← The Clark Howard Podcast
The Clark Howard Podcast
02.18.25 Ask An Advisor With Wes Moss
00:44:56
Top 3 Traits of Millionaires and 3 Investing Lessons From Vanguard Founder John Bogle
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- [00:00]
Wes Moss
My dad works in B2B marketing. He came by my school for career day and said he was a big roas man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laugh at me to this day.
- [00:14]
Clark Howard
Not everyone gets B2B but with LinkedIn you'll be able to reach people who do. Get a $100 credit on your next ad campaign. Go to LinkedIn.com results to claim your credit. That's LinkedIn.com results. Terms and conditions apply. LinkedIn the place to be to be.
- [00:31]
Wes Moss
Move your career further faster. In just two days with a Harvard professional and executive development program. Advance your leadership skills, craft smarter business strategies, build your network and transform how you work and think to keep your career moving forward. You'll earn a certificate and can add Harvard to your resume with Harvard Professional and Executive Development. Learn more at professional dce harvard.edu Spotify.
- [01:05]
Krista Dibiaz
Welcome to Ask an Advisor. I'm Krista Dibiaz.
- [01:08]
Wes Moss
I'm Wes Moss. Hi, Krista Dibiaz.
- [01:11]
Krista Dibiaz
Great to see you, Wes. I'm excited about today's show. We're talking about what everyone wants to be a millionaire. How do you become a millionaire? How many millionaires are there? There are a lot more than there used to be. Right.
- [01:22]
Wes Moss
It's interesting. It's still really hard in America to get to the point where we have financial freedom and financial security. And I write for Forbes.com and I'm always looking at statistics around what we've saved in America. And the reality is there's half the country still really has very little saved. And if you look at the bigger picture, metrics and Federal Reserve does this. There's lots of different government agencies that are trying to measure wealth. But the Fed in their consumer survey, their survey of consumer finances, they do this every three years. There's a new one that's going to come out at the end of 25. This data was through 2022. But it's really fascinating how many people are becoming millionaires. The Wall Street Journal called them many millionaires because they're looking at net worth here. It's not necessarily people having a million dollars in a bank account or an investment account, but overall net worth, it's gotten to be a really significant number. The numbers jumped a lot and it jumped a lot from 2019 through 2022. And today there are about 16 million or 12% of the population millionaires, people that have million dollar net worth. So the number is growing. The other thing that's really interesting and I think this is skewed. So it's an interesting number, but I think you got to take it with a grain of salt. The average net worth family in America is a million bucks.
- [02:44]
Krista Dibiaz
Wow.
- [02:45]
Wes Moss
Isn't that amazing?
- [02:46]
Krista Dibiaz
I'm shocked by that.
- [02:47]
Wes Moss
It is, it is shocking. That's up 42% from 2019 where we were about $749,000. Just call it three quarters of a million, two million. Now that gets skewed big time by the billionaires of the world. You think about the musts of the world that are worth anywhere from a quarter of a trillion to approaching a half a trillion, depending on where his stocks are. So you get some giant outliers, Bill gates, the Forbes 400 list, and that skews. But the number's going in the right direction. And this group has a couple of things in common. The Wall Street Journal article lists seven things that this group, the new mini millionaires. How are they getting there? How are they building this net worth? It also reminds me of some of the core principles that were written about in the Millionaire next door, the Dr. Thomas Stanley and Bill Danko book that still those traits still hold true to this day. So I want to go through some of these traits in common. One, they're pretty good incomes, not tremendous. They're not making millions of dollars a year. But the group that has become millionaires, they make between 150 to $250,000 a year. So they're making really good incomes, not ultra high multimillion dollar hedge fund Wall street incomes. Right. That's number one. Number two, from some of these other reasons, because they're stock investors and they own their homes, they really were able to take advantage of the rise of the market from 2019 through 2022. That's a three year period. So during that period of time, their percentage growth of their net worth was even higher than the ultra high net worth families in America. So this is the again, this is the affluent group, but they're moving from emerging affluent to the affluent group. The traits around this, they saw their median net worth jump 69% during that period of time. Now I went and looked at the stock market during that period of time. So if you think 2019, then you had Covid hit early 2020 market went down 35% and then we had a long recovery. But if you look at that period of time, it just so happens, and I don't think it's a coincidence that The S&P 500 total return was a was almost the same amount. It was 64% during that period of time. Which is another reminder that this group is putting money in their 401ks. They're investing in equities. Here are the statistics around that. 90% of that group reported that they own stocks. They own stocks directly. So it's here we are in a world where we've got all this inflation and we're worried about prices going up. One of the few things that we can really do to outpace that and keep ahead of inflation is to invest alongside companies who can inflate also along with inflation. So that's another trait. 87% of this group, homeowners, 87%. So again, those homes that they own are the equity in houses that we all know. It's a problem if you're a new buyer and you want to get into the housing market.
