01.20.26 Ask An Advisor With Wes Moss

Large Cap vs. Small Cap: Which Is Best? & Why Your Returns Don’t Match the Headlines With the median S&P 500 company now valued at $35 billion and "Mega Caps" like Microsoft reaching the $3+ trillion mark, the scale of the market has reached levels that are difficult to even conceptualize. While large caps have dominated the last three years with returns, Wes highlights why investors shouldn't ignore small and mid-cap categories. With small caps currently catching up in 2026 and offering more attractive valuations, diversifying beyond the top 10 stocks in the S&P 500 is more critical than ever. Also, have you ever wondered why individual investors consistently underperform the broader market. While the S&P 500 has averaged a 13% return over the last decade, the average balanced investor has seen closer to 8%. Wes discusses the framework needed to stop chasing headlines and start building long-term wealth. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the January 20, 2026, Ask an Advisor episode of the Clark Howard podcast.. Submit your questions at clark.com/ask. We hope you enjoy our weekly Ask An Advisor episodes. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS Wes Moss, CFP® Wes Moss - Clark.com Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

  This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed sponsored jobs.

• 0:30Speaker 01

  Visible puts the ultimate wireless hack in the palm of your hand. With unlimited 5G wireless data and hotspot designed to keep you connected. Powered by Verizon's 5G network. And no contract holding you back. Plans start at $25 a month or get the premium Visible Plus Pro plan and save $10 on your first month when you use promo code HACK. Make the switch at visible.com. Terms apply. See visible.com for details.

• 1:05Speaker 02

  Welcome to Ask an Advisor. We're here at Team Clark, go deeper on all things investing and retirement.

• 1:11Speaker 03

  Krista. Hello.

• 1:13Speaker 02

  Here with Mr. Wes Moss. And today, speaking of investing, we're going to talk about a couple of really interesting topics. Well, to me, what is a small cap and what's a large cap these days?

• 1:24Speaker 03

  That sounds like rudimentary, small cap, large cap. The size of companies has changed so dramatically over the last decade that if you asked 10 people on the street, what's the size of a large cap? I don't know if people would know it because it's changed a lot. And it's a huge part of what we are forced to choose from in our 401K. So we have to understand what's small, what's large, what's mid cap? And they're really different.

• 1:51Speaker 02

  And then also, why do individual investors often not beat the market?

• 1:58Speaker 03

  Or why do they lag behind the market? And there's the most updated research we have on this is by a company called Dalvar, and they measure the performance of individual investors. They track mutual fund returns and they're able to look at a really broad section of individual investors in America and they can see how their equity returns, their stock returns do relative to the very indices that people are trying to to match. And the returns for individuals are, I would say dramatically lower, somewhat lower in some of the categories and way lower in some categories as well. And it has to do with investor behavior in mass. Also, super important to understand.

• 2:43Speaker 02

  Okay, and we'll also get to your questions for Wes. You could submit those at Clark.com/ask.

• 2:49Speaker 03

  So this is a little numbers heavy. I'm gonna have to put on my glasses here, but I'll see if I can remember all of these returns. And here we are, let's just call this, I did this just the other day and I checked today. Depending on when you're listening to this, the numbers obviously could change a little bit day to day. But just so far in 2026, there's a huge difference between the returns of the S and P 500, large companies, relative to the small cap indices and the mid cap indices. And as we sit here today, large stocks, S and P 500, up about 1 and 1/2%. Small caps up 6%. That's a pretty big difference.

• 3:31Speaker 03

  It's still really early in the year, but these two categories are dramatically different. And we'll go through the sizes of what's a small, mid and large cap company. But the returns have been really different, even if you, if we look over the last three years, 2023. So if you go back and look at the last three year cumulative return.

• 3:55Speaker 03

  Let's look at large versus small cap companies. The S and P 500 index up a little over 80%. If we were to look at the S and P 600 small cap index, it's only up 25%. Huge difference in returns over a really a significant and an importantly long period of time. The Russell 2000 index, also a small cap index up 40%. So you could look at this as it stocks in the largest of large S and P 500 have essentially doubled the returns of small caps. So I think that's just right out of the gate. An important thing to understand.

