Ep. 1991: Seven Questions, Clear Answers

SPEAKER_00 0:13

Bring me the question you carry it all week the one that gets heavy at night Nothing's too small nothing's too strange we'll hold it up to the light Ask it out loud don't blance to your plane You're too easy to explain making money makes sense Makin' money makes sense talking around You're not gonna get bored it's different music every show uh

Q&A Kickoff

SPEAKER_00 1:02

that's I this is one jingle that I did various versions of just to see how it would play in slightly different variations and uh it's just enjoyable. Hey, thanks for joining me for the QA edition of Talking Real Money. We do one of these every Friday, and uh I appreciate all the questions you guys have been speaking into that microphone button at talkingrealmoney.com. There are a ton of you. And uh that allows us today to do a full, I think we're gonna do a full seven questions. Depends on how wordy my answers get, but I'm pretty sure we can do seven. I got seven lined up anyway. So thanks for sending them in. Thanks for being a part of the program. Thanks for listening, thanks for telling friends, thanks for being there. Uh I can't tell you how much we appreciate you, and I appreciate you. I mean, I appreciate you for some of you for uh 30, like 38 years of listening to me on podcasts or on the radio. So wow. Makes me really flipping old. All right, let's grab our first question that came in at talkingrealmoney.com.

ETFs or Mutual Funds?

SPEAKER_07 2:13

Hi, Tom and Don. This is Jim from Olympia, Washington. And my question is about ETFs versus mutual funds. Um I have a SEP IRA that is about 25% ETFs, uh, things like QQQM, SCHK, SCHV, V-O-O, VTWO, and VXUS. And uh about um 65% of my portfolio is mutual funds, um and things like SFILX, SFLNX, SWLGX, SWSSX, and VBTLX. Um, my curiosity question is is there any reason to uh have mutual funds and ETFs? Is there any reason to switch them all to ETFs, or is there any reason to switch them all to mutual funds? Thanks, guys. I really appreciate it.

SPEAKER_00 2:59

Uh you know, ETFs have some minor advantages over mutual funds. They have a better tax treatment, but you know, they're both just ways of owning diverse portfolios of stocks. So to answer that question, eh, you know, I prefer ETFs, but not a big difference. However, you listed a whole bunch of funds. You, sir, have a hodgepodge. You definitely are hodgepodge. Uh you're QQQM, S C H K is V O O, you got a whole bunch of large cap growth American stocks, and then you got a couple of funds that cover small American stocks. And you know, VXUS already gives you uh a non-tilted base of the international market, and then S S F L I F S F I L X gives you some international small, but you got a you got too many US large cap funds. You really could stand, I mean you VBTLX, that's bonds, that's good. That's your bond thing, that's fine, whatever. But uh yeah, you really could consolidate some of that U.S. stuff. I I think that's the best thing you could do. Uh I I wouldn't necessarily rush to make any changes, although given the fact that they're in a deferred account, you certainly could. It's not going to cause any tax issues. I would try to simplify this a lot. I mean, I might even consider uh a dimensional total market fund or an Avantis total market fund that'll get you all of those things without having all these different funds that are forcing you to rebalance and then have your bond fund for your fixed income exposure. It just seems too complicated for me. But yeah, ETFs I give a slight edge to. Thanks so much for your question. We have another one right

Withdrawal Rates Explained

SPEAKER_00 4:56

here.

SPEAKER_06 4:56

Hi, Don. This is Bob from Leeward, Kansas. You and Tom frequently reference uh investment information from Jason Zweig, uh somebody you have uh deep respect for. Uh Jason provided an article in the June 26th edition of the Wall Street Journal entitled How to Build a Retirement That Actually Fits Your Life. He then discusses a book that was to be released later sometime, written by Edward Macquarie and William Bernstein. These authors state that the stock market real return historically has only been about 4.3% over any 30-year period, which is at odds with the 8 to 10 percent return that is often uh quoted. He also says that across all 30-year periods, the stock markets have produced less than 4 percent annually, about only about an eighth of the time. So, with that information, they state that somebody with a million-dollar portfolio should only uh withdraw 2 percent annually to be safe or $20,000. And so this is also in contrast to the 4% withdrawal rate, frequently quoted, uh adjusted by inflation. So uh I'm not sure I'd interpret this story correctly, but I sure appreciate your comments. Thank you very much.