- [05:51]
Krista Dibiaz
Sure.
- [05:52]
Wes Moss
But if you own a home, that equity is certainly is very much risen over the last several years. The last trade, I'd say number seven on this list here. If you look at the group 55 to 64 and this is where you've got 21% of this group because they've had more time than the whole population. They've had a lot more time to save the percentage of those who have a net worth of a million bucks more than doubled to so 45% Krista, if they have a college degree.
- [06:22]
Krista Dibiaz
Wow.
- [06:24]
Wes Moss
So again, these are the traits in common that leads me to think about the kind of the basics of the millionaire next door. One, live below our means. Two, spend our mind share when it comes to money on wealth building activities as opposed to consumption oriented. Number three, they're looking for financial independence as opposed to status. Right. And I think that the listener base here with the Clark Howard show, we know all about that here with Clarkie.
- [06:53]
Clark Howard
Right.
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Krista Dibiaz
You don't want to be all flash, no cash.
- [06:55]
Wes Moss
Is that what Clark says? No flash, all flash, no cash. And you think about Clark. I'm sure he can afford polo shirts that are more than five bucks at Costco. But he's not looking for status. He's looking for independence. And he's kind of living that walk. And that's what millionaires do. They, they raise independent kids. Millionaire talked about how the majority of multimillionaire families in America, their kids are independent. It's not that they're not close to their kids, but they don't have to support their kids financially. And then really this comes down to work. And this is what I want to bring up about education. Thomas Stanley and Bill Danko of the Millionaire next door say, look, education is great and there is a direct correlation between wealth and education. But there are tons and tons of millionaire families in America that don't go to college, they don't necessarily have a degree because really what trumps education is just hard work. It really comes down to hard work. It comes down to some common sense around where we can make a living going back to those wealth building activities, I mean a trade in the United States and you have a really high probability, I think today more than ever of being a millionaire family. One of my favorite articles over the past year in the Wall Street Journal is about how private equity funds are buying up mom and pop businesses like H vac companies, plumbing companies, pest control companies. And these companies are worth million dollars, 2 million, $5 million. These are trades that historically don't think, well, I'm going to go into pest control, make a fortune. But it's happening and I think it'll continue to happen because these are good businesses and they're people that really work hard. So hard work trumps education, probably the combo of the two. Krista Education, hard work I think leads to the propensity, more wealth building activities. But those habits of millionaires, those who achieve it and stay millionaires, from Millionaire next story, they still hold true today. And according to a survey of consumer finance by the Federal Reserve, it's working. And I cannot wait to see the 2025 study that'll capture 23, 24, 25. Well, it should be 2023, 24 and some of 2025 that's going to come out. I don't know when but we'll update the numbers as soon as it comes out for sure.
- [09:21]
Krista Dibiaz
And then more equity certainly built in.
- [09:23]
Wes Moss
Sorry, my phone's a little scratchy. I've got four kids and somebody's always got something.
- [09:27]
Krista Dibiaz
Always, always. Yes, you are. You are in the weeds.
- [09:30]
Wes Moss
Got some Clark water. He'll help.
- [09:34]
Krista Dibiaz
All right, ready for some questions?
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Wes Moss
Yeah, let's do it.
- [09:36]
Krista Dibiaz
This one came in from Holly in Arizona. Our question may be basic, but it has really been overwhelming to try and figure out an answer. Here's the gist. Our son is 18 and headed to college next year. And we also have a 15 year old daughter who's a high school sophomore. In the near future, we've been told that we will likely inherit one to $2 million. Even writing that number is surreal to us. Our kids will each receive Approximately an additional 60k to be used mainly for college. There are a lot of moving parts with regards to various accounts, money from various sources, et cetera, and we're concerned about making costly mistakes. In essence, however, our question is we are hoping to get ahead of this new financial situation we will find ourselves in. Who do we need on our team? We know that finding a fiduciary is important, and we understand that concept. But who will we ultimately need on our team? A financial planner, an estate planner, a cpa, an attorney? We are already overwhelmed thinking about it and don't want to make mistakes or ultimately hire the wrong people. We're in our 50s and want to be careful since retirement isn't too far off either. In PS the kids have a small 529 under our name, $15,000 each, but grandparents will be unable to open other 529s for them. Long story, but I mentioned it since you've suggested this in a previous show. It could have been Clark who suggested it in this here's the good news.
