Ep. 1986: Six Questions, Straight Answers

SPEAKER_04 0:10

Come gather round ye honest folk and hear me tell of one who takes no coin who wears no cloak of gold when day is done on Fridays in the crowded square the lenders spin their tail he stands among them plain and fair and holds their scales to scale He answers all who come to ask the poor man and the wise and strips the merchant of his mask before the merchant's eyes So bring your questions bring them true he'll charge ye not a penny Don answers all who need to know He's talking real money I cannot roll my R's to save my life Roll my Rs I can't do

Q&A Begins

SPEAKER_04 1:09

it Well welcome to the Friday QA podcast lads and lassies all Don McDonald here without a coke of gold and all of that stuff anyway I am I I hope you are welcome to the show glad you've been sending questions in holy moly mackerel we got a bunch which means we can have yes I know you're excited as excited as I am ladies and gentlemen a six question Friday QA podcast yeah it's a great day big day and they're all questions that you called in and you spoke in at talkingrealmoney.com using the microphone button in the corner.

SPEAKER_00 1:57

Now I have because of a request from a listener now added a disclaimer to the recording system that's on the website talkingrealmoney.com that says and I've mentioned this on the show okay that audio that you submit may be edited and processed for broadcast I wrote this down and I do use AI assisted audio restoration technology that reconstructs less than clear or disport distorted uh audio and we get a lot of that over the internet but we don't use the recordings for anything we don't clone voices we don't create voice models or or save your stuff or generate new words or do anything particular to your audio so um if you record you consent to that okay oh the fact that I have to say that I don't know you know I think we're a little bit paranoid and I think this happens a lot uh as technology changes we are a lot of us are very afraid of new technology um I we go back you know the the when they when they first started building railroads in like the 1830s people were afraid that if you went faster than a horse your body couldn't handle it and you die at higher speeds people fear dying of higher than five mile an hour speeds on railroads we have always feared new technology and we adapt to it and I'm trying to adapt to it and to use it to a benefit because sometimes audio can be really hard to understand. So if you don't want me doing that then type your questions Tom will read them on the other days of the week either way we're gonna get your questions answered. Thanks so much for being a part of this edition of Talking Real Money and thanks for all the questions that came in and let's grab the first one.

SPEAKER_07 4:02

Hi Tom and Don. My name is David from Tucson. I am 61 years old and plan to retire when I'm 65 and collect Social Security when I'm 70. I was wondering if you're anticipating a new purchase like a new vehicle before you retire should you purchase that vehicle take funds from your 401 and pay it in full rather than take it after you retire and increase the amount that you withdraw from your 401 to typically a larger tax bracket. I have a traditional 401 and a traditional IRA. Thank you and I love your show. Keep

Vehicle Tax Timing

SPEAKER_07 4:48

up the great work.

SPEAKER_00 4:49

Thank you thank you for so much for the question thanks for the comments and uh you're worrying too much about taxes there's a big downside to taking money out of any kind of retirement plan including a 401 and that's losing that tax deferred growth. And that could be a pretty big deal. Plus your working years are when you don't want to create any other taxable events. Now in that window between taking retirement at 65 and starting Social Security you might want to do some IRA slight small IRA withdrawals at more favorable tax rates when you're not working or do some Roth conversions too to reduce your bracket down the road but as far as the vehicle is concerned you know look at the the various ways you can pay for it. Maybe you have cash elsewhere maybe you can get a great loan because depriving yourself of that tax advantage growth could hurt you, particularly if it's you know you have some big years in there. So I I I would do something else for the vehicle. Thanks so much for the question I really appreciate

Market Outlook

SPEAKER_00 5:59

it. And it's time for our next one which by the way was almost impossible to understand the quality of the call was so bad that I'm very thankful I was able to use AI to make it easy. You'll hear that it's still a little warbled, but it's a lot better than it was.

SPEAKER_02 6:18

Hi Tom and Don. This is Chris from upstate New York. I have a question as a person who is uh you know 20 years away from retirement 2025 um and my question is this we have been on this incredible bull run of a market especially with U.S. equities uh you know we had a a blip in 2022 we had the COVID crash but neither of those had lasting effects so you know the way I mark time is basically like we've been on a bull run since 2009 or so and um it's been great uh but my question is as someone who's 40 with 25 maybe 30 years left of um real uh equity investing uh should I be more conservative with my projections and uh given the the price of the market today should I be calculating um in my uh projection sheets some sort of return that is closer to 6% rather than 8% or 10% which is more of a historical average? That's question number one. Question number two um given the bull run that the U.S. market has been on, um does that make it more important to be uh fully invested in a globally diversified portfolio? And if so, what do you recommend the split be? Uh personally I have a 70-30 U.S. international portfolio but um I'm considering moving that more to 60-40 um just yeah with the the years ahead that I have and uh you know the condition of the market.