SPEAKER_00 6:23

Well, I went back and checked, and I think you've misunderstood the article because I went and checked, and based on the research that Zweig cited, the numbers you're quoting, I see where you got them, but they're not the right number. And again, we're talking about two different numbers too. We're talking about the nominal return, which includes inflation, and then we're talking about the afterinflation return or the real return after inflation. Uh the inflation-adjusted return on American stocks according to this article over rolling 30-year periods since get this, 1793. This research went back to 1793, found that the average real return after inflation was about 6.2% a year. Not 4.3, 6.2. Uh, the 4.3 was only one particular 30-year period that ended in 95%. It wasn't over the whole term. Uh and uh yes, they did find that in one-eighth of all 30-year periods that stocks earned less than 4% after inflation. But that was all those periods going back to 1793. The nominal return, though, that 6.2% real return gives you a nominal return that's over 9% when you factor in inflation. So the numbers are very different than what you're thinking. And that 2% withdrawal figure, that is about as conservative as anyone could possibly be. That's why we like flexible returns, by the way, because it doesn't lock you in. Uh, that is like if you never, in any scenario ever that could possibly happen, you want 100% safety, you don't ever want to have a period where you might make less or have have your assets go down in value, then yeah, go with 2%. But 4% is a really decent, rough starting point in a conventional 30-year retirement based on very long histories and lots of simulations. 2% is for someone who really truly is the most conservative person on the planet, wants a large estate, wants to give a lot of money to their kids. Um, I think that you you you read too much into it. We we we really do respect Jason's work, but he does quote other people a lot, and other people can have different opinions. But the mainstream opinion based on tons of research is that somewhere between a 4% rule and a 5% flexible withdrawal rate, which are about the same thing, is or has been a relatively reasonable way to go. Another reason, though, why you need an advisor, because it may mean that down the road your advisor is looking at numbers and saying, we've got to adjust this a little bit because you're living a long, uh, it looks like you're gonna live a lot longer than we thought, or whatever it is, or the markets are doing terribly, we've got to adjust things. So uh just don't read too much into these kinds of articles. You can use them as a guide, but not a roadmap. Thanks so much for your question. Next question is

Short-Term Bonds for Cash

SPEAKER_00 9:36

here.

SPEAKER_01 9:37

Hello, Tom and Dawn. Wondering what you think about VGSH as a place to store about 30 percent of our portfolio of about 1.5 million investments as a place for our dry powder, for being able to get to money when the market goes down and we don't want to sell equity shares. Thank you.

SPEAKER_00 10:05

Short-term bond fund. Yeah, nothing wrong with that. It's uh probably a little more conservative than we would be for the bulk of a uh cash port or a fixed income portfolio, not for a cash portfolio. It may be a little too aggressive for a cash portfolio, but only a smidge, because it can lose money in a rising interest rate environment. Not much. I mean, worst case maybe 2% or so. I don't know. Uh it's fine. It's fine. We I would probably mix it up with uh, you know, a money market fund or uh high yield savings combined with a short term, combined with an intermediate term, just so that the intermediate term w can lock in a little bit better rate and falling rate periods. But no, the uh the short-term bond fund from Vanguard is absolutely fine. Thanks so much.

Selling an Old Mutual Fund

SPEAKER_00 10:55

Here's our next question.

SPEAKER_04 10:56

Hi, Don. This is Don. I love the podcast and listen on my daily walk. Just me, no dog. The AI songs are great. Please keep them coming. You inspired me to also use an AI-generated voice. Back in the early 80s, I invested in the Mutual Shares Fund from HINA Securities and put in a total of $10,000. In the 90s, Michael Price sold out to Franklin Templeton, and I kind of forgot about the account, except for paying taxes on capital gains and dividends. Now it's the Franklin Mutual Shares Fund Class Z. The symbol is M U T H X. The account has about $250,000. I'm 68 and still working and plan to start Social Security at 70. My other accounts have over 4 million, so I don't think I'll need the Franklin Templeton M U T H X money. However, I don't think the return has kept pace with other funds, and the ER seems to be high. I am thinking about gradually selling and investing the money in one of the ETFs you guys recommend. My CPA says I should keep it and pass it to my kids after I pass and not have a capital gains hit. What do you think? Thanks for all the great advice you guys give. Whew.

