Who Calls the Financial Plays?

SPEAKER_01 0:05

Found wall street down to show Z. Every dollar likes to travel, they say. Yen and found and face O2. Real money's got a passport. How about you? La la la La La La La La. We're talking real money in America. Talking real money in France. Talking real money all around the globe. Tom and Roxy lead the dead for everyone, everywhere we are.

unknown 0:42

Talking real money.

SPEAKER_00 0:44

Okay, before we jump into the program, we have a little explaining

French Jingles Explained

SPEAKER_00 0:47

to do here first. Alright, why in the world are we doing these jingles at the beginning of the program? And in that case, why are we doing one that is uh well, how do we say it nicely?

SPEAKER_02 0:59

French cafe music.

SPEAKER_00 1:00

French cafe music. It makes no sense. So, okay. I'm Tom. That's Roxy. This is Talking Real Money, and today we're going to take more of your questions because you've been so generous in supplying them. But why the French theme, Roxy? Why are we going to France to open this program? You tell us.

SPEAKER_02 1:17

Well, let's see. Dawn asked me what kind of music I like, and for some reason that came to mind. I think right now I'm feeling a little sentimental and I'm missing the time that I spent in France. I lived there for about four months, almost 10 years ago, and I traveled back quite a bit. So maybe I'm just feeling a little sentimental and missing France. And he kind of ran with it.

SPEAKER_00 1:37

No, he sure did. He ran a long way with it. By the way, I went there recently and the place hasn't changed that much. You're not really missing. Things seem pretty much the same. Uh food very similar. And now kidding aside. So yes, uh Roxy is our Francophile, all things French. Send those questions and she'll be glad to answer them. Maybe lead a tour there one day.

SPEAKER_02 1:57

Maybe not in French, though. I've lost the language, unfortunately.

SPEAKER_00 2:01

So were you were you pretty fluent at it before with it before?

SPEAKER_02 2:04

Yeah, I lived with a couple who spoke zero English. So by the end of that four months, I was pretty darn fluent, and then I lost it pretty much a couple years later.

SPEAKER_00 2:11

Oh, I'm sorry to hear that. Well, maybe you never know. It comes back and uh maybe one day Roxy will lead a tour of her clients there or something. So she's she's laughing, but I'm I'm serious.

SPEAKER_02 2:20

You never know.

SPEAKER_00 2:21

You never do know. So all right, let's go back to the questions. As I say, we've been taking in a lot of them. We love it. Keep them coming. TalkingRailMoney.com. Click on ask a question, simple as that. You can record it, you can type it, and if you type it, well, sometimes it ends up on this QA program. Roxy Butner, one of our advisors, recent CFP.

Will More Investing Calm Markets?

SPEAKER_00 2:40

So what do we got? Hit us.

SPEAKER_02 2:42

This is an interesting one, actually. This is from Dave in DeWitt, Michigan. And he says, Hi, Don and Tom. I was wondering if you think the market will be less volatile or have fewer downturns in the future since young people are learning they need to invest starting young, since pensions are nearly nonexistent and more companies are automatically enrolling employees in 401ks, et cetera. It seems like this would result in less panic in the future. Just wondered about your thoughts on this. Thanks.

SPEAKER_00 3:11

This is a fascinating uh discussion. Um, but first I just want to give a few numbers because I looked it up. I was kind of curious. So what percentage of Americans, I didn't share this with Roxy, what percentage of Americans do you believe invested in stocks in 1929 when the big crash occurred? Any idea?

SPEAKER_02 3:28

Hmm. Like twenty-five.

SPEAKER_00 3:31

How about two percent?

SPEAKER_02 3:32

Oh wow.

