01.20.26 Ask An Advisor With Wes Moss

Summary

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The Clark Howard Podcast

Episode: 01.20.26 – Ask An Advisor With Wes Moss

Date: January 20, 2026
Host: Clark Howard (with Wes Moss and Krista Dibias)

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Episode Overview

In this episode of Ask An Advisor, host Krista Dibias is joined by Wes Moss, financial advisor and investing expert, for an in-depth look at the often misunderstood world of market capitalization (market cap)—specifically, how to evaluate small cap versus large cap companies, why individual investors typically underperform the market, and a lively mailbag segment with listener questions about retirement planning, HSAs vs. Roth IRAs, dividend strategies, and the age-old Roth vs. traditional 401(k) debate. The conversation is rich with actionable investing advice, up-to-date data, and memorable analogies that make the numbers meaningful.

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Key Discussion Points & Insights

1. What Do “Small Cap” and “Large Cap” Mean Today?

Timestamps: 00:40–11:25

• Market Cap Definitions Have Shifted:
  Wes points out that the definition of "large cap" has changed dramatically as companies like Microsoft become trillion-dollar giants.
  • Small cap: $500 million to $5 billion
  • Mid cap: $5 billion to $25 billion
  • Large cap: $25 billion to $300 billion
  • Mega cap ("unofficial"): $300 billion to over $1 trillion

“We have now entered a world where we have trillion dollar companies today. A trillion dollar company, remember, is 10 times the size of a $100 billion company… Hard to even for the human mind to conceive that.”
– Wes Moss (04:22)

• Historical vs Recent Performance:
  Large caps (S&P 500) have soared, whereas small caps lagged significantly over 3 years (S&P 500 up 80%, S&P 600 up 25%). However, in early 2026, small caps have started to outperform.
• Investor Behavior in 401(k)s:
  Wes warns against chasing the highest performers in their retirement plans, advocating for including overlooked small and mid caps.

“I just wouldn’t ignore a really important part of the market… just because large has done really well.”
– Wes Moss (06:07)

• Market Weighting Distortion:
  The S&P 500 is now dominated by its top 10 companies (which constitute 40% of the index).

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2. Listener Mailbag: Practical Retirement Questions

Should I Max Out My HSA or Roth IRA?

Timestamp: 11:25–13:57

• Wes’s Take:
  Both offer outstanding tax advantages; the HSA has slightly better current tax benefits (contributions are deductible and withdrawals for medical expenses are tax-free). The Roth is more flexible for future withdrawals.
• Decision Factors:
  If in a high tax bracket now, HSA’s deduction advantage grows. Generally, Roth wins due to long-term flexibility—unless the tax bracket dictates otherwise.

“HSA is probably the best tax deal today… But the Roth, I'd say, is perhaps the most flexible.”
– Wes Moss (12:16)

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Dividend ETFs for Retirement Income—Good Plan?

Timestamp: 13:57–17:37

• Wes’s Philosophy:
  He’s a strong advocate for dividend and income-oriented investing. Over time, dividends account for over a third of S&P 500’s total return and tend to grow faster than inflation.
• Cautions:
  Today's dividend yields are low (S&P ~1.2%), so targeting 4% requires selecting higher-yielding stocks/ETFs, which may be limited.
• Strategy:
  Dividends might cover half to two-thirds of a typical 4% withdrawal rate; appreciation fills the rest.

“Dividends have grown at twice the rate of inflation… it protects our purchasing power.”
– Wes Moss (15:34)

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The “Periodic Table” FOMO Chart – Should We Diversify?

Timestamp: 17:56–21:15

• Mailbag Question:
  Is it useful to keep a little in “hot” categories that rotate to the top?
• Wes’s Take:
  The periodic returns chart visually demonstrates why diversification is key—categories’ performance bounces unpredictably year to year. Beware using it to chase last year’s winners (FOMO).
  • “Own them all or most”; don’t chase.

“It's a FOMO chart, but it’s also a good educational chart...You want to have many or most of those categories, because we don’t know when the tide changes.”
– Wes Moss (19:15)

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3. Why Individual Investors Lag Behind the Market

Timestamps: 23:20–28:32

• Dalbar Research Findings:
  The average individual investor consistently underperforms benchmarks because of poor timing, emotional reactions (chasing gains/selling after losses), and not sticking with plans.