• 4:37Speaker 03

  However, and I'm not saying this is a durable trend just yet, but it is notable that so far this year, small caps have been closing the gap to some extent. Where do we stand today? I remember if I go back 10 years or 15 years, a company that was $20 billion was a really big company, $50 billion was a really big company. We have now entered a world where we have trillion dollar companies today. Now we don't have a ton of trillion dollar companies, but a trillion dollar company, remember, is 10 times the size of a $100 billion company. $100 billion company is still massive.

• 5:18Speaker 02

  It's insane.

• 5:19Speaker 03

  But a trillion dollar company is 10x that. Hard to even for the human mind to conceive that. So the sizes have really shifted and they have migrated up, as you can imagine, over the, over the years, now that we have trillion dollar companies. So here's the new, let's call it standard. Well, again, let's just go back 10 years. 10 years ago, the median, and I'm looking at the middle stock. Remember median is not the average, just the midpoint. 10 years ago, the S and P, the median S and P 500 stock was 18 billion. Today it's about 35 billion. So it is doubled in size. The average 10 years ago was 50 billion. Today, the average S and P 500 company is 100 billion.

• 6:01Speaker 02

  Wow.

• 6:02Speaker 03

  100 billion dollar market cap value. And you have, these are the choices that you have. We, most of us, if you're listening and watching, you have these choices in your 401k or your 403B or your retirement plan at work. You'll get a long list and it'll say, large cap this, large cap value, large cap growth, mid cap this, then mid cap value, mid cap growth, small cap. So you have all of these choices. And the inclination most investors have is you go down the list and you see a one year and you see a two and a three and a five and a seven and 10 year. And they, and you look at the rates of returns. So you're going to look at this and you're going to look and see all these, all the large categories, the biggest

• 6:46Speaker 03

  of stocks, they're going to have really great returns. And people are very inclined to say, well, they've done well. And that's what I'm going to invest in. I'm good. Why would I put money in these areas that are, this is up 80, this is a 40. I'm picking the one that's up 80. That is how 95% of 401k investing works. And that to some extent can be a problem because you started ignoring some of these categories that they, may have a higher probability of playing catch up and closing the gap. And that's what this story is really about today here. I don't want people to ignore a really important part of the market, middle sized companies and small cap, just because large is done really well. So small caps today in the world we live in would be

• 7:28Speaker 03

  in the 500 to 5 billion category in, in total market cap. Remember market cap is just number of shares times the stock price. Mid cap is five to 25 billion. Large cap is 25 now to 300 billion. And then even though you don't see this officially, even though you'll see some ETFs that say mega cap, something, I would have to put the top part of the large category, I consider mega cap. And those are 300 billion to over a trillion.

• 7:59Speaker 02

  Wow.

• 8:00Speaker 03

  To three, four trillion. Here's an example. I looked at. The entire S and P 500 and I picked the middle stock, stock number 250, 251. It's a well-known name and that's why I picked this one, but it also happens to be dead kind of right in the middle, at least the day I was looking and that's Keurig Dr. Pepper. What do they own? That's a, everybody knows that company. It's a massive company. It's a $37 billion company. It owns of course, Dr. Pepper. We all see the football ads of the Dr. Pepper, a little town they created, Canada Dry, Mott's, Snapple, A and W, 7-Up, Sun Kiss Soda Squirt, Hawaiian Punch.

• 8:40Speaker 02

  And Keurig.

• 8:42Speaker 03

  Well, and that's just the coffee side, which is the single cup Keurigs that made single cup coffees famous. Yoohoo, remember Yoohoo, the drink? That's still out there. Big Red and Vita Coco, the coconut water. So it's a big company, $37 billion. Then you look at a company like Microsoft, which is not the biggest company on the planet, but number, I think three or four, it's a three and a half trillion dollar company. So that means Microsoft is roughly 100 times the size of a massive consumer brand like Keurig Dr. Pepper. Very different profiles, size wise. The smallest, just for fun, I looked the almost number 500 on the S and P 500 list was at the time, at the day, and this will

• 9:27Speaker 03

  change, Campbell's Soup. Now it's just the Campbell's Company.

