06.24.25 Ask An Advisor With Wes Moss

The Secret to Consistent Investing and Your Financial Safety Net for Any Market Are you tired of "FOMO Freddie" always bragging about his latest hot investment? Fiduciary financial advisor Wes Moss reveals why chasing market trends is a dangerous game and how sticking to your investment style is the key to long-term success. We'll dive into the perils of FOMO investing and show you what happens when you jump from one "best" strategy to the next. Also, Wes breaks down the critical concept of "dry powder" – what it is, why you need it, and how it acts as your ultimate financial buffer during market downturns. Learn about the different types of liquid safety assets that can protect your portfolio and give you peace of mind, no matter what the economy throws your way. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the June 24, 2025, 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, in which Christa and Wes discuss investing and retirement savings in depth. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS / Wes Moss, CFP® 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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• 0:50Speaker 03

  Welcome to Ask an Advisor. Krista DeBias from Team Clark here with the Wes Moss.

• 0:56Speaker 04

  I usually say the.

• 0:57Speaker 03

  I know. I did it on purpose to throw you off. And today on Ask an Advisor, we're going to revisit one of our favorite characters, Fomo Freddie.

• 1:06Speaker 04

  Yeah, we were going to talk about one of the most annoying guys you're ever.

• 1:09Speaker 03

  You haven't talked about him in a while, but a lot has happened since the last time you described him to us and what we should watch out for.

• 1:16Speaker 04

  I'm even more annoyed with Fomo Freddie today.

• 1:18Speaker 03

  Oh, boy. And then another topic is dry powder that you've revisited. And today you're going to really explain what investments are considered dry powder.

• 1:28Speaker 04

  What goes into that formula? And it's important to note, and we've gotten a lot of questions over the last half a year on that, so let's.

• 1:34Speaker 03

  And you made a pun earlier. You said it's kind of a dry topic.

• 1:37Speaker 04

  Fomo Freddie is kind of a fun topic. Dry powder is, could be kind of dry. We'll try to make it interesting here on the Clark Howard Show. But we'll start with Fomo Freddie, which is this character that we all know him. He's the guy that is at a party that you don't really want to talk to, but he kind of always wants to talk to you and he wants to tell you about how well he's been doing in a certain investment. So that is if this is in 2020 after the pandemic, and I guess maybe we wouldn't be at parties, right? In March, because the world was kind of shut down. But this is the kind of person that later in the year is talking about an ETF that's an innovation fund, and this is a true story, that I remember getting a lot of pressure to

• 2:21Speaker 04

  put money into. This is a fund that got a lot of press. The manager was kind of a star on Wall Street because the fund did exceedingly well. And then sometimes what will happen is that you just get this momentum around that this is already doing well. So more people pile in and then it does even more well. And then it totally gets decoupled from fundamentals. But this happens in many different asset classes. If you think about the housing bubble in 2000, it's really started in early 2000s. So 2002, 3, 4, 2005, when things started to really crest, it was super common to hear, well, of course, I've got a condo down in Florida and condos,

• 3:05Speaker 04

  I can buy them for 300, I can sell them for 600. And that pressured more and more people to want to do the same thing because you have this fear of missing out. And that's who FOMO Freddie is. But FOMO Freddie is the guy that is, so not only is he the life of the party, but he's also dangerous to your portfolio because he is dripping on you. And it's not just Freddie, but it's the ethos around Freddie that is making you feel like you're missing out. And the other thing that makes these trends, housing was a good example, tech stocks in 1999, innovation type ETFs in the year 2020. As they rise, they linger around for a while and they're, the good news about how well they're doing gets reported. And Freddie at the party is

• 3:50Speaker 04

  looking at his phone and say, I mean, look at this chart. Look at, and you start thinking, well, why didn't I, why don't I own some of that?

• 3:56Speaker 03

  Remember Peloton?

• 3:57Speaker 04

  Well, maybe I should, maybe. That went well until the Mr. Big fell off the Peloton.

• 4:02Speaker 03

  Oh, is that what did it?

• 4:03Speaker 04

  Yeah.

• 4:04Speaker 03

  Well, I know that.

• 4:04Speaker 04

  There was a Peloton, was it a commercial or during one of the shows?