SPEAKER_00 3:32

It doesn't get into the twenties until the like nineteen fifties. In nineteen ninety, I think it was still pretty low in the thirties. Today it's somewhere in the 60 percentile, somewhere in that area that invest in stocks. So a lot of people do not invest in the stock market. Uh but the the question of sort of if we're all in stocks, will there be less volatility? I don't think that's the factor to look at. And by the way, we know most of the movements come about as a as a result of people responding to company news, economic news, sort of factors that affect stock prices. Um you're right, there is a more stable base today because more people are investing in mutual funds or ETFs and less in individual equities, which is what we we discourage. Uh I have a a share of uh I should say 82 shares of Enron stock on my desk to remind people why that's a bad idea to invest in individual equities. But do I expect less volatility or more? I actually expect more. I'll tell you why. Because so much of this now is in computers that when computers see something happening, they're likely to try to trade in front of the public. When computers see trends, they try to say, let's how do we capitalize on that? And when markets move, that's a plot time to capitalize on prices. But what would your response to be to this in general?

SPEAKER_02 4:52

I think it's interesting because I I see the argument for it's you know, we've got more steady contributions going into the market with 401k plans. Um, we've got longer-term investors who are taking more of a passive approach if folks are younger. Um and so maybe that does in theory could kind of lessen the normal volatility that we see in the market. But then there's, you know, even recently in 2020, I think with the addition of custodians like Robinhood and lots of options trading and meme stocks, there could be more volatility associated with that. So I think it's less about the number of investors, and I think it's more who are they, how do they invest, um, and how much kind of market share do they have. But to your point, I think a lot of this has to do more with the level of trading, and a lot of that is now automized, automated, and it's going to continue to be with AI and and more computerized technology.

SPEAKER_00 5:53

You make a good point about who the investors are. The young people, yes, are taking more risks uh with all kinds of weird stuff. Uh I'm not a fan of Robin Hood, you already know that. Um so that's that's one point. But the other one, the bigger, I think, macro issue still is. Twenty-five years ago, it was about one out of twenty dollars invested in index or index-like products. Today it's one out of two. So those are people that are not trading, they're not looking at trends, they're not responding, they're simply putting the money in and letting the market do its thing. So that probably reduces volatility because they're they're not active traders. And then, as you said, on the other hand, there's all these people that are. They're saying, well, wait, this could happen tomorrow. We got a war, we got interest rates going up, we got whatever factor. So there really is no right answer. Um it will just have to play out. And by the way, there's many times when the public has invested more money in stocks and they have not gone up. Uh conversely, there's time when public has got taken money out and stocks have gone up as well. So there's no one factor that affects all this, but it's a great question, I think, moving forward.

SPEAKER_02 7:02

Really fun to think about.

SPEAKER_00 7:03

It's uh fascinating. Will not affect me as much as it will you all, especially Roxy. So uh we'll see how it plays out in the next 30 years. Be fascinating to know.

Planning for Heirs

SPEAKER_00 7:12

All right, what else we got there in the mailbag?

SPEAKER_02 7:14

Okay, this is from Peter in Rockville, Maryland. Long-term financial planning question. I am nearly 80. I have $4 million in stocks, two pensions, social security, and a yearly RMD. I do not live off my investments. Who do I go to for financial planning with an eye towards the tax consequences for my children? Is it one, my estate planner, two, my CPA who does my taxes, or three, my Merrill Lynch advisors?

SPEAKER_00 7:44

Yeah, how about all of the above? I mean, the the thing about CPA's certified public accountants is they tend to look back, not forward. Your advisor should be doing tax planning for you that says, here's what you can do, here's what you can't do, here's how this could look. And in terms of your heirs, there's you don't have to do anything because they're going to inherit things at a stepped-up basis unless it is a qualified account where they're going to uh inherit and have to start paying regular income tax on the money that comes out. Um So that answers the CPA. The estate planner really isn't somebody who's going to make suggestions about your investments per se. They might tell you here's a way to leave money more successfully with less taxation. There's some things to be done there. But I think your advisor probably in this case is the quarterback, but those other other people are players on the team, is how I'd put it.

SPEAKER_02 8:40

Yeah, totally. I agree. I think the advisor can sort of give you a summary of your balance sheet now and also when you expect you'll die, if you can figure that out. And you can take those figures to your estate attorney and say, hey, should I be worried about estate tax liability? Are the way that my my accounts are set up and my beneficiaries are set up, are those in line with my wishes based off the legal documents that I've put together? So working with your advisor and then taking that information to your estate attorney.

