02.10.26 Ask An Advisor With Wes Moss

Why Everything Still Feels Expensive & Growth vs. Value Stocks: Which Is Best? Is inflation going away? The reality is that while the rate of change might slow down to 2% or 3%, the cumulative "stacking" of past inflation remains, leaving consumers anchored to old prices while fighting for higher wages. Wes Moss explores why we can’t afford to get complacent and how this cycle is exactly why we invest in the first place. Also, Wes peels back the layers of the market to examine the two main "flavors" of investing: Growth vs. Value. Using the analogy of apples, Wes breaks down the fundamental differences between the fast-moving, low-dividend world of Growth stocks (like Amazon) and the mature, dividend-heavy world of Value stocks. Which fits best in your portfolio? Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the February 10, 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

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• 0:12Speaker 01

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• 0:15Speaker 02

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• 0:50Speaker 03

  Welcome to Ask an Advisor. Where we here at Team Clark go deeper on all things investing. All of the Clark Howard shows are trying to help you save more, spend less, avoid getting ripped off. And we really focus on the save more and spend less, spend less and.

• 1:04Speaker 04

  Yeah, how do we do it in a smarter way, particularly on the investment side, which is I think why I'm here today.

• 1:11Speaker 03

  Yes, so we are going to be talking about, as I understand it, inflation is the first topic today.

• 1:16Speaker 04

  We're going to talk about the patterns of inflation and what history shows us about inflation coming back. And then we are talking about.

• 1:27Speaker 03

  Growth versus value stocks, right? Which you would never done on this show.

• 1:30Speaker 04

  Yeah, we've never done it here. And we really think of the market as one big market, but it's really, there's so many layers. And this would be the first major layer to really understand the two sides of one big market. They're kind of polar opposites. We hear a lot about inflation being over. And I've been a big believer in the productivity boom that we've started to see and how that could help us not have to revisit the inflation that we saw back in 2022. But remember, after the pandemic, we had all these different shocks, if you will. There was a, the shock that the supply chain shut down for a period of time, then. Took a long time for them to come back and that made everything less available and more expensive.

• 2:15Speaker 04

  We saw monetary stimulus for the Federal Reserve to try to help the economy through the pandemic. So they dumped a bunch of money on the system and that created this really large wave of inflation that we all remember. And we're all really still feeling, and I think that's a big point about this. There's a economic study and had a great conversation with one of my favorite economists very recently about the history of inflation. Once we get a surge, then we beat it. Then what happens? And the pattern is actually very, very clear, not just in the United States, but around the world. If you look at anytime we've seen inflation surges, and these are for large developed economies of over 6%.

• 2:55Speaker 04

  Almost 90% of the time, that big inflation comes back within three to five years. And that is a little, little eye opening. Now, the whole reason we're investing to begin with is to beat inflation. It gets a lot of press when it's running in the four, five, 6% range. We remember we were at 9% inflation briefly and a couple of years ago. But it's always there and it's always the reason that we're investing to try to protect our purchasing power. But it gets really unsettling when it gets to these higher numbers that we've all recently lived through. And again, I'm talking about the rate, the annual rate of change.

• 3:33Speaker 04

  The reality is that, and this is a big part to this story, is that why 87% of the time that inflation wave comes back? Is because in the inflation rate might go back down to 2% or 3%. But the impact on us as humans and consumers doesn't go away. And eventually creates more inflation because it's embedded into society. So that's the statistic, 87% of the time, once we get a 6% inflation rise, it comes back.