• 4:07Speaker 03

  During the reboot of Sex and the City.

• 4:09Speaker 04

  That was bad for Peloton, or at least the stock. So what happens is that his commentary Brings people together and it then creates even more momentum. So these trends, they start to get a little wacky. They get even wackier and then they draw even more people in and the assets get big. And then all of a sudden there's credence behind it. Well, now this fund is multi billions and you start saying to yourself, well, maybe I, maybe I should get in. Only to, as an example here in 2002, this innovation ETF I'm talking about was up 255%. And that was in less than a year and billions of dollars went into this and billions of assets.

• 4:49Speaker 04

  And then if you fast forward another six months or so, it went from up 250% plus to negative 10. So it lost all of those gains and actually ended up down. So, and I've looked at it and it has now trailed the S and P 500 pretty significantly ever since then. So there is a lot to be said for finding an investment style and really sticking with it. Again, the, the investment landscape makes this a little hard to do and a little complicated because there are a lot of different overarching styles to investing. There's just pure indexing, S and P 500. We've gotten a lot of questions and maybe even a little pushback this year. And really over the last couple of years, as I've talked to investors, because that's gotten to be really top heavy.

• 5:34Speaker 04

  It's really concentrated 32 to 35% of the whole S and P 500 is concentrated in its top 10 names. So 10 out of 500, there's value investing, there's momentum investing, there's pure growth investing. These are investors that they're expecting stocks to go up appreciation wise, not worried about a dividend. The value investor, that's another style that is very intent on finding companies that can recover in price and maybe paying dividends as well. There's minimum volatility investing where you're finding only companies with low betas. Betas are the measure of volatility of a stock relative to the market. And that's another style. That list is really long. I mean, let's say there's dozens of different categories and then

• 6:18Speaker 04

  there are hundreds, if not thousands of funds within each one of those categories. And in any given year, and this is a fun visual look at, if you were to track the style of investing that is doing the best versus the worst in any different calendar year, it looks very much like a roller coaster. And I'll pick a simple example, growth investing, which is kind of the opposite of value or dividend investing. You'll see, if you track it over the last couple of decades, it'll be the best performing style for a year, and then it'll be the worst performing style, and then it'll be the best performing style, and then the worst performing. So it's very, there's a lot of undulation within these styles. So it's natural for us to say, well, gosh, I've been doing this for an entire

• 6:59Speaker 04

  year, and that other way of investing was better, so why wouldn't I do that? So we end up with this kind of dog chasing tail scenario. It's a kind of the cousin to market timing. It's really style timing. And our team went back and did a study and looked at the six major styles of investing to see what $500,000 would turn into, let's say, over the course of, I want to say that we did this over 20 years. And what we found is that the styles were very over time. In any given year, there was a big difference. So one would be up 20, one would be down 5. But over time, if you were to look at what these did, and I'll look at, we did this from, yep, since 2000. So this is a little

• 7:42Speaker 04

  over 20 years. $500,000 in the quality category was up 8.6%. Momentum was up 8.5%, which is a style of investing you would usually have in a mutual fund or a hedge fund. The S&P 500 was close to 8%, again, annualized return. If you looked at, growth was 7.7%, value was 7.7%, minimum volatility was over 7. But if you, if you were purely FOMO Freddie, and your $500,000 switched at the end of every year to the best style, that one did the best. You end up with a rate of return that's in the 6% range, in the mid-sixes. That may not sound like a huge difference, but $500,000 could have turned into close to

• 8:26Speaker 04

  $4 million if you stuck with the style.

• 8:29Speaker 03

  Wow.

• 8:30Speaker 04

  But if you FOMO Freddie did and are always chasing last year's best, it was about two and a half. So think almost $4 million versus two and a half million. That's a really big difference.

• 8:39Speaker 03

  That's compelling.

• 8:41Speaker 04

  So I'm a believer in more dividend value investing, but it doesn't mean that that's the only way to invest. It's really a philosophy and a way to think about it. And my experience over, let's say, 20 some years of investing is that the investors that do the best, they don't shift from style, style, style. They get comfortable with a way of investing and they stick to it. And that, that long-term growth creates the shade tree, which is your investment portfolio that should protect you for the rest of retirement.

