Ep. 2012: The Price of Free

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Yes, I slacked off with the old financial physics fancy theme that I haven't

Financial Physics and Podcast Fame

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used in a while. I didn't make a specific one for this edition of Financial Physics on Talking Real Money, but it's my prerogative. Hi everybody, I'm Don McDonald along with Tom Cock, both of us a little grumpy on this uh Monday. A little? I think it's because it may be because we're getting to the end of the book, Financial Physics.

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We're nearing the I thought you meant the end of the book.

SPEAKER_02 1:18

We're nearing the end of that, too.

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Yeah, okay.

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But we're nearing the end of financial physics, the book, with the oh my gosh, we're on Rule 16.

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I'd like to slow it down a little bit because you know when you get to those great books, you're like, I don't want to read the last 50 pages.

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But the problem is the problem is that we don't know what the heck we're gonna talk about after we're done with this.

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But we're gonna have something special every week.

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The one we will because we love you and want to help entertain and inform. Sorta. Yeah. Okay, so did I tell them who we are? I'm Don. You mentioned that.

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Yes, you do.

SPEAKER_02 1:51

Talking real money is the podcast you're listening to. Congratulations on your discerning tastes. Now tell a friend or two and leave a review, okay? A good one. Not a bad one. Leave a good one. Oh, and follow the show. Hit the follow button. You know how those guys. I always wondered why those guys on YouTube go and hit subscribe and follow. I'm going, it's the it and I realize now it's it's the algorithms.

SPEAKER_03 2:16

And I know you won't even you won't even mention this, but we just got picked number one best podcast from mutual funds. Best mutual fund podcast by Feed Spot. I don't care who it is. Number one is number one, dude. It doesn't matter.

SPEAKER_02 2:30

Okay, well, some wacky organization that just started picked us one of the most five the 500 most influential podcasts in America. You never I didn't you didn't share that with me. I didn't want to share it with you because you you act like it's something important. And it's somebody trying to sell it's somebody trying to sell us something. Okay. It's like being in who's who in America. They're just selling you something.

SPEAKER_04 2:53

All right.

SPEAKER_03 2:54

It doesn't mean anything. But the first one, I think, does because we're not they're not we're not giving them anything for the same thing. Well, they're no, they want us to pay them.

SPEAKER_04 3:01

Oh, okay. Trust me. I see.

SPEAKER_03 3:04

Well they haven't notified me of that of yet. So they have me.

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Anyway.

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Or number one, leave it at that.

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Okay.

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At something. At finally.

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I mean, it took a while. Many years.

SPEAKER_02 3:14

It doesn't matter if it doesn't matter. It's just it's just the fact it's America. This is America. We have to be the best. All of us, not the whole country. All of us individually. Everybody gets a medal. That's what we're doing. We all get to be the best at something. Well, we're the best mutual fund podcast.

SPEAKER_03 3:33

Yeah.

SPEAKER_02 3:34

Even though are we really a well, okay, I guess we talk too much about mutual funds. But today more exchange traded funds than mutual funds. Yeah, more exchange traded funds now than mutual funds, but that's just the evolution of the

The Big Lie About Investment Fees

SPEAKER_02 3:44

industry. Today we're going to talk a little bit about that part of the industry, um, the the fee charging part of the industry. And we've alluded to this many a time before. And the good news is it is it's less of a problem. It's less prevalent than it was 10 or 20 or 30 years ago. This problem of lying to people about what they're paying.

SPEAKER_03 4:07

Yeah, but it's still it is and it isn't, because I don't watch very many TV commercials. But last night I watched a certain local football team on TV, and there's a former quarterback who's pitching an insurance company and financial services. I was driving, I was sitting there with everybody.

SPEAKER_02 4:24

Oh, Payton Manning?

SPEAKER_03 4:25

Yeah, I said, please don't hire them.

SPEAKER_02 4:27

I wish he wouldn't do that. I know he's only in it for the money.

SPEAKER_03 4:31

No, I wish he wouldn't. But if he wants to hold them out for the insurance, I have no problem with that. But once they start saying financial services, you know, I just I'm not sure. Well, they provide financial services. Yeah. They have annuities. They have lovely annuities. Yeah, that's what I'm saying. And that's really at the end of the day, chapter rule 16, the author's talking about, right?