SPEAKER_00 9:09

Yeah, I I just watched the last episode of a show called Outlander, which has about a hundred seasons. It's something my wife got me started on about nine years ago. Kidding. But it took forever to end. And in the last episode, and I won't tell you what happened, but um the protagonist was working on his estate plan and he added his grandkids. So I'm gonna I'm gonna I'm gonna put some small I've been giving them money in their 529s, which they'll probably never know that I did. But um I'm gonna uh put something in there for them, too, because I thought that's a good idea. But this is I'm glad you're thinking about this. Um, and I think this is something that everyone who has an estate of any value, frankly, should probably be thinking of as early as sixty, because not everybody gets eighty whatever years, um which is awesome. But these are very I I you're thinking about the stuff. Again, I'd probably make the advisor at the center of it, but I'd certainly bring in those other parties as well. It's uh congratulations to you on on putting all this in perspective, too. I love that.

SPEAKER_02 10:04

And your and your advisor would be happy to talk to your estate attorney if they have any questions or anything else.

SPEAKER_00 10:10

There should be communication back and forth if needed, absolutely. So in our case, we would be doing that as well. Hey, these are two very thoughtful questions.

Fiduciary or Broker?

SPEAKER_00 10:17

What else we got?

SPEAKER_02 10:18

Okay, this is from Dan in New York. And let's see here. He says, I talked with a financial advisory firm that says they act as fiduciaries, meaning, in quotation marks, we are obligated, legally obligated to put your best interests first in every recommendation we make. I asked if they are an RIA, which is a registered investment advisor. The reply was no, we are IRIARs.

SPEAKER_00 10:46

Yeah, investment advisor representatives. Yes. Yeah.

SPEAKER_02 10:50

I had never th heard that term, and so he explained that he is an investment advisor representative. Afterwards, I furthered searched and found that firms can be RIAs, but individuals are IARs.

SPEAKER_00 11:03

Exactly. So that the our firm, APELA Wealth, is a registered investment advisor and only registered that way, by the way, because this will come up in a moment. But Roxy and myself are IARs of APELA. Yeah.

SPEAKER_02 11:16

Uh let's see here. Further research on FINRA reveals that the advisors working for this firm are actually registered under LPL Financial, which also acts as their custodian. Is this a normal operating procedure? Can you think of a reason why their firm would not be an RIA? Can you elaborate about the IAR designation? And could I should I be concerned about working with this advisory firm?

SPEAKER_00 11:39

Yeah, the fact is yes, because they are duly registered. If they're they're they're registered both as a RIA and a broker dealer. Now, many people are because they want to have the option of selling a product of some kind. And this happens. We see people go into an office, they work with the RIA, not knowing they're also registered as a broker dealer, and then somewhere down the line somebody says, wait, do we got this great annuity product? You really should be using this instead of just stocks and bonds, and they get sold into that. So I have a little concern there. LPL is one of the larger broker dealers, so I'm happy that they have custody in this case separately at LPL, but I do worry a bit that the the registration here opens up you to not getting 100 percent fiduciary advice. But what's your take on all this?

SPEAKER_02 12:29

Yeah, and I'd probably clarify whether they are actually registered under LPL or maybe they just use LPL as their custody because that would be a good idea.

SPEAKER_00 12:37

Distinction, correct.

SPEAKER_02 12:38

Two different things. So if they're registered under LPL, and you know, we just talked about firm-wide for us, it's RIA, registered investment advisor, individual, it's investment advisor rep. For a broker dealer, that's the firm, and then you have a registered rep under the firm.

SPEAKER_00 12:54

Different, yep.