• 9:13Speaker 03

  All right. Here's the first question for you. West Donna in Virginia. I'm 64 years old and planning to retire from local government agency with a pension and retirement savings and an IRA and 457 accounts in three years. I've hired a financial advisor who's going to help me navigate this transition. Here's the catch. One of my IRAs is quite sizable and in a workplace account. My understanding is that when I transfer this money to my new advisor's firm, the funds will be out of the market for a day or so. It is possible to expedite it with a small fee, but even still, I'm terrified of missing one good day in the market. The market currently feels volatile to me, so I've been putting off the transfers, but wonder when the time will come that I can feel more confident about this move. What do you think?

• 9:58Speaker 04

  So Donna, you are worried about, and you're taking this literally, and I love this. You're worried about the study that we've talked about and you've probably heard about or read about is if you miss just a few of the best days in the market, it dramatically reduces your rate of return. That is just 1% of the best days or 5% of the best days. And, and these are just really small periods of time. These are small windows. So you're taking that and you're thinking to yourself, wait a minute, if I'm out for a day or two when this rollover is happening. Then that could ruin my returns for the next couple of years. So you're taking that very literally, which I love.

• 10:39Speaker 03

  And granted, we've been on a roller coaster.

• 10:42Speaker 04

  Been on a roller coaster and we've seen some of this and really just already in 2025, that has played out. There have been a couple of days when let's say tariffs got put on hold as an example, that the market had this massive sigh of relief and went up 5, 6, 7% in a day. So yeah, you do not want to miss that. The worst case scenario, the market sells off 20%. Your rollover, let's just say hypothetically, takes a week and the market's up 15% in a week. Now that's extreme, but it could happen. Any of these things can happen. Now, what I would tell you is that first of all, there is, there is no magic solution to being able to have money if it's moving from institution to institution and it's going

• 11:26Speaker 04

  from funds into cash that needs to be reinvested. Remember, if you're in a brokerage account or even an IRA and it's moving to another IRA, it can stay exactly invested as it is. So if it's a transfer, you don't have to worry about that or you shouldn't have to worry about that. The problem is anybody doing a 401k or tip any retirement plan, 403B, 401k into an IRA, I don't know of a time that I haven't seen this. They're going to liquidate the assets. You're going to get cash rolled over and then you've got to rebalance. There's going to be a window where you're kind of in a blackout period. That's somewhat unavoidable in one of these transactions. So here's how I would navigate it. The power of your plan and getting the allocation that you like and you have in

• 12:11Speaker 04

  control and working with an advisor, for the long run, that's a home run. That really will work for you, I believe, and it can be a huge benefit for investors in retirement over a long period of time. So don't let a day or two discount the long-term power of that. However, if you were to try to mitigate this, you want to do this in a period of time where the market kind of is back in a more neutral, less crazy zone, if you will. And you can find this out by looking at the VIX. VIX is published, anywhere you see a tracker of the S and P 500 or the Dow, there's usually a VIX. And in times of great volatility, the VIX is 20 and up.

• 12:54Speaker 04

  During 2025, at one point, we get to 55 on the VIX. A quote "normal" VIX, and the markets are still always volatile, but a period of time, a VIX from 15 to 20 is when the market is behaving at least somewhat normally. And it's super rare that you would have a huge up day with a VIX that's that low. So usually, the up days are in reaction to giant down days and we're in the middle of global turmoil. Tariff turmoil is an example, pandemic turmoil. And those giant up days, almost historically, usually are happening right around the time you're at a really bad point, down 15, down 20, down 25%.

• 13:37Speaker 04

  So if we're back, and I don't know exactly what day you're listening to this, but if we're back to a slightly more normal market, the VIX is behaving, then you run a very low, very low risk that a day or two out of the market would be missing one of those big jumps. The power of you understanding that is that is really not missing a day or two in a transition. It's saying, "Oh, I'm going to sit this one out for the next couple of months until things calm down." That's when people are missing those big recoveries, is when they're saying, "I'm on the sidelines and I'm going to be out for a couple of months." That's how people miss, not really in the day or two of transition.

• 14:15Speaker 03

  Would you recommend, I don't know if this is possible with this type of transfer, but I would think it would be that maybe if she's very nervous, do like a quarter one month, a quarter the next month, just sort of like move it in more slowly?