SPEAKER_02 4:51

And at the end of the day, you will never give up on this third person thing with me. I gotta have something.

SPEAKER_04 4:58

I gotta have something.

SPEAKER_03 4:59

Uh the end the first sentence says it all. And it says everything about human nature, right? Because there's old guys like me that want to stick with me driving the car rather than me self-driving, even though they're safer. Right, yeah, but I'm never gonna believe it. Because this first line, if you followed this line, if and nothing else, you're probably gonna be okay as an investor. Because the first line from the author is we like to believe that we can get something for nothing for some strange reason. We do. That is how that the entire insurance thing is built on that.

SPEAKER_05 5:32

Yeah.

SPEAKER_03 5:32

When you think about it, an annuity. Oh, you're never gonna lose. And you're gonna make money, right? Oh, you're gonna get an income, and it's not gonna cost you anything. And this chapter is what the author is talking about is how much people are really charging you, where that money's coming from, because one of the points the author makes is don't worry, you don't pay anything, the company pays me, which is what many insurance agents still say when you're writing the check for the, you know, that that comes out of your pocket. It does come out of your pocket. It is a big lie. That's what the chapter is titled, The Big Lie. That again, if you if you could just eliminate that one part and just say, I'm not like anything else in life, is there anything free anymore? I I gotta think that through, I guess, a little bit. I I don't see it much. Uh, but I don't fill out the code when I buy something online. Maybe I would be getting things free. But um the point of the matter is the insurance company is really good at hiding fees. Not they're not the only ones, by the way, the author points that out. But they're I think they're really the best at hiding how much you're actually paying. And that's dishonest. It's not a good practice. Let's put it that way.

SPEAKER_02 6:48

No, it's not a good practice, but it is a prevalent practice because we we continue to believe there is a something for nothing. And you know, the mutual fund industry started this ages ago with the uh the the B shares, B the B shares and the C shares, uh, where they would get rid of that. My gosh, I remember when commissions on mutual funds were eight and a half percent on some of them. That's crazy. Then they went down to uh just a mere five point seven five, which is where the American funds stay to this day.

SPEAKER_03 7:24

But they're good because they told us you could take out four or maybe five percent of your portfolio. So they're cutting edge, those American funds. They're really working things. Did they owe that I'm sorry, I forgot totally about that. That still popped up on my news feed over the weekend, even though it was a news conference from 10 days ago. So, so what do you do with all this information? I mean, and by the way, if you're dealing with somebody who's honest, they should tell you, yes, I'm getting commission for what you're buying. Right, but they clearly do their embarrassment.

Comparing Target-Date Fund Costs

SPEAKER_02 7:53

I mean, let's use, for example, the nationwide destination 2035 fund. They have their own mutual funds, too. I didn't even know that. Did you know that? No, you didn't know that. You did not know that. It's a class A, so it's honest about its upfront commission, 5.75.

SPEAKER_03 8:08

Lord.

SPEAKER_02 8:09

Now, you know the Vanguard uh target date funds. This is a target date fund.

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Yep.

SPEAKER_02 8:14

Right?

SPEAKER_03 8:15

Okay, first of all, so right off the bat, you don't have to pay 5.75% to buy the Vanguard fund.

SPEAKER_02 8:20

That is correct. Yeah, that is correct. And this is the 2035 nationwide destination 2035. Yes. Yeah. Front load of 5.75. But here's the really fun part of it. Their adjusted expense ratio.

SPEAKER_03 8:40

Let me no, don't tell me.

SPEAKER_02 8:42

Okay, go ahead.

SPEAKER_03 8:43

75 basis points. You are so wrong. Oh. More?

SPEAKER_02 8:50

More. Oh, good lord.97.

SPEAKER_03 8:56

And you could buy the equivalent fund at Vanguard?

SPEAKER_02 8:59

Well, for 89 basis points less.

SPEAKER_03 9:02

I just oh for nine tenths of a percent less. And there's people doing it because they don't know any better.

SPEAKER_02 9:11

They're doing it because they love painting painting.

SPEAKER_03 9:14

Yeah, yeah. Oh, that nice young man's gonna tell me all about financial services while he's painting. Yeah, that drives me nuts. Um, that's why I just put a line. He should be painting a line right through financial services.

SPEAKER_04 9:28

If it was me.