  • 10-year returns: S&P 500 ~13%, average investor ~9.8% (a 30% reduction).
  • Balanced (60/40) investors: 8.4%.
  • Fixed income investors: negative returns on average over 20 years!

• Cause:
  Investors buy high (chasing last year’s strong returns), sell low (fear), and move out of funds when performance dips only to miss recoveries.

“The gap is because of the emotional reactions of volatility, the poor market timing, buying high, selling when things are low, chasing performance, etc. And that is just a perennial issue.”
– Wes Moss (27:30)

• Advice:
  Keep investing simple, have a written plan, prioritize diversification and balance to avoid emotional traps.

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4. More Mailbag Q&A

$70K Settlement – Market Bubble Fears (Tammy in Florida)

Timestamp: 28:32–30:51

• Situation:
  Tammy’s son (age 34) is worried about investing $70K due to market highs.
• Advice:
  Assign a long-term time horizon as he already subconsciously does with his 401(k)/Roth. Keep ~$35K as an emergency fund, invest the rest for retirement. Younger investors benefit greatly from time in the market.

“It never feels like a good time to invest… But you subconsciously know that the 401k is long-term money and the chances that it’s going to be worth more in five, ten years are very, very high.”
– Wes Moss (29:14)

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Roth vs. Traditional 401(k) for High Incomes (Anonymous in TN)

Timestamp: 30:51–33:42

• Dilemma:
  Household income $400K—Roth or traditional 401(k)?
• Wes’s Rule:
  Go by tax bracket, not “age + 20” rules. For 2026, under $403K (top of 24% bracket), use Roth; above that, strongly consider traditional for immediate tax deduction. Hybrid approaches for those right on the cusp.

“Brackets move slowly… if you’re going to be in a lower tax bracket in the future, then the 401k actually does make more sense.”
– Wes Moss (32:11)

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Roth IRA Contributions for Minors (Greg in Utah)

Timestamp: 33:42–34:54

• Question:
  Can his daughter contribute her gross income (~$1,000), or only the net amount after FICA/tax?
• Wes’s Answer:
  Contributions are based on gross income—wages, consulting, tips, etc.—not after-tax/net.

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Notable Quotes & Memorable Moments

• On Overlooking Small/Mid Caps:
  “I just wouldn’t ignore a really important part of the market… just because large has done really well.” (06:07)

• On Emotional Investing:
  “The more education we have around that, the less likely you are to fall victim to this.” (27:57)

• On Dividends:
  “Dividends have made up over a third of the total return of the S&P 500.” (15:04)

• On Market timing fears:
  “The market’s always at a… bubble. We're always worried about that. And then when stocks are low, we're worried they're going to go even lower.” (29:07)

• On Rules of Thumb:
  “If you're going to be in a lower tax bracket in the Future, then the 401k actually does make more sense.” (32:11)

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Timestamps for Key Segments

• 00:40 – The shifting definition of large and small caps
• 05:18 – How 401(k) investors typically allocate (and mistake to avoid)
• 11:25 – HSA vs. Roth IRA decision
• 13:57 – Dividend ETFs and retirement income
• 17:56 – Is the periodic investment chart FOMO or educational?
• 23:20 – Why individual investors underperform (Dalbar study)
• 28:32 – $70K bubble-fear scenario for younger investors
• 30:51 – Roth vs. traditional 401(k) at high incomes
• 33:42 – Roth IRA contributions for minors

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Tone & Takeaways

Friendly, data-driven, and packed with easily digestible analogies (from soda brands to jam). Wes Moss demystifies emerging shifts in what “large” and “small” caps mean, makes a strong case for long-term thinking and discipline, and arms listeners with practical frameworks to make smarter and happier financial decisions.

Clark’s Team Motto: Save more. Spend less. Don’t fall for fads. Diversify, automate, and stick with the plan.

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Transcript

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[Krista Dibias]

Welcome to Ask an Advisor where we here at Team Clark go deeper on all things investing and retirement. Krista hello here with Mr. West Moss. And today speaking of investing, we're going to talk about a couple of really interesting topics. Well, to me, what is a small cap and what's a large cap these days?

[Wes Moss]

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

[Krista Dibias]

And then also why do individual investors often not beat the market or why.

[Wes Moss]

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

[Krista Dibias]

Okay. And we'll also get to your questions for Wes. You could submit [e-mail]/Ask.