• 14:27Speaker 04

  You could do that, but I wouldn't overthink this. I think investing, it's difficult enough to make the transition happen. The reality of you missing out on something really significant in a quote "normal" market and it's a day or two, it's very, very low. I would just make your plan, and when as soon as the market is remotely calm, get it done.

• 14:48Speaker 03

  Okay. Barrington, North Carolina says, "I've run $10,000 in my Treasury Direct account. What should I do with it? Should I leave it or reinvest it into something else?"

• 14:57Speaker 04

  Barrington. So the Treasury Direct account, I would suspect if you have 10,000, maybe you did I-bonds, but you could also, there's other investments that you could do, double E-bonds, et cetera, TIPS, Treasury Inflation Protected, I believe, and Treasury Direct. So there's a couple of different government securities. Really, you're investing in ultra-safe assets. I would say, once they stop accruing interest, so let's say you're at the 20-year mark or 30-year mark, depending on which one of the investments you're in, then you've got to get it reinvested, or else you're kind of just sitting there wasting, you're not getting paid. So if it stops creating interest, or it's matured, if you will, it's time to find a new vehicle. So you could just reinvest in another one of the products, or the same

• 15:41Speaker 04

  product, and buy it again, or you could take the money out and look at some other things. Maybe it would help you fund a Roth IRA in any given year. If you've got wage income, but you don't necessarily have cash somewhere else to fund this, maybe you could use the Treasury Direct money to fund a Roth. So there's a lot of different things you can do with it, but it also can, that can be in your dry powder pouch, if you will, because you're buying government-backed securities, which are supposed to have the highest level of safety that we can find.

• 16:16Speaker 03

  All right. And Brooke in Massachusetts says, I've been considering market-linked notes within a newly converted IRA from 401K for the downside protection, given the market volatility. The access to liquidity isn't important with this part of my diversified portfolio.

• 16:30Speaker 04

  Is not.

• 16:31Speaker 03

  Is not important. But I have heard some concerns with the market-linked notes, too. What are your thoughts?

• 16:37Speaker 04

  Credit is the first thing that comes to mind, Brooke. I remember back in the Lehman days, now granted, this is, these are extreme situations, you've got to plan for them. After the housing, the global financial crisis meltdown, Bear Stearns, Lehman, Lehman went out of business. They were a strong name on Wall Street, and they were huge backers of market-linked notes. There are a couple of different kinds of these. There's barrier notes, there are downside protection, I think they're called buffer notes. It's downside protection and they're really financial derivative. They're a financial derivative burrito. So the company will take options on an index. So you're getting stock exposure by the option.

• 17:21Speaker 04

  And then they're usually having some sort of downside protection. Maybe it's a put and there's lots of different ways they can structure this. But who's backing it? It's the financial institution. If you have a note from a company that goes under, forget the value of what's in the note. Their credit, they're backed by the credit of the institution that forms them. So they all went to, I don't know if they all went to zero, but they went down dramatically and they were supposed to be safe and they were the opposite. So you've got to look at the credit of the institution that is producing these financial derivative burritos that are going to be inside of your retirement account. You mentioned the second biggest issue and it sounds like it's not a risk for you, which would be liquidity.

• 18:05Speaker 04

  These are not traded in any given period of time. They are created, they're bought and they're held to maturity. Stocks usually, let's say large stocks are highly liquid. Bonds are pretty liquid, but a linked note or a financial derivative like this is highly unliquid. So if you change your mind, there's not a buyer out there. You've got, you can maybe sell these, but you get a huge discount on them to sell them. So just know that liquidity is the major issue beyond credit. And also note that to me, these have always been intriguing to me. I've had so many meetings over the years with these market linked notes, buffered notes. They just make so much sense on paper.

• 18:50Speaker 04

  It's like, I'll give you 50% of the market upside, but only 5% downside. Or I'll give you 70% of the upside with only 50% of the downside. So they're always kind of intriguing formulas.

