Pod Insights The Clark Howard Podcast 02.23.26 Invested Savings: ETFs vs. Mutual Funds / The Truth About Pet Wellness Plans About this episode How you invest savings can make a big difference in how much you have later in life. Clark explains ETFs (Exchange-Traded Funds) vs. mutual funds - and the superior choice for your non-retirement accounts. Also, we love our pets and pet wellness plans may sound like a solid option for affordable vet care – but there’s a major catch. ETFs vs Mutual Funds: Segment 1 Ask Clark: Segment 2 Pet Wellness Plans: Segment 3 Ask Clark: Segment 4 Mentioned on the show: ETFs vs Mutual Funds: What’s the Difference and When Does It Matter? Where Should I Set Up My Health Savings Account (HSA)? Life Insurance Archives - Clark Howard HSA vs FSA: What's the Difference? - Clark Howard Warning: Read This Before You Buy a Pet Wellness Plan Is Pet Insurance Worth It? - Clark Howard 4 Fastest Ways To Improve Your Credit - Clark Howard Credit Karma Review: Free Credit Score and More at Your Fingertips Southwest changes are infuriating fansClark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript 0:00 Speaker 00 At Edward Jones, we believe rich is about taking care of what gives your life meaning. That's why your financial advisor personalizes your plan to help you preserve your progress and create something that lasts. Let's find your rich. Edward Jones. Member SIPC.
0:15 Speaker 01 UKG is the workforce operating platform with unified HR, payroll, and workforce management. Built to solve the unique challenges of frontline work. Powered by People First AI and decades of labor data, UKG turns workforce intelligence into real-time decisions around staffing, pay, compliance, and productivity, enabling every worker to confidently take action as work happens. Because when work works, everything works. Learn more at ukg.com/work. UKG, HR, Pay, and Workforce Management.
0:50 Speaker 02 I'm so glad you've joined us here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. One financial decision that can be so confusing to many of us is where to invest the money that we're saving for our future. And how you do it can make a big difference over time, what you end up with in life. I'm going to explain something straight ahead that puzzles people, but it's important you understand the difference between two forms of investing that are generally not well explained. Hopefully y'all
1:33 Speaker 02 do a decent job. And later, take it from me, pets can be expensive. So I want to tell you there's a plan that a lot of vets are offering now that could be okay, but often ends up as an ugly, mean-spirited ripoff. But right now, I want to talk about your money. Something that professional institutions, professional money managers use routinely, but nobody ever bothers really to explain what they are to everyday people trying to put money aside for their future.
2:16 Speaker 02 And it's what an ETF is versus a mutual fund. A mutual fund is where you are pooling money with a bunch of other people. And the mutual fund shares you own, although there's more than one kind of mutual fund, but the most common kind is where you're pooling money, which is why it's called mutual fund. And the money is like its own thing. That mutual fund is its own thing. Except at the end of the year, when even if you keep owning it for the future, it can hurt you to be in a mutual fund outside of an IRA.
2:59 Speaker 02 Outside of what's the equivalent of mutual fund shares, inside a 401k or something like that. But if you have just a regular investment account with a discount broker or a regular, and you own mutual funds in it, in a regular investment account, you are hit with what's known as a tax on phantom income. What does that mean? So when you sell something, when you sell an investment, you owe taxes on your gain. But in a mutual fund that's held inside an investment account, not a retirement account,
3:41 Speaker 02 but inside an investment account, that mutual fund declares what's essentially a form of a dividend that's not paid to you, but generates an ugly tax bill for you, even if you aren't selling any of it. So a newer form of investing that works a little differently called an ETF, an exchange traded fund, fastest growing part of the investment market. Originally, it was really only for, again, big institutions.
4:15 Speaker 02 Big money managers, very wealthy, sophisticated investors. It's where you buy something like a mutual fund, but you buy it like buying a share of stock. So just like you'd buy a share of Apple, shares of Apple. You can buy shares of an ETF fund, an exchange traded fund. And the tax treatment, particularly outside of a retirement account, is more favorable to you because it generally will not create a phantom profit that you have to pay tax on each year.
4:55 Speaker 02 Plus, you can buy and sell it at any time, just like you'd buy or sell Apple or Alphabet or any stock. Gosh, I did go right there and name two technology stocks. Oh, well, anyway, so people that are traditional investors in a regular investment account suffer owning traditional mutual funds. So am I telling you to sell those and then buy a replacement ETF? No, because then you're going to generate tax on income you're not having again, you're just moving it over.
