02.04.25 Ask An Advisor With Wes Moss - DeepSeek Shockwave: What It Means for the Economy and Your Investments

Summary

The Clark Howard Podcast: Ask An Advisor With Wes Moss - DeepSeek Shockwave: What It Means for the Economy and Your Investments

Release Date: February 4, 2025

In this enlightening episode of The Clark Howard Podcast, host Clark Howard welcomes financial advisor Wes Moss for an insightful "Ask An Advisor" segment. Together with co-host Krista Dibiaz, Wes delves into critical financial topics, offering valuable advice on navigating economic shifts and optimizing personal investments. The conversation is structured around two primary themes: the Army of American Productivity and the enduring importance of Diversification in investment portfolios. Additionally, Wes addresses a series of listener questions, providing tailored solutions to common financial dilemmas.

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1. The Army of American Productivity

Timestamp: [01:02] – [09:10]

Wes Moss introduces the concept of the Army of American Productivity, emphasizing its pivotal role in driving the U.S. economy and affecting retirement accounts. He attributes the nation's sustained growth to an "underlying current or tide, almost like this gravitational force" that boosts productivity continuously (01:49). Despite only about 31% of Americans loving their jobs—a statistic highlighted from a Gallup poll—Wes identifies three main motivators that keep the workforce productive:

• Fear: The necessity to earn a living to meet financial obligations.
• Optimism: The belief that future improvements and better opportunities lie ahead.
• Purpose: Finding meaningfulness in one's work beyond monetary rewards.

Wes explains that this relentless drive fosters innovation, lowers costs, and elevates the standard of living, ultimately enhancing the economy and stock market performance.

Notable Quote:

"There's gotta be something, some underlying current or tide, almost like this gravitational force in the United States that just makes us more and more productive." — Wes Moss [01:49]

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2. The Importance of Diversification in Investments

Timestamp: [22:32] – [29:10]

Transitioning to investment strategies, Wes underscores the timeless principle of Diversification. He argues that maintaining a diversified portfolio is essential to mitigate risks associated with single securities or specific market sectors. Wes outlines several layers of diversification:

• Security Selection: Ensuring no single company constitutes more than 10% of the portfolio.
• Sector Diversification: Spreading investments across various industries to avoid sector-specific downturns.
• Size Diversification: Including companies of different market capitalizations (mega cap, large cap, mid cap, small cap) to balance growth and stability.
• Geographical Diversification: Investing internationally to capture global market growth and reduce dependence on the U.S. economy.
• Strategy Diversification: Incorporating different investment styles, such as growth and value investing, to optimize returns.

Wes points out that media narratives often tempt investors to concentrate their holdings in booming sectors like technology, which can lead to significant losses when those sectors experience downturns. He emphasizes the need for a multi-layered diversification strategy to ensure long-term financial stability.

Notable Quote:

"One of the things that kind of a guiding light when it comes to financial advice... is to just try to make things as simple as possible." — Wes Moss [22:42]

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3. Listener Questions and Expert Advice

Wes Moss addresses a variety of listener-submitted questions, offering expert guidance tailored to individual financial situations.

a. Roth Conversion Strategy for Linda in Indiana

Timestamp: [09:16] – [14:02]

Linda, aged 56, inquires about the benefits of performing a Roth conversion given current tax conditions. Wes advises a thoughtful approach:

• Roth Conversions: Can be advantageous, especially with several years remaining before Required Minimum Distributions (RMDs) kick in.
• Tax Planning: Suggests spreading the conversion over multiple years to avoid jumping into higher tax brackets, likening the strategy to a "lock system" that utilizes each tax bracket efficiently.
• Inherited IRA: Recommends handling the inherited IRA within the 10-year distribution window, potentially completing this over the next two to three years before initiating Roth conversions.

Notable Quote:

"You can think of it as utilizing these brackets, like the lock system, being careful to not go to the next higher one." — Wes Moss [11:28]

b. Short-Term Parking for Home Down Payment by Brian in Oregon

Timestamp: [14:02] – [21:42]

Brian seeks advice on where to safely park $50,000 intended for a home down payment. Wes recommends:

• Money Market Funds: Emphasizes safety and liquidity, suggesting government-backed money market mutual funds.
• Government Bond ETFs: Advises caution with ETFs offering returns significantly above the Federal Reserve's rate, as they often entail higher risks.
• Risk Assessment: Highlights the importance of matching investment choices with safety needs, especially when funds are earmarked for imminent use.