• 4:05Speaker 04

  Within three to five years. Well, why? There's two reasons. One, businesses, and by the way, the, the shock that creates the inflation doesn't matter. So it can be an oil shock. It can be a pandemic. It can be a natural disaster. We saw this in, if you remember in a tsunami in Japan, it knocked down a nuclear power plant. It really created economic chaos. So what, it doesn't really matter what the shock is that creates the inflation. It's the subsequent knock on effects that, that bring it back. And here they are. Number one, companies, once they feel inflation pressure and they have to adjust to it, because prices can adjust very quickly. Within a week, one board meeting,

• 4:48Speaker 04

  and prices can go up. Over the course of a month or a quarter, they can go up pretty significantly. But humans do not get used to price changes quickly. Statistically, think, think about this. You go into a cafe, you're used to paying $4 for a sandwich or for lunch, and now all of a sudden it's $9. You say, I'm not, I can't, I can't, I'm not doing it. I can't get used to that. It's because we, as humans, are anchored to price levels, not as percentage changes.

• 5:17Speaker 03

  Yeah.

• 5:17Speaker 04

  Not at the rate of change.

• 5:19Speaker 03

  For me, burrito prices just shocked me.

• 5:22Speaker 04

  Burrito, where, at Chipotle?

• 5:23Speaker 03

  Well, not just Chipotle. Like, there's lots of burrito places.

• 5:26Speaker 04

  Anywhere. Yeah, it's like a $12 burrito.

• 5:29Speaker 03

  Minimum.

• 5:29Speaker 04

  The burrito used to be six, and now it's 12. I'm just not gonna buy it. I can't get used to it. But guess what? In three to five years, humans get used to it. And we kind of cave in to the higher prices. And that's just psychologically, not everyone, but that's statistically and psychologically what happens to human price behavior. We're anchored, and then we eventually get used to it. But it takes several years. So, one, companies get jumpy and reactive to inflation shocks, so that if there are any price movements higher or to their input costs, after we have this first wave of inflation, companies will quickly raise, raise prices. So that's the first reason we sometimes see inflation come back. But a bigger piece of the equation is that, once the inflation rate goes back down, and

• 6:14Speaker 04

  today we're at 2.7% inflation, that's pretty benign. But none of the prior inflation went away. It's just stacked on top of itself like a mountain. So even though the rate is fine, it's the accumulation of all that inflation that makes the burrito still $12. And after a while, and this takes a long period of time, people fight for higher wages and say, I just can't afford the $12 burritos unless what? Unless my wages go up. And what we end up seeing in the economy, think about how long this takes to manifest. It doesn't, the board can raise prices in a day, but

• 6:56Speaker 04

  for, let's say, a union or a group of workers to get higher wages, that can take years. So what have we seen over the past couple of years that are big labor fights? We saw UPS, 300 plus thousand people essentially say, I'm not working until I get much higher wages. Company eventually caved. They now have all higher wages. The longshoreman on the East Coast, the longshoreman had not gotten a raise for a very long time. They just struck a deal that they're going to get a 62% raise over the next six years. So over 10% per year raise because cumulatively, they said as a group, we can't keep up. We

• 7:37Speaker 04

  cannot pay for the $12 burrito unless our wages go up. So labor wages, which is a massive part of the economy and the biggest input cost for any company, they eventually cave and say, well, you've got to have more money in your pocket or else you're no longer going to work for us. We saw this with big, big wage increases at Costco. We saw Pratt and Whitney, the big industrial engine maker, big 3,000 folks got a very big wage over the next couple of years. We've seen companies give catch-up bonuses because inflation's been so bad. So inflation happens, we get a shock and it happens immediately. Humans

• 8:20Speaker 04

  feel the reverberations over the course of years and eventually knock on the door and say, I need higher wages. And that is historically why 87% of the time, once we had an inflation shock, the wave comes back three to five years later.

• 8:36Speaker 03

  All right.

• 8:37Speaker 04

  So we might think, oh, inflation's dead. We're back to 2.7%. Let's just not get too complacent around that. And that's the whole reason we invest to begin with. So we'll continue to talk about it.

• 8:48Speaker 03

  Right. Okay. Well, Mike in California sent this question in. I love hearing Wes on the show. I hope to retire in 2026 at the age of 59. I'm blessed to have a pension. I'll have about $150,000 in a brokerage account, 800K in 457 plans and 350K in Roth money. One, what is the most tax efficient strategy to supplement my pension in a 24% tax bracket from these accounts? And two, I have a balanced portfolio in my 457 plans, but withdrawals from these plans will draw from all of the investments, not just the bond funds. Should I convert the 457 to a 401k so I can draw directly from bond funds?

