Tom and Roxy Qs&As

SPEAKER_01 0:05

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

SPEAKER_00 0:12

Hi, welcome to Talking Real Money. I'm Tom Cock. You know, some of you write us and ask for a return of Roxy. So, you know, popular demand, I have to accede to your wishes because really, at the end of the day, it's all about you, not about me. So today, your your wish is our command. Roxy Butner, one of our advisors, joining us today. We're going to talk about some questions, some other topics that have come up, but I will just say it is good to see you.

SPEAKER_02 0:39

Good to see you on this beautiful sunny day.

SPEAKER_00 0:41

Yes, Seattle is uh looking glorious today with the greens and the blues and whatever that object up in the sky is, which is a little intimidating, but um try to work around it. And as we head into, well, we're by the time this airs, we'll be well into summer. So I hope you all enjoy your summer too. So we're gonna take some questions

Graduation Money Moves

SPEAKER_00 0:59

here in a couple minutes. I'm also gonna uh ask Roxy about one that she did not get a chance to prepare for. But before we even do that, it is graduation season. Yeah, I got one of those in my house, sadly. Daughter's headed off to college next year, not too excited about that. But trying to be a, you know, be a good sport about the whole thing. But it does bring to mind advice to young people. And by the way, I think having read these a couple of times, this is advice for everybody. But uh money moves for new graduates, whether they be for the most part, this would be college graduates, right? Because uh if people if you're heading off to college, it's not quite as apt. But some ideas here, some things to think about and maybe share with those in your life that are graduating or just transitioning from one sort of spot to another. This is from an art uh Jill Schlesinger, who whose work we greatly respect, Jill on Money. I think she does a great job. And she gave a couple tips. I like these. I thought I'd bring them up, but maybe pop them here on Roxy too. She would see what she says. But uh number one, which I find fascinating, is pay attention to spending. Determine how much money is available to accelerate debt payoff and what you can start to save and invest. In other words, well, first before you do any of that, you gotta know how much you're spending, right? I mean, that's the that seems to be that comes up in a lot of adult conversations too.

SPEAKER_02 2:18

Yeah. Being intentional about where your money's going and not just kind of hiding from your bank account like we hear a lot of people talk about.

SPEAKER_00 2:24

Yeah, that happens a lot. But this is a one that's more disturbing. And by the way, until you know that, you can't really have any financial planning at all because you gotta figure that out first. But this one is disturbing.

Student Loan Strategy

SPEAKER_00 2:35

It's sad for me to read that 60% of the class of 2026 will graduate from college with a student loan. That seems high, but maybe it's not. Well, the recommendation here is if you're one of many who borrowed from Uncle Sam, start by logging into studentaid.gov and determine the amount of money you owe, the interest rates associated with the loan, and the payment terms. I also didn't know that you got six months until after you graduate to do. Do you have any advice for people that uh have borrowed money to get an education?

SPEAKER_02 3:05

Yeah, I mean, this conversation comes up all the time with all sorts of debt, actually. Aggressive payoff or invest early, and it really is, it comes down to your cash flow. So before getting into student loan debt, first you want to look at average salary price, average salaries for what you're going to be earning straight out of college if you land a job straight out of college, because that should help decipher how much you should take on for student loans, first of all. Um but once you're after you know graduated and you're working, it's a really matter of looking at your cash flow and the income that you have and the interest rates on those loans to decide whether you should be aggressively paying them off or investing a little bit while making the minimum payments, that sort of thing.

SPEAKER_00 3:45

Aaron Ross Powell And the whole program of not having to pay them back that was COVID, that's all gone, right? And everybody's had to start that all up again.

SPEAKER_02 3:52

Yeah.

SPEAKER_00 3:52

Those those little caveats that allowed people to put this off for later. Uh yeah, so not easy. But brings me to number three. Um setting up an emergency reserve fund. Now she recommends anywhere from six to twelve months of expenses. 12 months would be a lot. But um you should be doing that. And then once they have that money, where do they put it? High yield savings count. Okay, which are pretty easy to find, right? I mean, you can go to Bankrate or you could go to she mentioned depositaccounts.com. I don't know them, but Bankrate has all kinds of information there. So that is well up

Save, Invest, and Freeze

SPEAKER_00 4:25

my list. And then she says, contribute to a retirement account. Now, she says, even if you have student loans, create the habit of saving for retirement. If your plan, if your job rather offers a retirement plan, an employer-sponsored plan, contribute at least up to the match if there is one. Now, she doesn't say if there's not one, should you be if you have to pay people back, should you be saving as well? What's your advice on that one?