SPEAKER_02 9:30

But there's so much money in the financial services industry. There's more money in that side of the business than in the insurance side of the business because of the the high degree of obfuscation. Insurance is a pretty straightforward product.

SPEAKER_03 9:43

You're talking property and casualty.

SPEAKER_02 9:45

Property and casualty and life. Straight life, terminal.

SPEAKER_03 9:48

Even that is Terminal. I just I just looked at mine and I found out my homeowner, I was apparently way overpaying on my homeowners. Oh, yeah. I got a new deal that's less.

SPEAKER_02 9:56

Yeah. You always have to shop these things because there's always somebody who's undercutting somebody else. It's a very which is why the they they want to be financial services companies, because the margins are better and the competition. Well, it's not that it's less fierce, it's that people don't understand it as well.

SPEAKER_03 10:16

Exactly.

SPEAKER_02 10:17

So you can more easily lie the the big lie.

SPEAKER_03 10:20

That okay, which is what? What is the big lie?

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The big lie is this doesn't cost you anything.

SPEAKER_03 10:28

I see.

SPEAKER_02 10:28

The company There is always a cost.

SPEAKER_03 10:31

There is.

SPEAKER_02 10:32

You know, when when brokers used to say, oh no, no, no, no, this mutual fund doesn't have a load, well, they should have actually said with their mouths front load, but it does have an along the way or a back load. But they didn't say that. They they left the prospectus to tell the truth. That's the big lie. Is leaving the truth to the prospectus that you know one out of 10,000 people is gonna read cover to cover?

SPEAKER_03 10:56

No, or fewer. And I think it's an embarrassment when people find out, wait, I'm paying 5.75% to buy this, or I'm paying a commission of eight to ten percent. I think they're the salesperson's embarrassed to say, yeah. And you can run the numbers.

SPEAKER_02 11:13

I don't think they're embarrassed. I think they know it's gonna I think they know it's gonna hurt their chance of making the sale.

SPEAKER_03 11:18

Ah, people protest. Right.

SPEAKER_02 11:21

They don't they they these guys and gals in this industry are just like all of us, are trying to survive. Yeah, they're trying to make a living and they can therefore therefore justify whatever they'll find a way to justify it. Because they're so they're they're paying their bills. This is how they live.

SPEAKER_03 11:41

It is. But I will add this, by the way, that with any investment you're buying or advice, you need to know, yes, how much you are paying. And that should include not just the fee you may be paying an advisor, but how much the fund. Now you just made a very good point. You can buy the equivalent fund either at an insurance company for almost one percent, or at Vanguard for is it eight basis? One hundredths of one percent. Of one percent.

unknown 12:11

Right.

SPEAKER_03 12:11

Zero point.

SPEAKER_02 12:12

One percent versus eight one hundredths of one percent.

SPEAKER_03 12:17

Outrageous. So, I mean, this is something for you to know. So any advisor should be able to tell you, yes, you're paying me this much, and the funds cost this much. And we just got another comment from somebody saying they recommend uh Avantis and Dimensional, even though they're more than Vanguard. Well, there's it they're two different funds, but that's not the same. They are more than Vanguard. But again, but not the only thing.

SPEAKER_02 12:39

Again, they're they're um still like 70 basis points cheaper than 65 basis points cheaper than nationwide.

SPEAKER_04 12:49

Yeah.

SPEAKER_02 12:50

I mean, it's here's the thing. You can get advice from somebody who's paid a commission and then moves on to the next person, insurance agent, some of the stockbroker kind of things. Or you can get help from a fee-only advisor who's gonna charge you hopefully 1% or less a year. If you pay 1% or less a year, you're getting personalized advice. If you're paying 0.97 a year and a point or a 5.75 commission up front, you're not getting ongoing life and planning advice. You're just not getting it. That is not what that industry's business model is. So you could pay one plus maybe two-tenths of a percent or a quarter of one percent a year, one and a quarter total, or you can pay one percent a year and get nothing. You can get real service or you can get nothing.

SPEAKER_03 13:37

No, you get that fresh, freshly painted smell.

SPEAKER_02 13:40

So you get that. You get your little Peyton Cistine Chapel thing. Yes. Hey, hey, you know what? Yes, what? Um

A Foldable iPhone Detour

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if you have one of the new iPhones, you can send your questions in.

