The Clark Howard Podcast: Episode Summary – January 7, 2025

Episode Title: Ask An Advisor With Wes Moss - 5 Keys To Successful Investing
Host/Author: Clark Howard
Guest: Wes Moss, Fee-Only Fiduciary Financial Advisor
Release Date: January 7, 2025

Introduction & Context

In this special episode of The Clark Howard Podcast, Clark Howard is joined by Wes Moss, a fee-only fiduciary financial advisor and a new member of Team Clark. Hosted by Krista Dibiaz, the segment titled "Ask An Advisor" delves deep into the intricacies of investing, providing listeners with actionable insights to achieve financial freedom.

Wes Moss Introduces the 5 Keys to Successful Investing

Wes Moss begins the discussion by highlighting the shift in personal financial responsibility over the past few decades. He emphasizes the importance of planning for longer retirement periods, noting that individuals now spend approximately 30% of their lives in retirement compared to just 10% in the 1970s. This significant increase underscores the necessity for robust investment strategies.

Key Points Introduced by Wes Moss:

1. Stocks Mostly
2. Massive Diversification
3. Patience and Longevity
4. Investing is Both Easier and Harder Today
5. Planning

Detailed Discussion of the 5 Keys

1. Stocks Mostly

Timestamp: [04:18]

Wes emphasizes the importance of equities in combating inflation, pointing out that the S&P 500 has historically grown at an average of 10% annually, far outpacing inflation. He explains the power of compound growth, stating:

“Mathematically, if we make 10% a year, our money doubles every seven to seven and a half years.” – Wes Moss [04:35]

However, he cautions against an all-stock portfolio due to volatility. Wes recommends maintaining a balance by holding "dry powder" in safer assets like bonds, Treasuries, or money markets to psychologically and financially cushion against market downturns.

2. Massive Diversification

Timestamp: [05:10]

Wes advocates for extensive diversification, leveraging modern financial instruments such as ETFs to spread investments across thousands of stocks and global markets. This approach minimizes risk by ensuring that no single investment significantly impacts the overall portfolio.

3. Patience and Longevity

Timestamp: [06:20]

Patience is crucial in investing. Wes warns against the pitfalls of reacting to market volatility and succumbing to FOMO (Fear of Missing Out). He humorously describes "FOMO Freddie," a hypothetical investor easily swayed by the latest high-performing asset, distracting from a solid, long-term strategy.

4. Investing is Both Easier and Harder Today

Timestamp: [07:45]

While access to low-cost investment products and abundant information simplifies investing, the constant barrage of market news and sensational headlines can lead to decision fatigue and misguided fears. Wes advises maintaining focus on long-term goals and ignoring short-term noise to stay on course.

5. Planning

Timestamp: [12:30]

A comprehensive financial plan is essential for navigating an uncertain economic landscape. Wes outlines the critical components of effective planning:

• Timeline: Establishing a clear timeline for retirement phases.
• Savings and Contributions: Determining current savings and annual contributions.
• Rate of Return Assumptions: Selecting realistic return rates based on investment strategies.
• Spending Goals: Defining future spending needs.
• Withdrawal Strategies: Applying the 4% rule to ensure sustainability of funds.

“A well-crafted plan brings certainty into our lives, guiding us toward financial freedom and a happy retirement.” – Wes Moss [12:50]

Wes recommends using financial planning software or consulting with a fiduciary advisor to map out these variables effectively.

Listener Questions & Expert Responses

1. Kathy from Oregon: Managing High Management Fees

Timestamp: [13:18]

Question:
Kathy is concerned about a 1.41% management fee with Fidelity on her $400,000 403(b) rollover. She seeks advice on whether this fee is fair and if she should consider alternatives.

Wes Moss's Response:
Wes identifies the 1.5% fee as excessive, especially considering the reduction in mutual fund costs over the past two decades. He advises Kathy to:

• Seek Lower-Cost Alternatives: Explore funds with significantly lower fees, potentially 90% less.
• Consider Fee-Only Advisors: Transition to fee-only fiduciary advisors who prioritize her best interests without hidden agendas.
• Comprehensive Financial Planning: Focus on broader financial planning rather than merely fund selection to optimize retirement goals.

“If you’re paying a fee above 1%, you should be getting comprehensive advice. Otherwise, it’s just a vehicle to park your money.” – Wes Moss [13:35]

2. Vanessa from Alaska: Retirement Funds without Social Security

Timestamp: [16:44]

Question:
Vanessa and her husband are state employees in Alaska without access to Social Security benefits. Concerned about their retirement savings, especially after losing money in bad annuity products, they seek guidance on fund allocation.