- [10:54]
Wes Moss
This is really solvable for Holly. It is overwhelming, right? If you're looking at, well, wait a minute, I just met with mom and dad and they're starting to talk about inheritance, and it's a million. Now. That's a big range. A million to 2 million. That's a big range, but still a lot of money. And I know I seem, I've had so many families over the years go through this, and if you're not super financially savvy and you haven't been the person that's been investing in different accounts or maybe helping mom and dad, and you're new to all this and you're in your 60s or 50s, it feels really confusing, like you're bombarded. You've got all these accounts and then maybe it's real estate. And then how do you appropriately do the transfers and death certificates and letters of testamentary and probate court? It's a lot. So she sounds a little overwhelmed. I would start out by saying the team, and I love this concept. A lot of the questions over the last couple of months have made me think about this cadence. It's quarterback, cfp, who then drafts your offensive line, which is your cpa. And then you've got your defensive line, which is your state planning attorney. And if you've got that team, that whole team, then the quarterback, which is your CFP or fiduciary Certified Financial Planner, can help you find these people, pick them and then start with a plan, Financial Cash Flow Retirement Plan. Sure, they're going to be able to do the investments, but then coordinate the taxes and the estate with the estate planning attorney tax with the cpa. Now, in this situation, Holly, I think it maybe calls for some special teams. And the special teams would be the probate attorney. Now, not everybody needs to do this. You can handle as an executor of a will or an estate. A lot of times people can do this on their own. If assets are in trust, it becomes pretty clear where they're going. Retirement accounts that usually have listed beneficiaries that should be quick and easy. You deal with a financial institution, but it's not always that simple or straightforward. And if you've got a scenario where you've got lots of different assets, different accounts, maybe real estate, different beneficiaries, maybe the documents aren't fully updated and the beneficiaries aren't listed as they should be. And there's these wealth transitions are rarely perfect. So what do you do? You call in special teams here. I think that's a probate attorney. So in your home state, wherever we live, we're going to want a probate attorney in that state.
- [13:35]
Krista Dibiaz
So in Hollis case, Arizona, and she's.
- [13:37]
Wes Moss
In Arizona, so she's going to find someone there and that person can help make sure all the documentation gets set for the wealth transition. Go into the court hearings. If you're sitting before a probate judge and trying to adjudicate what goes where, it's not going to cost a fortune typically to hire a probate attorney. And it sounds like for Holly, it might really be worth the peace of mind to do so. So I still think it's the same structure. See it, your CFE is a quarterback. You've got your CPA and your estate planning attorney. But here, this particular situation calls for some special teams. That's the probate attorney that'll make sure she's not worried about missing something in a time of transition when the time comes.
- [14:20]
Krista Dibiaz
Okay, this one came in from Alex in Michigan. I'm retired and have a balanced portfolio. I was thinking about my fixed income bonds return, usually when whatever the yield is 4 to 5% but with volatility. To avoid the volatility, what do you think of just putting fixed part of the portfolio in money market or CDs?
- [14:39]
Wes Moss
Look, Alex, I've had the same thought. I think it's a super sensible question. I mean, if money market's paying four and bonds are paying four and a half, but my bonds can go up and down in value, just why not just do money market? I get it. The reality is, statistically, over time, bonds have way outperformed Cash. Whether you look at a 20 year period, a 40 year period, 100 year period, bonds have won in almost every time frame you look at. Now. There have been a few isolated periods like 2023, when rates went up a bunch and bond prices came down. That's a period of time where bonds didn't look so good, but they were also coming from a point where they didn't, weren't really paying a lot of interest. The US 10 year treasury got down to almost zero percent at one period of time. So bonds didn't have a lot of gas in the tank. So we had a period of time where it's like works like a seesaw, but rates go up, bond prices go down. That's what happened. But where we are now, rates have gone up enough that they're back to much more normal historical levels. The interest rate and bond interest yields are in the bond world, we call it destiny. So if you're starting at 4 or 5%, then you have a high likelihood of averaging a total return of that 4 or 5% over time. And that's where rates are today. If you look at the US treasury yield curve, you're not quite at 5%, but as you go out a little further, it's approaching that kind of four and three quarter range. The problem with money market is the minute the Fed drops rates from let's call it 4 to 2, your money market will immediately adjust lower. So now you're only getting two. But if that happens and you own bonds that are 4.5%, you still get to keep your coupon and you've locked in a little bit longer period of time, depending on the duration of your bonds, a higher interest rate for a longer period of time. Oh, and then by the way, if rates go down, right, the seesaw of rates is headed down, the price actually get some appreciation. So that's the dynamic historically. Not in 100% of days or weeks or months or even there a few years, but over time bonds healthily outperform cash. The other thing is that we haven't had a ton of market volatility in the last couple of years. And now the rates are back to more historically normal, quote normal levels. They're not super high, but they're not low anymore. They do give you that buffer imbalance. Stock markets sell off. Money will typically run the bonds. That lowers rates, increases prices. So it has this balancing effect on your overall portfolio. So you can get a little bit of total return in bonds beyond just the interest. So totally logical question. I've asked myself the same thing, but longer term. Sure you're going to hold some cash, but I wouldn't have your hypothetically 40% bond or fixed income allocation dry powder. I wouldn't have the whole thing, cash by any means. Don't give up on bonds, Alex.