Notable Quote:

"You can almost look at the yield of every product you're looking at and if it's way above the fed funds rate, they're taking on extra risk." — Wes Moss [14:19]

c. Brokerage Account Protections for Andrew in Iowa

Timestamp: [17:19] – [21:42]

Andrew expresses concerns about the safety of his retirement accounts if his brokerage firm were to fail. Wes clarifies:

• SIPC Insurance: Explains that the Securities Investor Protection Corporation (SIPC) provides up to $500,000 per named account, including a $250,000 limit for cash, protecting against brokerage firm failures.
• Asset Separation: Reassures that investments are held separately from the brokerage's assets, minimizing risk in the event of the firm's insolvency.
• Best Practices: Advises sticking with reputable, large brokerage firms to ensure maximum protection and reliability.

Notable Quote:

"SIPC doesn't care about that. They only care if the brokerage firm fails. Someone new takes over." — Wes Moss [21:42]

d. Custodial Roth IRA for Young Entrepreneurs Josh in North Carolina

Timestamp: [29:10] – [33:00]

Josh seeks guidance on setting up a Custodial Roth IRA for his six-year-old twins who have successfully run a produce stand. Wes provides the following insights:

• Eligibility: Twins must have earned income to qualify for a Roth IRA; their $1,000 earnings over two years meet this criterion.
• Documentation: While formal tax returns may not be necessary for children, maintaining a ledger of earnings is essential to prove income.
• Investment Strategy: Recommends broad market stock funds over target-date funds for young investors, allowing for greater growth potential over time.
• Platform Choice: Endorses Vanguard as a suitable institution for setting up custodial accounts.

Notable Quote:

"There's no reason he shouldn't be able to do that." — Wes Moss [31:00]

e. Advisor Fee Structures for Douglas in Connecticut

Timestamp: [33:00] – [36:20]

Douglas is exploring fee-only fiduciary advisors and prefers an hourly rate over asset-based fees. Wes outlines:

• Fee-Only Advisors: While some advisors offer purely hourly rates, many combine hourly fees with assets under management (AUM) fees to sustain their business models.
• Garrett Planning Network: Suggests utilizing resources like the Garrett Planning Network or the National Association of Personal Financial Advisors to find advisors who align with his preferred fee structure.
• Sustainability: Notes the challenges advisors face in operating solely on hourly fees, such as the need for continuous client engagement.

Notable Quote:

"There's not that many people that are purely hourly. Even if they're hourly, they typically will say, well, I'm $250 an hour, but it's a minimum of 10 hours." — Wes Moss [33:29]

f. Bonds vs. Cash in Retirement Portfolios for John in Florida

Timestamp: [36:20] – [38:29]

John questions the necessity of including bonds in his retirement portfolio, given that money market funds offer similar yields without the volatility of bonds. Wes responds:

• Historical Performance: Highlights that over extended periods, bonds have generally outperformed cash, providing better returns.
• Interest Rate Dynamics: Explains that bonds offer fixed interest payments that can be advantageous if the Federal Reserve lowers rates, whereas money market rates adjust downward.
• Asset Allocation: Emphasizes the importance of including bonds as part of a diversified portfolio to balance risk and return over the long term.

Notable Quote:

"History has shown us in most, most, most scenarios and time periods we're looking at, bonds over time should give you an overall better rate of return than money just sitting in cash." — Wes Moss [38:03]

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Conclusion

In this episode, Wes Moss provides a comprehensive examination of the factors influencing the American economy and personal investment strategies. By elucidating the concept of the Army of American Productivity and reinforcing the critical role of diversification, Wes equips listeners with the knowledge to safeguard and grow their financial assets effectively. The detailed responses to listener questions further underscore the importance of personalized financial planning and strategic investment choices.

Listeners are encouraged to implement these insights to achieve greater financial security and navigate the complexities of the modern economic landscape with confidence.

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For more expert financial advice and money-saving tips, visit www.clark.com.

Transcript

[Krista Dibiaz]

Imagine what's possible when learning doesn't get in the way of life. At Capella University. Our game changing flexpath learning format lets you set your own deadline so you can learn at a time and pace that works for you. It's an education you can tailor to your schedule. That means you don't have to put your life on hold to pursue your professional goals. Instead, enjoy learning your way and earn your degree without missing a beat. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo welcome back to Ask an Advisor. I'm Krista Dibiaz here with Wes Moss. Krista Dibiaz, so good to be with you. Thank you so much to everyone who sent in questions specifically. We're getting a lot of questions for you Wes. So when you fill out the [e-mail] ask just you can put in your question notes if you'd like the question to be answered by Wes specifically. And we're getting more than we can answer, but we got a lot.

[Wes Moss]

I'm ready for tons of questions.

[Krista Dibiaz]

We have a lot. So what are you going to talk about today?

[Wes Moss]

We're going to talk about the army of American Productivity. It's one of the things that kind of drives we don't really see it on a day to day basis, but it drives the world, it drives our retirement accounts and it's kind of what motivates us. So that's kind of the first topic. And then I also want to go over, it may sound almost elementary if we talk about diversification. Everybody knows we're supposed to do that, but but a lot of us will diversify. And then over time we get less and less diversified because the market kind of draws us into what's really working. And in 2025 we've had some events that have really shaken some of the areas of the market and it reminds us just how important diversification is. Those are two really important topics that kind of tie together today.