• 9:31Speaker 02

  Okay.

• 9:32Speaker 03

  And that'll fluctuate. Obviously, the time I checked, it was just, it was a little under 10 billion as the smallest company in, or one of the smallest in the S and P 500. Why has the S and P 500 gotten so giant? It's because it's market cap weighted, but the other indices are too. And the, there's a disproportionate amount of size on the top 10. And those top 10 companies have pulled up the average pretty dramatically, but they also, and we, I know this was a theme last year, it's still a theme this year in 2026. If you were to look at the 10 companies at the top of the S and P 500, they are 40% of the entire S and P 500.

• 10:16Speaker 03

  Which is a remarkable thing to think of, just 10 out of 540% of the entire index because they're so giant. Right now, average market cap 100 billion, median is 33 for the S and P 500. Now, the Russell 2000, which I think is a good proxy, this is an index and you can find ETFs that do this, but you're looking at just the index. The average company is 4.8 billion. In relative terms, tiny.

• 10:42Speaker 02

  Yeah.

• 10:43Speaker 03

  The median market cap is only 1 billion. Remember, we just talked about Campbell's, 10 billion. So the median company that's considered a small cap is still 10 times smaller, 1/10

• 10:54Speaker 02

  than the smallest.

• 10:55Speaker 03

  of the smallest company in the S and P 500. Who's in the Russell? You would think, well, these are tiny companies. Nobody knows these. Carvana, Rocket Labs, Bloom Energy, Abercrombie, Guardian Health. So it's still big companies that we know, but they're considered small when it comes to investing. Why could small caps be playing some catch up? One, they've lagged way behind. And historically, small caps, if you look over a really long period of time, small companies have actually done better than large over the course of, let's call it 50 years plus. So they've lagged behind more recently and that may be why you're starting to see some playing catch up and maybe that continues, maybe not

• 11:38Speaker 03

  over the course of the year. I just wouldn't ignore small caps and they also are cheaper from a valuation perspective. They're not trading as richly relative to their earnings as most of the big, large cap companies. So the bottom line is to not ignore this category that has perennially actually done very well, even better than large caps over time, just because they've lagged behind over the last couple of years. I just wouldn't ignore them completely when you're looking at your 401k options.

• 12:09Speaker 02

  Okay. We'll go to some questions. This is from Brian in North Carolina. This year, we have enough money to max out our Roth or max out our HSA, but not both. Both are invested in low-cost index funds. Which one should we prioritize over the other if we just can't max both options fully?

• 12:26Speaker 03

  HSA versus Roth. Brian, don't make me choose.

• 12:30Speaker 02

  I know.

• 12:31Speaker 03

  These are both, they're both such good options because essentially they are paying for things on a tax-free basis. So they both have this wonderful, HSA is like a 401k for your healthcare. But when you're paying for it, you're not paying taxes on the money that's going out to pay for XYZ healthcare bills. So the advantage of the HSA, the contributions are tax deductible. So it's like a 401k contribution. Well, if you put a thousand dollars in an HSA or you max it out, it's 80, I think this year 87.50 for a family. That goes off the top and you don't pay taxes on it. So you get a big tax break for HSAs.

• 13:12Speaker 03

  Again, the withdrawals are tax free and the growth is tax free. So that's, that's an awesome combination. But the Roth, the Roth is perhaps just as good because it's even more flexible. It's not that you can spend Roth money just on healthcare. So the HSA is limited to just spending on healthcare. The Roth, you can spend anything when you get into retirement. So that tax free growth is great. The tax free usage is great. Big difference. So you don't get a deduction to put money in the Roth. That's the big difference. So the HSA is probably the best tax deal today. And the higher the bracket you're in, Brian, the better the HSA is in the given year.