5:37 Speaker 02 Now, sometimes there will be a tax-free exchange you can do where you go from the mutual fund shares into the ETF equivalent. And if a company like Vanguard is offering an opportunity like that, they'll tell you and they'll make that available to you. I'm not smart enough about tax to understand how that happens. That's a tax-free exchange, but anyway, that is something you can do. But the big news is for future investing in an investment account, not in a retirement thing like an IRA. You want to buy the ETF equivalent of the mutual fund you love.
6:20 Speaker 02 Normally it will have lower ongoing management expenses because they don't have to do all the paperwork they have to do with the mutual fund. It has potentially likely better tax treatment and the buying and selling of it is so easy. And so that is a nutshell explanation of an exchange traded fund. It is virtually identical to the mutual fund you don't, except how you buy it, how you sell it, and how it's taxed, period. That's the simplest way I could ever explain it. And I can't wait because I'm sure there will be professional investors who say, I should have said this other thing and I don't like quite how you said that.
7:03 Speaker 02 And I'll share some of those, I'll amplify it when those come in.
7:09 Speaker 03 Okay. Jeffrey in North Carolina sent this question in for you, Clark. He said, following your advice, I opened our family HSA with Fidelity, but my employer uses another company, one of the quote unquote, bad and ugly providers.
7:22 Speaker 02 That's what I called them, didn't I?
7:23 Speaker 03 Mm hmm. My employer contributes $1,500 a year and I fully fund the rest. Until last fall, I could move the money from the bad company to Fidelity for free through their portal. Now they've disabled that option and forced transfers from Fidelity's side. When I did that recently, the company deducted, not Fidelity, the company deducted a $25 processing fee without warning and the transfer still took three to four weeks. I used to transfer every few months to keep only a small balance with this company. Now I'm wondering, should I limit transfers to once a year to minimize fees? Or is there a better way to deal with a provider that seems designed to trap your money?
8:04 Speaker 02 What a wonderful question, Jeffrey. This is an ongoing tug of war. Employers busy running their business often end up ripping off the principles of the business and their employees by not understanding the really ugly underbelly of employers.
8:23 Speaker 02 Provided HSA plans that as a general rule are atrociously anti employee. By the way, if an employer is in it and has probably more money in it than other people, the employer, the owner of the business is being harmed. The harm to them is magnified over what it is for their employees. And so if you're a business owner and you're not aware that you may have an HSA plan that is ripping you off and ripping your employees off, time for you to know more about it because generally the employer provided plans, charge huge fees, offer terrible benefits, and then to add salt to the wounds, when you say, hey, I don't want to have my money
9:08 Speaker 02 there and you move it out, now charging you a junk fee and slow walking the moving of the money. So your answer is what you supposed, and that is you only do a transfer once a year. So that the fee isn't a big drag on your money. The $25 junk fee that they'll probably keep moving up is a way to try to discourage people from moving their money out to a ethical, low cost provider like Fidelity instead of these unethical HR kind of companies that come in and offer HSAs.
9:45 Speaker 03 I have a question.
9:46 Speaker 02 Yes.
9:47 Speaker 03 Could you just put the amount the employer matches, what was it $1,500 into the employer one and then separately have money put directly into your Fidelity HSA?
9:56 Speaker 02 Depends on, I think it depends on the plan documents, but what you said is actually a statement and a question. There are people who do just that. They take the free money that the employer puts into the crummy HSA provider and then fill out the remainder with a good provider.
10:15 Speaker 03 Okay. Corey in Ohio says, we need some guidance determining what we should do with our term life insurance. My wife and I both purchased 20 year policies five years ago when we first got married. Fast forward to today.
10:27 Speaker 02 That's awesome that you did that.
10:29 Speaker 03 I know.
10:29 Speaker 02 When you got married.
10:30 Speaker 03 Fast forward to today, my income has doubled.
10:32 Speaker 02 Even more. More fantastic.
10:34 Speaker 03 And we now have two kids under three years old.
10:37 Speaker 02 Oh, boy.
10:38 Speaker 03 Well, that's even more fantastic.
10:40 Speaker 02 Yeah, when, when you sleep and two kids under three.
10:44 Speaker 03 Everything was fantastic until I told you that.
10:46 Speaker 02 Yeah.
10:46 Speaker 03 Congratulations on the kids.
10:49 Speaker 02 Yes.
10:49 Speaker 03 We'd like to add additional coverage for my income. Is planning for the two combined coverages to be 12 times my current salary sufficient? Or should we plan ahead as I expect my income to continue to grow? How long should the new policy be if I'm 31? And we expect to have additional children over the next five to 10 years?
