studio, and I try to answer them like I'm gonna try and answer this question. One of seven today.

SPEAKER_06 2:30

This is Steve, and I have a question about our emergency fund. And do we still need it? We're both retired, and only one of us is drawing Social Security. All of our expenses are covered by our income stream of Social Security and annuity. We have a high six figures in Roth and traditional IRA, and based on what we sp spend, that's plenty, and it's going to keep growing, of course. So we're just wondering, is it still necessary to keep six months in an emergency fund uh at low income, three percent? Or with what we have, could we could we assume that we could, if we had an emergency like a roof or a car, we have plenty to draw on in our funds.

Emergency Fund Still Needed?

SPEAKER_02 3:13

Thanks. Okay. The trick with emergency money, with emergency pools, is the high degree of stability that those are supposed to provide. You talk about 3%. Well, you can get four in a high yield savings account. And the good news about that is that that money is available without any penalty, without any volatility, should the roof blow off or something big occur. That might require that you liquidate an asset that is down dramatically. Even a bond fund could be down. So that's why we're big proponents of having the emergency money in something that is incredibly stable. Now that could be part of your regular portfolio. So it really depends on you, your comfort with liquidating assets if they're down dramatically. And uh I that's why I keep I'm pretty good with risk. I've been doing this a long time, and yet I keep a fairly large amount of money in a very liquid, immediately available account that yields right now about 4% in case of a major emergency. Hope I never have one, but then I don't have to liquidate my other pro uh portfolio products should uh they be down. So that's really the reason. Do you need it for sure? Well, no, you've got other assets. That should be fine, but I would probably have it. Thanks for the question. I appreciate it, and here's number two of seven.

SPEAKER_06 4:52

This is Steve from Minnesota, and I'm looking for suggestions on investing what I would call lazy money. And uh we're both retired. We have monthly expenses covered by Social Security and annuities. We have a six-month emergency fund that is fully funded, but we're seeing our short-term savings growing to a level that we feel we should be earning more than 3 percent in a in a in a low-term money market. And so I know what most of us feel about uh annuities, but would uh would a MIGA paying 5.5 percent over three years be one solution? And what are some other solutions to put lazy money to

Putting Lazy Cash to Work

SPEAKER_06 5:32

work?

SPEAKER_02 5:32

Thanks. Lazy money, that's an interesting term. I'm not it's not one we use, but uh because I don't think any money should sit around being lazy. Uh it serves its purpose. Emergency money is emergency money. It should be liquid, as I mentioned previously. Uh I personally, and again, I put my money where my mouth is. I personally prefer that that kind of money, the money I want safe, but that I don't need liquid, is in laddered CDs. That's where the bulk of mine is, along with a little bit of B and D or a lot of BND. Uh that's what I'd go through, I'd go for first, is laddered CDs. Because I'm getting over 4% across my ladder. Um, not as high as a a multi-year guaranteed annuity or MIGA, the cute little insurance company term. Uh, but there's also less risk with a CD, and I don't care what the insurance companies say. They can claim guaranteed all they want, but the guarantee is really pretty much only as good as the company. And let history be your guide. We had we have had insurance companies go broke and people who had annuities have to take decades-long payouts in some cases, years and years ago. AIG nearly went down if it wasn't for a government bailout, and it is very unlikely, it is very unlikely that those state pools would have been able to cover them. So it's insurance. I don't think insurance companies should be allowed to say guaranteed, personally, but uh they they do. Multi-year guaranteed annuity. Yeah, you know, guaranteed by what? Not full faith and credit of the U.S. So I'd go CDs. I guess if you get a really great MIGA and all goes well, good for you. Thanks for the question. Now I I believe, I think we have another MIGA question coming up. I don't know if there it's like a big sales

Simplifying Taxable Investing

SPEAKER_02 7:36

pitch going for him. I don't know if this is the one or not, but here's three of seven on our very busy QA day.