[Wes Moss]

So this is a little numbers heavy. I'm going to put on my glasses here but I'll see if I can remember all of these returns. And here we are. Let's just call this, I did this just the other day and I checked today. Depending on when you're listening to this, the numbers obviously could change a little bit day to day. But just so far in 2026, there's a huge difference between the returns of The S&P 500 large companies relative to the small cap indices and the mid cap indices. And as we sit here today, Large stocks S&P 500 up about 1 1/2 percent. Small caps up 6%. That's a pretty big difference. It's still really early in the year but these two categories are dramatically different. And we'll go through the sizes of what's a small mid and large cap company but the returns have been really different even if you, if we look over the last three years, 20, 23. So if you go back and look at the last three year cumulative return, let's look at large versus small cap companies. The S&P 500 index up a little over 80%. If we were to look at the S&P 600 small cap index, it's only up 25%. Huge difference in returns over a really a significant and an importantly long period of time. The Russell 2000 index also a small cap index up 40%. So you could look at this as that stocks in the largest of large S&P 500 have essentially doubled the returns of small caps. So I think that's just right out of the gate. An important thing to understand however, and I'm not saying this is a durable trend just yet but it is notable that so far this year small caps have been closing the gap to some extent. Where do we stand today? I remember if I go back 10 years or 15 years, a company that was $20 billion was a, was a really big company. $50 billion was a really big company. We have now entered a world where we have trillion dollar companies today. Now we don't have a ton of trillion dollar companies but a trillion dollar company remember is 10 times the size of a $100 billion company. $100 billion company is still massive, insane. But a trillion dollar company is 10x that hard to even for the human mind to conceive that. So the sizes have really shifted and they have migrated up as you can imagine over the, over the years now that we have trillion dollar companies. So here's the new let's call it standard. Well again let's just go back 10 years. 10 years ago the median and I'm looking at the middle stock. Remember median is not the average, just the midpoint. Ten years ago the S and P, the Median S&P 500 stock was 18 billion. Today it's about 35 billion. So it is doubled in size. The average 10 years ago was 50 billion. Today the average S&P 500 companies 100 billion.

[Krista Dibias]

Wow.

[Wes Moss]

Hundred billion dollar market cap value. And you have, these are the choices that you have. We most of us, if you're listening and watching you have these choices in your 401k or your 403b or, or your retirement plan at work, you'll get a long list and it'll say large cap this, large cap value, large cap growth, mid cap this, then mid cap value, mid cap growth, small cap. So you have all of these choices and the inclination most investors have as you go down the list and you see a one year and you see a two and a three and a five and a seven and ten year and they, and you look at the rates of returns. So you're going to look at this and you're going to look and see all these large, all the large categories, the biggest of stocks, they're going to have really great returns. And people are very inclined to say well, they've done well. That's what I'm going to invest in. Why would I put money in these areas that are. This is up 80, this is a 40. I'm picking the one that's up 80. That is how 95% of 401k investing works. And that to some extent can be a problem because you start ignoring some of these categories that may may have a higher probability of playing catch up and closing the gap. And that's what this story is really about today here. I don't want people to ignore a really important part of the market, middle sized companies and small cap, just because large has done really well. So small caps today in the world we live in would be in the 500 to 5 billion category in total market cap. Market cap is just number of shares times the stock price. Mid cap is 5 to 25 billion. Large cap is 25 now to 300 billion. And then even though you don't see this officially, even though you'll see some ETFs that say mega cap something I would have to put the top part of the large category I consider mega cap. And those are 300 billion to over a trillion.

[Krista Dibias]

Wow.

[Wes Moss]

To 3, 4 trillion. Here's an example. I looked at the entire s and P500 and I picked the middle stock. Stock number 250. 251. It's a well known name and that's why I picked this one. But it also happens to be dead kind of right in the middle, at least the day I was looking. And that's Keurig, Dr. Pepper. What do they own? Everybody knows that company. It's a massive company. It's a $37 billion company. It owns of course, Dr. Pepper. We all see the football ads of the Dr. Pepper Little Town they created. Canada Dry Mott snapple A&W7 up, sunkissed soda squirt, Hawaiian Punch and Keurig. The well and that's just the coffee side which is the single cup Keurigs that made single cup coffees famous. Yoohoo remember you who the drink that's still out there. Big Red and Vita Co Vita Cocoa. The coconut water. So it's a big company. It's $37 billion. Then you look at a company like Microsoft, which is not the biggest company on the planet, but number I think three or four. It's a three and a half trillion dollar company. So that means Microsoft is roughly 100 times the size of a massive consumer brand like Keurig.