SPEAKER_03 13:52

Oh, look at that.

SPEAKER_02 13:53

Look at that. I know that girl too. Nice looking. Yeah. That's my that's my my wife.

SPEAKER_03 13:59

You got one of the foldable ones.

SPEAKER_02 14:01

I am an early adopter. Shockingly, yes. This is the iPhone duo. I should have done a review. I should do reviews videos. You should do video. They get more views than we they get more views than we get listens to.

SPEAKER_03 14:13

How much does speaking of money? How much is that fancy?

SPEAKER_02 14:16

I'm not gonna tell you. Oh, okay.

SPEAKER_03 14:18

But look at that. I love that. My grandsons, we were walking by Verizon the other day, they said, Grandpa, can you go get us the iPhone 18? I said, No.

SPEAKER_02 14:28

Can you get us the iPhone Duo?

SPEAKER_03 14:30

No. That's that's very pretty. So that uh that opened, I don't quite understand how that works. Where's the typing thing and all that stuff?

SPEAKER_02 14:37

Oh, where's the typing thing? Well, we have to first we have to open it up, you know, because it's got security on it. And then we have to go like like to an email, like this. Yeah. And I want to send a new email, I just go like that. I can't see it because you're off of the camera. I'm doing the little button right there. There it is. Okay. And there's the little keyboard. Wow. And I can flip it like that.

SPEAKER_03 14:57

How big is that? It's hard to tell through the interweb here.

SPEAKER_02 15:00

Seven and a half inches diagonally.

SPEAKER_04 15:03

Until they just make them as the hundred-inch TV or something.

SPEAKER_02 15:06

This is well, but this is really nice because it's like when I open it up, it's like an iPad. Okay. Other than the fancy fold thing. So what what's different about it? Here's what you can do. What's different about it? Yeah, what's different about it? One historic screens. I mean, shh. Yeah, okay. Uh the other thing, it's they've got a cool couple of cool features. They've got like taking photographs, you can set this thing down on a table or something.

SPEAKER_03 15:27

Yeah.

SPEAKER_02 15:28

And then you can get the whole group. You know how you try to get the group.

SPEAKER_03 15:30

We've done that, but leaning it on something.

SPEAKER_02 15:32

No, no, but this will actually the minute you're set in position. Yeah. Oh, it takes the picture. It takes the picture. Wow. It decides when to take the picture.

SPEAKER_03 15:40

Okay. That's nice. That's nice.

SPEAKER_02 15:42

And on the front here. Oh, this is cute. You'll like this. Well, you'll yeah, because you have new younger grandbabies. So you'll like this feature. You will like this feature. I've got the camera open now. Yes. And I'm going to show you this outer display. This is the camera side of it. Now watch.

SPEAKER_03 15:58

Oh, look at that. It's got the little peanuts.

SPEAKER_02 16:02

It's a way to you see it's showing the kids to it's telling them to smile. And yeah, we can't. And look at the camera.

SPEAKER_03 16:08

Bright shiny teeth. I love that. Yeah, that's cute. Okay. That for how much? No, I'm not going to ask because I already know I can't afford it.

SPEAKER_02 16:16

It's more than the iPhone 18 Pro. Yeah, that I believe. It's a few hundred dollars more than that. A few hundreds of dollars more. A few hundreds of dollars more. But man, do I like it.

SPEAKER_04 16:30

I know. I figured you would. The minute I saw that, I thought that's it's great for reading books.

SPEAKER_02 16:35

It's great for watching videos. Oh my god, it's got a great screen.

SPEAKER_03 16:38

I don't need anything that had shows better on my phone because then I'll watch more of them.

SPEAKER_02 16:43

Well, but you know, I find like other things to do. If we go like uh we went to Epcot with the family a few weeks ago, and they want me to hold the table in front in England for watching the fireworks. Don't hold the table in France, it might be burned down by the time you get to the phone. Oh, yeah, that's uh but uh I have to hold the table, so I I'm sitting there and I'm going, okay, yeah, it's nice here.

SPEAKER_03 17:05

I know. You you can you could sit there and watch it.

SPEAKER_02 17:08

It's a Sunday, so I'm watching football games.

SPEAKER_03 17:10

Yeah, of course you are. Yeah.