SPEAKER_04 7:42

Hey, Don. Uh, thanks for taking my question. And I just want to thank you guys for all the advice that you give and uh on your show. I've I've definitely learned a lot over the past few years from listening to you guys. I really need some help on a taxable investment strategy, a long-term investment. And um just to give you some background, I'm 43 years old. Um, I'm a high income earner, and I've paid off my mortgage, so I can I've I'm able to maximize my all my retirement investing. And so I've started to maybe a couple years ago aggressively fund um a taxable brokerage account that I have with Vanguard. Long story short, my strategy when I first started was just to try to get as much money into the SP 500 as possible. Uh so I've done that and um I'm sitting on about 170K in VOO. I have about another 20K in AVDE and another 20K in some uh various uh uh funds, but nothing too significant. So um I've also just acquired a large sum of money from some company stock option sales. So I have about 300K sitting in my uh settlement fund right now, and I'd really like to use that money to rebalance this account um and to come up with a strategy for investing uh in a taxable account that's sort of supplementing my retirement. So I'm just kind of curious. I really need some help on what is a good strategy. Uh what type of fund should I pick? Should I avoid Avantis funds like AVUV, or are those okay to use? You know, why and why not? Uh my thought, just off the top, you know, just what I've been playing around with was to maintain 50 to 60 percent in V O O, um, 20 to 25 percent in AVDE, and then split the remaining 15% between A V U V, A V E M, and AVDV. So if you could please comment on that, I would definitely appreciate it. Uh thank you so much. That was a lot of letters.

SPEAKER_02 9:41

I'm curious as to why the emphasis on VOO, which is the S P 500 fund. Uh I I I'm not of the opinion that the S P 500 is a great representation of the the market, particularly not the global market, but you're getting that with the uh the AVDE, the international. Here's what as I'm listening to your question, four letters keep running through my head. Like it's not even a strategy. It's just taking what you're trying to do and making it a whole lot simpler. And uh well, actually, eight letters run through my head. But since you're with Avantas, A V G E keeps running through my head. Cause it gets you the US, it gets you the S P 500 sort of, but with more breadth. It gets you the international, it gets you the emerging markets, it gets you it gets you all of the market with an emphasis on value and small cap, which is what our strategy is, what we believe your strategy should be, based on amazing research done over the course of decades. So if you want a strategy, uh four letters, A V G E or four other letters, D F A W, and then don't think about it. They're doing it for you. Pretty easy. Thanks for your question. I hope that answered it. Just do that. We make things too complicated. Okay, another question coming

MYGAs Versus CD Ladders

SPEAKER_02 11:19

up this one. Again, send in at talkingrealmoney.com. Okay, spoken in at talkingrealmoney.com using the little green mic button in the lower right hand corner at talkingrealmoney.com.

SPEAKER_05 11:31

Hello, Don. Jay from Texas. Before I get to my question, I'd like to say downloaded the book this morning, The Uncrossed Line, looking forward to starting it this weekend. My question fairly simple. You talk about the five-year CD ladder. What about using a five-year MIGA? Pays a little bit more, and the interest is tax deferred. Just wanted your thoughts on that.

SPEAKER_02 11:50

Thank you. I knew there was another MIGA question. I thought I saw it. That was the one. Uh please see previous answer. Um I it I yeah, it's okay. The tax deferral is of negligible benefit. Really negligible, because it's a limited term device. So at the end of the term, whether it's three or five years, you're gonna pay the taxes. So pay me now, pay me later, unless there's a specific reason you don't want to. That should be not even a factor. They pay slightly more. Why? Because they're slightly riskier. That's why. If you're okay with that trade-off, then who am I to say not to do it? Just make sure you're dealing with some of the best insurance companies out there because you're really relying on them to back that guarantee. So, yeah, I do CD ladders. I have an option, I could use them. But I understand the risk. And it is there. No matter what the insurance people will tell you, it is there, and it has in the past reared its ugly money-losing head. Not saying it will in the future, but darn it, in 2008 it almost did again. Just be aware of that. It's okay. It's like anything else. If you want to make more money, you take more risk. And it's it's sort of a prevarication that they're not riskier on the part of the insurance companies. They they get away with it. I can I can pretty confidently state that if they were federally regulated now, I can't say this with abs absolute certainty because I don't sit on the board of the Securities and Exchange Commission, but I'm pretty sure if they were federally regulated, the the Securities and Exchange Commission would not allow them to use the word guaranteed unless it was a full faith and credit backing of the U.S. government. We can't say guaranteed. We get in trouble all the time if we even imply it when we're jesting. And we jest a lot about it. But no, guarantees are a very special thing, and insurance products don't have an ironclad guarantee. They don't. Thank you. And now, what are we at? Five? Wow, five of seven.