SPEAKER_02 4:50

I really think you have to look at the interest rates of those loans. If they're less than 5%, I think you should be putting a small amount towards your retirement accounts. The Roth particularly would be great.

SPEAKER_00 5:01

Aaron Powell Yeah, lower income, Roth, great, because you're going to get all that tax-free savings. You don't necessarily need the tax break today. So but that's a balancing act. So I'd like the advice, at least getting the free money. If you're not getting the match of any kind, it's trickier for me, but uh but but it's worth considering. And you and she's right. Getting in the habit of saving, saving early, putting it away, building that up for a long time. We know the number one overlooked aspect of investing is uh is interest on interest, right? Growth and growth can compounding interest is huge. Then she says, guard against fraud, freeze and manage your credit. Um I don't know how many people do this. I think I asked recently at a meeting, and people are like, nope, I don't do that. But it's I think. I recently did. Okay.

SPEAKER_02 5:46

Because my parents went through identity fraud. And then all of a sudden I was like, wow, why don't I freeze my credit? I'm not using it. So I it seems unusual to give advice like this to graduates, but why not? It's easy to unfreeze if you go and apply for a loan, so might as well do it.

SPEAKER_00 6:01

So you do it, and then if you excuse me, if you have to borrow money, you can unfreeze it, et cetera, et cetera. Yeah. Yeah. Well, we're in the summer months. I think unfreezing thing makes sense anyway. So there you go. All right. Your questions are always at the center of our planning for the show of discussion and uh trying to figure out what to talk about because these are uh topics that you want to know. So and it's easy, by the way, to ask us a question. You can ask one on Don's show. You got the ones recorded. You can um type one in. You just go to talkingrealmoney.com, talkingrealmoney.com, and click on ask a question. Sometimes I may call you or email you actually and say, do you want to discuss it and have a live call about it? But fine, we're happy just to answer them as they are. We'll get plenty of them and uh

AVGE and Small Caps

SPEAKER_00 6:46

keep them coming. Roxy is going to take up a few of those right now.

SPEAKER_02 6:50

Okay, the first one here is from Jeff in Del Rio, Texas. And the subject is is AVGE enough small cap value? Hi, Tom and Don. I wrote you a few months back about liquidating $200,000 in about 20 individual stocks when I left Edward Jones. I'm happy to report that besides $25,000, I put in SGOV, which is a iShares zero to three month treasury ETS.

SPEAKER_00 7:16

Very short-term sort of cash type of investment, yes.

SPEAKER_02 7:19

For future taxes. The rest has been invested solely in AVGE at Schwab.

SPEAKER_00 7:24

Which is the Avantis Global Equity Fund. One fund owns the whole world. Yep.

SPEAKER_02 7:30

As a big Paul Merriman fan as well and believing in the factors, my question is if AVGE has a large enough um wrong page here, small cap value tilt to be effective. Paul recommends 50% in small caps in most of his portfolios. I know AVGV is another option, but don't want to avoid large cap growth altogether. For reference, my Roth IRA is 40% total US, 30% total international, and 30% small cap value in AVUV. And I don't even and I don't know if even that is enough small cap value. Am I just splitting hairs at this point? I wanted AVGE for its simplicity, so adding AVUV or AVDV kind of derails the purpose. Thanks for everything and all of your education.

SPEAKER_00 8:24

Yeah, this is this comes up. Um a couple things to think about here. First of all, and I know Paul well, as you know, he's a friend, colleague, and a former partner. So and I I know all the things he talks about. And the number one, I think he, if he died tomorrow, he wants to make sure the whole world knows about U.S. small cap value and the power that it has, because as an asset class, for about a hundred years, it's made almost four percent more per year than large cap growth. Okay, that's a very important reason to own it. But it's a riskier asset class, it's a more volatile asset class, and like any asset class, it can have long periods of underperformance. In fact, it tends to sort of have these little spurts, goes, and then it sits there for a long time. And if you just were in large cap growth uh for the decade before the last couple of years, you would have been done far better than having all that small cap value. But here's something I want you to think about. The folks at Avantis, these are people that uh have an academic basing, right? That's where they came from, that's their orientation. Many of them used to work at Dimensional, which is another very fine firm, and they've spent a lot of time trying to put together the best portfolio they think that is back tested as well as it can be, that's going to give you the best return. And in their opinion, the amount of AVUV, which is what they have in A V G E, right, the underlying asset class they own is through that fund. They believe those percentages are correct. I if Paul recommends 50%, God bless him. I think that's great. That's higher than we would do. And by the way, um I think we're mostly small cap value because small cap growth does not have the outperformance. I personally, if it was my Roth, I'd just put an A V G E, take a aspirin, and call me in the morning. I think you'd be fine with that. But what's your take on all this?