• 9:30Speaker 04

  Well, okay, so he is, you've got 150 brokerage, 800 in a retirement type account, 457, very similar taxation to a 401k or a 403B, and then 350 into the Roth. But Mike also mentioned this 24 bracket. And he is retiring, let's call it later this year. And when he does that, if he's able to convert, now it's probably not the whole 800,000, but he's young. Mike, you're young, you're 57. You've got a ways to go before social security will kick him. Whether you choose it at 62 or you wait all the way to your full retirement age, which is probably closer to 67 and change.

• 10:13Speaker 04

  You've got a long stretch here where your income will be a little bit, or even significantly less, because you can manage your income. So when you, when you're in that window, Mike, what I think you can really look at doing is chipping away at that $800,000 in the 457 to get as much of it into the Roth converting, while staying in that 24% bracket. So if you are, I'm using Roth numbers here. It's about 200K if you're single. It's about 400K. Once you go from the 24 and you spring up to the 32 bracket. You want to utilize everything you can in that 24% bracket, Mike.

• 10:55Speaker 04

  So if your income, if you, if you as a couple are making 200, but the bracket goes all the way up to 400, you've got room of almost $200,000 to convert and still be in the 24 bracket. And now is the time to do that. Do you need to roll the 457 into a 401k? Just so you can pull from the bond funds? Remember, when we're withdrawing money from an investment standpoint, so no longer a tax conversation, but more keeping your balance, it's fine most of the time to be drawing proportionally from your investments, meaning you're pulling some from the stock allocation, some of them from the bond allocation. It's really when the markets go down is when you want to be able to pull from your dry powder section.

• 11:39Speaker 04

  The 457 is structured so that it only comes out proportionally. Then I don't see much downside now that you're already almost, you're 57 now. The only downside would be that it's 59 and a half before you can withdraw. So I wouldn't do the 457 conversion right now. I'd be waiting until I was, let's call it a little bit older, in order to move the 457 to the 401k.

• 12:06Speaker 03

  All right. Lori in California sent this one in. My husband's employer offered an ESOP. When we tried to diversify, we were told that the program of 15 years had been suspended and then terminated. His shares suddenly dropped in value from $280,000 to $76,000. We haven't been able to get help from the Department of Labor nor from attorneys. It seems that if we don't have resources to protect our rights, employers can break the law as much as they please. Is there any advice you have for others so this doesn't happen to them? And ESOP is Employee Stock Option Plan?

• 12:43Speaker 04

  Ownership, usually. And this is for private companies. So Lori, 90 plus percent of ESOPs are for private companies. There's good and bad to that. It allows people, employees, to be able to participate in the growth of the private company, unlike being at a publicly traded company where you have a stock, let's call it a stock ownership or a purchase plan. And I've seen this work out well over the years for some families, but it just totally depends on how the private company you're working for is doing. The downside of this, Lori, is that it's one stock.

• 13:27Speaker 04

  So think about whenever you're in an ESOP plan and you've got 50,000, 100,000, almost 300,000, like you guys did, it's the same as having that much money in one stock, except it's private and it makes it a little more, much more illiquid. And it's really subject to the valuation. An independent valuation company comes out and said, once a year and says, I think this is worth X, there's X amount of shares, so each share is worth Y, and that's how you end up with what your valuation is. So it's a riskier proposition when you have a lot of your retirement savings in one ESOP. So first of all, you can have the business risk of the company just going, becoming

• 14:09Speaker 04

  less profitable, they lose a big contractor too, the industry changes, and it's just like owning a stock that faces headwinds and it goes down. The other thought of this is that when, I've seen this happen, when you have a whole bunch of people wanting to retire at the same time, the company has to buy back those shares. So it's a harder process to get cash out of an ESOP. And sometimes if you've got a bunch of people all wanting their value, it drains the company financially and that in itself brings down the value. Wow. I don't know if the company is doing something wrong.