• 13:56Speaker 03

  And then the Roth, I'd say is perhaps the most flexible. So if I had to just pick one, they're both great, but if I had to just pick one, I would probably go with the Roth because even though healthcare is extraordinarily important, your retirement long-term is, and I think tie goes to the Roth, but they're, they're both very, very good. If you're in a really high tax bracket, so this would be the nuance. And you think you'll be in a lower tax bracket in the future. Or if you're in a fairly high tax bracket, I would say that. It swings back towards the HSA just a little bit. So you could just continue to split the difference. It's not a bad way to do it.

• 14:42Speaker 02

  All right, Kevin in Ohio says, Wes, I wanted your take on dividend producing ETF as a strategy of retirement. I don't hear many talk about it, but it seems like it could be a viable option. For example, I'll have a state sponsored pension when I retire in 15 years. So that'll be my main source of income. I also have a 457B account that I'm anticipating will have approximately $250,000 in it when I retire. If I rolled that over into an IRA and into a dividend paying ETF, paying an annual dividend yield of about 4%, that would give me an annual income of approximately $10,000 to go along with my pension. I'll also have a Roth IRA in retirement and no social security. Do you think this is a good plan?

• 15:25Speaker 03

  Kevin, maybe I haven't pounded the table enough, or maybe you're new to the show. But this is dividend investing, income oriented investing is, that's my preferred philosophy. It's not right or wrong. It's just

• 15:39Speaker 02

  That's your jam.

• 15:39Speaker 03

  That is, that's what you would call it. As Krista would say, that is my jam.

• 15:44Speaker 02

  Charts and dividend.

• 15:45Speaker 03

  Dividend payers. Because dividends, so first of all, over the course of economic or stock market history, dividends have made up over a third of the total return of the S and P 500. They get short shrift today because the big, big companies at the top don't pay a lot of dividends. So the dividend on the S and P 500 is de minimis. It's 1.2%. So it doesn't feel like it's all that exciting. However, at the same time, Kevin, the overall aggregate amount of dividends is the highest it's ever been. It's just that the value of the market has gone up so much, the percentage yield is now lower.

• 16:28Speaker 03

  So I'm a big believer is when you get into retirement, particularly, so you've got your accumulation phase and your distribution phase. Retirement is when you're pulling money out. I like dividend investing for both phases because in the, in the first phase, you can just reinvest the dividend, reinvest, reinvest, reinvest. In retirement, you're going to start using that cash. And to me, because dividends have grown at twice the rate on average of inflation. So if inflation's three, dividends have grown six. Growth of six. That really protects our purchasing power. It protects our ability to spend on higher cost goods because our dividends are higher over time.

• 17:08Speaker 03

  And to me, it's a wonderful way to structure your overall retirement portfolio to make sure you have cash flow that you can regularly spend. One catch, I would just say, dividends are relative to the general market. And I mean, what I mean by that, if the S and P is only paying 1.2, a stock paying three is a really high dividend. It's more than double the S and P 500. So just note that as of today, dividend rates are relatively low. You can have a portfolio that has a 4% dividend yield, but you would have to really get specific on, on very pretty darn high, not the highest, but high dividend yielders in that three and a half to four and a half percent range. There's not that many of them.

• 17:52Speaker 03

  So the way I would look at this, Kevin, is that dividends can do half to two thirds of the work when it comes to that 4% withdrawal rate you're looking for. So 4% is your withdrawal rate, your 10,000 on the 250. If dividends are giving you two and a half or three, it's getting you two thirds of the way there. Then the appreciation, which is our equation, we're all after total return, equals growth or income dividends plus growth should get you more than the rest of the way there.

• 18:22Speaker 02

  Okay. And then Chip in Texas says, I love how Wes faces his challengers. To me, red apples are good and the rest are all for pies. That's funny. I forgot to mention apples are also your jam. You love apples.