[Krista Dibias]

Dr. Pepper.

[Wes Moss]

Very different profiles size wise, the smallest. Just for fun, I looked almost number 500 on the SP 500 list was at the time, at the day. And this will change. Campbell Soup. Now it's just the Campbell's company.

[Krista Dibias]

Okay.

[Wes Moss]

And that'll fluctuate. Obviously the time I checked it was just. It was a little under 10 billion. As the smallest company in or one of the smallest in the S&P 500. Why has the S P 500 gotten so giant? It's because it's market cap weighted. But the other indices are too. And the there's a disproportional amount of size on the top 10. And those top 10 companies have pulled up the average pretty dramatically. But they also, and I know this was a theme last year, it's still a theme this year in 2026. If you were to look at the 10 companies at the top of the S&P 500, they are 40% of the entire S&P 500, which is a remarkable thing to think of just 10 out of 540% of the entire index because they're so giant right now. Average market cap 100 billion median is 33 for the S&P 500. Now the Russell 2000, which I think is a good proxy, this is an index and you can find ETFs that do this. But you're looking at just the index. The average company is 4.8 billion. In relative terms, tiny. The median market cap is only 1 billion. Remember we just talked about Campbell's 10 billion. So the median company that's considered a small cap is still 10 times smaller. 1/10 of the smallest company in the S&P 500. Who's in the Russell? You would think, well these are tiny companies. Nobody knows these. Carvana, Rocket Labs, Bloom Energy, Abercrombie, Guardian Health. So still big companies that we know, but they're considered small when it comes to investing. Why could small capsules be playing some catch up? One, they've lagged way behind and historically small caps, if you look over a really long period of time, small companies have actually done better than large over the course of, let's call it 50 years plus. So they've, they've lagged behind more recently and that may be why you're starting to see some, some playing catch up and maybe that, maybe that continues, maybe not over the course of the year. I just wouldn't ignore small caps. And they also are cheaper from a valuation perspective. They're not trading as richly relative to their earnings as most of the big, large cap companies. So the bottom line is to not ignore this category that has perennially actually done very well, even better than large caps over time. Just because they've lagged behind over the last couple of years, I just wouldn't ignore them completely. When you're looking at your 401k options.

[Krista Dibias]

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

[Wes Moss]

HSA versus Roth. Brian, don't make me choose. I know these are both, they're both such good options because essentially they are paying for things on a tax free basis. So they both have this wonderful HSA is like a 401k for your health care. But when you're paying for it, you're not paying taxes on the money that's going out to pay for XYZ health care bills. So the advantage of the HSA, the contributions are tax deductible. So it's like a 401k contribution. If you put $1,000 in an HSA or you max it out, it's 80, I think this year, 8,750 for a family that goes off the top and you don't pay taxes on it. So you get a big tax break. For HSAs, again, the withdrawals are tax free and the growth is tax free. So that's, that's an awesome combination. But the Roth, the Roth is perhaps just as good because it's even more flexible. It's not that you can spend Roth money just on health care. So the HSA is limited to just spending on health care. The Roth, you can spend anything when you get into retirement. So that tax free growth is great, the tax free usage is great. Big difference. So you don't get a deduction to put money in the Roth. That's the big difference. So the HSA is probably the best tax deal today. And the higher the bracket you're in, Brian, the better the HSA is in the given year. And then the Roth, I'd say is perhaps the most flexible. So if I had to just pick one, they're both great. But if I had to just pick one, I would probably go with the Roth because even though health care is extraordinarily important, your retirement long term is, and I think Ty goes to the Roth. But they're both very, very good if you're in a really high tax bracket. So this would be the nuance. And you think you'll be in a lower tax bracket in the future or if you're in a fairly high tax bracket, I would say that it swings back towards the HSA just a, just a little bit. So you could just continue to split the difference is not a bad way to do it.

[Krista Dibias]

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

[Wes Moss]

Maybe I haven't pounded the table enough or maybe you're new to the show, but this is dividend investing. Income oriented investing is. That's my preferred philosophy. It's not right or wrong.