• 14:47Speaker 04

  You have the right, Lori, to a Form 5500 that shows, that gives you an idea of what's happening with the valuation of the company. You can get, you should be getting a disclosure document or statements of the company's financials. If you've been there, if you're 55 plus and you've been in a company for 10 years, it is required for these companies to allow you to diversify. And I don't know if that is one of the things that has been an issue here, but I think the larger issue, and this is a tough situation, Lori, for you guys, is that when you end up in one company or one stock,

• 15:30Speaker 04

  it's not unheard of at all for the value to go down by 50% or in this case, something like 70%.

• 15:37Speaker 04

  It is a very, very important thing to understand is that ESOPs are just like investing in one stock. And a lot can go wrong with a private company. So I would just be very, very careful. I doubt what they're doing is against the law. I don't know all these, I don't know if they're doing something that is untoward.

• 15:56Speaker 03

  So Form 5500, you can, you tell them you want that?

• 16:00Speaker 04

  You want that and you want the disclosure documents for the financial information and the valuation of the company.

• 16:08Speaker 03

  Now, I don't know if you have a similar rule, but Clark has always said when it comes to company stock in your portfolio, he recommends not going over 10%.

• 16:17Speaker 04

  That is a good general rule of thumb. It's hard to argue with that. The world we live in has become a little more concentrated. Think about this, if you just own the S and P 500, 40% of your money is in 10 stocks.

• 16:29Speaker 03

  Yeah, yeah.

• 16:30Speaker 04

  So just the general market now has become very concentrated. And I've seen people build great value in private companies, and it does become 20, 30, or even 40%. Just know that it gets really risky, anything beyond that 10% line.

• 16:46Speaker 03

  All right, Larry in Ohio sent this one in. My wife and I both retired last year. Our income covers 110% of our expenses. We have enough cash for three years of expenses. We've always and still have 100% of our retirement broad-based, in broad-based ETFs. Do you see any reason we need to have bonds in our portfolio?

• 17:06Speaker 04

  Larry, the short answer here is no. You have what I would call an infinite time horizon. If you have social security, one, social security, two, pension, and that covers 110% of your expenses, you don't have any time horizon because you're not even drawing from your money. Now, it doesn't mean you don't want to use your money over time. So you do want to invest it appropriately. If you are, have a high risk tolerance, you're totally fine with market fluctuation for an all-stock portfolio, down 30%, and you won't panic? Promise me that, Larry. Then I don't see you needing to go beyond the stock ETFs. But here's the other thing, you have three years worth of dry powder,

• 17:47Speaker 04

  which is probably money market and short-term bond funds. So you already do have bonds. So Larry, you already do have a piece of the pie. Maybe you're not looking at that way, but look at your dry powder and your investments all as one pie chart. So you probably already do have a percentage. I think that because you have the three-year number, three years worth in safety assets, you're good to go. And as long as you have a high risk tolerance, I don't think you need to diversify from your stocks into even more bonds.

• 18:18Speaker 03

  All right. And straight ahead, you're going to talk about growth versus value stocks. We'll get to more of your questions. We'll be right back.

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  Pricing participation may vary. Promotion pricing may be lower than meal pricing.

• 18:42Speaker 02

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• 20:42Speaker 04

  Welcome back to Ask an Advisor. I'm Wes Moss along with Krista Debiass. And today we're talking about two polar opposites inside of one big stock market. Last time I checked, this is not Mad Money. You know that show?

• 20:58Speaker 03

  Um, I do remember that.

• 20:59Speaker 04

  Jim Cramer. Buy, sell, he has all those sound effects. People call him in and say, what do you think about this stock? What do you think about it? And he listens for about 15 seconds and gives an answer like that. Ah, I do their buy, I sell. That's not what we do here. By the way, I do love that show. Jim Cramer is a legend. He is the greatest of all time when it comes to financial commentary, particularly around stocks. We're just not like that here. We are broader based and I know that our listener base is much more intentional around broad market indices, high diversification, total stock market indices. And that is great. And those are two polar opposite ends of investing. One is let's find every stock, buying and selling it. And one is let's just own the whole market.