• 18:34Speaker 03

  With not apple jam.

• 18:35Speaker 02

  No, okay. On a few podcasts.

• 18:37Speaker 03

  There's apple butter.

• 18:38Speaker 02

  I love apple butter.

• 18:39Speaker 03

  Ah, I don't know. I'm not a big fan of apple butter. It's brown, it's mushy.

• 18:45Speaker 02

  Delicious.

• 18:45Speaker 03

  I rather like a strawberry jam.

• 18:47Speaker 02

  Take some toast, put some peanut butter on it and apple butter.

• 18:50Speaker 03

  Yeah, it's okay.

• 18:51Speaker 02

  On a few podcasts, Wes has mentioned he loves a chart. That's true.

• 18:56Speaker 03

  That's also my jam.

• 18:57Speaker 02

  I found the Callan periodic table of investment returns, which has an interesting presentation with the highest performing index that they review ranked for each year. It is rare to see the same index at the top. Is this chart useful to show that we should be diversified? Or is it FOMO because it looks like, looks at yearly returns and not the longer time horizon for long-term investing? I think if these were five or 10-year returns, the chart would have a more uniform order. Is it useful to have 5% of your portfolio in something that kills it every five years, but lags the more repeatable performers in the remaining years?

• 19:34Speaker 03

  Chip, it's a FOMO chart, man.

• 19:36Speaker 02

  FOMO, fear of missing out, just in case, you know.

• 19:39Speaker 03

  Chip, it's a, it's a FOMO chart, but it's also a good educational chart. I want you to visualize this for a second. Think of the periodical table in high school or college, and everything has its own little box. But think of it just as a rectangle, and there's a year at the top of each column. And there's a new color for the different asset classes that they're tracking. It might be precious metals, emerging markets, small cap values, small cap growth, large cap, large cap value, et cetera. And let's just say one of those categories is red. You'll look at this chart and red will go from one of the worst performers out of the group to one of the best performers in the group, and then one of the worst and

• 20:19Speaker 03

  one of the best. You end up seeing visually that the category performance in any given year is going to bounce around. You might have a couple of years where it's near the top, then a couple of years near where that category is near the bottom. And I first think it's a FOMO chart because as a human, you can't help but look at the chart and say, oh, yeah, precious metals. It was, it's at the top for last year, 2025. That would be that, let's say that's yellow. They usually put the gold one in yellow. And it's at the top and you think, oh, it just, of course, that was the best. And you go back through the year, year prior, of course, large cap was the best. So you can't help but do a little

• 20:59Speaker 03

  Monday morning quarterbacking with looking at that FOMO chart you're talking about. So I think that there, that's the downside of that chart. It's a fear of missing out chart. You think, well, I'm just going to pick the, this category that does the best most of the years. Then money typically funds or funnels into what did the best last year, which often doesn't do the best next year or this year. So it's a FOMO chart, but it's a great educational chart, Chip. And I think you nailed this is that, and this is really why I brought up the small versus large cap, is that you want to have not necessarily all of those categories on that particular chart, but it's a reminder to own many or most of those categories because

• 21:45Speaker 03

  we don't know when the tide changes. The blue box that represents small cap value goes from lowest return out of the group to the best. We don't know when that tide exactly turns. So the answer is to own them all or most.

• 22:00Speaker 02

  All right, we're going to take a quick break and then we'll be back and we're going to talk about individual investors.

• 22:07Speaker 00

  This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now, then this is a job for Indeed sponsored jobs.

• 22:37Speaker 01

  Visible puts the ultimate wireless hack in the palm of your hand with unlimited 5G wireless data and hotspot designed to keep you connected powered by Verizon's 5G network. And no contract holding you back. Plans start at $25 a month or get the premium Visible Plus Pro Plan and save $10 on your first month when you use promo code hack. Make the switch at visible.com. Terms apply. See visible.com for details.