- [17:48]
Krista Dibiaz
All right, we'll squeeze in one more here from Michelle in New Jersey. I'm 63 years old and plan to retire at 67 in my full retirement age. Currently my retirement savings is so aggressive via payroll deductions that I don't have enough take home pay to cover my monthly expenses. So I'm actually withdrawing money from my retirement savings now to live off of. I'm saving more than I'm spending. But I'm not sure if this is a good idea. I know most of my retirement savings is growing tax free in a Roth, but some isn't. So I'm paying tax each year that I file. Do you have any advice from me? I actually feel stressed and scared, but I am saving Michelle.
- [18:26]
Wes Moss
This is crazy. Michelle's 63, she's got four more years to retirement. She's like an all in saver and she's saving so much out of her paycheck that she's having to go and take money out of her retirement account. Michelle is in like this, she's in a tax vortex. So she's putting money in pre tax, saving money on taxes, pulling money out of a retirement account and then paying taxes on that. It's a circular tax, savings, tax, expense, tax, savings, tax, expense. The good news is this, it's solvable because of course Michelle can lower her contribution percentage in her 401k or 403b. That's easy to do, Michelle. But the other thing here is that it's better to be an over saver than an overspender. So she's actually on the right side of this continuum here. So she's okay. There is a situation where this could almost make some sense. It's that if she has a nice healthy free money match on her 401, she is almost better to make sure she's doing the full match to get the free 100% benefit depending on what the company's paying. So she's doubling her retirement money. So if that's the case, she does want to almost over save. So she gets the free money matching her 401. And then she's saying, okay, well I'll just supplement from taking money out of the retirement account. So that's the one instance where this actually could be Genius. I would suspect that she's probably already getting the match because again, companies don't match on everything. They usually match a small percentage. So she's probably already doing that. But you don't want to create this tax vortex loop because you're already probably she's already getting her free money match of the 401. So just back off your percentage contribution in the 401 to the point where it at least makes your take home pay just enough to pay the bills you don't have to pull out of retirement accounts.
- [20:34]
Krista Dibiaz
That's awesome. So don't fret.
- [20:36]
Wes Moss
She could be doing something very genius here.
- [20:38]
Krista Dibiaz
I love it. Okay, I hope you love that segment. And coming up next, Wes, you're going to talk about someone so many people love, especially the Bogle heads, John Bogle and some of his great strategies. Right.
- [20:51]
Wes Moss
Talk about a guy who's helped more people become millionaires. I don't know if anybody's done more than Bogle for this. So we'll talk about kind of the three key lessons that I love from Bogle.
- [21:03]
Clark Howard
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- [22:41]
Wes Moss
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- [24:10]
Krista Dibiaz
Welcome back to Ask an Advisor.
- [24:12]
Wes Moss
We're the advisor.
- [24:13]
Krista Dibiaz
You remain you for sure. I am definitely not an advisor. I'm here to learn from you, Wes, as everyone else is.
- [24:19]
Wes Moss
Do you feel like you know the answers to these? Mostly.
- [24:22]
Krista Dibiaz
I've learned a lot over the years working with Clark and then knowing you and working with you and people you know. But I feel like I learn something new every day, which is a great part of my job.
- [24:31]
Wes Moss
You know, the other thing too, even though I've been doing this, I guess since the 90s, the later 90s, the world is this evolution of the rules and they don't change dramatically overnight, but they keep changing every year and there's nuances and that's the. I think part of it is that if you're not constantly helping families, there's a big gap if you go for a while. So I've been doing this for a long time and I'm kind of impressed with the questions that we're getting. They're pretty deep, they're very interesting. So I think we have got a lot of good ones coming up.
- [25:07]
Krista Dibiaz
We do. And if you want to ask A question, you can go to clark.com ask and you can say if that question's for Clark or for Wes. And you're going to talk about John Bogle.