11:08 Speaker 02 Okay, what a wonderful question. If you medically underwrite for a new policy, this time by 30 year level term policies, you can leave the existing ones in place to run their course for 15 more years because they were 20 year, right?
11:25 Speaker 03 Mm hmm.
11:26 Speaker 02 And have that boost of coverage when your kids are really young. The ones you're talking about would still be just emerging as quasi adults.
11:40 Speaker 03 Mm hmm.
11:40 Speaker 02 By the time that one would be up. And then you'd have the 30 year with more value that would carry you into your early 60s and would provide till these children and others you might have have made it to adulthood. So the choice is yours. You could either buy a 30 year for more money in it that would cover your anticipated future income and let the other one lapse. Or I think it's a better idea to keep both in place potentially because you bought those actuarially when you were younger and your actuarial risk was lower. The premiums are probably crazy good on the one that's five years in place.
12:23 Speaker 03 And David in California says, I'm self-employed as a freelance consultant. My wife is employed by a hospital system and it's through her that I have my health service plan. It's not called an insurance plan if, as it is self-provided and self-paid. I have learned that they offer a flexible spending account, but not a health savings account. I've also been told I cannot open my own health savings account as I cannot prove I am in a high deductible insurance plan. I feel like I'm missing out on this great tax shelter opportunity. Does this sound correct to you? Or is there a legal way I can get into an HSA?
12:57 Speaker 02 The only legal way you can do an HSA, well, there's two. One is buy your own health coverage. Bad idea because getting, being able to free ride on your wife's plan is just way too valuable. So that'd be number one. Number two is at some point, like most employers have in the country, the hospital system will end up offering a high deductible HSA eligible plan at some point. And then you want to do that. Now, FSAs, FSAs are a pain. They are vastly inferior to health savings accounts.
13:38 Speaker 02 But if you know that there's normally in your life, a certain amount of medical bills you're going to have over the course of a typical year for yourself, you can contribute to the FSA and then you're using pre-tax dollars for the out of pockets that you face on eligible medical expenses over the years. So the FSA is way inferior to an HSA, but still valuable if you know that there's a certain amount of predictable health expenses you're going to have to pay out of pocket each year. Because remember, you're paying with pre-tax dollars, which make those FSA dollars much more powerful.
14:22 Speaker 02 The FSA use it or lose it provisions with it. I mean, for so many reasons, when Congress did all the stuff with HSAs, they should have updated the terms and conditions of FSAs to make them more customer oriented. There are people who believe the reason that didn't happen is because of industry lobbyists for big companies, because unused FSA money goes back to your employer. And they, they just get free money from you and you essentially take a pay cut. And that's why FSA money is such a poor choice if you have the alternative of the HSA you don't have.
15:07 Speaker 02 So let's hope that employer decides at some point to offer that high deductible HSA eligible plan for you. Coming up ahead, I mentioned at the top of this podcast YouTube show, I've learned from personal experience how expensive pets are. And there's something a lot of vet practices are offering that could be a benefit to you, but often could also be a trap for your wallet. I'll fill you in.
15:38 Speaker 00 At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters. So you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Let's find your rich together. Edward Jones, member SIPC.
16:08 Speaker 01 UKG is the workforce operating platform with unified HR, payroll, and workforce management. Built to solve the unique challenges of frontline work. Powered by People First AI and decades of labor data, UKG turns workforce intelligence into real time decisions around staffing, pay, compliance, and productivity, enabling every worker to confidently take action as work happens. Because when work works, everything works. Learn more at ukg.com/work. UKG, HR, Pay, and Workforce Management.
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17:51 Speaker 02 And while we can't help you find the perfect volume for your presentation video, LinkedIn can help you find the perfect audience for your business. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness. I want to talk about something we've been hearing a lot of complaints about in our one-on-one advice center, the Team Clark Consumer Action Center. And it's something that Krista, our crew, has had the experience herself. Veterinary medicine practices are very often selling, instead of pet insurance, they're selling the opposite of an illness policy.
18:32 Speaker 02 They're selling wellness policies, not through an insurance company or anything like that, often. They're selling them themselves. Larger chains, a lot of them owned by private equity, are selling these wellness plans. And then some standalone vet practices sell wellness plans too. But what you got to watch out for, what these things do is you pay a monthly subscription and they pay for what I call well baby visits. Kind of like, you know, with the kid, small kid, when you go into pediatrician regularly and they're doing their well baby checkups.