• 23:08Speaker 04

  Low energy, unfocused, foggy, you might be dehydrated. Gatorade Zero powders have been scientifically designed to help improve hydration balance in the body with a clinically proven electrolyte blend and no artificial colors or flavors. Great tasting hydration, no matter where you're going. Shop now online or at retailers nationwide. Gatorade hydrates better than water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.

• 23:36Speaker 05

  When an intruder approaches a home, they expect a camera. What they don't expect.

• 23:42Speaker 05

  Using smart AI cameras, live US-based agents help deter intruders in under 30 seconds. Don't just record a break-in, stop it from ever happening. Plans starting around a dollar a day. Right now, get 70% off your new system with professional monitoring at simplysafe.com/spotify.

• 24:00Speaker 06

  30 seconds response time requires monitoring plan with outdoor protection starting at $49.99 a month. Visit simplysafe.com/licenses for alarm license information.

• 24:07Speaker 07

  We just moved into our new house and I didn't realize just how close we were to the neighbors. That's when my friend told me about blinds.com.

• 24:15Speaker 01

  Blinds.com isn't a medication, but it can improve how you feel about your home. Customers who shop at blinds.com experience excellent customer service from consultation to installation. Side effects include increased privacy and better sleep. Talk to your partner today and see if blinds.com is right for you. Shop Black Friday all month long at blinds.com.

• 24:34Speaker 03

  Don't miss huge deals dropping every week. Welcome back to Ask an Advisor. I'm Wes Moss, along with Krista Devias here on the Clark Howard Show, Ask an Advisor. You just want me to start with individual investors?

• 24:50Speaker 02

  Yeah, let's talk about that and then we'll go to some more questions.

• 24:52Speaker 03

  All right. I know we had a long first half of the show, so maybe today we'll be a little tighter on the second half. The emotional impact on investing, you could title this, why are individual investor, that's the average person who's making a trade at a Schwab account or Fidelity account or Vanguard account, why are their returns lower, so much lower than the index? QAIB, the Quantitative Analysis of Investor Behavior. It's a study that gets redone every year by a company called Dalbar. It's a research company and they're measuring the actual performance of individual investors.

• 25:33Speaker 03

  And just to kind of put this in focus, just because a fund, let's say a mutual fund does 20% on the year, it doesn't mean that everyone that owns that fund got 20%. Because people could have started later in the year, they could have started, they could have put more money in at any given time, they could have taken some money out. So to really get your actual rate of return, it's gotta be from when you were invested and calculate if you put money in and took money out, also fees, taxes, all these other things. So the headline number doesn't necessarily, in fact, it often does not mean that you had the same rate of return. And that's kind of the methodology they're going with here. They're looking at

• 26:15Speaker 03

  the actual return and taking all these things into account. And as you can imagine, because of buying and selling and switching and redemptions, timing decisions, funds that are doing well, or let's call it whether it's an ETF or a stock for that matter, but they're measuring mutual funds, funds that are doing well tend to attract money, but they attract money once they've already done well. So people are typically getting coaxed in or just incentivized because of past performance to be putting money in, usually at a time when now the fund is not going to do as well.

• 26:53Speaker 02

  Sure. You're looking at a snapshot and you're like, well, that did better.

• 26:57Speaker 03

  Yeah. And that whole tide, it's like the, it's like the tides of the sea. It just continues to happen in the world that we live in. And it, there's a real price to that. The actual rates of return, so think of it this way, if you've got the S and P 500 over the past, I'm going back to 2005, up 700%. Inflation or the power of our consumer dollar over that same period of time is down about 50%. So it buys half of what it used to buy 20 some years ago. So we're almost forced to invest in a market in order to keep up with inflation, in a market that averages negative 16% intra-year decline in any given

• 27:38Speaker 03

  year. So no wonder it's pushing and pulling people out at any given time. It is an emotional environment to be in and we are human and we are inherently attracted to something that would be good for us and run from something that would be bad. And that's why the tug and pull of emotions really matters when it comes to investing and it impacts returns. So here's what Dalbar says, you look over the past 10 years, the S and P 500 as a proxy for stocks. Over the last 10 years, and this was as the end of, this is their 2025 report. So it actually, the data cut off in year 2024. This is their 25 report. S and P 500, a little more than 13% on average.