SPEAKER_00 12:14

As a voice actor, it's good to know that mainstream AI voices still have a ways to go before they replace human voices. Says my AI voice. That was my AI voice responding to the AI voice. Yeah. Yeah, AI still has a ways to go. Thank goodness. You know. Some of us can still work for a while, um while we're still young enough to work. Sixty-eight you are, huh? Well, um, you're you're not about to die, are ya? I hope not. We need all the listeners we can get. I mean, it it's not a great fund. It's ridiculously expensive. Um tax tail wagon the dog, according to the CPA. Well, but think about it, CPAs, they think about taxes. That's their area of expertise. I wouldn't keep it. I'd do a little tax planning to make sure I don't get kicked into another bracket. But if unless you plan to just leave the money to your heirs and you have absolutely no other potential use for it, I'd want to get it somewhere where it would at least cost less every year. Three-quarters of one percent is expensive. I might gradually sell it. There's no rush, but it's not a great fund. I mean, it has not just underperformed its peers, it's dramatically underperformed its peers. I mean by percentage points, not basis points, but percentage points. Uh it's only got 50 stock, less than 50 stocks in the portfolio. It's actively managed. It's just it's not just nothing special. It's probably actively bad. Um I wouldn't own it just for the tax situation because so what? I mean, if it's not making as much money as something else, who cares about the taxes? I don't know. I'd get rid of it eventually. But again, with some tax planning. Thanks for your question. We're moving right along. Let's grab the next one.

Reverse Mortgage Cash Warning

SPEAKER_02 14:14

Um I have just gotten a reverse mortgage and I have a hundred thousand dollars cash to invest. I'm 81 years old. I need it to make money for me. Um as I'm aging here, I only get 16,000 with uh Social Security. So I'm looking at you guys to see if you have any idea the best way that I can invest this money. I have been a vanguard person for years and would like your opinion on where that money might be put.

SPEAKER_00 14:58

Oh, don't put it anywhere, please. No, don't oh my goodness. Um I mean, uh, if if if you took that as a lump sum loan and that can't be put back in, uh, I'd rather see you taking monthly payments from the reverse mortgage or some sort of line of credit where you can cover some expenses short term that you you can't cover with your social security. I I don't think this there's not a good place to invest this because this money must absolutely remain safe. You can't take any risk with this money. You need it to live. And one of the problems in having that lump sum, if at some point you need uh Medicaid, for example, having that cash can reduce your ability to get Medicaid care, to get long-term care. Uh so if you can put it back in the reverse mortgage and just take payments from it and figure out what those they should uh a HUD approved reverse mortgage counselor, which they have in every case now. The counseling is available at like no cost or very little cost, and uh they should be right there at the lender's level. Have that counselor explain whether you could change that payment arrangement so that you're not taking it all out at once. You're taking it out as you need it based on your budget. You do need to sit down and do a budget if you have not already. Figure out what the gap is between what you need to spend every month and what Social Security is providing, and then use the proceeds from that to help cover those over the rest of your life. But in a lump sum, not the best choice. Because the interest being charged on the on the reverse is probably higher than you're gonna make on any reasonably safe investment vehicle. Good luck. Thanks so much for the question. And we

Emergency Fund Basics

SPEAKER_00 16:53

have another right here.

SPEAKER_05 16:58

So before retirement, I have this in case I happen to get laid off my job and no longer have an income. And I use my emergency savings to live on until I find a new job. Do you agree with that? Yes. If you do, great. If not, please let me know why I'm missing.