• 21:42Speaker 04

  And that really does work well over time.

• 21:45Speaker 03

  Get rich slow.

• 21:46Speaker 04

  In an uncomplicated way. But even though I agree with that, which total market indexes.

• 21:55Speaker 04

  We can't just say that's it. There's nothing else to investing except just owning the total stock market. There's more to it than that. I own individual stocks. I own sectors, individual sectors through ETF. So there are a lot of different layers to investing. So let's just go one layer deeper. And that is, and again, even if you're a total stock market investor and you own an index, you should still know that you're, they're very likely two very different kinds of companies in that index. So we're going to go beyond small, mid and large here and go layer deeper. And that has to do with two areas of the market, growth and value. So we're going to start there. And think of it, all stocks

• 22:38Speaker 04

  are apples. Growth stocks are the red shiny ones. They are the cosmic crisp of apples. They look pretty. They're, they're sexy. They're sweet. That's the growth stock. On the other side of the equation, the value stock is the Granny Smith. It's not a bad apple, but it kind of looks stuffy. It's a green apple.

• 23:00Speaker 03

  They have less sugar on them.

• 23:01Speaker 04

  They have less sugar. They're a little tart. And they're not as jumpy, if you will, if we're comparing apples here. And that's two sides of the market. So let's explain what it actually means from a stock perspective. A growth stock relative to value. And when I say value, I also would, when I write about this, I find myself writing value slash dividend, value slash dividend, because even though a growth stock can pay a dividend, it rarely pays much of a dividend and they're not known for dividend payments and you don't usually own them because of the dividends. On the other side of value oriented company is a company that's more mature, slower growth, and you do, the dividend component is a

• 23:43Speaker 04

  big part of it. So let's talk about the red, the green apple. The red apple is, it grows faster, it's less profitable today, pays little to no dividends, trades at a higher overall price relative to what it's earning. There's a great clip from the early 2000s of Jay Leno and Jeff Bezos from Amazon. And Bezos must have been, he's still in his twenties and he's so goofy when he's sitting there. And he's laughing and Leno's laughing. He said, this Amazon company, he goes, I feel like it just loses more money every year and the stock keeps going up. He said, can you please explain that to me? And Bezos is laughing, kind of like this giddy 20 year old. He goes, yeah, we're now he goes, in history, there have been companies that have lost money over time before they eventually became profitable. He said, we're just doing it on much larger

• 24:28Speaker 04

  scale than anyone has ever done.

• 24:29Speaker 03

  I've seen that. Yeah.

• 24:30Speaker 04

  You've seen that clip? Which is a classic example of a company that was taking every last dollar and plowing it back into growth. They didn't want to grow at a nice 12 to 13% clip per year. They want to grow at 25, 30, 50, 70% a year. And you own that stock, that red shiny apple for eventual profitability. And the market gives you time and patience for that. That is the growth, growth, go-go side of the market. Now let's go to the other side of the continuum, the value slash dividend stocks, the green apples, if you will. These are more mature companies.

• 25:10Speaker 04

  They're strongly profitable today. They're making money today. Their growth rate is much slower, seven, eight, nine, 10% a year. Then they trade at lower price to earning multiple. So their size, the price times all stocks outstanding relative to what they're earning is a lower number. As an example, so I use Amazon as the ultimate growth, growth, growth example, particularly from when they were a younger company to think of businesses that sell potato chips and toothpaste and razors and beer and insurance and banking services. Could you double potato chip sales this year if you're a giant potato chip company?