19:12 Speaker 03 Vaccines.
19:14 Speaker 02 And so these plans pay for the equivalent of well baby for your pet. When your dog or cat or whatever animal has to go for their regular checkups, these policies or plans reduce the bill shock of those visits. And depending on the contract and what it covers, it may make certain visits, dare I say, not free. I'll say no cost at that time because you're already prepaying it through the contract for the wellness plan. All right. So let me tell you what we're hearing repeatedly that you need to know.
19:54 Speaker 02 So the lifespan of pets generally tragically is not that long compared to the normal human lifespan. So these plans that you sign up for continue and you are legally liable to pay. If your pet passes away, the bill does not stop.
20:18 Speaker 03 Right. Usually they're based on one, like one year at a time. That's what happened to me when Mr. Snuggles passed away, my little dog.
20:25 Speaker 02 And so, so there you are. You're already grieving the loss of Mr. Snuggles. And then you get hit in the face with a bill reminding you that you've lost your beloved pet. And how crooked dishonest is it of these chains that they would treat somebody like that? I mean, it's just disgusting.
20:50 Speaker 03 Yeah. I had to keep paying it every month for like six more months.
20:54 Speaker 02 I mean, that is, that is so rotten dishonest. And yeah, and I'm always trashing private equity. Sorry. It just seems that these kinds of practices happen a lot more often with private equity owned enterprises than they do with a particularly a family owned or an individually owned business. So that's why I said it. We, we had a, a Clark stinks before about, from a friend who was upset with me about what I say about private equity, but the point. Is simple. Just understand that the shiny brochure for these wellness plans will gloss
21:34 Speaker 02 over, the brochure won't even mention this gotcha with these things that you're billed long after your pet may have passed away.
21:43 Speaker 03 I mean, it does say in the terms, so you really need to read the terms like anything else. You gotta really read through it. I didn't pay attention to that. So that was
21:51 Speaker 02 But you know forever now.
21:53 Speaker 03 Oh, yeah. Oh, yeah. But it's complicated because they are expensive, like you said. Okay, we'll go to some questions. Christina in Florida sent this one in. I'm currently trying to rebuild my credit after abandoning my credit card bills and usage two years ago. This past summer, I was able to pay off all my collections, leaving me with zero debt.
22:10 Speaker 02 Oh, Christina, that's fantastic.
22:12 Speaker 03 It's amazing.
22:13 Speaker 02 Oh, that's great.
22:14 Speaker 03 I recently applied and was approved for a credit card with a $1,000 limit, which I intended to use only sporadically for gas and then pay it off as soon as the bill came in. I've done this twice over the last couple of months, but the other day I got an email stating that my credit score went down. Plus, my score hasn't moved since before paying off all the collection companies. How is someone like me able to rebuild my credit score back up without making big or multiple purchases? I don't want to fall back into a trap where I have any lingering debt. I only want to build my score to have better options for purchases that require a good score, i.e. a home or vehicle. Thank you for all of your help navigating the world of finance and consumerism.
22:55 Speaker 02 So first of all, Christina, fantastic on your part that these cards that had fallen into default, delinquency, whatever they were, you did the hard work, you got them paid off, it really messed up your credit, and now you're trying to rebuild it. You did the right thing already, getting that card and $1,000 limit.
23:19 Speaker 02 Is fantastic. You didn't say if it was a secured card or a traditional credit card, but let's talk about your score. So the, the collection stuff from before sticks with you for a good while, but the significance of it on your credit profile will steadily fade. It's a slow fade, not an automatic fade. Second, when you applied for a new card, that will temporarily lower your score. Your use of that card will be part of the process of rehabilitating your credit and credit score. You never want to use more
24:02 Speaker 02 than $300 of the available thousand. And if you can, you want to pay it off in full each month. So no interest is charged and it keeps your utilization, the percent of available credit you're using very low. I'd like you also to set up a credit karma account. It's free and you'll be able to monitor your credit and they will also guide you on what are the things that are lowering your score, what are the things that are raising it? And instead of feeling like you're flying blind without a map, you'll be able to see from it, what are the things that are going to keep moving your score steadily higher?
24:47 Speaker 02 What are the things that might bring it down? You know, credit scoring is kept very mysterious by the banks. They love that, keeping it a mystery, but it's not really a mystery. There are certain factors that make up your score and two in particular represent roughly two thirds of your score. That's paying bills on time every month, which you're doing moving forward. And the second is keeping the amount of credit you have that you're actually using down at 30% or below.