• 19:05Speaker 04

  But they're also only able to do that because the options in the market are already pricing those scenarios in. So there's really, they're already being priced in to some extent. And I have ultimately decided over many, many years, and I still consider these because they're always intriguing. I just don't buy, I don't buy them. I don't like them because of illiquidity. If I want to keep money safe and protected, I want to use a safety asset. And if I want to use a safety asset, I don't want it to be overly complicated and I don't want it to be illiquid. I'm not saying it's not a fit for you. It could be and your advisor may be steering you in the right direction. But these have always been intriguing to me,

• 19:49Speaker 04

  but it's not something that I've participated in.

• 19:51Speaker 03

  Okay. All right. Those were great. And coming up straight ahead, do you know what investments are considered dry powder? I know you know Wes.

• 19:59Speaker 04

  There's a lot of categories.

• 20:01Speaker 03

  Yeah.

• 20:01Speaker 04

  There's a lot that goes into it.

• 20:02Speaker 03

  We'll hear about that next.

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• 22:06Speaker 04

  Welcome back to Ask an Advisor. Wes Moss along with Krista DeBias. Here to answer your questions. Q and A. And we're going to start though with.

• 22:16Speaker 03

  Dry powder. And if you have a question, Clark.com/ask for either Wes or Clark. You can just make a note in the question who it's for.

• 22:24Speaker 04

  And I've seen, you know, some of these, I know you're saying they're like, hey, Clark and Wes.

• 22:28Speaker 03

  Right.

• 22:29Speaker 04

  Sometimes it take Wes and Krista.

• 22:31Speaker 03

  Yes, that's true. People are very nice. For the most part.

• 22:34Speaker 04

  For the most part. So let's talk about the dry powder principle, which is really, it's a buffer in between you and your portfolio. First of all, dry powder, I guess it's a wartime analogy or phrase that soldiers needed to keep their powder dry in order for it to work. And if you've got wet powder in the rain, it just doesn't, doesn't fire. It doesn't work. So you're left, you're left without protection. So you want to keep your powder dry. And when it comes to investing, that means safety assets. But there's a lot of different categories within what is really dry powder. And that's a fairly long list. And there's a lot of iterations within the list. And to me, it doesn't have to be perfectly stringent.

• 23:18Speaker 04

  If you just say cash or money market is the only thing that's in dry powder. I think that becomes a little somewhat limiting. It is really, in my opinion on this, just safety assets that you can get to. They're liquid when you need them. There's a lot of different reasons we have them. But the dry powder principle is to have enough dry powder at minimum.

• 23:40Speaker 04

  Particularly when you're in retirement to pay for three years' worth of spending. So if you need a hundred thousand a year in retirement and 50,000 a year is coming in for social security and pensions, you have a $50,000 or gap. You take that gap of 50 times three would be 150. So in the overall pie for you in the mix of savings, the principal would say you need, you want around $150,000 in these safety assets. Now, more can be absolutely fine. I've worked with families that have, they want 10 years of dry powder. They want 15 years of dry powder. And now you could look at that as kind of extreme. But one of the purposes for this, and the reason we say minimum three years is that

• 24:24Speaker 04

  even really bad bear markets on the stock side. So think about your portfolio, you've got your dry powder in safety assets. And let's say the rest happens to be in more volatile assets. Well, even some of the worst bear markets have recovered by a three-year period. So the dry powder is to get you through even these longer bear markets to take a while to recover. And that's where we get this kind of this minimum three-year philosophy. More is totally fine. And sometimes I think more is better because it goes back to your propensity of handling risk and volatility. As the numbers get bigger, the dollar changes in your portfolio get bigger. Gains are great, but if you have a 10% decline in $100,000 401k, you're down to 90.

• 25:08Speaker 04

  It's 10,000, it's hurts. But imagine when that's a million dollars and it's down 10%. Now you're down $100,000. You start saying to yourself, I remember a time where I took, think about how long it took to make $100,000 and that just went away in three months? That's what makes investing really hard. So the dry powder allows us to say it's okay. I have my safety assets. If I need them to use them while the market is down, then I can pull from these because they are not supposed to go down all that much. They're supposed to be stable or mostly stable, not necessarily perfectly. And it gives your, it gives you a psychological boost. It gives you some psychological armor,