[Krista Dibias]

It's just that's your jam.

[Wes Moss]

That is, that's what you would call it. As Krista would say, that is my jam charts and dividend dividend payers, because dividends. So first of all, over the course of economic or stock market history, dividends have made up over a third of the total return of the S&P 500. They get short shrift today because the big Big companies at the top don't pay a lot of dividends. So the average, the dividend on The S&P 500 is de minimis, it's 1.2%. So it doesn't feel like it's all that exciting. However, at the same time, Kevin, the overall aggregate amount of dividends is the highest it's ever been. It's just that the value of the market has gone up so much. The percentage yield is now lower. So I'm a big believer is when you get into retirement, particularly so you've got your accumulation phase and your distribution phase. Retirement is when you're pulling money out. I like dividend investing for both phases because in the, in the first phase, you can just reinvest the dividend. Reinvest, reinvest, reinvest. In retirement, you're going to start using that cash. And to me, because dividends have grown at twice the rate on average of inflation. So if inflation's 3, dividends have grown 6, growth of 6, that really protects our purchasing power. It protects our ability to spend on higher cost goods because our dividends are higher over time. And to me, it's a wonderful way to, to structure your overall retirement portfolio to make sure you have cash flow that you can regularly spend. One catch, I would just say dividends are relative to the general market. And I mean what I mean by that. If the S and P is only paying 1 point to a stock, paying 3 is a really high dividend. It's more than double the s and P500. So just note that as of today, dividend rates are relatively low. You can have a portfolio that has a 4% dividend yield, but you would have to really get specific on, on very pretty darn high, not the highest, but high dividend yielders in that three and a half to four and a half percent range, there's not that many of them. So the way I would look at this, Kevin, is that dividends can do half to two thirds of the work when it comes to that 4% withdrawal rate you're looking for. So 4% is your withdrawal rate. Your 10,000 on the 250 is if dividends are giving you two and a half or three, it's getting you two thirds of the way there. Then the appreciation, which is our equation, we're all after total return equals growth or income. Dividends plus growth should get you more than the rest of the way there.

[Krista Dibias]

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

[Wes Moss]

But not apple jam.

[Krista Dibias]

No. Okay. On a few podcasts there's apple butter. I love apple butter.

[Wes Moss]

I don't know, I'm not a big fan of apple butter. It's brown, it's mushy, it's delicious. I'd rather like a strawberry jam.

[Krista Dibias]

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

[Wes Moss]

Yeah, it's okay.

[Krista Dibias]

On a few podcasts Wes has mentioned he loves a chart that's speaking.

[Wes Moss]

Also my jam, I found the Callen.

[Krista Dibias]

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

[Wes Moss]

Chip, it's a FOMO chart, man.

[Krista Dibias]

FOMO Fear of missing Out. Just in case you don't, Chip, it's.

[Wes Moss]

A, it's a FOMO chart, but it's also a good educational chart. I want you to visualize this for a second. Think of the periodical table in high school or college and everything has its own little box. But think of it just as a rectangle and there's a year at the top of each column and there's a new color for the different asset classes that they're tracking. Might be precious metals, emerging markets, small cap value, small cap growth, large cap, large cap value, et cetera. And let's just say one of those categories is red. You look at this chart and red will go from one of the worst performers out of the group to one of the best performers in the group and then one of the worst and one of the best. You end up seeing visually that the category performance in any given year is going to bounce around. You might have a couple years where it's near the top that a couple years near where that category is near the bottom. And I first think it's a photomo chart because as a human you can't help but look at the chart and say, oh yeah, precious metals, it was, it's at the top for last year, 2025. That would be that, let's say that's yellow. They'll usually put the gold one in yellow and it's at the top. And you think, oh, it just of course that was the best. And you go back through the year, year prior, of course large cap was the best. So you can't help but do a little Monday morning quarterbacking with looking at that FOMO chart you're talking about. So I think that that's the downside of that chart. It's a fear of missing out chart. You think, well, I'm just going to pick the this category that does the best most of the years. Then money typically funds or funnels into what did the best last year, which often doesn't do the best next year or this year. So it's a FOMO chart, but it's a great educational chart chip and I think you nailed this is that and this is really why I brought up the small versus large cap is that you want to have not necessarily all of those categories on that particular chart, but it's a reminder to own many or most of those categories because we don't know when the tide changes. The blue box that represents small cap value goes from lowest return out of the group to the best. We don't know when that tide exactly turns. So the answer is to own them all or most.