• 28:23Speaker 03

  The average equity fund investor, 9.8%. So it's 30% less over that, over a decade. That's a big number. The average balanced investor that is 60% stock, 40% bonds. If you were to look at what those averages would have come out to, 8.4% per annum. The average asset allocation fund investor, 4.3%. Half.

• 28:51Speaker 03

  The numbers are even, well, you could look at these as even worse. Here's a 20 year period of time and looking at fixed income. The, the aggregate bond index over 20 years has averaged a little over 3%. So it's still not great. This is not great returns, but a positive on average 3%. The average fixed income fund investor, negative 0.25. It's a really big difference. And it's not to say people are bad investors. It's just that they get tugged, they get pulled in. And then, and I think in this case, they get impatient. It's like, oh, this fund hasn't done well. I'm going to get out of it. And then it eventually starts to do well again. So the gap is because of the emotional reactions of volatility, the poor market timing, buying high,

• 29:35Speaker 03

  selling when things are low, chasing performance, et cetera. And that is just a perennial issue. And I just think the more education we have around that, the less likely you are to, to, to fall victim to this. So make investing simple, have a written plan, continue to be educated on this diversification and balance. All those things can help you fight against the emotional returns, the emotional burden on your returns over time.

• 30:02Speaker 02

  Okay, some questions for you, Wes. Tammy in Florida says, "My son received a settlement for $70,000. He's afraid that the stock market is a bubble. He's 34 and just began investing in his company's 401k and Roth IRA. What do you advise? He lives in California, has no debt, but his rent is $3,200 a month. He works full-time and even though he makes around $100,000 per year, it's a real struggle in California. He's maxed out his 401k and Roth IRA and is looking for ways to reduce his tax burden. Please help me help him."

• 30:34Speaker 03

  Sounds like a Jerry Maguire quote. "Let me help you. Help me help you, Tammy." This is a time horizon question in disguise because everyone's always worried that the market's about to go down. The market's always in a bubble. We're always worried about that. And then when stocks are low, we're worried they're going to go even lower. So it never feels like a good time to invest. However, for some reason, your son has no problem putting money and maxing out the 401k. So why is that? It's because it's assigning him a long time horizon, almost subtly without him knowing it. And it makes it so that, "Oh, I can invest in

• 31:15Speaker 03

  stocks." So why would you not? If he's going to put 25, maybe he has $50,000 invested in stocks in the 401k, why is that safe? And you don't want to invest any of the 70,000? It's because you subconsciously know that the 401k is long-term money and the chances that it's going to be worth more in five years and 10 years are very, very high, even if we are going into a correction the day after you invest. So to help you help your son, ask him to extend his time horizon out and think of this as retirement money. Now, maybe prudent that half of this money, maybe 35,000 of it, should be emergency fund money. Maybe half of it does need to stay in the money market because it gives him the cushion that we all

• 32:00Speaker 03

  need in a particularly high-cost place like California. So maybe it's prudent to say half of it stays in the money market, but then assign the other half of it. A long horizon, and I think it can get invested for somebody 34. He needs to invest it. He just needs to know that he's not going to touch it for a very long time.

• 32:20Speaker 02

  Okay. And then anonymous in Tennessee says, hi Wes, we've heard from Clark about when to opt for Roth versus traditional 401k. I don't think I've heard your thoughts. My wife and I make $400,000 a year and according to Clark, we should opt for Roth. But I've read that a good rule of thumb is to mix both and have your age plus 20 as the percentage of traditional and the rest as Roth. Thank you for your thoughts.

• 32:44Speaker 03

  Okay. I like that Clark has the rule of thumb. He uses aggregate income. And I do have the 2026 tax bracket somewhere here. Let me go to that. So, so again, this is a question around Roth or regular. So first of all, I don't know of a rule of thumb of age plus 20 for this. I think it is a tax bracket. So the reality is that I land right where Clark lands. He thinks of it as a, if you're married filing jointly 2026, the 24 bracket is 211k up to 403k. And that's why Clark's saying anything under, if you're making 400 or less Roth.