• 25:52Speaker 04

  Probably not. You're not going to grow at 100%. Could you grow at 6%? Sure. And if it's a profitable business, sure. But it's a very, very different model, the green apple versus the red. I'm going to give you some numbers. And I looked at the Russell 1000 Growth Index or the Russell 1000 Value Index, the dividend index or the growth, the value index, its dividend is just at about 2%. Still not crazy high, but it's 2% relative to the Russell 1000 Growth Index. That, that pays about a half a percent dividend. So the value index is three, almost four times higher from a cash flow perspective. Very, very different profile of company.

• 26:36Speaker 04

  The PE multiple trades at almost 30 times for the growth index versus 17 for the value index. 70% higher, 70% more expensive relative to what they earn. The price to sales ratio, five versus two between the red and the green apple. Price to book, 10 versus two. Again, you're paying more for growth companies, expecting them to continue to grow faster. So there will be profitability way out into the future. Think of it this way, value companies, think of that as bird in hand. Growth company, two birds in the bush. Now, if you look over the course of time, they've traded places on the racetrack.

• 27:21Speaker 04

  If you go back to the year 2000, all the way to about 2008, value won, value won. Go between 2010 to 2017, they're pretty equal. Growth and value stocks did about the same. But then we've gone into the 2020s and beyond, growth has really won the day. So growth has won, beating value pretty handily. Until only very recently, call it the last six weeks or so, we've seen value companies perk back up and have some real momentum. So at this stage, I think it's important, and I'm not saying that you should own one over the other. I do believe though, as you get closer and closer to retirement or in retirement,

• 28:06Speaker 04

  you do want to start, my opinion on this is you do want to start migrating towards more dividend oriented companies, more mature, a little more stable companies. But over the course of time, just know that. They do trade places and oftentimes, and I think about this because I own both, when growth stocks aren't doing all that well, I feel I'm really glad I own value and dividends. And when value stocks aren't doing well, it's comforting to say, well, I do own growth companies as well. So it's nice to have both, but I think more importantly, and the reason I wanted to do this red versus green apple segment is just to understand the very, very different sides of the overall market.

• 28:47Speaker 04

  They come together and they make one giant market with two very different components.

• 28:52Speaker 03

  Okay, we will go to some more questions now. Matt in Wisconsin sent this one in. My wife and I live significantly below our means, and although we do not own a house, we are very content renting at the moment. We save the majority of our income and are satisfied with what we have. We are starting-

• 29:09Speaker 04

  They save the majority of their income.

• 29:11Speaker 03

  We're starting a family soon and want the financial independence to do what we want, when we want. Currently, we save about $6,000 per month, and I'm struggling to determine where to invest it. In addition to our ongoing savings, we also received a large inheritance in the past few years, so we're sitting on a significant amount of dry powder, and I'm unsure how to best deploy it. Typically, I would invest in VTI, but given how historically overvalued the market appears, I'm hesitant to do so. At the same time, I worry the market could continue climbing and that perhaps this time is different. What guidance would you offer in this situation? Additionally, I've been reading The Intelligent Investor by Ben Graham. Do you recommend the strategies outlined in his book?

• 29:53Speaker 03

  Part of me feels like I should spend more time looking for undervalued stocks since the market as a whole feels overvalued and heavily weighted toward tech.

• 30:02Speaker 04

  It's heavily weighted towards the red apples at this point, and Benjamin Graham talked about the green ones. And that's exactly what your question is here, Matt. Matt, you have the classic conundrum that every investor, quite frankly, we face every single day. You're facing the same problem that we face every day is that, gosh, I, the easy part of the low hanging fruit here, $6,000 a month, keep putting that in your index. Keep putting that in a stock rated index. You're not going to use it for a long time. And that feels easier, doesn't it? What's harder is that you have a big chunk of money. You've got an inheritance. I don't know what it is. It's $100,000 or it's $500,000.

• 30:43Speaker 04

  It almost feels reckless to go ahead and put it to work. But think about it, two or three years ago, if you received an inheritance and you left it in cash because you're worried about the market being overvalued, you've missed almost 100% return. 100% return.

• 31:00Speaker 03

  Wow.