[Krista Dibiaz]

Awesome. And I do have some great questions for you too.

[Wes Moss]

It's kind of ironic to talk about the army of American productivity because the shock was technically from a Chinese. But it still matters and it still makes sense of what to me, this underlying tide and the short story on army of American Productivity is that there's gotta be something, some underlying current or tide, almost like this gravitational force in the United States that just makes us more and more productive. And that force, you can't see it, but it's there and it's happening 24, 7, 365. And it drives innovation, it drives lower costs, it drives standard of living. And then ultimately that drives the economy and drives the market, and it drives companies to just get a little bit better every single day, every single year. And then you end up with more earnings and you end up with a rising stock market. I've thought about this for many years now of what is it that drives the U.S. economy, that ultimately powers our retirement accounts? Gotta be something. And there's a Gallup poll. Gallup does a great job of studying, like, the sentiment, how we feel about our jobs. And there's a poll, and they do this year over year over year. So this isn't new. That as much as Krista may love her job, and as much as I may love my job, only about 31% of people really love their job.

[Krista Dibiaz]

That's brutal.

[Wes Moss]

It's just not a lot. So let's call it. That's not even a third. It means 69%. Call it almost 70% of Americans, they really don't like working. It's not that they hate to work, but they don't necessarily like their job. They're not finding purpose from it. So, okay, well, if 70% of America doesn't really. They're not excited. They still go to work. We still have this super productive workforce. But I think it comes down to three categories. So most people don't love their jobs, but there's still three things that drive us. For a lot of that group. There is. Well, here are the three things. Fear drives us, optimism drives us, and then purpose drives us. Those are the three categories. So the first one is fear. Well, you may not like work, or you may have liked work, but you don't love your company anymore. And you've been there for 25 years and you're just ready to get out of there. You're still getting up every day with the fear of a. Not be able to make pay the bills, not be able to pay the mortgage, not be able to pay for the kids, not being able to save for retirement, not having enough retirement money. So you're. We're driven by this a little bit of just fear. I've got to put food on the table and we get up and we go to work. And just that motivates us enough to be pretty good.

[Krista Dibiaz]

You know, Clark always says, I owe, I owe. So off to work I go.

[Wes Moss]

That's a better way to say it. I owe, I owe. And off to work I go. And that's like, that's America, right? A lot of us are in that camp. But it still means we have to be good at our job. So we still have to go and we have to produce and we have to make sure that we're not going to get fired. So we're every day waking up, we're going in and we're doing the best we can to continue on and keep making money. I o I O so that's the first group. And I don't know the exact percentage of that, but let's call that a third. The next third is the group that. And some of these are maybe shared is just optimism, right? We have this sense of optimism that things are just going to get better. If I don't like my job today, maybe I will in a year because I might change jobs and that I will be able to afford to put my kids through college and I will be able to afford retirement, but it's gonna take work to get there. So, again, I gotta be good at my job. I gotta get up every day, I've gotta go produce because I'm optimistic that I can have a better life in the future. And that is just a human motivation that just doesn't go away. What drives this? These are human behaviors that don't ever go away. Fear, gotta work. Optimism, gonna work. And then the category that we all wanna fall into that is the kind of the star of the three is maybe the final third of folks really have a sense of purpose in what they do. So if you can tie back what you're doing on a daily basis, you're getting close to not feeling like you're working right? For you, it might be an easy example, like you're helping millions of people get through a really scary thing, which is their budget and saving, not getting ripped off. We're trying to help people with retirement. Like, that's a purpose and that's something really cool. Imagine if you're at a call center and you're dealing with people's tech problems all day. Like, maybe you could say, well, I'm here every day to help people make sure their Internet is working. That's. Or I talk to 100 people a day that are mad at me. And like, that's hard to feel like this great purpose. Either way, whether we have this fear that drives us, we have this optimism or this purpose, we're going to work. And we particularly that group that's optimistic and purposeful, they are doing everything they can, we are doing everything we can to be a little better every day, month, year at our jobs. So that whole fundamental Tide that's baked into us. It's in our DNA, it's in our behavior really translates to. Imagine that workforce of 165 million people and every single person is trying to stay employed and make their jobs a little better. So you don't see it every day, but you've got multiply that by 160 million times 40 hours a week, times 52 weeks a year, stuff gets done and things get better and we innovate. And I'd say the 2025 kind of headline news out of technology this year is that we all know artificial intelligence, we know ChatGPT and which is OpenAI and Claude and perplexity and all these things that we've been introduced to over the last couple of years. It's pretty amazing stuff. The promise is that it's going to make us even more productive, but it costs a lot of money. So supposedly, OpenAI spent 60 million making their ChatGPT or their AI model work. And supposedly yet to be fully verified, we don't know if this is fully true, but reportedly another company on the other side of the world did the same thing for 90% less. So they didn't spend 60 million, they spent 6 million. Well, ironically, I'm talking about the army of American productivity. This came from a firm in China. But guess what? The next day, every big tech company had a war room to say, okay, wait a minute, maybe we can change this code and maybe we can all do this for 90% less money. First of all, the reason they were able to do it cheaper is that we did it here first. So the army of American productivity I started here, proliferated here. It was a massive new innovation that leads to productivity. So put all that together, whether we get some competitive forces around the globe, we're still war rooming the very next day to make our technology, as an example here, cheaper, better. That then powers the economy, powers tech companies, and then every industry. That's why I love the AI example, because it powers every industry for the better. And the next thing you know, companies do better, earnings go up and your retirement accounts hopefully follow along the way.