SPEAKER_02 12:54

Um, so yeah, you'd want to look into, you know, if they're actually registered under that broker dealer. And there's so many resources out there that you can just go and check online. You obviously know about FINRA, you can go through FINRA broker check to find the company and how they're registered. Um, you can check for IARs or RIAs, their ADV Part 2A or part two B, and that'll show you various disclosures. And then for broker dealers, you want to look for something called form CRS or broker dealer disclosures. And the reason I mentioned this is because in any case, when you're acting as a fiduciary, the way that they sort of regulate that is your fiduciary as long as you disclose any conflicts of interest. So you want to look for those and make sure that they're not able to sort of sell you other brokered products on the conflicts of interest? So again, it'll be the ADV part two for IARs and then for broker dealers, you're looking at form CRS or their broker dealer disclosures. Trevor Burrus, Jr.

SPEAKER_00 13:54

And you really want to work with someone who doesn't have any disclosures. I I mean this is really and in today's world, it's getting rarer and rarer. There were people that bounced around from many firms and they had a problem there, they moved to XYZ firms. I see that less today. What I do see, though, is this dual registration, which worries me because, again, the idea is if you work with a 100% fee-only fiduciary advisor, the odds are pretty much in your in your corner that you're going to get treated well. Not necessarily true. And the other, again, it doesn't make them bad people. It's a different business model, but it it concerns me for the client, if you will, that they may get mistreated. But I don't know where you are on it. Do you see this very often in your practice?

SPEAKER_02 14:36

Yeah, I mean, people come to us all the time and they, you know, meet met met with Merrill, like our last, you know, um question here mentioned them and other broker dealers and asks about what does it mean to be a fiduciary. And so we're constantly kind of explaining this uh two-prong basically registration that folks have to look for. Um and I just think being an IAR under an RIA, working with a custodian, but not registered under a broker dealer is your your best kind of security blanket that there won't be as many conflicts of interest.

SPEAKER_00 15:09

Yeah. And and again, the RIA business is the faster growing today. It is where most people that are getting into the industry have decided I'm not going to start out as a stockbroker. I'm not going to work for a broker dealer. I'm just simply going to go to an RIA, and I think that's advisable for the clients as well. We

Balancing TSP and Inheritance

SPEAKER_00 15:28

got more? Okay, let's hit them. What do we got?

SPEAKER_02 15:31

We've got Casey from Albuquerque, New Mexico regarding retirement planning. And they say I'm 49 and have $175,000 in a pre-tax TSP.

SPEAKER_00 15:43

That's the thrift savings plan that is offered by the federal government. Okay.

SPEAKER_02 15:47

If I inherit another $200,000, should I buy more AVGV, which is the Avantis All Equity Markets Value ETF?

SPEAKER_01 15:58

Yep.

SPEAKER_02 15:59

Uh if my goal is $500,000 total by age 57. Also, should I keep the A V G V in a brokerage or in a Roth? And keep my TSP pre-tax? Thanks for the help.

SPEAKER_00 16:14

That's a lot of questions. Okay. Let's see if we can pull this apart. Um, first of all, I really like uh when you get to retirement, and that's still a few years off here, um the idea of having some pre-tax money, the idea of having some Roth and some brokerage. It just opens up more options when you retire and you have to create income. So imagine that you could game the system a little bit. You agreed to have a tax break of, say, 20 for whatever. And now you could pull some from the pre-tax, you could pull some from the Roth, and you could pull some from the brokerage, because there's different taxation. Roth, obviously, tax-free. Brokerage is going to be long-term capital gains, and the pre-tax is going to be whatever your income tax rate is. So I like the idea of having various uh places to pull money from. I think that is going to make your life better in retirement. You but then you somehow conflate AVGV into different places. In any investment plan, the Roth to me should be all in stock. So I do like AVGV there. The TSP obviously does not have AVGV available. They have a series of their own funds, they have a government guaranteed bond fund, they have large cap, they've got small cap, they've got international. And maybe what you did there would be a third or a fourth, maybe, in each one of them. You got a fourth in the bonds, a fourth in the U.S., a fourth in small, fourth in international, keep it simple, but that that's a that's a different thing. Um the brokerage is also a place probably for stock funds, so like an A V G V, because of the uh the fact that if you held bonds in that brokerage, you could end up paying tax on the interest that they're paying you. So going back to where you are overall, Casey, um, and by the way, I hope you don't break bad in Albuquerque, but that's a whole other thing. And get the pizza off the roof. Uh but the thing is, um you should maybe do a little planning work here because you have a few different things you're looking at. And if you're uh retire, uh he said want to have 57 or f half a million by age 57. I think that's reasonable, but he didn't say if that's a retiring at he or she. I guess it could be a woman too, Casey, but who knows. Anyway, the thing is, you're probably a good candidate for just having a little planning work here to get to that half a million and have it in the right place. But I hope I didn't conflate things too much and make it worse. But what's your take on all this?