• 31:00Speaker 04

  Because guess what? The market was kind of overvalued back then. Now it's still kind of overvalued. Guess what, though? Earnings have grown. Earnings have grown significantly, so it's not really much more overvalued today than it was a couple of years ago. By the way, valuation, when you're looking at that price relative to what companies are earnings, even though over really long periods of time, think 10 and 20 years, they do have, there is some correlation. So if you're overpaying for stocks, they don't do as well over time. Their real valuation is a really bad shorter term timing tool. One year, three year, five years, you can have overvalued indices as an example, and they still are overvalued three years later and five years later.

• 31:41Speaker 04

  So the valuation is kind of the, is the sneaky, it's the sneaky return killer for keeping people out. Quite frankly, it works, it's a double edged sword. It also works on the other side where it draws people in when things get really overvalued. So you're worried about missing out and not getting invested, but you're worried about getting invested and having the market go down. Again, we're all faced with that every day. Yeah, I think of this silly putty. Take your time horizon and stretch it out. Stretch out your horizon. You're thinking, well, what if it goes down over the next year? I put it to work, it goes down. Matt, you guys are young. You're talking, you're still, whenever somebody mentions the word fire,

• 32:25Speaker 04

  that means you're young. You're, I don't know, I don't think you said how old you were, but you're probably 40.

• 32:30Speaker 03

  They're thinking of starting a family.

• 32:32Speaker 04

  You've got 40, 50 years of investing, Matt. So just, I'm here to remind you, stretch out the time horizon and

• 32:41Speaker 04

  Put the inheritance money to work to feel more prudent. And this is a totally prudent thing to do as an investor. Just map it over the next 12 months. Put it to work, dollar cost average in what you want to invest it in. And do it over the course of 12 to 18 months.

• 32:58Speaker 03

  Scott in Indiana says, could I get Wes's thoughts on buffered accounts? My financial advisor wants to move 300K out of my 457 into a buffered account for a six-year holding period that will cap any downturn at 20% and upturn at 90% in an S and P fund. I'm 60 years old and already collecting my military pension and I have brokerage accounts, high-yield savings account, 401A, savings bonds, and physical precious metals. I plan to take social security at 62 upon retirement from the police department. During this six-year hold period, I will have access to only 10% of my portfolio per year, barring any major hospital stays.

• 33:37Speaker 04

  Sounds really good, doesn't it?

• 33:39Speaker 03

  Mm hmm.

• 33:40Speaker 04

  That sounds like a tasty burrito.

• 33:42Speaker 03

  Also, it sounds like he put his life on the line in the military and now as a police officer.

• 33:46Speaker 04

  God bless you, Scott. Thank you for your service and hopefully I can help on this one. The reason I say financial burrito is that this is a packaged product. And it sounds good on the surface. It's plus, I get 90% of the upside, but I protect myself 20% of the downside. If you think of it that way, it sounds really good, doesn't it? How often is the S and P 500, since you're locked up for six years, essentially you have to hold it? How often is the S and P 500 down over six years? 20, how often is it down 20% over a six-year period? The answer is almost, I don't know if it's ever happened in the history of the world.

• 34:32Speaker 04

  So no wonder you can have a buffered note that does that. It almost, it's a very rare occurrence that could ever happen. It's very rare for the S and P 500 to even be slightly negative over a full six year period. It can happen, it has happened, but it's way less than 5% of all scenarios. So the six year hold is, what is it doing? It's psychologically forcing you to have a longer time horizon. But you're paying for that. So you're paying someone to impose a restriction on you. And that's why I don't love these. Here's the other thought is that $300,000 is a lot for one. Would you buy, would you invest $300,000 into one company bond? I wouldn't.

• 35:13Speaker 04

  And that's exactly what you're doing with a buffer note, because whatever bank you're with, they're the ones issuing the note. So it's sounds like it's about the market, but it's not. It's a note to, it's an obligation of the company. It's a debt instrument. You know, who's a huge, huge issuer of buffered notes back in 2005, six, seven, it went bankrupt? Lehman Brothers.