[Krista Dibiaz]

Absolutely. All right, well, we'll go to some questions now. This one came in from Linda in Indiana.

[Wes Moss]

Linda in Indiana.

[Krista Dibiaz]

Linda says, I'm 56 years old. I will have a pension and Social Security. My husband will also have a pension and Social Security. He has a 401k with roughly $400,000 in it. And I have a 403B with 170,000 and an additional 170,000 in stocks and bonds with Charles Schwab. I also have an inherited IRA with 52,000 that I've been taking RMDs for the last five years, and I have five more years before it needs to all be taken out. Now, to the question, with taxes being cheaper now than they have been in years, I believe taxes will be going up. Should I take all $52,000 out, pay the taxes, and do a Roth conversion for myself and my husband with what's left?

[Wes Moss]

The short answer here, Linda, is that Roth conversions can make a lot of sense, and she has a lot of time. That's good News. Linda's only 56. I assume her husband is a similar age. They don't need to do their own RMDs required minimum distributions until 73. Remember, that number has changed a bunch over the last five years or so. It was 70 and a half, and it kept going up, and now it's 73 for RMDs. What's a little trickier here for Linda is the inherited ira. The rules there, you got to take the whole. You don't have to take money out every single year, but by the end of the 10th year for an inherited Iraq, the whole thing's got to be distributed. So she's about halfway through. She only has about five years. So if you look at this collectively, if I'm doing my math right, she's got 400 in 401k, another 170 in the 403B, and then call it 50,000 in the inherited. So that's about 630 grand or so. But she's got. If you think about her timeline, Krista, Linda's got about 17 years to spread this whole thing out, but she only has five for the inherited. So if you do the math along the way. But let's go back to what we want to do in general when we approach a Roth conversion. First of all, this is complicated, and it is very individual because everyone's taxes are very unique. So you have to go to a CPA and actually do a tax projection for this. So this CPA will help you get.

[Krista Dibiaz]

Because you don't want to get bumped into the next year.

[Wes Moss]

Well, it's all about the different. The lock system, if you will. You got to run these exact numbers with your cpa. Just kind of. I want to make sure she does that. But I think of Roth conversions. Is it the Dutch that have the locks? It's the Dutch lock system. Remember, these are boats trying to go different levels of water. So the way they do it is they fill up one big lock, they wait, fills up, then they have to fill up the next lock so the boat can go to the next one and then the next lock and they finally can get to where they want to go. The water levels are different. That's kind of how I think about these Roth conversions, because you can then what you're really trying to do here is fill up the next tax bracket without going into the next higher tax bracket. Every time we convert into a Roth, it's ordinary income and it pushes up our overall AGI adjusted gross income. So you've got to be really careful about that. She can convert even though she didn't want to convert 100 in any given year, maybe in the next bracket, let's say she gets to the 22 bracket, that goes all the way up to a little over 200k for married couple, which would mean she would have about 200k worth of conversion she could do to fill up that tax lock until you get to the higher one, which is 24%, and then she's got another 200,000 before she gets to 35%. So first of all, think of it as utilizing these brackets, like the lock system, being careful to not go to the next higher one. Right. We've got the tax brackets, let's call it 10 and call it 22, 24, 35, and utilize that next tax bracket without trying to go into the next one or the next higher one. So in her case, Linda, the good news here, I think is that she's got a lot of years to do this, which spreads out the conversion, which if you do the math, 600 some thousand dollars over 17 years, it's like 35 grand a year. What I would consider if I were you, Linda, is do the inherited IRA over the next two or three years. She could probably get that done in the next two or three years and then start the Roth conversions and then do them over the Next, call it 12, 13 years. And it's only 35 to call it $50,000 a year. Because your IRA should also be growing while you're doing this over time. So you've got to account for that. So you do 35,000 to 50,000 over the next several years in conversions. And by the time you get to 73, most if not all her retirement money will end up, could be in a Roth. Then she gets the tax free withdrawals.