Safe Money for a Home Purchase

SPEAKER_02 14:15

Big day.

SPEAKER_01 14:16

Good morning. I have about two hundred and ninety-one thousand dollars in a Vanguard brokerage account. Uh, in it's all in VMFXS, M F XX. And I would like to purchase a home with this money in uh two to three years. And I'm just wondering if I should be putting it in some other funds, uh, maybe some bond funds, et cetera. And would love your input on how I can maximize the yield over the next couple of years. Thank you.

SPEAKER_02 14:48

The fund you were trying to say is VMFXX. It's hard to say. That's the Vanguard Federal Money Market Fund, uh, which is a very safe, federally backed, uh, absolutely safe. And you can't say all money markets are absolutely safe because some of them are corporate, so they're not 100% safe. They're a higher degree of safety. But this one is federal, so it's really safe, and it's yielding about 3.6%. So that's pretty good. Although you can beat that with high yield savings, and like high yields like this, high yield savings, of course, have adjustable rates. You don't know where the rates are gonna go, so they can fluctuate. Therefore, there are other things you can do. As I mentioned earlier, one of the things you can do is ladder out CDs, or if you're pretty sure it's gonna be two to three years, get some of your CDs at two years, well, get all of your CDs at two years, and then go to a high yield savings account at that point as you're shopping for a house. But if you're sure you're not gonna go uh less than two years, then get some two-year CDs through Schwab or another brokerage firm. And you can lock in that almost 4% yield. You could go to BND, but you do have the potential of some volatility, some loss of principle, not huge likely, but it exists, and we have to be clear about that. So a couple of ways you can go. You could go high yield savings, gives you a lot of flexibility, and about four-tenths of a percent in the highest yielding ones, better than than Vanguard is giving you. You can stick with Vanguard because it's pretty darn good. Or you could get two-year CDs or ladder, one, two, and three-year CDs if that's comfortable for you, too. Or you could go to BND or a fund like it. Yield a little bit more right now, uh, and that locks it in a little bit longer, but you also take some risk of volatility of principle. So it really depends on what you're looking for. Uh, absolute safety CDs are the uh federal money market or high yield savings, FDIC insured. Thanks for yours. Another question is coming

Balancing Income and Liquidity

SPEAKER_02 17:07

up right now.

SPEAKER_03 17:08

Hi, Don. I'm managing about a $300,000 taxable portfolio for my in-laws, ages 80 and 82. They have a fantastic pension social security floor, but require an additional $2,000 a month of income to help pay for some memory care and additional living expenses. We'd need this $300,000 portfolio to last at least 10 years to cover that gap. They also have about $250,000 in home equity that they would unlock in a few years when my mother-in-law downsizes the house. Given their low risk tolerance but need for long-term cash and liquidity, my main questions are is somewhere between a 20 and 40% equity allocation reasonable? And should we use something simple like AVG or VT to maximize those returns? And I'm also wondering how we should structure the remaining per 60%. Should we keep two years in cash in their money market and then use some sort of tax efficient bond fund since this is completely taxable? For example, would something like VTEB make more sense than BND since they're uh in the 22% bracket. Love the show and thank you for the guidance.

SPEAKER_02 18:14

Given the age, given their age, given the fact that there's already memory care going on, I think having a lot of liquidity is a very, very good thing. Couple of years in money market or high yield savings, probably wise, because you never know when there's going to be a need. And the need could be high enough, could be, that you're gonna threaten this money lasting for uh as long as you might need it to last. It's not a lot of money. I mean, it's 500. They're not in a high bracket, so forget about tax advantaged portfolios. The difference between VT and VT, not VT, B N D and VTEB, which is the tax exempt bond fund, the difference is a full percentage point, which is about 25%. So they'd have to be in a much higher bracket to make the tax-free make sense. Don't don't worry about tax-free. Uh I would I really would keep I would go for high yield savings because you can get up to about four now with high yield savings versus about three point six for money markets. Although money markets are okay. Uh having a little inequities is probably and I do mean a little, like 10% has the potential to extend the life of the portfolio. And if they lose half of 10%, uh it's not gonna be earth-shattering. But the gains can help extend the life a little bit. So I think that's nice to have. I wouldn't go 20 or 30, probably, not at their age, and with their already higher needs than even a few years ago with that extra 2,000 they need that you need to last for quite a few years. So there's no easy answer to this. Yes, you should have some money in stocks. I would stretch for yield. If you want to go with a bond fund, BND would be a better choice than VTEB. Better choice. Uh liquidity and maybe laddered CDs going out three, four, and five years past the liquidity with a little bit of equity might be a way to go. So that you, again, boost that yield ever so slightly and lock it in in case rates decline and the short-term savings or the money markets go down. But there's no great answer to this. You just have to make do and hope for the best. And remember, if they do run out, there is that final fallback of Medicaid. So

Inherited IRA Roth Backdoor

SPEAKER_02 20:54

thank you for that. And now it's seven of seven.