• 35:40Speaker 03

  Oh, wow.

• 35:40Speaker 04

  Lots of buffered notes. They were about the S and P 500, 90% upside minus buffered 20% of downside. When Lehman went under, those notes went to $0. So your 300 grand had nothing to do with the market at that point. So it went to zero. So you have no liquidity and you're in, and what they're doing on, for every grand, let's say they buy a zero coupon bond of for 800 that's going to mature at 1,000 in six full years. They take the other 200 bucks and they buy protection on the downside and they buy a call on the S and P 500. And by the way, you don't get to hold your dividends. So they take your dividends too, which over six full years is at least eight to 10% in total return.

• 36:25Speaker 04

  And they use that cash, which you don't get to buy, let's say the, either the upside or the downside protection. So it's the perfect financial product because it sounds so good, but all you're doing is paying for them to impose restrictions on your money. I think that answers the question.

• 36:42Speaker 03

  Okay. Dennis in North Carolina says, I'm 62 and recently became a victim of corporate greed. My company laid me off after 26 and a half years of employment with them. They've offered a completely ungenerous severance package. I'll receive roughly 65K before taxes. I plan to use some of that money to max out my Roth for 2025 and this year, because I won't be able to contribute to it afterwards, since I will no longer be working. Because of my age, I will be able to get the small pension that I have with them. It'll be roughly 57K. If I take the combination lump sum plus 100% joint and survivor pop-up annuity, I would get $5,740 as a lump sum and then $283 a month.

• 37:27Speaker 03

  And if I die, my wife would get this 283 a month. The problem will be taxes. All of this money will be received in 20, this year, 2026. I'm also going to start taking early social security, which will bring in roughly $2,000 a month. If you think that taking the lump sum is better, where can I transfer this money so that I don't have to pay taxes right now? I have my 401K and a small Roth IRA at Fidelity.

• 37:54Speaker 04

  Dennis, age 62. Yeah, your company probably, I mean, this is just a, this is a tough spot because you're probably were eyeing retirement in the next couple of years, but they really have forced it upon you. And you're right, companies do this constantly. And they try to mask it with good, nice words like restructuring or surplusing. That's my favorite one. We're going to surplus you because we have a surplus of humans. So we're going to get rid of some of the humans. Really, it's a layoff and they're doing it because they're managing their bottom line, and that is corporate America. And you are going to get 65K, but really this is about your lump sum.

• 38:33Speaker 04

  The 283 per month times 12 is 3396 a year, divided by your pension offer of 57,000. You end up right at 9.6, divided by 57, you get right on the money at 6%. So you're right on the 6% line. It's not the worst deal ever and the pop-up makes it even a little bit better than that. I'd still be leaning more towards the cash. Take the lump sum. That's what I would do. And you're worried about the taxes, but just remember, and this is why people get confused about it, is that you take the monthly amount, of course, you're going to get taxed on it every

• 39:15Speaker 04

  month. You take the lump sum, you roll it into a retirement plan, you roll it into an IRA. So you get this big chunk of $57,000, but it all goes in under the confines, stays in a crock pot, if you will, and it stays untaxed because you haven't pulled any money out. It's just gone into a retirement account. So you do not have to, as long as you do a rollover into a retirement account, individual retirement account, then you're fine on taxes, Dennis. You don't have to worry about a big tax bump that may impact, I don't know if it would impact your Roth contribution eligibility or not, but that's where I would lean. I'd lean towards the lump

• 39:57Speaker 04

  sum, make sure it goes into a retirement account. That way you're not having a giant boost in income in this year when you're now trying to save every penny because you're forced early into retirement.

• 40:09Speaker 03

  Okay. Well, that does it for us today. I hope that you heard something that made you maybe think more about your own finances, investment choices, or that you just learned something you want to share with a friend. And if so, that you'll share this episode. And also, if you're not already subscribed, wherever you watch or listen, please do that for us. We appreciate it so much and hope you have a great rest of your day.

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