[Krista Dibiaz]

Okay, this came in from Brian in Oregon. We recently sold a large position in our brokerage for a home down Payment in the next two to three years. Approximately $50,000. Do you have any thoughts on where to park this money in the short term?

[Wes Moss]

Home.

[Krista Dibiaz]

Hoping to get your opinion on SGOV versus hysa.

[Wes Moss]

Sgov, yes.

[Krista Dibiaz]

High Yield Savings Account, I guess versus SPA XXX or any other suggestions you may have.

[Wes Moss]

SPXX I wanted is another. It's a government money market. Okay, first of all, the crux of this for Brian is to keep the money safe because you got to use it. So you don't want it at risk of markets going up and down, but you want to get some interest. So how do you do that? And the answer is conservative. Safe investments, probably a money market fund. Now when you start looking around for these investments and it's interesting what he listed here. One is just a pure good old fashioned money market mutual fund. That's a government money market fund. Means it's almost, it should be in government securities Treasuries for the most part. The other two, one is an ETF that ESCOV is really more like a bond fund. Now it's mostly treasury bonds. So that's supposedly the safest thing we can invest in, provided the US government doesn't default, which I don't think it will anytime soon. But it's really more of a bond fund. So it moves around in price a little bit. Remember, money markets are supposed to. And they're not guaranteed either. Money market mutual funds are not guaranteed either. But if you're in a big government money market fund from a big institution, it's extraordinarily rare for these things to miss that mark or not perform and do that. But the other two options are more, I would call them, they're riskier investments because one's an etf, so it's more of a bond fund. And then the high yield one that he mentioned is that's a junk bond fund essentially. Now here's the way to look at this. Remember the Federal Reserve sets interest rates, they set short term rates and that dictates where treasury rates are. So if the Fed is it, I'm just going to use a round number here. If the Fed's at 4% and they're, they've been around that level for a while. Anything that's paying more than about 4%, there's got to be some level of risk. You got to be longer term bonds. They have to have lower credit quality. So if you're, if we're in an environment of 4% and you look at an ETF that's paying 7, that's not a treasury. It can't be a Treasury fund. It's got to be some sort of junk bond fund, high yield fund. So that's not a ultra safe option. It's not that it's not an option that won't work or won't make money, but I wouldn't consider that as a safe money option. What he mentioned around the government bond ETF is short term treasury. So that's technically should be pretty darn safe. But it's not a money market either. Think of it this way, keep your safe money safe. If you really want to preserve it, you're going to have to accept around where current short term rates are. And that's how I would look at this. You can almost look at the yield of every product you're looking at and if it's way above the fed funds rate, they're taking on extra risk. That would be my advice. That's what I would be looking at if I were Brian Awesome.

[Krista Dibiaz]

Okay, this one came in for you from Andrew in Iowa. I currently have a Roth 401K with one employer, a traditional 401K with another employer, and a Roth IRA through Brook Ridge. By looking at general market growth and looking at my current earnings, I think my wife and I may be fortunate enough to retire as millionaires in the distant future. My question is for retirement accounts or even for short term stock holdings, are those funds and investments in my name specifically, are they at risk if the brokerage goes under? Is there any sort of government backing similar to FDIC that I should be aware of to protect my hard earned savings for retirement? I can't imagine spending my whole life working to become wealthy and then losing the majority of my money due to a company failing.

[Wes Moss]

Andrew, that worries me too. I've woken up many a day over the last 20 some years and thought that same question, well wait a minute. All this money in a big brokerage company, what happens if something goes wrong? The shorter answer is there's no perfect. There is no FDIC when it comes to brokerage money. However, and this is probably where I got most educated on this was during the financial crisis 0607 08. We were all very worried that some of the big banks were actually going to go under. And when I say big bank, most of those big banks also have brokerage companies. So you've got the banking institution, but then they have a brokerage side as well. And some of them did go out of business and then some of them had to be taken over and rescued or else they would have gone out of business. So it's a very real worry that can. That has happened. It'll probably happen again. So wait a minute. Well, that's scary. Well, it's not that scary because the brokerage firms, investment companies, do have insurance. It's called sipic. It's Security Investment Protection Corp. They all pay in kind of like banks pay into FDIC. They all, they're members. And that gives us that $250,000 per account protection for FDIV Federal Deposit Insurance Company. Well, the brokerage companies do the same thing with SIPIC, and they're all paying in. And that gives us $500,000 per named account in insurance. Now, that insurance, Andrew, is not for your investments. If they lose money. That has nothing to do with the insurance. You've got a $500,000 account and it goes to zero because the investments are bad. SIPIC doesn't care about that. They only care if the brokerage firm fails. Someone new takes over. Just like what happens with banks fail, someone new takes over, usually immediately or over the weekend. If there's any money missing from that account because of something nefarious or something happened, that's what SIPIC covers. That something went wrong with the SIPIC insured bank or the brokerage company. So it's not going to protect your bad investments, but it will protect if the company fails. The other thing I think is really important to note, and again, I remember studying this for really years to feel confident about this. So no wonder people worry about this is that your money at a large brokerage firm, think all the big names, Vanguard, Fidelity, Schwab. The money you have in your account is not their money. It's separated. It's not on their balance sheet. So even if the company operationally does something terribly wrong and it goes out of business, it really shouldn't mean that anything needs to come out of your investment account. It's your money. And what SIPIC does, just like FDIC does, in the case of a failure, it comes in and just make sure those accounts are now custodian by someone new. And it's really hard to find examples where big institutions went south and people's investment accounts got hit at all. It's very hard to find examples around that. So you can feel. I feel very comfortable whether you have a million dollars or 20 or 50 or $100 million in these big institutions. Nothing in the world we live in is perfectly guaranteed. But it doesn't keep me up at night having lots of capital in these big reputable firms. I would also say if you've never heard of a firm or they're not in the world we live in and it's not a multi trillion dollar firm, I'd be nervous about that. But there's plenty of big solid firms.