SPEAKER_02 17:11

Okay. All right.

unknown 17:12

Anyway.

SPEAKER_04 17:13

Now I have opened up, I won't be watching football on Sunday. Are you upset about your Raiders again? Oh my god, there's it where do I begin? It's just uh Yeah. Well so anyway, here's what you can do.

SPEAKER_02 17:28

You can open up your new iPhone duo and go to here, I'll show Tom. We're gonna go to talkingrealmoney.com. Wow, look at that. It's pretty. Yeah, okay. Let's go to talkingrealmoney.com. All right, there's the website. Yep. We're talking real money. Look at that. Tom and Don are Talking Real Money. That's awesome. And then then you just uh in the little hamburger menu over here, yeah. You go down to ask a question. There it is. You see it? I do. The ask a question screen?

SPEAKER_03 17:53

Feel free to ask one.

SPEAKER_02 17:55

Ask a question, and then Tom will print them. I would just read it off of this big screen, but Tom instead will print them and read them. Remember what I was saying about the self-driving cars?

SPEAKER_03 18:08

Uh old, old, older.

SPEAKER_02 18:13

All right, uh, Arlene's a lot. I what?

SPEAKER_03 18:16

Arlene writes us from New Lennox, Illinois.

Can Arlene Retire Early?

SPEAKER_02 18:19

Okay.

SPEAKER_03 18:20

Hi, Tom and Don. I'm an avid listener. My favorites are Don's AI songs. Yay. His war against crypto and NFTs, his dislike of annuities, and you're gonna hate this, Tom's dad jokes.

SPEAKER_02 18:35

Dad jokes. Yeah.

SPEAKER_03 18:37

What is I mean, you guys have great taste right up until that point. Thank you, by the way, Artly, and I appreciate it. Ah, I just wanted to say thank you for educating us, your listeners. I have some personal questions attached as my financial profile. I'm 53. Hospital RN and burnt out wife. 53 school staff loves job. Total net worth 1.429 million. Tax bracket, 22%. Gross income 2026 was $216,000. Expenses $85,000. Well, you won the war. You're good. That's good. You just quit. Yeah.

SPEAKER_02 19:11

What question could you possibly have? You're fine. Just move on.

SPEAKER_03 19:14

Renters, no kids. There's one reason you probably have the million and a half.

SPEAKER_02 19:18

Right, and your costs are lower.

SPEAKER_03 19:20

Yeah, exactly. Possible big purchase this year, a Tesla car for $42,000.

SPEAKER_02 19:25

Go with full self-driving mode.

SPEAKER_03 19:27

I and an iPhone Duo for $2,500. Ah, that's crazy. No, it's kidding.

SPEAKER_02 19:34

I added that in. Um well it can be two and a half thousand.

SPEAKER_03 19:37

They're gonna be able to get the car at 1.49 APR, make a $20,000 down payment, uh, remaining three years in debt, medical 6.5. Okay. All right. This goes into a very lengthy look at a lot of other funds, et cetera, they're in.

SPEAKER_02 19:51

But what is the bottom line question, just out of curiosity? Let's see if we can find it. A lot of words here. A lot of words. A lot of typing went into this one. Um it's is there a bottom line question?

SPEAKER_03 20:03

There with these contributions and asset allocations, how long before I can stop working full-time and do part-time?

SPEAKER_02 20:11

Well, okay, wait, I can I don't even need all the numbers. Yeah. Okay, I do not need the numbers. You told us in the first couple of sentences, after, of course, the nice stuff about us in the first couple of sentences. You said my expenses are eighty-five thousand dollars a year.

SPEAKER_03 20:27

Congratulations. You won't get it.

SPEAKER_02 20:29

Congratulations. Between Social Security and your investment portfolio, if you take out 5% flexible and you've got social security, bingo, you are ready to retire.

SPEAKER_03 20:44

How much do we need to generate the equivalent of $85,000 in the future of a lifespan of 95% for months? How much you have? That's how much you have. One and a half, if you take out five, you can do the numbers. Plus, exactly.

SPEAKER_02 20:55

That's $75,000 right there.

SPEAKER_03 20:59

Yeah, that's a long retirement from $53,000.

SPEAKER_02 21:01

And where's the money gonna be pulled from if you're you pull it, you pull it from this?

SPEAKER_03 21:05

Well, no, this is taxable, this is qualified money.