• 25:50Speaker 04

  Krista, and it gives you some time. And I think you put that together, that combination, it makes, I think it makes us better investors. It certainly helps me knowing I have dry powder. When the stock side of the market is down, it's okay because we, I can always use this. I don't want to sell things when they're low. So there's a lot of dynamics to why this is important. The pushback is, well, these don't make a lot of money. The money market today is only paying 4%. And sometimes your stable value fund is only paying 2.5% or 3%. And I, and I understand that. Particularly a couple of years ago when interest rates are really low,

• 26:32Speaker 04

  stable value was paying virtually nothing. So it doesn't feel very good to be paid nothing. But there's other benefits to it than that. So what goes into that? Number one, the easy, here are the easy ones. Anything cash in the bank, absolutely. CD in the bank, absolutely. Money market mutual fund, absolutely. That's dry powder. Then there's some other areas that, well, here's another absolutely would be an, anything that's treasury direct. So you've got an I bond or a series EE bond. Those have ultra-high degrees of safety. Absolutely dry powder. Then you move into where we, we start looking at the timeframe of these fixed income or bond-like vehicles, shorter-term treasuries, one to three-month,

• 27:15Speaker 04

  absolutely. But even a one to two to three-year treasury that's going to have a little bit of, a little bit of movement, I wouldn't call it lots of volatility, but certainly the price of that, or if you had an ETF that holds relatively short-term treasuries, sure, it's going to move a little bit in relation to rates, prices and rates move inversely, but it's still, there's a high level of stability. What would not be considered dry powder would be a longer-term treasury bond, a 10-year, a 20-year, a 30-year treasury bond, because the further out in the duration of fixed income, the more volatility, and those can move in price pretty dramatically. So we want ultra short to short ish term treasuries. And this can go for corporate bonds too.

• 27:59Speaker 04

  So another category, corporate bonds, another category, municipal bonds. If those are shorter term, they're easy to get to, highly liquid. They don't move all that much. I consider those as part of the dry powder menu. And then finally, stable value. So the most, almost any 401k or retirement plan I've seen has a stable value option. That's their version usually of a money market or an ultra short term bond fund. Sometimes they don't seem to pay quite as much as the prevailing rate. But what are you, now, what do you want to compare this or make it relative to? The dry powder categories are going to be predicated on and reflective of whatever

• 28:44Speaker 04

  the Federal Reserve is doing on their Fed Funds Rate. So the Fed Funds Rate is two, dry powder is probably going to be around two, maybe three, depending on which vehicle we use. If the Fed Funds Rate is five, prevailing rates are around five, then so should your dry powder be. It should be around that. That's a good benchmark. If it is way under what the Federal Funds Rate is at any given time, you could be doing better. If it's much over that, that means you're taking on some more risk. And maybe it's credit risk, maybe it is longevity or duration risk. But just know that our dry powder, it's, these are the safety assets. They're going to be predicated around what the Fed Funds Rate is at any given time. If you're way below that, you're kind of leaving money on the table.

• 29:29Speaker 04

  Way above that, it might not be dry powder. So let's keep our dry powder, not wet, but dry, so we can use it when we need it.

• 29:37Speaker 03

  All right. I've got a couple of questions here from Brandon's to start out with. This first one's from Brandon in Tennessee. I want to thank the Clark team for years of great advice and tools that have allowed my family to take control of our finances. This question's for Wes about bonds and a retirement portfolio. I'm 39, married, and have three wonderful children. We've been investing for a while now and have weathered different market storms well because we've proven out that we can handle market volatility well and want to move away from our target date fund to be more aggressive with our risk tolerance and also lower international exposure a bit. We are considering a classic three fund portfolio with an allocation of 70% US. Do you want the fund names?

• 30:19Speaker 04

  No.

• 30:20Speaker 03

  Okay, 20% international and 10% bonds. However, my question is, will it be okay to skip the 10% bonds from our retirement accounts altogether and instead hold our emergency fund in I-bonds and continue to buy the max allowed I-bonds every year until we ultimately have about three years of dry powder, as you call it in retirement?