[Krista Dibiaz]

To choose from for sure. Well, that makes me feel better. Straight ahead, you're going to tell us how we can protect ourselves from some of these big market swings like the one we saw recently with Deep Seek and the AI sector.

[Wes Moss]

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[Krista Dibiaz]

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[Wes Moss]

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[Krista Dibiaz]

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[Wes Moss]

Welcome back to Ask an Advisor here on the Clark Howard show on Wes Moss. Krista Dibiaz in studio.

[Krista Dibiaz]

I'm excited to hear about this. How are we going to protect ourselves from these crazy markets?

[Wes Moss]

Does it seem like not even, I mean did is it okay to talk about diversification or is that too elementary?

[Krista Dibiaz]

No, it's I think we are all about simplifying the complicated here on the Clark Howard Show.

[Wes Moss]

So I will say one of the things that kind of a guiding light when it comes to financial advice, at least for me, I probably learned this from you and Clark, is to just try to make things as make them as simple as possible. The world is very complicated, investing complicated. But we trying to make it simple so people can remember because really the fundamental simple principles that people even if you understand and you implement, you can stray from them. And I think the world we've lived in for the last couple of years is a good example of that. And it really comes down to diversification. We all pretty much know that diversification is something that will at least keeps our money in a band with a high level of safety that against single security risk. Really? I remember when I first learning about investments, the term is well, diversify against single security risk. When you look at it that way, maybe that's a good way to think about this. We all know if we have 100% of our money in a stock, even though it may do really well, it could drop by 50% and voila, half your money's gone quickly. We want to avoid that. We know that. But even though we know that, we still hear stories all the time, particularly within tech, that so and so worked at this company and they got options in this company and that happened to be the best stock of the last year or two or three years. And that person's a multimillionaire. You think, wait a minute, am I diversifying away? If I've got 500 companies, I never get a home run. What happens over time? The more stories we hear about big gains from a few companies, it leads investors to stray from diversification and leads them to pile into maybe one or two stocks. The Mag7 got really famous the last couple of years. Mag7 is the acronym for the multitrillion dollar tech companies that did really, really well over the last couple of years. So more and more money actually has piled into those few names. More and more money has actually gotten invested in ETFs or mutual funds that are really concentrated around those names. So the marketplace call it financial media call it just news in general. It's always working against us in keeping diversified. So what happened, and I know we talked a little bit about what happened with AI, this is the big tech story of 2025 is they came into a well known sector of technology and they, they basically raised their hand, said hey, we can do the same thing you're doing, but we can do it for 90% less. Well, wait a minute, what about all that money that was supposed to go towards that sector? Next thing you know, technology Companies are down 20% in a day.

[Krista Dibiaz]

That was deep seek, right? The Chinese company. Yeah.

[Wes Moss]