SPEAKER_02 21:08

Right, but you're gonna unless you have taxable money somewhere.

SPEAKER_03 21:12

Well, no, I know so, but you're gonna be paying a penalty too. At 53.

SPEAKER_02 21:17

Oh, yeah, you gotta wait for that. Yeah, you gotta wait. Well, with the substantially equal thing, though.

SPEAKER_03 21:24

Okay, but let's get to the bottom line here.

unknown 21:27

Okay.

SPEAKER_02 21:27

Oh, I know what you're gonna get to.

SPEAKER_03 21:29

Yeah, the bottom line and and this is uh we love your questions.

SPEAKER_04 21:32

We do. No question.

SPEAKER_03 21:33

And I love talking to you, by the way. But this is one where you need to talk to an advisor. Yeah, because it's so it's got so many things. Yeah. I didn't go through all the various funds, et cetera.

SPEAKER_02 21:45

The questions are fun, but building a portfolio on the show, um individual funds, is very individual.

SPEAKER_03 21:53

It's and it's hard for us to do that in the time restraints.

SPEAKER_02 21:56

Yeah.

SPEAKER_03 21:57

Because this takes like a twenty or thirty minute.

SPEAKER_02 22:00

It's not really applicable to the audience as a whole because it's going to be your funds and how you move them around and how you do what with them. But dang it, you could sit down with an advisor for an hour and get a great idea of where you are.

SPEAKER_03 22:14

That sounds like a sales pitch, but it really isn't. We just can't answer this one of the questions. So you just go to Talking Real Money and click on Meet an Advisor.

SPEAKER_02 22:19

But I would On your iPhone duo, open the screen up because it's bigger.

SPEAKER_03 22:22

That's a big screen. I will uh just say this, Arlene, you're in a pretty good place right now.

SPEAKER_02 22:28

You're in a good place.

SPEAKER_03 22:28

You get some decisions to make as to when to claim Social Security. It looks like there's a lot of people.

SPEAKER_02 22:32

I mean, I wouldn't if you you she said she liked her job.

SPEAKER_03 22:36

One said burn out, the other one said no. Remember, Arlene said uh 53 years old hospital R9 burnt out. Why? 53 school staff loves job.

SPEAKER_02 22:46

Yeah, okay, but you got a love job person in there. Yeah.

SPEAKER_03 22:49

So one out of two.

SPEAKER_02 22:50

So let the love job person continue to work. Yep. Uh start drawing down you can use the 72T, start taking substantially equal distributions without the penalty, and use that to supplement to get to your 85 until it's time to claim.

SPEAKER_03 23:08

Yeah. I I I think that a plan can be put together. There's a lot of funds here, there's a lot of discussion. But you're really, this is the kind of thing where it's hard for us to get to it on the show, but with a simple meeting with an advisor, I think you'd be in a good place.

SPEAKER_02 23:21

And just to let you guys know, again, it sounds like a sales pitch. And in a way it is because we know that it successfully builds our business. But we don't believe that it ha that the sales pitch has to be a quid pro quo for the meeting. It's it's not. You see, the the meetings are really truly designed just to help you. So we don't charge, we don't pressure you, we don't say, hey, you got to become a client. No, we just help. Because we found something really curious in the past 15 years.

SPEAKER_03 23:52

Well, but beyond that, when we were at Merriman the same way.

SPEAKER_02 23:55

Yeah. That just helping people um pays off. It does. It has. It always has. It always has. So why not keep doing that?

SPEAKER_03 24:05

It allows Don to be cutting edge on the technology and allows me to go on the fancy vacations.

SPEAKER_02 24:11

Yeah, this is my this, by the way, was the fancy vacation. This was cheaper than probably one night in that African hotel you stayed.

SPEAKER_04 24:20

I don't want to go there. That was a long time ago.

Understanding Bond Fund Yields

SPEAKER_04 24:23

Oh, oh, just two years. That's a long time ago.

SPEAKER_03 24:25

All right, let's go to Fort Collins, Colorado. John says, Hi, would you please educate me on the performance of a bond ETF such as B N D. That is Vanguard's total bond. I do not understand how to read and interpretate interpret the yield and performance of these bond funds. Okay, he says the 30-day SEC yield shows plus 5.14. What does that mean? SEC yield.