SPEAKER_07 20:58

Hi, Down and Tom. I am the beneficiary of my brother's IRA and will cash it out at the end of the month in year one of his death and pay all the taxes on it per my brother's instructions. Using the after-tax amount, I will distribute slash gift the money to my siblings, nieces, and nephews again per my brother's wishes. Each of us will end up with approximately $14,000. The money is at Swab and I now have an inherited IRA at Schwab. This is the only account I have at Swab as I broker with a different company. With this inheritance has pushed me above the modified adjusted gross income requirements for contributing to a Roth IRA like my wife and I normally do. The money has been transferred to a money market fund until I sell it and pay the taxes. I am interested in doing a backdoor Roth with this money for my wife and myself. My wife and I are both over 50, so we can get the $7,500 plus $1,100 catch up for up to $8,600. So here are my questions. Can I do this with this money, or would it be easier to close? The inherited IRA and start a new IRA for the upcoming Roth backdoor. If I can do this, can I leave the money accumulated until December and come closer to the $8,600 versus the $7,000? Finally, again, if I can do this and I leave the money accumulated until December, my assumption is that I can add to the IRA up to the $8,600 and then do the Roth conversion. Thank you for your insight.

SPEAKER_02 22:25

All right. Let's go through this bit by bit because this is kind of hmm confusing a little. Um Yeah, you can use the inheritance to provide the cash to fund the non-deductible Roth after you've basically closed it out and taken all the distribution. So let me just try to go through this step by step, just making it simple. So you take the inherited IRA, you take out that money, you pay the taxes, then set aside that tax so you don't accidentally gift money that's the IRS's share to the nieces and nephews and whomever. Okay, so set that aside. Then here's what you must do: open new traditional IRAs. Two of them, one for you, one for your spouse. Okay? Or if you already have an existing well, no, let's I don't want to confuse this anymore. Open two new IRAs. Um then you didn't mention this, but make sure you don't have any other pre-tax IRAs. Okay? Because this could this could m mess up the plant. Then fund the 8,600. Yeah, you can keep them there till December. Um then make the $8,600 non-deductible IRA contributions for each one of you. Then after those are in the account, then convert each one to a Roth very quickly so that there's no extra gains. File form $8606, I believe it is. But bear in mind, if you have any traditional IRAs or rollovers or SEPs or simples or any of those kinds of things out there that are pre-tax dollars, wow, then the pro rata rule hit you. So I'm not even gonna I'm not gonna get into that. I'm a assuming you don't have those. But if you do, then this is not nearly as clean and you're gonna have other conversions that have to be made and taxes paid on those. But yeah, you can do what you want to do. You just have to settle up those inherited IRAs and then start anew with your own new IRAs. I think I covered everything. Thanks for your question. Thanks for all the questions you've sent in. Thanks to the people who bought the book, like the one gentleman mentioned, the The Line Uncrossed, my uh my historical fiction novel based on the life of my great-great-grandfather in the Civil War. Uh and uh please tell a friend or two about Talking Real Money. If you would like some more in-depth help from one of our advisors, we absolutely help people. We don't charge you. We'll give you a a really detailed look at what your situation is and tell you what you might want to do differently, and you're not gonna get a high pressure sales pitch, okay? Not gonna get it. We'll get your questions answered, we'll help you out, not gonna cost you anything, no high pressure sales pitch. If you want more than an hour's worth of work, though, or help, then you need to hire us. It's only fair. And what else do I have? Oh, send your questions in at talkingrealmoney.com. If you've if you've typed some in, be patient. Tom's on vacation, so it may take a little while to get some of those answered. And uh I think that covers it. Thanks for listening to Talking Real Money.

SPEAKER_08 25:57

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