So wait, well if we it doesn't cost as much, then these tech companies aren't going to make as much money and wham, there was this deep sea tech wreck all in a day. You wake up, futures are down 3, 4, 5% for the NASDAQ and it's a quick reminder that it's okay. Let's say we're not just in one stock, but we're really crowded into one sector. Tech, as an example, you can see your gains wiped out really quickly. And for a lot of investors that creates a cycle where, where people are selling, then they're leaving money in cash, then they're trying to get back into other areas or maybe the same area and then they miss. And that market timing creates bad returns in itself. So it creates this domino effect of really difficult returns for a lot of people. The reminder here, and I think I continue to remind myself, is that if you're wanting to sleep well at night and knowing that you have a portfolio that is not subject to a sector or, or a particular company to at least protect against that. We just gotta have multi layers of diversification. So the first step is just to diversify away from a single company. So security selection. We can't have one company. One company shouldn't be more than 10% of our portfolio. That one I think we all understand. The second would be sector diversification. And we just again, 2025 has been a good example of that, where one sector got hit really hard in one given day. And this example was tech. Back in the financial crisis, it was housing, it was banks. If you were overloaded in banks, we saw some banks go down 90% in a really short period of time. After years and years of banks being concrete in the sand. Just these banks aren't going anywhere and then voila, people get over concentrated, they're paying great dividends. Next thing you know, they're down 90% in the course of a couple of months. The next would be size diversification or cap capitalization. When I first started 25 years ago or so in the business, large cap companies were 10 billion plus. Now that's more like a small company because the markets have grown so much. You've got these different categorizations over the last. Call it five to 10 years. I think it's a relatively new category called mega cap. Mega cap is 250 billion billion or more. That's considered mega cap. These are not exact definitions, but these are somewhat agreed upon. $100 billion to $250 billion, that's large cap. Then the next category below that would be mid cap. Then small companies and then micro caps are $500 million and less. We want to actually have diversification across sizes of companies as well. Geography, geographical diversification. I think we get a whole lot of diversification just here in the United States because if you look at the marketplace, 40, 45% of revenue for big American companies is coming from outside of the United States. So I think we get some geographical diversification that way. But I think it's important to consider international investments. Again, geographical diversification. Then we can even look at strategy diversification because there are dozens and dozens of different ways we can approach investing. There's growth investing and there's value investing. They're pretty different ways of a value investor is going to have a very different group of stocks that they want to own versus a growth investor. We want to have multi style or strategy diversification as well.

[Krista Dibiaz]

Can I ask you about the geographical diversification? International stock indexes, say, do you have any idea of what percentage you would recommend or that you do recommend to clients in terms of that versus domestic.

[Wes Moss]

That's all over the map. I mean, if you look at a Vanguard target fund as an example, I don't know the exact year I'm talking about here, but I've seen some of these target funds that have 25%, 30% in international. And you can make a case for that because you can say, well, I'm going to look at the whole world. And if the whole world is, if the US is 60%, that means the rest of the world's 40. So I should have 40% international. So you can make a case for that. I personally don't, I don't have nearly that high of exposure. I have some exposure to international companies, but I have Nowhere near the 30 some percent.

[Krista Dibiaz]

Okay.

[Wes Moss]

Now this could be different for everyone. It depends on your risk tolerance for sure.

[Krista Dibiaz]

We'll go to some questions. This one came in from Josh in North Carolina. I previously reached out to Clark on this topic and he answered my question. But I have a few follow up questions that I think Wes might be perfect for verifying it was okay with my city and county. My six year old twins, Jacob and Lucas started a produce stand to sell our extra vegetables and it's been very successful. I would like to help them save and invest this money for their future. Can I set them up with a custodial Roth ira? If they're eligible for a Roth ira, what documentation is required to prove they earn the money? Are there any potential tax or IRS issues I need to be aware of? Assuming there are no issues, do you have a recommendation of where to open the fund or how to invest it? Spoken like a true clerky. We were thinking about starting them at Vanguard since my wife and I already have Roth IRAs there and investing in their 2070 target retirement fund.

[Wes Moss]

2070.

[Krista Dibiaz]

But I would love to get your.

[Wes Moss]

So that's the name of a Space.

[Krista Dibiaz]

Odyssey movie For context. They've saved $1,000 over the last two years. $500 each. And they have a goal to save 700 in 2025.

[Wes Moss]

That's awesome. So we get two little entrepreneurs selling vegetables on the road. One of my favorite jobs, I worked at a place called Northbrook Orchards in the fall. Beyond moving apples around, I think it's why I became a Big Apple fan. I love apples, but I got to be in the pumpkin patch and actually weigh the pumpkins and if somebody guessed within a pound, they got a free pumpkin.

[Krista Dibiaz]

Oh, nice.

[Wes Moss]

That was one of my most memorable jobs. So for these two Guys, these little guys. The answer is there's no reason he shouldn't be able to do that. The only requirement to be able to put money into a Roth, even a custodial Roth, is you got to have some earned income. That's it. So if they're making, they make 500 bucks. Even if they spend the 500, remember it's about what you earn. So they can put in 500 bucks.

[Krista Dibiaz]

And they do a tax return. Right? Each child has to have a tax return for that.

[Wes Moss]

I don't know if the kids. So he asked about proof. The IRS is not going to say, send me a W2 for these two. As long as you have a ledger, as long as there's a little bit of record, I think that's all they would need. It'll be a custodial Roth because they're still not 18 or 21 in some states. And as long as there's a little bit of record, he doesn't have to send that into the irs, but he just had to have proof that they're making some money and they can do up to seven. Seven grand. And you think you a custodial Roth? Oh, I'm not a big fan of a target fund for a 6 year old. The year 2070 even. I was looking at some of these super far out target date funds. Even for a six year old, they have it's something like 10% in bonds. I don't think they need to do that. And when you're that young, I would look broad market stock. Pick a fund or two for the kids. They don't need a target date.