[Krista Dibias]

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

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[Wes Moss]

Ouch.

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[Wes Moss]

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Learn [e-mail] we all have moments when we could have done better. Like cutting your own hair.

[Wes Moss]

Yikes.

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Or forgetting sunscreen. So now you look like a tomato.

[Wes Moss]

Ouch.

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[Wes Moss]

When you need it.

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Learn [e-mail].

[Krista Dibias]

Your planet is now marked for death.

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[Wes Moss]

We will protect you as a family. Light them up.

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[Wes Moss]

That is fantastic.

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[Wes Moss]

What time has it been? It's clobber time. Welcome back to Ask an Advisor. I'm Wes Moss along with Krista Dibias here on the Clark Howard show, Ask AN Advisor. You just want me to start with individual?

[Krista Dibias]

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

[Wes Moss]

All right. I know we had a long first half of the show, so maybe today we'll be a little tighter on the second half. The emotional impact on investing. You could title this why are individual. Individual investor. That's the average person who's making a trade at Schwab account or Fidelity account or Vanguard account. Why are their returns lower, so much lower than the index? Q A I B? The quantitative analysis of investor behavior. It's a study that gets redone every year by a company called Dalbar. It's a research company and they're, they're measuring the actual performance of, of individual investors. And, and just to turn a. Put this in focus, just because a fund, let's say a mutual fund does 20% on the year, it doesn't mean that everyone that owns that fund got 20% because people could have started later in the year. They could have started. They could have put more money in at any given time. They could have taken some money out. So to really get your actual rate of return, it's gotta be from when you were invested. And calculate if you put money in and took money out, also fees, taxes, all these other things. So the headline number doesn't necessarily, in fact, it often does not mean that you had the same rate of return. And that's kind of the methodology they're going with here. They're looking at the actual return and taking all these things into account. And as you can imagine, because of buying and selling and switching and redemptions, timing decisions, funds that are doing well, or let's call it whether it's an ETF or a stock for that matter, but they're measuring mutual funds. Funds that are doing well tend to attract money, but they attract money once they've already done well. So people are typically getting coaxed in or just incentivized because of past performance to be putting money in usually at a time when now the fund is not going to do as well.

[Krista Dibias]

Sure. You're looking at a snapshot and you're like, well that, that's good. Yeah.

[Wes Moss]

And that whole tide, it's like the, it's like the tides of the sea. It just continues to happen in the world that we live in. And there's a real price to that, the actual rates of return. So think of it this way. If you've got the s and P500 over the past, I'm going back to 2005 up 700%. Inflation or the power of our consumer dollar over that same period of time is down about 50%. So it buys half of what it used to buy 20 some years ago. So we're almost forced to invest in a market in order to keep up with inflation in a market that averages negative 16% intra year decline in any given year. So no wonder it's pushing and pulling people out at any given time. It is an emotional environment to be in and we are human and we are inherently attracted to something that would be good for us and run from something that would be bad. And that's why the tug and pull of emotions really matters when it comes to investing. And it impacts return. So here's what Dalbar says. You look over the past 10 years, the S&P 500 as a proxy for stocks over the last 10 years. And this was as the end of this is their 2025 report. So it actually the data cut off in year 2024. This is their 25 report S&P 500 a little more than 13% on average. The average equity fund investor 9.8%. So it's 30% less over that over a decade. That's a big number. The average balanced investor that is 60% stock, 40% bonds. If you were to look at what those averages would have come out to 8.4% per annum. The average asset allocation fund investor, 4.3%. Half the numbers are even. Well, you can look at these as even worse. Here's a 20 year period of time and looking at fixed income, the the aggregate bond index over 20 years has averaged a little over 3%. So it's still not great, is it? Not great returns, but a positive on average 3%. The average fixed income fund investor negative 0.25. It's a really big difference. And it's not to say people are bad investors. It's just that they get tugged. They get pulled in. And then I think in this case they get impatient. So it's like, oh, this fund hasn't done well, I'm going to get out of it. And then it eventually starts to do well again. So the gap is because of the emotional reactions of volatility, the poor market timing, buying high, selling when things are low, chasing performance, et cetera. And that is just a perennial issue. And I just think the more education we have around that, the less likely you are to, to, to fall victim to this. So make investing simple, have a written plan, continue to be educated on this diversification and balance all those things that help you fight against the emotional returns, the emotional burden on your returns over time.