Wes Moss's Response:
Wes acknowledges the unique challenges faced by Alaska state employees, including the absence of Social Security. He highlights:

• Defined Contribution Plans: Alaska requires an 8% contribution to their defined contribution plan, often matched additionally, leading to substantial retirement savings (e.g., 15% total).
• Permanent Fund Dividend: Residents receive an annual dividend (e.g., $1,300 to $1,700) from Alaska's $80 billion Permanent Fund, supplementing retirement income.
• Additional Savings Options: Utilize the 457 Plan, akin to a 401(k), allowing for further contributions and potential tax advantages.
• Roth IRA Considerations: If available, a Roth IRA option within the 457 Plan can provide tax-free growth.

Wes emphasizes maximizing available retirement accounts to bridge the gap left by the absence of Social Security.

“In Alaska, the Permanent Fund Dividend acts like a perpetual Social Security, providing a steady income stream.” – Wes Moss [18:00]

3. Gerald from Alabama: Managing 403(b) and 457 Plans & Investing Extra Funds

Timestamp: [28:36]

Questions:

1. Should Gerald convert his 403(b) and 457 plans before starting Required Minimum Distributions (RMDs) at age 73?
2. With a small pension and Social Security, what’s the best way to invest leftover money after ensuring an ample emergency fund?

Wes Moss's Response:
Wes advises Gerald to:

• Consolidate Retirement Accounts: Merge multiple retirement accounts into a single self-directed IRA to simplify RMDs and reduce administrative complexity.
• Avoid RMD Penalties: Ensuring timely RMDs from a consolidated account prevents hefty IRS penalties.
• Strategic Investments for Extra Funds: With a solid emergency fund, invest surplus funds in diversified, low-cost vehicles aligned with long-term retirement goals, avoiding high-fee products.

“Consolidating accounts makes managing RMDs straightforward and helps avoid massive penalties.” – Wes Moss [29:55]

4. Lucas from California: Evaluating Vanguard Fund Holdings and Expense Ratios

Timestamp: [32:35]

Question:
Lucas has five Vanguard ETFs (VTI, VGT, VHT, VXUS, and a 2055 Target Date Fund) with a combined expense ratio of 0.39%. He’s concerned about fee stacking and seeks advice on fund consolidation and diversification.

Wes Moss's Response:
Wes reassures Lucas that his diversification strategy is robust, covering thousands of stocks globally. He clarifies that:

• Expense Ratio Clarification: The 0.39% combined expense ratio is lower than Lucas perceives due to overlapping fee structures across ETFs. The actual aggregated cost is likely under 0.10%, debunking concerns about excessive fees.
• Diversification Benefits: Maintaining a broad array of ETFs ensures exposure to various sectors and global markets, minimizing risk.
• Investment Strategy Alignment: With nearly 100% stock allocation, Lucas is well-positioned for long-term growth, though Wes suggests adjusting the balance if nearing retirement.

“Your overall cost is a lot lower than you think. You don’t want to stack fees, and your diversification is excellent.” – Wes Moss [33:04]

5. William from Washington: Assessing the Vanguard Star Fund Nearing Retirement

Timestamp: [35:41]

Question:
William has 25 years of investment in the Vanguard Star Fund, held within a Roth IRA, and is three years away from retirement. He inquires if this fund remains suitable for his imminent retirement.

Wes Moss's Response:
Wes commends William’s long-term investment discipline and diversification within the Vanguard Star Fund, which balances 60% stocks and 40% bonds. He notes:

• Appropriate Asset Allocation: The current 60/40 split is well-suited for those approaching retirement, providing growth potential while mitigating risk.
• Maintaining Stocks for Inflation Protection: Retaining stocks ensures funds continue to outpace inflation, a critical factor for sustaining retirement savings.
• No Immediate Radical Changes Needed: William’s investment mix aligns with best practices, and no drastic adjustments are necessary unless personal circumstances dictate otherwise.

“You have a good balance with 60% stocks and 40% bonds. It's an appropriate balance for someone nearing retirement.” – Wes Moss [36:00]

Conclusion & Future Discussions

As the episode wraps up, Wes Moss hints at upcoming topics, including the intricacies of financial planning and the 4% withdrawal rule, promising listeners deeper dives into essential retirement strategies.

“Creating a financial plan is not as complicated as we think. It lays the foundation for a successful retirement.” – Wes Moss [21:18]

Listeners are encouraged to submit further questions via www.clark.com/askclark, ensuring continued engagement and personalized financial advice.

Takeaways:

• Emphasize Equities: Stocks are vital for long-term growth and inflation protection.
• Diversify Extensively: Utilize ETFs and global markets to spread risk.
• Stay Patient: Resist the urge to chase fads; maintain a long-term perspective.
• Strategize Amid Complexity: Navigate the modern investment landscape by focusing on core principles.
• Plan Meticulously: Develop a comprehensive financial plan to guide retirement goals and manage uncertainties.

By adhering to these five fundamental keys, listeners can enhance their investment strategies, ensuring a secure and fulfilling retirement.