[Krista Dibiaz]

You think Vanguard's a good place for it?

[Wes Moss]

No problem with Vanguard whatsoever.

[Krista Dibiaz]

Okay, this question is from Douglas in Connecticut. On several podcasts I've heard a typical fee to manage money is 1% or less. However, I've never heard what a typical fee would be. For a fee only fiduciary. If I wanted to get investment advice, I was hoping for an hourly rate, not a percentage of my total assets. I'm engaging with several companies and I want to know if their fee only fiduciary cost structure aligns with the norm.

[Wes Moss]

So it sounds like he's getting some feedback. He's looking for an hourly fee and he's getting this asset under management fee. And that's because. So first of all, there are some people, some advisors in America that are fee only, that are just hourly. And you can go to the Napa or National association of Personal Financial Advisors or the Garrett Planning Network, you can look up in your state who charges that way. The reality is there's not that many people that are purely hourly. And even if they're, if they are hourly, they typically will say, well, I'm 250 an hour, but it's a minimum of 10 hours, maybe 15 hours. They do end up having some sort of block fee because it's really difficult to have a sustainable business where it's just hourly. I help you and you're gone. You would need brand new clients every single week for the rest of your life, which is almost impossible for a lot of folks to do. So what I find, and I've gone in and looked through Garrett Planning Network and looked at all the folks that say their hourly fee and if you go to their website, the vast majority of those folks also charge an asset under management fee. So that's the first thing is that on the marketplace you're going to find typically both. Again, some people may be purely, purely hourly, but the vast majority of people that do charge hourly also will offer an asset management fee. The other way I look at it is it's almost as though you think of hourly for financial planning. So doing a cash flow analysis, doing a retirement projection, I have this much money today, I'm going to save this much. Here are the variables. And what should I have when I'm 80, when I'm 60 and how much I want to spend, is that going to be enough? So that's a planning and cash flow that I see sometimes as hourly. And that can help when it comes to the investment side. Think about in the world we live in, to be able to recommend something today, how do I know that that's a good investment in six months? What if everything changes? What if you change? And really we know you're going to change. We all have life happens. So it's a hard model, if you want investment help, to just say, hey, do this. Because in a year from now it may not be the right thing anymore. It may be, but the bottom line here is if you're looking for hourly or just a one time project if you will, I like the Garrett website, Garrett Planning Network is that you can search by how you pay. There is a dropdown. There's like 20 versions of how people can pay and one of them is hourly project only. That's, I think maybe what they're looking for.

[Krista Dibiaz]

Okay, and this question is from John in Florida. I like your idea of having three years of dry powder in retirement.

[Wes Moss]

Is that my idea or Clark's idea?

[Krista Dibiaz]

You he's talking to you.

[Wes Moss]

I do have that dry powder principle.

[Krista Dibiaz]

I love at this point. Since money market funds are paying roughly the same as a diverse bond fund like bnd and bonds can go down in value, but cash does not, is it necessary to have bonds in a retirement portfolio at all? And if so, why?

[Wes Moss]

There's two quick things. One, dry powder is really helpful because if you think about three years worth of money that's safe or stable, when the market, the stock side of the market, or your portfolio goes down, you can use the safe stuff. It's your dry powder to get us through market corrections and a rebound. That's important. But the assets do have to be stable, not perfectly stable necessarily. And that's why I put bonds into that category. Bonds are not perfectly stable. They can go up and down in price. But really, I think the crux of this question is what's going to do better over time, cash or bonds? I can totally see. I've had the same sentiment in the last couple of years. If rates are at 4.5% or 5% of the money market and the bond's paying the same, why take any risk in the bond? I get that. However, over time, if you go back over the last 40 years, bonds have the return on a diversified bond index or portfolio, they've been better than cash. So today, cash, let's say in any given day, the cash may be at 4. But what happens if the Fed lowers rates to 3? Your money market will immediately adjust lower to 3. Your bonds will keep the same coupon until they mature. So there's a little bit more. There's typically either similar interest or a little more interest in a bond and you get to keep the interest longer. This is really an asset allocation question. Well, what's going to do better over time? My cash or bonds? And if you're a longer term investor, history has shown us in most, most, most scenarios and time periods we're looking at, bonds over time should give you an overall better rate of return than money just sitting in cash. And that I think is at the crux of this question.

[Krista Dibiaz]

Well, thank you so much for joining us today. That'll do it for this week. Yep. Clark will be back in tomorrow. In the meantime, you can go to clark.com for money saving advice that you can trust. Have a great rest of your day.