[Krista Dibias]

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

[Wes Moss]

Sounds like a Jerry Maguire quote. Let me help you. Let me help me help you. Tammy. This is a time horizon question in disguise because everyone's always worried that the market's about to go down. The market's always at a, in a bubble. We're always worried about that. And then when, when stocks are low, we're worried they're going to go even lower. So it never feels like a good time to invest. However, for some reason, your son has no problem putting money and maxing out the 401k. So why is that? It's because it's assigning him a long time horizon almost subtly without him knowing it. And it makes it so that, oh, I can invest in stocks, of course. So why would you not? If he's going to put 25, maybe he has $50,000 invested in stocks in the 401k. Why is that safe? And you don't want to invest any of the 70,000. It's because you subconsciously know that the 401k is long term money and the chances that it's going to be worth More in five years and 10 years are very, very high. Even if we are going into a correction the day after you invest, sue to help you Help your son, ask him to extend his time horizon out and think of this as retirement money. Now maybe prudent that half of this money, maybe 35,000 of it, should be emergency fund money. Maybe half of it does need to stay in a money market because it gives him the cushion that we all need in a particularly in a high cost place like California. So maybe it's prudent to say half of it stays in money market but then assign the other half of it a long horizon. And I think it can get invested for somebody 34. He needs to invest it. He just needs to know that he's not going to touch it for a very long time.

[Krista Dibias]

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

[Wes Moss]

Okay, I like that Clark has the rule of thumb. He uses aggregate income. And I do have the 2026 tax bracket somewhere here. Let me go to that. So, so again this is a question around Roth or regular. So first of all, I don't know of a rule of thumb of age plus 20 for this. I think of it as a tax bracket. So the reality is that I land right where Clark lands. He thinks of it as a if you're married filing jointly, 2026, the 24 bracket is 211k up to 403k. And that's why Clark saying anything under if you're making 400 or less, Roth if you're making 400 or more traditional 4.1k because you get the tax deduction and that's potentially more beneficial because the big deduction, So I think of it as brackets. Brackets move slowly some 10 to 2. Well then there's another, there's a jump to 22 and then it's just a 2% jump to 24. But then it's an 8% jump to 32, meaning that for every dollar over that 403,000, you're now tax at 32%, not 24. That's a huge difference. So Roth versus regular 401k is just a, it's a taxes today versus taxes in the future. If your taxes are going to be the same or higher in the future and A lot of people, they're around the same. Then the Roth makes all the sense in the world. If you're in the 24 bracket or lower, again, 403,000 is the top of that bucket. If you're going to be in a lower tax bracket in the Future, then the 401k actually does make more sense. And if you're in the 32 bracket or 35 bracket or 37 bracket, then you're paying 37% to get it into a Roth when in the future you're only going to be in the 25. So in that case, high income folks above the 24 bracket should be using the traditional 401k above that bracket. That's my rule of thumb. Is that demarcation the only time? There's only one little catch there, and that's if you're, let's say 10 grand over, so you're at 410 or 415, it may make sense to use 10 or 15,000 of contributions to keep your income in the 24 bracket or lower and then do the rest of the Roth.

[Krista Dibias]

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

[Wes Moss]

Hopefully you remember when you submitted a question and we, we highlighted here on the show and we answered it and thank you, Greg. The, the answer is gross. It should just be she earns $1,000 just because she pays taxes on 100 or $200 in taxes, whatever it might be, or FICA. Maybe it's 150 bucks or 70 bucks. It's the gross amount and it's just about again, this is the to be able to qualify to do a Roth. It's earned income, wages, tips, consulting fees, professional fees, anything you're earning by doing something counts and it's a gross number. What doesn't count for Roth is dividends, passive income that just comes in. It's if you have just dividends, that doesn't count towards earned income. If that's your only income, then you wouldn't have enough to put into or make a contribution. So I think she's in great shape and that's a smart move. It's somebody that young.

[Krista Dibias]

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

[Wes Moss]

Great questions today.

[Krista Dibias]

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