SPEAKER_02 24:53

No, the SEC has a set of rules as to how you can report your last 30 days of income. Income. This is the actual interest payments. They're giving me every day?

SPEAKER_03 25:06

I get 5% a day?

SPEAKER_02 25:07

No, it's 30 day. 30 day. So I get 5% every 30 days. 5% a month, you would have gotten I think it's I think it's an annual yield, though. No, no, no. It's it's an annualized number. Yeah, annual yield. But over the past 30 days.

SPEAKER_03 25:24

Okay.

SPEAKER_02 25:24

So it's an annualized, so you get your that's what you if if the last 30 days repeated for the rest of the year.

SPEAKER_03 25:32

You would get for example, you get $5,000 on a hundred thousand dollar investment.

SPEAKER_02 25:37

Yeah, exactly. Okay. That's what the F E F F.

SPEAKER_03 25:42

But in all this, the year-to-date return shows a negative 1.45 as of October 16th. Since the yield is five, I would think it would make five dollars a year on a hundred dollar investment. But obviously, my investments in B and D have lost money this year.

SPEAKER_02 25:58

Right. Two different things. Two totally different things. Thank you.

SPEAKER_03 26:02

Yes, very important.

SPEAKER_02 26:03

There is yield and there is share price. The combination of those two is total return. Independently, yes, you're getting that five percent yield. And by the way, the SEC yield is also after fund expenses.

SPEAKER_03 26:20

Which are pretty low in that fundamental.

SPEAKER_02 26:22

Which are very low. Um the share price fluctuates depending on the market for bonds. And the market for bonds is primarily driven, high-quality bonds anyway, is primarily driven by interest rates.

SPEAKER_03 26:38

And those interest rates have gone up, the bond prices have gone down.

SPEAKER_02 26:42

Down. But you're still getting that 5% yield, or you got that 5% yield. And so that helps offset some of that loss, which gives you that total return figure. So sometimes that's negative, sometimes that's more positive. If rates are going down, then your your total return could be higher than your yield.

SPEAKER_03 27:03

And by the way, we're not selling BND just because it's down a little over 1% year to date.

SPEAKER_02 27:08

We're not selling BND.

SPEAKER_03 27:09

No, it is still a good aggregate bond fund. In other words, it holds a lot of different types of bonds, I think hundreds of bonds, thousands. It's a lot of bonds. So you're getting a lot of people.

SPEAKER_02 27:20

It's near the epitome of diversification in the bond market because you own. And I want to make sure I have the most recent. Yeah, how many?

SPEAKER_03 27:29

It's a lot of bonds.

SPEAKER_02 27:33

How many? 16,266 different bonds. All U.S. All U.S. Yep. Uh generally the bulk is investment grade. There are a few non-rated. Very few, though.

SPEAKER_03 27:50

Oh yeah. Vanguard is fairly conservative.

SPEAKER_02 27:52

Really high quality, really low fees. I mean, the fee on this thing is three one hundredths of one percent. It has a mere four hundred billion dollars in it. Um it's a big fund.

SPEAKER_03 28:08

Okay, but that's a good explanation. Thank you for that. So we've had an increase in the yield and a decrease in the price.

SPEAKER_02 28:15

That's right. The yield was four, now the yield is five. That's right.

unknown 28:19

Yeah.

SPEAKER_02 28:19

So you're getting more income, but if you go to sh sell your shares, you're gonna get less money. Yep.

SPEAKER_03 28:25

We got time squeezing another one.

SPEAKER_02 28:27

Yeah. We it's our it's our

Assessing Returns and Roth Allocations

SPEAKER_02 28:29

podcast. We can do whatever we want.

SPEAKER_03 28:30

Oh, okay. Wow. This is so big day for me. Uh from Sioux Falls, South Dakota, Robert writes, Tom, I spoke to you last spring to ask if a 6.3% return over the last 10 years after an advisor charge of 1% was a fair return on my, I think he means $2.3 million invested at a 6040. So I think a 6040 is 60% stocks for the city.

SPEAKER_02 28:52

So a very traditional balanced portfolio.

SPEAKER_03 28:55

In essence, you said it was neither great nor terrible.

SPEAKER_05 28:58

Yeah.