SPEAKER_02 10:12

Yeah, I agree. And this, because of our history with Paul Merriman, it does come up when we talk to folks, to be honest. Um and it makes sense kind of logically. You you think let's just do a little bit in everything and kind of equal weight it, right? Um but like Tom said, Avantis is not only looking at returns, but they are looking at the risk-adjusted return. And that's a big factor here when you overweight so heavily in small cap. Uh it's the conversation of should we mirror the market with some tilts to these factors, or should we do an equal weighting approach? And uh we would argue that if you do an equal weighting approach, it's sort of an argument that markets aren't as efficient as you know, evidence shows us that they are. Um, because you're basically saying that the markets are mispricing small and mid-cap, and so it's a little bit more of a bet um as opposed to following the market. So for all the reasons you mentioned, I totally agree. I think I would stick with the you know 20% or so that Avantis puts of small cap value in the AVGE fund and not overcomplicate things.

SPEAKER_00 11:14

Yeah, and I'm I have a chat with Paul coming up here soon on a podcast. So I will ask him about his uh why he has I didn't realize it's 50% in small. That's yeah, that's a significant amount. And again, I I trust Avantis to do the right thing. I think they're you make a very good point. It's not just how much you make that counts, it's how much you get to keep, right? Because a risk-adjusted return has a lot to do with that. But I will take that up. I would take the one fund. I I love what you said about simplicity. We know oftentimes when people get into these things and with more than one fund and the rebalancing gets to be tough and it's counterintuitive. And uh I'll give you an example this year where emerging markets were up 35% last year, they're up another 25% this year. Do you want to be selling that? I mean, oh, you want to run not really because it's you want to let those winners run. So it's very difficult. So, yeah, I trust their work and I like the aspect of making it easy. The portfolio is set, the money's growing, and my take would be in the in A V GE, over the long haul, you can expect a return probably better than just a regular global index fund, again, because you're tilting more to small and to value. But great question, and thank you for listening to the show.

SPEAKER_02 12:26

Okay, all right. What else we got here? What else we have here?

Mortgage or IRA Withdrawal

SPEAKER_02 12:31

This is from an anonymous listener in Kansas City, Missouri. Subject is mortgage versus withdrawal from IRA for a new home. The question is my husband and I are 59 and 62 respectively, retired and living full-time at our lake home. I want to build a second home next door to my son and grandsons who live three hours away. My net worth is roughly 4.2 million, with 3 million of that in my IRA. My advisor is recommending getting a $700,000 mortgage rather than withdrawing from our IRA due to the immediate and significant tax implications of taking the money out all in one year. In addition, they caution we could be losing the opportunity to earn higher returns than the current mortgage rates. And when our advisor runs our probability of success for our retirement plan, it comes out the same probability if we take a million dollar lump sum out of the IRA in order to net $700,000 for the mortgage or for the payout, yep, or if we get a mortgage. In either scenario, we should be able to cover all our living expenses and still have money to vacation, et cetera, and not run out of money until our 90s. Even though average returns over the long run have historically outpaced the current 6.3% mortgage rates, it seems to me like we would be making a mistake to get a mortgage rather than pay cash. What is your recommendation?