25:21 Speaker 03 Okay, and Milton, California says, "My question's about my Southwest Rapid Rewards credit card. Are there advantages to having more than one Southwest credit card for a married couple? My wife and I each have our own card, but I never use my card. We usually travel together two or three times each year. My wonderful wife handles all the flight bookings and charges Southwest flights to her card. I just paid the $95 annual fee for my card that has not been used for any purchases. I fail to see any reason to keep my card and considering canceling it. I would be glad to keep it if there was an advantage."
25:55 Speaker 02 I don't know that there is an advantage, Milt. And now that you've just renewed it, you need to put on your paper calendar, electronic one, a reminder that 11 months from now is when you cancel it. Now, Southwest has suffered a lot of reputational harm with the ownership change they went through. And when you go to cancel the card, you may, as we've heard from other people, be offered a big discount or even no annual fee for another year. If, when that time comes that you're thinking of canceling, if you're offered another year free, there'd be no harm to just doing that as long as you then know
26:36 Speaker 02 to get on your calendar to cancel it a year later. And Krista, we have not talked about how much fuss there's been since seat assignments went into effect in late January. Southwest is getting pummeled out there for totally botching.
26:54 Speaker 03 Oh, really?
26:54 Speaker 02 Seat assignments. But as I read from an industry analyst, they, in 60 years, they've never had seat assignments. And there's a certain amount of Keystone Cops expected from them in how it's being implemented. But there's one change they gotta make.
27:13 Speaker 02 So if you didn't buy a premium, you know, extra legroom seat and one's open, you can't move to it. None of the airlines let you do that if it's just open. Once the door closes, but Southwest has given very bad direction to their employees. Are they mean for them to do this? If you're in regular coach and there are some seats open after the door closes, they're not letting people move to those other seats. I mean, do you want your customers to hate you and become ex-customers? What's that about?
27:49 Speaker 03 Oh, that's not fair to the flight attendants.
27:52 Speaker 02 Yeah, because the flight attendants are being made into the seat, please.
27:56 Speaker 03 Right.
27:57 Speaker 02 How dumb.
27:58 Speaker 03 Okay, Matt in Illinois says, hey Clark, thanks to you, I've stopped mailing checks.
28:02 Speaker 02 Yay.
28:03 Speaker 03 But unfortunately, blank checks with my name on them are still in the mail. You probably know what I'm referring to. These so-called complimentary checks that come with balance transfer offers. A bank has sent me these blank checks multiple times in the last year, and I think I might just end my relationship with them rather than try to fight through the customer no service to pause these solicitations. Am I correct in thinking they're dangerous?
28:28 Speaker 02 Absolutely not dangerous like a check that you write on your own account. These balance transfer checks that come unsolicited, the number of banks that do it seems much less than it used to be, but banks still do these and they are unsolicited mailings. If that is intercepted and somebody passes that check, it does not have the same risk to you that you have with a check that you originate and you write. So they do get intercepted from time to time. You seem like you're very diligent about your money. If you're looking at your statements from this bank and you see something that's like,
29:12 Speaker 02 what is that $500? And you figure out it's one of those, you have clear rights under federal law to dispute that.
29:22 Speaker 02 And the burden is on the bank, not on you, like it is with a check that you write and you originate by sending out. So of things that I would fret about, I'd say those balance transfer checks and those checks, just write them and we give you money kind of thing. Those are not a high priority in my book for you to worry particularly about. And thank you so much for joining us today. I hope that something today was something you thought, oh, I didn't know about that. Oh, I'm glad I heard about that. And that you share something that is useful to you with a friend or family member who you think could
30:04 Speaker 02 benefit from it as well. Because we're all in this together. We all learn from each other. We all empower each other. And I want to thank you for sharing the word, spreading the word, so that others can become more powerful in how they handle their money. So they will learn ways to save more, spend less, and avoid getting ripped off. And I'll be at your service on Wednesday.
30:37 Speaker 00 At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters. So you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Let's find your rich together. Edward Jones, member SIPC.
31:06 Speaker 01 UKG is the workforce operating platform with unified HR, payroll, and workforce management. Built to solve the unique challenges of frontline work. Powered by People First AI and decades of labor data, UKG turns workforce intelligence into real time decisions around staffing, pay, compliance, and productivity, enabling every worker to confidently take action as work happens. Because when work works, everything works. Learn more at ukg.com/work. UKG, HR, Pay, and Workforce Management.
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