SPEAKER_00 17:16

You're not missing anything. And I think you had a second question, but it got cut off. So uh if you have that other question, call that in. Emergency savings are for just that. Uh typical guidelines are three, six, nine months of living expenses, depending on your circumstances. And you know some industries, some businesses have longer periods of layoffs than others. Uh I know my grandfather, when he was a carpenter, he would have long layoffs and then he would have more work than he knew what to do with, uh, whether it's one income or two incomes. The other reason you have emergency funds in very safe vehicles like high yield savings or money market funds is to cover large, truly unexpected expenses like the AC brakes, or you have to repair the roof, or you get really sick and your insurance doesn't cover it, or the car breaks down. Those kinds of things that come out of nowhere, you can't really plan for. You need to have a contingency for those and for losing your job. But they need to be incredibly safe vehicles because sometimes you lose your job in a bad economy, and a bad economy may have precipitated a big decline in the value of stocks or bonds or whatever the security might be. That's why shorter term, very safe stuff is the way to go. Please let me know what your other question is. Call that back in at talkingrealmoney.com. Click on the little button, the mic in the corner. And I think we have come to our last question. Wow, seven questions? Pretty fast. Here's

What to Bring to Appella

SPEAKER_00 18:44

the next one.

SPEAKER_08 18:44

Hey Don. Drew from Flagler Beach, Florida. Enjoy your program. Question for you uh in a in having a conversation with a Pellow Wealth that you guys always recommend. What do I need to bring to the conversation to allow them to review what I have? I don't know how in-depth they go in that conversation, but uh I'd like to know what you would suggest that I bring to that conversation. So uh I know w which direction I'm gonna need to move in.

SPEAKER_00 19:18

Thanks. I assume you talked about the free meeting. By the way, Apella is the firm for whom I work. Uh it we merged our firm Vestry into Apella, so I'm also a part owner. So just to let you know, I I have a vested interest in them, but uh because of that, I was also instrumental along with Tom in getting the firm to go along with helping people for free, really free, no sales pitch. You're gonna get you're gonna get some in-depth information. The the number one thing you need is your all of your portfolio statements. Um that's primary, so we can look at your portfolio because m what the the bulk of the review is gonna be looking at what you're doing and why you should maybe be doing something else or what you're doing right, what you need to tweak a little bit. Uh so that means your brokerage accounts, your 401s, 403s, Roths, bank accounts, annuities, pensions, all of that stuff. You don't need to bring all of that, just have that information somewhere available. And then the other the other things that are important to know is your annual income and how much you have left after your annual income, because that's going to tell us what your spending is. Uh maybe we have some information on Social Security. You can pull into go to your uh SSA account and see what your Social Security looks like. Federal tax return have at hand, possibly, things like that, maybe some insurance. But the meeting is mainly about kind of seeing where you are, if you're on track, and uh what kind of tweaking you might need to do. You will get actionable information out of that meeting, even though you you don't become a client. If you do become a client, that then you get ongoing help. But if you don't become a client, you're still gonna get actionable help and you're gonna go away going, okay, yeah, I see. That makes sense. So, yeah, just make sure you have access to everything in front of you. It's probably gonna be a virtual meeting because you're in Florida and we don't have an office in Flagler Beach. So just have it around you. Have it on your computer, have everything, have the tabs all pulled up in your browsers. Uh, the the advisor will ask you for a few things to send in and just go from there. Thanks so much for all the great questions that were sent in at talkingrealmoney.com. Please keep doing so. I love it when you speak them. I really prefer it in your voice. I don't I like AI. I'm a big butt of AI, but you notice I don't AI my answers because real human voices still sound better. Will they down the road? Don't know. Non-human singing voices are sounding pretty darn good. So uh I figure eventually we're in trouble, but for now, probably till I retire, I'm okay. Thanks for being there. Take good care of yourselves. Go to talkingrealmoney.com, send in those questions, and uh tell a friend or two or ten, please. And remember, almost every day of the week now, we are sitting right here next to these microphones. Talking RealMoney!

Podcast Disclosures

SPEAKER_03 22:34

The opinions of views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and our subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy. Information presented on the podcast is not personalized investment advice from a Pellowel. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect, or other considerations which might be material to you when entering any financial transaction. This performance does not guarantee feature results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. The podcast is not trying to get you to buy or sell any financial products or securities. Instead, the program is provided as a public service by Apello Wealth, a fee-only registered investment advisor. Apollo Capital LOC DBA Apello Wealth is an investment advisory firm registered with the securities and exchange commission. The firm only transacts business in the states where it is properly registered or excluded or exempt from registration. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Apollo does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast. The lawyers get richer.