SPEAKER_00 8:12

Well let me start with the last part first. It's really interesting you asked this because I just saw a portfolio by Larry Swedro where the equity portion of the portfolio was split 50-50, which is that's the way I kind of like it best. I think that it makes sense. It just it's it just seems logical that the U.S. shouldn't be and it historically in the past it wasn't more than 50% of the global business environment. Okay? Market cap, yeah, market cap is is closer to that 70-30-6040 range, but it has been 50-50 so I 60-40 is probably a really good number if I was going to split the difference. I think 6040 makes a lot more sense because the international markets over a couple of decades have not done as well as the U.S. market the U.S. market has been preeminent. As for the other if you were older and closer to retirement I would say absolutely plan with a 6% number. However if you plan with the 6% number then you're far more likely to enjoy success and have a successful plan when you get to retirement if you just say I'm gonna make six and then you make eight or ten bonus but here's the thing you shouldn't at your age you shouldn't be worried about a bear market you should be excited for a bear market. You're coming into your prime earning years and if there's a bear market and you keep investing into it just like you're doing now that's when you want the market to really be bad. When you're old like me you want it to be really really good for the rest of your life and that doesn't work out necessarily either. I don't think though with the the historic norms being in that 8 to 10% range for a reasonably well balanced portfolio leaning heavily towards equities I don't think that an 8% figure is irresponsible. But of course being more conservative just makes your chances of success even better. Thanks for the question. We've got more I think we have four more still let's grab the next one hi Don.

SPEAKER_01 10:31

First I'd like to say I like your music I think it's great and mostly I'm impressed with your mastery of the technology I just got a new router and it's taken me a solid week to get all my so-called smart devices working on that router. So your skills with AI et al are very impressive I'd also like to congratulate you on standing firm on the cryptomaniacs nonsense they definitely see the emperor wearing clothes I don't so hang tight on that but that's not why I'm calling the reason I'm calling is because I want to start divesting myself of some stocks that I inherited many many years ago by giving some portion of those stocks to charity I'm not sure how to do it and I don't want to get myself embroiled in something that's complicated. I would probably only be giving you know a few shares of XYZ stock to some uh deserving charity or institution that I want to support but I'm not sure how to do it. Do I just call up Schwab and say send five shares of XYZ stock to XYZ charity or is there something more to it than that? Thanks for your help and thanks for your music.

Charity Stock Gifts

SPEAKER_00 12:18

Thank you for the great comments and hey routers routers are probably the least user friendly technology product on the market. I hate setting up a router I can handle almost anything but well I can't handle almost anything I do not do really well with with PCs at least as well as I do with Macs I'm a Mac person. And routers are just ridiculously complicated. They don't need to be but they are so I commiserate let's see the stock thing really easy really easy don't don't don't do anything don't sell anything okay for heaven's sake do not sell because the minute you sell then you realize a capital gain and you got to pay taxes on it. The lovely thing about giving it to a charity is that you can take a write-off for the entire value at the time it is transferred and Schwab will give you that value and they will do it for you. You go to your charity you get their brokerage wire instructions and you give that to Schwab and they make the trade happen. They move it over it is really really simple there's a securities transfer form that is done. You know you you you you choose the stock the number of shares and the account that is it's going into tax bill and you get a nice big deduction. Assuming you know you do all the things you're supposed to do for the IRS like for example I think in 2026 uh you only can deduct charitable contributions that exceed one half of one percent of your adjusted gross income. So make sure you uh c contribute more than that 0.6% of your adjusted gross income. Oh and it's only it's only the portion that exceeds that too so it it's becoming very difficult to get deductions these days by the way deductions are very hard to come by good legitimate deductions. We're getting closer and closer even though it's still ridiculously complicated we we are getting a little closer to something resembling a flatter tax but we're not there yet. Thanks so much for calling thanks for all the comments about the music I enjoy making it. I'm glad you enjoy

BREIT Concerns

SPEAKER_00 14:39

listening to it and our next question is right here right now.

SPEAKER_09 14:43

Hi Don and Tom this is Bill from Connecticut.