SPEAKER_03 28:59

Thanks, Tom. And I was satisfied it was fine with you. I think I looked it up and looked at an equivalent index uh return, and it was you know not dissimilar. So I said, sure, it's probably okay. Meeting with the advisors a week ago, they pointed out that 10 years ago, 12% of my portfolio of the 2.3 was in Roth. That percentage is now 62%. Wow, that's a lot of contribution. Yep. Uh, this raised a new question. Should keep an allocation of 6040 would mean 2% of my Roth would be invested in bonds or something similar. I can't think of what the similar would be.

SPEAKER_02 29:33

Well, fixed income. Could be CDs.

SPEAKER_03 29:36

Yeah, okay. That's a good point. Good point. Um, they wanted to know if I wanted to keep all Roth funds invested in equities or put two percent fixed income. I reason that we have plenty of money. I also reason we have plenty of money and do not take need to take risk. I told them I wanted their options. There are two of them since they were more objective. Both said they would keep all equities in the Roth. I agreed with her recommendation. What is your opinion of this? It's it's not a good thing. I think two percent matters. No, it's a pretty small number.

SPEAKER_02 30:03

Even though it's a lot of money. Yeah. It's a small, small world after all. It's a small thing.

SPEAKER_03 30:08

So what she's really asking is, is it okay to have anything other than equities in the market? Yeah, of course it is. Yeah, that's all right. It's not at all.

SPEAKER_02 30:13

Well, it's actually kind of nice because it's all it's okay though. It's still good because you're not on those bonds, you're not paying taxes on the interest. Touche. Yeah. On the the the realized income, the dividend stream. And by the way, I just looked back at just to use it as a as a as a uh benchmark.

SPEAKER_03 30:31

Yeah.

SPEAKER_02 30:32

It really depends on how long you've been with this advisor on that number. That's six. What was it? Ten years is what he's saying. Ten years. Ten years. Okay, the ten-year average annual return for Vanguard balanced index is nine and a half percent. So six cents low.

SPEAKER_03 30:50

But now that member, every return is idiosyncratic because it might be the day and all that kind of stuff. But that does sound like that.

SPEAKER_02 30:55

Five years is six point eight.

unknown 30:58

Yeah.

SPEAKER_03 30:59

So ten years maybe it should have done better. But um at the time, I do remember when he asked me, and I looked it up just to say, yeah, if you've been in index funds, here's about what you made. So we'd have to look more specifically at fund by fund the types you're in. And by the way, it could be, as we talked about earlier, where the charge the advisor has is one percent, but what's the percentage of the the mutual funds or exchange traded funds you're in?

SPEAKER_02 31:22

Right.

SPEAKER_03 31:22

Because if you're following the painting guy, you're paying almost one percent in addition to the advisory funds.

SPEAKER_02 31:29

And by the way, there are funds that advisors, fee-only advisors use that have ridiculous expense ratios. It's still whether you have a, you know, if you even if you have a fee-only advisor, it pays to pay attention to what they're putting

Listener Questions and Show Notes

SPEAKER_02 31:43

you in.

SPEAKER_03 31:43

Yep. Trying to get to that at the beginning of the program. So great questions. God, they've been good. So we got a lot of call-in questions we're gonna be doing this week, so you hear some other voices coming soon.

SPEAKER_02 31:53

You know, but I got some bad news.

SPEAKER_03 31:55

Uh-oh, what's that?

SPEAKER_02 31:56

Fridays. You're running live? Friday QA. Yeah, the last one, I had to only do four questions. Because I'm running low.

SPEAKER_03 32:07

Uh-oh.

SPEAKER_02 32:07

So please help Don. So instead of typing them to Tom, speak them to me using the microphone button in the corner of your screen on your new iPhone duo. Thank you. Nobody can see this. It actually has really good, it has good mics, too. The ip and the image is uh very clean.

SPEAKER_03 32:25

So, yeah.

SPEAKER_02 32:27

All right.

SPEAKER_03 32:27

So I think it doesn't matter to me because I don't see that well anyway.

SPEAKER_02 32:30

So go to talkingrealmoney.com with your questions or for anything else, and uh tell a friend or two. Follow us on your favorite podcasting service, and keep listening almost every day as we are Talking Real Money.

SPEAKER_01 32:50

The opinions and views expressed in 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.

SPEAKER_00 33:04

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SPEAKER_01 33:13

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