SPEAKER_00 13:55

Wow, that's a that's a tough one. By the way, I'm going to correct you mildly on your last assumption here about the 6.3% mortgage rates and average return. Average investor return is somewhere between 5 and 6%. So while the market has returned substantially more than that, the average investor has not made that for a variety of reasons. Costs, trading, uh making bad decisions at the wrong time, that kind of thing. So I would never count on, well, I know I'm going to make more than the 6.3. By the way, it could go into a decade where it makes less, right? We've had pretty good run for stocks here for some time. But at the end of the day, what you're talking about is taking a million dollars out of that qualified account. And you're right, about a third of that, or maybe 30%, is going to be handed right out to the government. Um rather than borrowing it. I mean, here's the way I would look at it. You're looking at two different things. To me, it's cash flow and then net worth as a separate issue. The cash flow, if you could pay it, I'd rather see you borrow the money at the 6%, pay that mortgage over time. And by the way, you could always, this is not irrevocable, it's not binary, you can make that change anywhere along the way, and not pay that huge amount in taxes and have all that money locked up in the home. This is something we try to talk about in retirement to people. Having a paid-off home at one level feels great because emotionally it's like, well, that's all paid for it. I got nothing there, not no payment, et cetera. The downside of that is now, in your case, a third of the money that you had set aside in a qualified account is now tied up in that home and you can't get access to it to do the vacations, to take care of yourself or whatever health care things come up as you get older. So in this case, I think I probably would be in favor of keeping the liquidity, not paying the big tax bill. Sometimes, by the way, I worry advisors tell you don't take the money out of the account because they're going to get paid less money if they have less money they're managing for you. So sometimes there's an aspect of self-interest that concerns me. But in this case, I think I got to go along with the advisor and tell you to borrow that money, build the home, which is a wonderful thing, by the way. Um I live in a lake home too, so I just on a beautiful day like it is today, I just I want to leave the office and go see the money.

SPEAKER_02 16:09

How would your daughter feel if you build a house right next to her future house?

SPEAKER_00 16:13

I don't think she'd be any either of them would be very excited about that. But in this case, I think, yeah, I think I I would agree with him that I would I would uh from a cash flow standpoint, I think I would borrow the money and uh and uh and do it that way rather than taking out a million dollars from my IRA. What's your take?

SPEAKER_02 16:30

Aaron Powell I agree with that. Yeah, I mean everything you mentioned, you know, he'll be in the higher tax bracket over 30, probably into the 35 percent of the five years.

SPEAKER_00 16:38

Yeah, that's the other one that's gonna be steep.

SPEAKER_02 16:40

Um so you're paying more in taxes, you're reducing your liquidity. That's the number one, it really is, because you just don't know what comes up, and you don't know if all of those what-ifs are even factored into your you mentioned you did the Monte Carlo and you went through the plan, which is great, but have you factored in long-term care and higher expenses and all of that stuff? The worst thing you'd want to have is all your equity in your home, and then you get to a point where, God forbid, you need to take a reverse mortgage or something like that to pay for your long-term care. I guess you could sell the house, but my suggestion would be to maybe come to a compromise and say, I understand, you know, this emotionally, you don't want to have debt, you don't want to have a mortgage, nobody likes to have that in retirement. But you could take the mortgage and then maybe strategically each year fill up the 24% bracket and make some extra payments.

SPEAKER_00 17:31

I like that. So what you're saying is uh every year look at how much money you could still take out and not bust the bracket, stay in the 24, take that out, pay the mortgage down, because then you're the you're you're sort of solving for the issue that you said earlier about not being in debt. That's good. I like that.

SPEAKER_02 17:46

It's a bit of a compromise. You might pay it off a little bit earlier and um allows you to not pay the 35, 32 percent bracket.

SPEAKER_00 17:54

Very, very uh very creative of you. That's good. So uh we wish you well. How exciting to build something. Well, as you said, maybe in my life it might be exciting. There's there's a house next door where they just on the lake I live in, about half of the people live there full time. It's a very small number. So the people on both sides of us are basically never there. So recently, the one house, there was all this cleaning, all this commotion next door, and I thought, ah, they must be getting ready to sell it. And then I start thinking like this, these folks like, should I buy that and put my you know, my kids have a place? Oh, nah, they all live 20 minutes away, so they don't really need that.

SPEAKER_02 18:29

They're coming back for the summer, huh?

SPEAKER_00 18:30

Yeah, exactly. So it turned out it wasn't for sale. So anyway, good for you. I think that's a great idea. We got uh one more we can squeeze in here? No?

SPEAKER_02 18:37

I think we would don't have another one.

SPEAKER_00 18:39

Okay, so I got a question for you.

The SpaceX IPO Buzz

SPEAKER_00 18:41

Um because this comes up and it's coming up fairly frequently, although by the time this airs, it may be uh past due. But the SpaceX IPO, among others, which is going to be I I believe the largest, it's gonna be if it hasn't already been about $75 billion, the valuation of the company somewhere between one and a half and two trillion dollars. So people get I knew people get worked up about this a long time ago. I said this is gonna be a big deal. And SpaceX, in an unusual move, is making the shares directly at IPO available to the public. Now I don't know how that works. But we've already had people calling us, clients, others saying, hey, how do I get in on this really hot IPO? And how do they get in on this really hot IPO, Roxy?