SPEAKER_00 14:46

Just curious uh as to what you think about Blackstone Real Estate Income Trust B-R-E-I-T I've had class I shares for three to four years it makes up about five percent of my retirement portfolio which is 50-50 I suppose depends how you categorize this investment anyway uh thank you for your thoughts okay let's see how shall I categorize this dangerous expensive illiquid and there are so many better ways to own real estate in your portfolio the Vanguard real estate investment fund is a better way to own it because you get great diversification you get publicly traded real estate investment trusts as opposed to B R E I T, which is a non-traded REIT, you cannot sell it. You can't even know what it's worth it's worth what they tell you it's worth based on their appraisals wink wink. They have very tiny limited repurchase deals on a monthly basis but they can shut those off they are in a great market yay you shouldn't have a problem it's when real estate collapses that you could have a real problem if it does and it could um but uh the management fee is really high there's a performance fee that they get there's a commission uh yeah they show high returns but if you look really closely you'll see that those high returns could be could be return of some of your principal to you the dividend yield or the income yields aren't aren't as high apparently but it's hard to know because this is a massively opaque investment and you really can't know from one minute to the next it's also heavily leveraged so would I have it no not on a bet. No wouldn't touch it ever would not consider it would never suggest it to a friend or a relative or if I had a client one of those or a listener like you no I would not I would not touch it. Thank you though for the call and hopefully saving somebody else from buying this thing because these can be incredibly dangerous. Incredibly dangerous can be not saying they will be but that potential risk could be huge. Thanks.

Retirement Bucket Plan

SPEAKER_00 17:07

And now let's grab let's see what do we have two more? Yeah we do have two more questions so we're really rolling.

SPEAKER_08 17:13

Hello Tom and Don This is Anthony in Huntersville North Carolina let me start by saying as a musician I'm quite impressed with and a little jealous of the AI music creations. Now on to my question. My wife and I are considering the following retirement strategy and would love your thoughts on any weaknesses we're overlooking. Rather than retire at a predetermined age or portfolio balance we plan to retire once we have enough to fully fund two buckets. The first bucket is a TIPS ladder to bridge from retirement until we're both receiving Social Security at age 70. This ladder would cover our baseline expenses plus a go-go lifestyle. After the TIPS ladder is spent our Social Security and a small pension would handle our baseline expenses plus a smaller slow go lifestyle. The pension does not have a cola and will gradually lose purchasing power. The second bucket that we will fund at retirement is a separate 3000 late life healthcare and lifestyle reserve. This would be invested in a target date fund dated roughly for our no go years, left to grow until that time and then used only as needed. Note that we also have an HSA that we intend to use for qualified health care expenses and eligible premiums throughout retirement until it is depleted. We really like this approach because it essentially provides a guaranteed income baseline plus discretionary floor throughout our retirement and it sets aside a separate long-term growth portfolio for uncertain late life expenses. However, are we taking too much risk off the table in the interest of safety thanks for your consideration of this question and keep up the good advice and also the good music. I really love it.

SPEAKER_00 18:56

I'm glad you like it. Hey as a musician um you'll find if if you because I know for musicians it can be very hard to put together demos and all because you can't hire all those musicians and orchestras there's a there's a part of Suno that is really designed for musicians. You can play with stems and instruments and and really do some serious serious musical creating um I kind of in the middle you know I I search out genres and I look for uh for key signatures and tempos that I think fit what I'm trying to do. And then I write some lyrics and tweak some lyrics and play with lyrics and try to find new rhyming structures or non-rhyming structures or but I don't write music. I let the computer write the music I just tell it what direction I want it to take and then go, eh I didn't like that. I want like a 12 string guitar over there and but you you can probably come up with the music too so play with it. It's kind of fun um and pretty darn good version six is geez the music it makes unbelievable. Now back to the money thing you're being very conservative which isn't bad it can be good. You've got you're a planner I can tell that you really do think these things out well I think that it's fine. I think that tips ladder can be a good way to to bridge that retirement gap and if you you know you budget you really consider what those spending numbers are going to be when you get to that go-go period yeah this can be very good and having the target date fund updated way out to the no-go years also makes sense because that's the thing where it keeps you in equities. So that's going to keep you in a relatively high percentage of equities not as high as I probably would suggest based on your age I think you'd probably be money ahead if you were a little heavier equities, but I'm I'm not gonna grouse because it's discipline. The key to success is almost always discipline discipline, discipline, discipline uh yeah at some point it's gonna be a very conservative portfolio. Just watch out that it isn't too conservative. I would try to always have even in the no go years 20% in equities or so maybe no less than 10. You've got to have equities to keep things going. And remember that pension as you mentioned after 30 years it's hardly going to have any buying power left. But you got the tips that are taking care of some of that. So all in all you've really thought this out well uh you you you should always be flexible feel feel like you can adjust things if you get ahead of the game a little bit but as we often say don't take more risk than you need to take or can stand to take. And if you don't need to take it because your plan is that good then good. Don't take it. Thanks for stopping by and asking the question remember you can ask a question at talkingrealmoney.com you just click on the microphone in the corner or Or you can type it to Tom and he'll kill

Insurance Philosophy

SPEAKER_00 22:02

the tree for you. Now, the final question of the day. Here we go.