• 30:38Speaker 04

  Love that, Brandon. Brandon in Tennessee. Yeah, you're in your 30s, man. I think that when you're in your twenties and 30s, you can make a really good case that if you've got some safety assets in Treasury Direct in I-bonds, that's your dry powder. I think that absolutely works. You don't necessarily need, you also said that you've handled market volatility well. So there's a lot of things that go into that. It's your own psyche, how long you've been an investor. So if you have some experience, sometimes that you get better at handling volatility. Sometimes it gets worse. It really depends. We're human. But if you've proven to understand that markets do eventually recover over time, even though

• 31:21Speaker 04

  it's very unpredictable when that will be, then you've gone a long way to be able to handle equity fund investing. So can you skip the 10%? Yeah, I think you can. So you would put that back into either the US or international equity piece of the equation. You may want to look at another area. So if, let's say you have your 70% in US and 20% in international, maybe that other 10 goes in another category. So there's other categories like real estate. You can look at maybe some sectors so that you're not overly weighted to the S and P 500 within, which a lot of funds are. It's an interesting exercise. When you choose a fund, particularly a US large cap fund, even though it's not supposed to

• 32:04Speaker 04

  be tracking the S and P 500, take a look at it versus the S and P 500. A lot of times they mirror each other more than you might think. So just take a look at that. But I think you're on a really good track here. In your 30s, you don't necessarily need bonds. You can handle market volatility and you've got your dry powder with I-bonds anyway. So I love that formula.

• 32:22Speaker 03

  Okay, now the second Brandon, this one's, this Brandon is in Texas. For a high earner who is likely to have $10 million in retirement accounts, including after-tax brokerage accounts, what are your thoughts on tax-exempt bonds, including VW ALX for retirement planning?

• 32:38Speaker 04

  Brandon in Texas, we're talking about high yield municipal bonds. So I'm not going to comment on the fund itself, but I know that's a high yield. I believe that's a high yield municipal bond fund and a lot of big fund companies. They have municipal bond options and many of them have high yield municipal bond options. Here's why anybody, and if you've got 10 million in retirement funds, you're going to have a high income. Just an RMD eventually is going to be a couple hundred, it'd be four or $500,000 a year. So your income is going to be big forever. That's one thing to look at. You're always in a, almost always going to be in a high tax bracket. So why would you want to use municipal bonds? Municipal bonds are tax free at the federal level and they are tax free at the state level.

• 33:22Speaker 04

  If the bond is from the state you live in, so if you're in Texas and you have a Texas bond, then, well, Texas doesn't have any state income tax. What's another, what's a better example, Krista? Pennsylvania, if you're in the state of Pennsylvania, you have a Pennsylvania bond. The interest is federally tax free and you also don't have to pay state taxes on the interest either. So it's double tax free. Now, here's how you relate it back to what overall interest rates are. So if you're getting a 5% tax free rate, you divide it by one minus your tax rate. If you're in the 35 bracket federally, one minus 35% would be 0.65.

• 34:02Speaker 04

  So divided by 0.65, this is the tax equivalent yield, 7.6%. So a 5% tax free bond is very similar in relation to a 7.6% taxable bond. Because we end up with the same after tax. So right out of the gate, a lot of these, from what I've seen relatively recently, high yield municipal bond funds is going to be more like in the 5% range. So what does that tell you? It means That it's really paying seven to eight percent, which means it's risky. So these are technically junk bonds of the municipal bond market. Municipal, now, nobody says junk bonds anymore.

• 34:43Speaker 03

  Right.

• 34:43Speaker 04

  That's a term for the eighties. We don't say that anymore. What do we say? High yield. So much nicer to say that, isn't it?

• 34:50Speaker 03

  I didn't realize that was the same thing.

• 34:52Speaker 04

  They're the same thing. Junk bonds are just, they're the prior name of maybe a better branding for junk bonds. Bad credit. What can we do though? If you have bad credit, you could just say it's hopefully improving credit.

• 35:06Speaker 03

  Yeah, it's improving for sure.

• 35:09Speaker 04

  Make no mistake.

• 35:10Speaker 03

  Junk bonds gotta glow up.