SPEAKER_02 18:35

Yeah, I'm curious. That would be kind of step one is figuring out that $500, $500,000. Is she trying to double the $200,000 that she's getting inherited, right? Or is that everything altogether? That'll determine, you know, how risky your portfolio should be. So AVGV is the only thing that she's meant he or she has mentioned here, and that's of course 100% stock portfolio. So first is figuring out is that too risky for your portfolio. Yeah. And and then AVGV, if you look at that on its own, is pretty heavily tilted towards value. Um so I'd want to look at it alongside what you have in the TSP. Maybe that makes sense because you've got more large growth in the TSP, but making sure that we're not tilting too much towards value, although you do want to have a good tilt towards value.

SPEAKER_00 19:30

Value stocks being riskier, these are underpriced securities according to certain ratios. Uh and with the expectation is and the performance has been that they'll make more than growth, which are the more solid companies over a long period of time.

SPEAKER_02 19:44

Yeah. So step one, figure out your stock-to-bond ratio based on a your plan. Step two is build the portfolio for that. And then step three is we've got this $200,000 inheritance, and you had asked if it should go in the Roth or in the brokerage. So first and foremost, you're limited by maximum annual amounts to put into a Roth and by income limits. So let's say you do qualify to contribute to a Roth IRA, then sure, I would plan on maxing out the Roth for the next few years while you do qualify and setting aside some of that money for that. And then the rest should go into your brokerage account. Although I will say I'm a big fan of having multiple funds in a brokerage account because it just creates Like multiple ETFs, you mean? Multiple ETFs as opposed to just one. So AG A V G V or if it's A V G E, that's all fun and dandy, but having multiple ETFs in there 10, 15, 20 years down the road will give you a lot more tax flexibility with the capital gains or losses for possible tax loss harvesting down the road.

SPEAKER_00 20:47

Yeah, that came up in a recent question, like why do advisors have more than one fund when you could own one fund? And those two answers you just gave are exactly right. These things you could sell to create a tax loss harvest situation. There's rebalancing that could be done if you have more than one, so that that's that's a good answer. So there's some there's a reason, perhaps, Casey, for you to talk to somebody and advisor about this just because you do um you do have enough complexity here, and if you're really within a 10-year time zone to retire, it it probably deserves some greater attention by a professional, I'll put it that way. Great question. All right, we've got time for one more if you got one.

SPEAKER_02 21:24

I think so.

Vanguard or New ETFs?

SPEAKER_02 21:25

Okay. We've got Tyler in Bountiful, Utah. I had to look this up because I wasn't sure if that was a reality.

SPEAKER_00 21:34

Mm-hmm. That's near Salt Lake City, I believe. Yep.

SPEAKER_02 21:36

It looks beautiful, actually.

SPEAKER_00 21:37

Um beautiful, bountiful. Maybe it works, yeah, sure. Why not?

SPEAKER_02 21:41

And so this is regarding a taxable account. And Tyler asks, I enjoy listening to your podcast and all the great topics. Thank you. I currently have a taxable account with Vanguard using Vanguard ETFs, but based on your podcast, I am considering DFA or Avantis. But I think selling my Vanguard ETFs will trigger a taxable account. Event. Would you recommend sticking with the Vanguard ETFs I have and then adding DFA or Avantis? Can I buy Avantis or DFA ETFs in a Vanguard taxable account? Which ETFs are the most tax efficient for a taxable account? A V G E, D F A W. Thank you.