SPEAKER_10 22:07

On the podcast, you frequently express a disdain for insurance products. No, I'm not talking about SPIS, QLACs, or even the dreaded equity indexed annuity. I'm talking about property and casualty insurance. My apologies for not citing a direct quote from a prior podcast here, but in summary, I've heard you suggest not having homeowners insurance and skipping umbrella coverage to opt for self-insuring if you're wealthy enough. You regularly point out that nobody can predict the future. I would suggest this is the exact reason that insurance is a must-have product for almost everyone, particularly for people with a high net worth. I'm starting to suspect you must have had a very bad claim experience somewhere in your past. What was it, Don?

unknown 23:01

Yeah.

SPEAKER_10 23:02

I'd like to see if we can uncover the root of your problem. Why don't you lay back on the couch, get comfortable, and tell me who did this to you. Or at least tell me what they did to you. You'll feel better after you get this out in the open. Or maybe not, but at least I'll have some perspective the next time you suggest insurance is a waste of money.

SPEAKER_00 23:23

I probably I get hyperbolic. I didn't have any I didn't have any traumas. And by the way, I have a heck of a lot of insurance. I I do. I've got pro I've got, you know, all the all the bases covered, all my stuff's covered. I do carry high deductibles. Because I don't want to give more of my money to insurance companies than I have to, even on my health insurance. High deductibles. Uh because insurance, to my mind, should be a protection against catastrophic losses. Losses you cannot handle. Losses you cannot absorb. Because remember, when you buy insurance, you're hoping you lose the bet. The insurance company knows you'll lose the bet. Most of you will lose the bet, and that's how they make lots and lots and lots and lots of money. Um I would I I think that you should be very thoughtful. Now, I think the thing that got you was when we talked a while back about Florida property and casualty, homeowners' insurance, and how ridiculously expensive it had gotten to the point where people were literally walking away from their houses because they couldn't afford to insure them. Because insurance was so blasted high. Um but no, I'm not against insurance. I'm against foolish insurance. I think that you have insurance for catastrophic events. You use your savings for the rest. And um and I don't think I no offense, but I don't think you probably have the skills necessary to uh to psychoanalyze all the problems that I have with insurance companies. So there you go. But no, insurance is a necessary but I'm gonna use this word, evil. It's a necessary evil. I don't want to pay those insurance companies that kind of money, but I have to. And I can hate it. And thank you for your comments. And please send yours in. Go to talkingrual money.com. There's a mic button in the corner. Speak. Speak to me. Please speak to me. I like it. I even like the critical speaking, particularly when it's done with your tongue in your cheek. That was funny. Uh, let's see. Anything else I should tell you? Um, you want to meet with an advisor? Want somebody to look at your portfolio and go, hey, that's really good. Maybe. Odds are they won't, but maybe. Uh go to talkingrollmoney.com, click the button that says meet and advisor, and then meet with an advisor from the company I work with, which is Apella. I have it on great authority as a former principal of the company and still a an owner of the company, that you will not pay anything for a meeting. You will not get pressured into buying anything or becoming a client. You'll just get some help and it's really free. We call it karmic marketing. You know? It ends up actually being very good for us. We don't have to pressure people. We don't have to do the Glengarry, Glenn Ross, always be closing thing. We just help. And it works. Thanks for being there. Thanks for telling people about the program. Uh, anything else I need to tell you? I don't think so. So let me remind you that we are here almost every day, as our minstrel would say. Talking real money.

Disclosures and Goodbye

SPEAKER_03 27:24

The opinions and 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 subjects change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions.

SPEAKER_05 27:38

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.

SPEAKER_03 27:47

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SPEAKER_06 28:20

See Appello Wealth, ADB, to A website for information regarding Appellate's fees and services.

SPEAKER_03 28:25

Appellate Capital, LLC 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 requirements. Registration with the SEC or any State Securities Authority does not imply a certain level of skill of training. Apello 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.