• 35:12Speaker 04

  Junk bond, they did. It was great branding. These are companies, well, if you've got a low rating, you have bad credit. And the reason they're paying more, just like you pay more if you have a lower credit score, because the credit worthiness and the ability for the municipality to pay back their interest and do a full maturity is obviously lower than a triple A rated. So if you look at any of these high yield, and I'm generalizing here, no particular fund, you're going to see a lot of bonds from Puerto Rico. You're going to see tobacco settlement bonds and you're going to see a bunch, you might see some airport bonds that are uninsured. That's the other thing. Within the municipal bond world, highly rated bonds, triple A rated or double A rated

• 35:56Speaker 04

  can be, usually they're insured by a backer as well, not the high yield space. So just know you're taking on credit risk. You're going to see some real volatility. These are not in the dry powder category, but within your overall fixed income, within the bond part of your portfolio, I don't mind people having some exposure to the high yield beauty space.

• 36:21Speaker 03

  All right. And this one's from Justin in New York. I spoke to a financial advisor recently and they said they do not recommend the S and P 500 because it is highly weighed towards tech stocks and tech stocks have already peaked and cannot 10x. They recommended investing with them and they would invest in the same companies as the S and P 500, but use smart. Art weighting technology to better balance my portfolio for a fee of 0.9%. My current approach is to use target date index funds in the S and P 500. I figured this would be the best approach for both me and my wife to manage our finances as long term as we don't want to be a super hands on. Does this still make sense or should I consider a different approach?

• 37:02Speaker 04

  Justin, only you will know when it's the right time to work with an advisor. That is a personal decision that you usually arrive at either if you're really hands off and you don't like dealing with with investments. You may end up being comfortable saying, look, I'm okay with this target date setup and an index fund and it's super low cost. Could be now a lot of target date funds, by the way, are that I've seen are half a percent a year. So it's not like they're free. Now, some of the Vanguard ones should be less than that, but there's a lot of other fun families that people use that are not super, super low cost. So make no mistake, sometimes you've got some real fees in these target date funds.

• 37:46Speaker 04

  But if you're hands off and you don't want to deal with it and you like your investments, then maybe you don't need an advisor. If you're really hands off and you don't like talking about the investments and checking up every quarter, every half a year, or even every year, it may actually be really good to have an advisor. I have to deal, my dad's actually a little bit like this. He just doesn't want to talk about investments or money ever. For him, it's like the, it's like a meat grinder. He's like, I don't want to talk about it. But a little bit of information, a little bit of planning can go a really long way. So he's at peace and say, I don't even need to talk about that. So there is some real advantage to have an advisor for certain people, particularly at certain stages in your life. So it might work.

• 38:32Speaker 04

  The reality here is that you have an advisor saying S and P 500 tech stocks have peaked and they can't go, they're not going to keep going up again. Now, I understand, I think what he's saying is that they can't go up 10x again. But we're still going to invest in the S and P 500, which again, it may be in different percentages, but it's still full of technology stocks. They're a huge part of the economy. They're a huge part of the market. If you know for sure tech stocks can't go up as much as other stocks, then what you're saying is that you're just going to go buy other things. I don't know if that works either. So I'm sure there's some method to this and we've talked a lot about, I think there's some real value in equal weighting things and not having 40 or 50% in tech, maybe having 20 or 30% and having exposure

• 39:17Speaker 04

  into the other sectors of the market. So I think there's some real, there could be some real value there. You pay for it with an advisor, but there's a point when that could really be valuable to you over time. And is it a whole lot more if you looked at the internal costs within some of these target date funds that you're looking at? So only you will know when it's time to move, but I don't totally disagree that we want more exposure outside of that really concentrated technology focused S and P 500. So I think you're getting close.

• 39:48Speaker 03

  And I have to assume that Justin's using a fiduciary financial advisor.

• 39:52Speaker 04

  I would think so. If it's fee only or it's only a percentage and there's no other commissions that would go back to the advisor, they really should be on the same side of the table as you. They really want your portfolio to grow as their revenue goes well.

• 40:06Speaker 03

  Same goals. Yeah.

• 40:07Speaker 04

  And your goals are aligned.

• 40:09Speaker 03

  Right. Okay. Well, that actually does it for us today. And for June, we're going to be off next week just for Ask an Advisor. Clark will be here Monday and Wednesday. Wes, you're going to be off eating the finest apples you can in Michigan.

• 40:20Speaker 04

  Just apple hunting.

• 40:22Speaker 03

  Your annual foray and I hope you have a great time and we'll be back the following week.

• 40:32Speaker 00

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