SPEAKER_00 22:17

Yeah, uh, this is okay, first of all, I this comes up a lot. Like, hey, my portfolio is really not very good. Should I just sell it all, take the tax in and move on? Probably not. I don't know how old you are, I don't know how many more years you have to pay, you know, to pay uh to make it worthwhile, right? Because you're gonna sell something, you're gonna pay tax on it.

SPEAKER_02 22:34

Or your tax bracket.

SPEAKER_00 22:34

Exactly. And Vanguard funds are very fine funds. So there's no reason to if if it was I could American funds or somebody else that's actively managing kind of high expense, then it might make sense. But generally you just want to be adding on those other funds. Because what's going to happen is Vanguard is an in an index house, right? Generally. Most people buy them for their index funds. Avantis and DFA are not. They're uh sort of I hate to use expression, actively managed, but they're not they're not the the the traditional active management, but they are active compared to Vanguard. So yeah, you could add those on to give you, and Roxy just mentioned this, some more exposures to value, some more exposure to really small, small, some places in the marketplace that Vanguard might have. So I would just be adding them. ETF's tax efficiency, well, stock funds in a tax in a brokerage or taxable account pretty pretty uh pretty efficient, right? And ETF's very efficient. So I wouldn't worry about that so much as I'd worry about having the right portfolio design and balance that takes in those Vanguard ETFs and then also work from Evantis and Dimensional. But uh what's what's your reaction to all this?

SPEAKER_02 23:46

Yeah, I just met with a couple yesterday and they were thinking that they could not buy DFA ETFs, but now you can. I think back before DFA offered uh ETFs, they were mutual fund only and you had to work with an advisor to get the mutual funds. Now with ETFs you can buy those at pretty much any platform and for sure at Vanguard. So uh the question, as you mentioned, is what do you currently have? And as you continue to contribute, I'm guessing you're a little bit younger, let's say, and you're still contributing. What new funds could you add in there that would help diversify your portfolio even further, add a little bit more factor tilting towards small cap, towards van towards value, um as opposed to just A V G E or D FAW, which are both all equity funds?

SPEAKER_00 24:30

Yeah, is a really good answer. So, yeah, probably adding on. And that I thank you for raising the question of how can you buy them. Basically, now I think with any custodian, you can almost buy any ETF. I don't think there's any restrictions anymore.

SPEAKER_02 24:41

Pretty much.

SPEAKER_00 24:42

You can go to Schwab, you go to Fidelity, you can buy the other companies' products and without a sales charge. I think uh th as you mentioned, uh dimensional, you had to go through an advisor. So, and even then sometimes there was a sales charge. So that's all gone away now with the advent of exchange traded funds. So

CFP Success and Sign-Off

SPEAKER_00 25:01

great questions. How are you enjoying your new status as a new CFP? Do you walk around the office to kind of tell people you better pay attention to this, you better listen to this, you know?

SPEAKER_02 25:09

I've been sleeping a lot better this week since I'm not studying or stressed anymore. So that's a good thing.

SPEAKER_00 25:15

A relief, which is really nice. And Roxy did just pass her CFP exam here soon, uh, recently, pardon me. And uh so and if you want your questions answered by Roxy, by Don, by Tom, any of us, simply go to talkingrealmoney.com, click on ask a question. If you want to actually have a meeting with an advisor, get a full portfolio review, we do those free, and you get a chat with an advisor as well. You can go there and ask an advisor, meet an advisor, pardon me, and that's all at talkingrealmoney.com. And if you want to give Don suggestions for new jingles, because he's really caught up in this whole jingle phase. Uh no, don't don't give him any suggestions. He's sitting around writing this stuff all day. So I can tell you one thing. Roxy, thank you for joining us today. As always, it's a pleasure. No matter what, we will be here.

SPEAKER_04 26:00

Talking real money. 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 are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions.

SPEAKER_03 26:17

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SPEAKER_03 26:59

See AppelloWealth's ADV Part 2A on our website for information regarding Appellate's fees and services.

SPEAKER_04 27:04

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