SPEAKER_02 19:23

Well, I just listened to something actually about this the other day, and they were saying, you know, people are all up in a frenzy about this, and everybody wants in. Um they did change, if correct me if I'm wrong, recently there were some changes to 401 regulations before this IPO comes out, which actually will mean that it'll allow this new IPO to become a part of the mutual funds in the 401k.

SPEAKER_00 19:47

Oh, they they they are going to be joining indexes very quickly. Yeah. Yes, that's true.

SPEAKER_02 19:51

So you may not need to physically go and do anything. You might actually already get exposure pretty quickly. Um but I did have a client who wants to be a part of this. And I mean, buying any individual stock, uh it's it's placing a bet. Also, it's like definitely familiarity bias, right? We all are familiar with the news and it's all over the internet. Um that those alone are not great reasons to go out and buy anything.

SPEAKER_00 20:17

Dimensional studies have found that IPOs underperform for the first year. So there's there's a lot of examples of a first day pop, and then the pop goes a weasel after that, right? So those are good reasons. Aaron Ross Powell, Jr.

SPEAKER_02 20:29

So I mean uh if a client came to me and said, I want in on this, I would say, let's look at how much is reasonable to take, a small portion of your portfolio, and I'd hand it over to them, tell them to go open up a play account.

SPEAKER_00 20:42

Like a that's the right word, too, because that's what you're doing. Trevor Burrus, Jr.

SPEAKER_02 20:46

Yeah. And go ahead and and take advantage of it if you want, you know, but not over uh weight yourself towards something like that. It's an interesting company. I mean, people don't realize it's made up of what is it, Starlink, which I think has done really well.

SPEAKER_00 21:00

That's the thick only place I think they make money. The space trips and the rest of it are really not productive, but the idea of providing internet to people all over the world has worked.

SPEAKER_02 21:07

Aaron Powell And now most recently the XAI, which I guess is their kind of movement towards AI, and that has had a massive loss in 2025, I think over five billion dollars or something. So um it'll be interesting to see what plays out. I think people are more making a bet on maybe Elon and the kind of the hype that goes around it, like with any major IPO.

SPEAKER_00 21:29

Yeah, I think you make a very good point, is the fact that uh this stock will be in if you're an index investor, you're gonna own it anyway pretty soon. They're gonna move it into these major indexes. We won't, because the companies that we work with specifically do not invest in IPOs, I think for at least a year. So we won't have exposure to this for a long time. But again, uh regular uh VT or VT SACs or those are going to be adding them, the S P 500, of course, because it will be, I think, the sixth or seventh largest company in the index right off the bat with that market capitalization. So good advice, Roxy. As always, great

Summer Plans and Sign-Off

SPEAKER_00 22:05

advice. You got any fun plans for the summer you can share with our listeners? People want to know what you're doing.

SPEAKER_02 22:10

My best friend is getting married 4th of July.

SPEAKER_00 22:12

Well, that's exciting.

SPEAKER_02 22:14

And we also have a coworker who's giving birth potentially has a due date on 4th of July.

SPEAKER_00 22:18

So I didn't know that was the 4th of July. Wow. Independence day, no longer independent. Okay.

SPEAKER_02 22:22

So that's so just some, you know, wedding plans. We just went on a little bachelorette trip in Miami, which was awesome.

SPEAKER_00 22:28

We saw the Insta, yeah, of course. Checking all the pictures out.

SPEAKER_02 22:31

So besides that, um, you know, just lots of weddings and stuff like that. Good for you. Enjoying the summer in Seattle.

SPEAKER_00 22:37

Well, summer in Seattle, that's the this is our time to shine. So somebody, somebody our headquarters in Connecticut just asked me the other day if they're if I was excited. I said, summer is this is Seattle's and my place on the lake and all that stuff, I this is this is this is the moment. So you can't. Don't rub it in, Tom. Don't rub it in. I'm rubbing it in every moment I get. I'm gonna let it go. Hey, you got questions? We'll we'll drag Roxy back on here again in the next few weeks, so go to talkingrealmoney.com, click on ask a question. If you want some help from somebody like Roxy, or specifically, just go there and say Meet an advisor. It's right on the website, and uh. We'll also answer some of your questions, give you a little review of your overall situation. We do that free, and uh uh we're glad to help any way we can. Roxy, thanks again for taking time. I know you're busy.

SPEAKER_02 23:23

My pleasure.

SPEAKER_00 23:24

It's always great to talk to you. It's always great to talk to you, and you know we'll be talking all the time, just around here talking real money.

SPEAKER_01 23:32

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