The Clark Howard Podcast – Episode Summary Title: Ask An Advisor With Wes Moss - Why Successful Investors Buy Stocks (Mostly) and Stock Market FOMO
Release Date: January 21, 2025
Host: Clark Howard
Guest: Wes Moss, Fee-Only Fiduciary Advisor

Introduction to Successful Investing

In this episode of The Clark Howard Podcast, host Krista Dibiaz welcomes Wes Moss, a fee-only fiduciary advisor and a new member of Team Clark. Wes delves into the foundational principles of successful investing, emphasizing a strategy centered around stock investments while highlighting the importance of diversification, patience, and strategic planning.

Key Points Discussed:

1. Stocks Mostly:

   • Wes Moss [01:25]: "We want stocks mostly. If you look at what's outpaced inflation in a very successful way and help people keep their purchasing power over time, so we want to be able to participate in stocks."
   • Rationale: Despite market volatility over the past 25 years, stocks, particularly the S&P 500, have consistently outperformed other asset classes, providing an average annual return of around 10%.

2. Massive Diversification and Asset Allocation:

   • Diversification Importance: Diversifying investments across various sectors and asset classes mitigates risk and enhances the stability of returns.

3. Patience and Longevity:

   • Wes Moss [04:07]: "You can retire sooner than you think." Emphasizing long-term investment horizons, Wes highlights how compound growth over decades can significantly bolster retirement savings.

4. Avoiding Market Headlines:

   • Strategy: Investors should remain focused on their long-term goals rather than reacting to short-term market news or fluctuations.

5. Strategic Planning:

   • Financial Planning: Proper estate and retirement planning are crucial for achieving financial freedom and ensuring a comfortable retirement.

Listener Questions and Expert Advice

1. International Investing:

Question from Benjamin in Alaska:
“My wife is from India and is Canadian. As an American, would it be wise to invest in Indian, Canadian, and US stock markets?”

Wes Moss [07:00]:
"Unless you have a hometown bias that justifies heavy investment in those specific markets, it's generally better to focus on the US market due to its stability and robust economic structure."

Advice:

• Home Bias Caution: Avoid concentrating investments in foreign markets unless there's a compelling reason.
• Diversified International Funds: For exposure beyond the US, opt for diversified international funds that spread investments across multiple countries, reducing risk associated with any single market.

2. Estate Planning Amid Health Challenges:

Question from Louise in Pennsylvania:
“My husband has been diagnosed with Alzheimer's, and we're concerned about the financial implications of long-term care. Should we set up an irrevocable trust to protect our home?”

Wes Moss [10:14]:
"The first step is to consult with an elder care attorney specializing in Medicare and Medicaid planning. Irrevocable trusts can be complex, especially with Medicaid's five-year look-back rule, and professional guidance is essential."

Advice:

• Appoint a Trusted Power of Attorney: Ensure a reliable family member can manage finances and healthcare decisions.
• Professional Consultation: Engage with an elder care attorney to navigate Medicaid planning and evaluate the benefits and drawbacks of an irrevocable trust.

3. Retirement Planning vs. Mortgage Repayment:

Question from Tiffany in Georgia:
“At 55, I have $400,000 in retirement savings and a $128,000 mortgage at 4.2% interest. Should I double my mortgage payments to pay it off faster or reduce my retirement contributions?”

Wes Moss [13:10]:
"Continue contributing to your retirement funds while making an extra mortgage payment annually. This strategy allows you to grow your retirement savings while gradually reducing mortgage debt."

Advice:

• Prioritize Retirement Savings: Maintaining consistent contributions to retirement accounts is crucial for reaching the $700,000 median savings goal.
• Supplement Mortgage Payments: Making occasional extra payments can help shorten the mortgage term without sacrificing retirement growth.

4. Evaluating Fixed Annuities:

Question from Donna in Virginia:
“An insurance company is offering a guaranteed fixed-rate three-year annuity yielding 5.4%. Is this a safe investment?”

Wes Moss [26:12]:
"Fixed annuities through insurance companies lack FDIC insurance and concentration risks. They also tend to be inflexible once committed. Consider diversified alternatives like U.S. Treasuries or bond ETFs for greater liquidity and safety."

Advice:

• Diversification: Avoid placing significant funds into a single insurance company’s annuity.
• Alternative Investments: Opt for U.S. Treasuries or diversified bond ETFs that offer more flexibility and lower risk.

5. Withdrawal Strategies in Retirement:

Question from Keith:
“With retirement approaching, should I use my Roth IRA funds first to take advantage of tax-free income?”

Wes Moss [29:47]:
"Start withdrawals from taxable brokerage accounts to benefit from lower long-term capital gains taxes, then utilize IRA funds, and finally tap into Roth accounts. This approach optimizes tax efficiency and preserves the growth potential of Roth funds."

Advice:

• Order of Withdrawals:
  1. Taxable Accounts: Utilize these first to manage tax liabilities effectively.
  2. IRA/401(k) Accounts: Withdraw next to minimize future Required Minimum Distributions (RMDs).
  3. Roth Accounts: Preserve these for as long as possible to maximize tax-free growth.

Understanding and Managing Investment FOMO

Segment on FOMO Freddie:

Wes Moss [16:11]:
"FOMO Freddie is that voice at social gatherings pushing you to chase the latest investment trend, fearing you'll miss out on significant gains."

Key Insights:

• Patience Over Chasing Trends: Successful investing relies on long-term strategies rather than reacting to short-term market spikes.
• Consistent Investment Styles: Historically, sticking to a chosen investment style yields better returns than frequently shifting to chase recent winners.
• Long-Term Growth: Emulating investors like Warren Buffett, who focus on sustained growth over decades, typically leads to financial success.

Notable Quote:

• Wes Moss [19:31]: "If you're chasing styles, you're chasing what did well. Mathematically, we have seen, and historically, that can lead to underperformance compared to a consistent, long-term strategy."

Conclusion

In this insightful episode, Wes Moss underscores the importance of a disciplined, long-term approach to investing, primarily through stocks, while maintaining diversification and patience. He provides thoughtful responses to listener questions, offering practical advice on international investing, estate planning, mortgage repayment, evaluating annuities, and optimizing retirement withdrawals. Additionally, the discussion on managing investment FOMO reinforces the value of sticking to a well-thought-out investment strategy over succumbing to market hype.

Listeners are encouraged to focus on sustainable investment practices, seek professional guidance for complex financial decisions, and remain steadfast in their financial planning to achieve long-term financial freedom.

For more personalized advice and to join the conversation, visit www.clark.com/askclark.