• 33:26Speaker 03

  If you're making 400 or more traditional 401k, because you get the tax deduction and that's potentially more beneficial because of the big deduction. So I think of it as brackets. Brackets move slowly from 10 to 2. Well, then there's another, there's a jump to 22 and then it's just a 2% jump to 24. But then it's an 8% jump to 32, meaning that for every dollar over that 403,000, you're now taxed at 32%, not 24. That's a huge difference. So Roth versus regular 401k is just a, it's a taxes today versus taxes in the future. If your taxes are going to be the same or higher in the future, and a lot of people

• 34:08Speaker 03

  they're, they're around the same, then the Roth makes all the sense in the world if you're, if you're in the 24 bracket or lower. Again, 403,000 is the top of that bucket. If you're going to be in a lower tax bracket in the future, then the 401k actually does make more sense. And if you're in the 32 bracket or 35 bracket or 37 bracket. Then you're paying 37% to get it into a Roth when in the future you're only going to be in the 25. So in that case, high income folks above the 24 bracket should be using the traditional 401k above that bracket. That's my rule of thumb is that demarcation.

• 34:52Speaker 03

  The only time, there's only one little catch there, and that's if you're, let's say 10 grand over. So you're at 410 or 415. It may make sense to use 10,000 or 15,000 of contributions to keep your income in the 24 bracket or lower and then do the rest of the Roth.

• 35:11Speaker 02

  Okay. Greg in Utah says, hey Wes, I'm setting up a Roth IRA for my daughter who made about a thousand dollars in 2025, but she netted less after deductions for FICA, tax withholdance, et cetera. Can she contribute the full $1,000 or less than net after FICA or any other withholding? Thank you for all you do. I've been a Clark listener for so long. I don't remember when I started. Thank you for listening.

• 35:35Speaker 03

  Well, hopefully you remember when you submitted a question and we highlighted it here on the show, we answered it and thank you Greg. The answer is gross. It should just be, she earns a thousand dollars just because she pays taxes on a hundred or $200 in taxes, whatever it might be, or FICA, maybe it's 150 bucks or 70 bucks. It's the gross amount. And it's just about, again, this is the, to be able to qualify to do Roth, it's earned income, wages, tips, consulting fees, professional fees, anything you're earning by doing something counts and it's a gross number. What doesn't count for Roth is dividends, passive income that just comes in. If you have just dividends, that doesn't count towards earned income. If that's your only income, then you wouldn't have enough to put into or make a contribution.

• 36:19Speaker 03

  So I think she's in great shape and it's a smart move. It's somebody that young.

• 36:24Speaker 02

  I love it. Okay. Well, thank you so much. That does it for us today on Ask an Advisor. Clark will be back tomorrow.

• 36:29Speaker 03

  Great questions today.

• 36:31Speaker 02

  Lots of fun. Send your questions to us, Clark.com/ask and have a wonderful rest of your day. Thank you.

• 36:41Speaker 04

  When you shop pickup at Kroger, you can expect the savings you love and fresh groceries selected just for you. Our associates are committed to getting every detail right, carefully handpicking your items, checking for quality and freshness, and packing your order with care. Because bringing you fresh, quality groceries is what we do best. And right now, enjoy $20 off your first online order of $75 or more. Restrictions apply. See site for details. Kroger, fresh for everyone.

• 37:11Speaker 05

  This holiday, all plans, even unlimited, are just $15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like "All I Want..." Right. Okay, we can't afford that. You know what? Forget the music budget. We're gonna stick with whatever's in the public domain. Give it a try at mintmobile.com/switch.

• 37:29Speaker 01

  Upfront payment of $45 for three months, $90 for six months, or $180 for 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50GB may slow when network is busy. See terms.