- [25:16]
Wes Moss
Let's talk about Bogle. For all those Bogle heads out there. I was so fortunate on one of my radio shows, I got John Bogle on as a guest.
- [25:27]
Krista Dibiaz
Oh wow.
- [25:28]
Wes Moss
And this is right 10. He passed away in 2019. I still remember to this day. And I remember thinking about, I think he gave me 10 lessons. So I've written about them and what I wanted to pull out today is kind of my top three favorite really quotes from him. But they're really lessons and I don't know if there's been a measure of this, but speaking of advisors or people that have helped people gain wealth over time, I don't know if there's anybody that has probably done more for wealth building in America than John Bogle.
- [26:03]
Krista Dibiaz
John Jack Bogle, founder of Vanguard, if you don't know.
- [26:06]
Wes Moss
Founder of Vanguard and super controversial. When he first wrote his thesis on how most of Wall street is full of expenses and investing through a broker, especially back then called 50 years ago, it wasn't super accessible, it was the wealthy. You had to have a lot of money, you had to have a broker. And then mutual funds are super expensive. And even though the returns were pretty good because there are so much expenses, they often lag behind what the market just did in general. So he said, wait, why not just invest in an index fund and be average? And his contemporaries are like, you're crazy. You're a Wall street guy basically telling the world that you should just invest in the index and keep costs low. And I mean, he was like a pariah for a while. So today you fast forward 40 or 50 years and he's brought about the idea that we want to participate in markets and we want to have low cost. He's made it easier for the world to do that. So here are kind of the three lessons that I think are very important to remember from Bogle. One, be an investor, not a speculator. You could call him almost a hardliner extremist. Here he says anything that is less than a 10 year horizon is too short term. Your speculator, if you're not leaving your money, you invest your money. You shouldn't be thinking about touching that for 10 years. 10 years. It's a nice message to remind us that we know we can't control. We don't know what's going to happen in the next three months, six months, year Even two or three. But over time there's a super high likelihood that equity markets, fixed income markets are going to be in a better place or you'll have made money over that period of time. If you look around some of the statistics around trying to miss out on bad investment days, which we all love to do, we think about this as kind of hopping in and out of the market. If you go back, the statistics are 1995 through 2023, the S&P 500 total return during that period of time was about 8 and a half percent, just shy of 8.5%. If you were fully, fully invested the whole time, if you missed five days, five of the best trading days, which we never know when they're gonna come. A lot of times it's after the market drops and the market spikes back up. You gotta be there for those days. You can't say, oh, that we've got a great day, I'm gonna get back in. It doesn't work that way. You have to already be there. If you miss the five days. Krista, it's hard to even fathom this math. Five of the best days during that 29 year period, 7,400 trading days, it's 0.07% of the days. It drops your rate of return by 21%. So you go from almost eight and a half percent down to 6.6%. And if you miss the best 30 days out of almost 30 years, still a fraction of days, right point four percent of trading days. It basically wipes out your whole return down to 2% over that whole period of time. So we want to be an investor, not a speculator. And speculators hopping in and out, investors are in it for the long haul. Number two, control expenses and emotions. And that was his original thesis, is if we could strip out the back then 2% or 2 and a half percent or 3% in mutual fund costs, then shouldn't I do well just by being part of a broad market index and the mutual fund managers try to beat that index anyway. But they have this 2 or 3% hurdle now. Costs in general have come down because of the advent of the index fund, the low cost index fund. And then it got even less expensive with low cost ETFs. So if we can control our expenses, doesn't mean you can't pay for advice. And I think it can be valuable. It doesn't mean that you can't have a small amount of expenses to get the exposure you need. But if you're controlling them, that lack of expense helps your compounding over time and of course emotions, Right. Part of controlling our emotions is setting those long term time horizons. John Bogle reminds us of doing that. And the quote there, the greatest enemies of the equity investor are expenses and emotions. So let's control the expenses and control our emotions. The third lesson from Bogle and I want to read this quote because I think it says so much is that the greatest enemy of a good plan is the dream, the dream of a perfect plan.
- [30:50]
Krista Dibiaz
Oh wow.
- [30:51]
Wes Moss
The greatest enemy of a good plan is the dream of a perfect plan. Stick to the good plan. This is what Bogle tells us to do. So this is also. I see this happen all the time. Questions we're getting where people are nervous, they're confused, they're, they look at the news today and the news scares them and they're thinking about today, next week and this year, they're not thinking about the next 10 years, right. So they put together a financial plan and it's an investment plan. And I've got a balance. Was my balance right? I don't know if the balance is quite right. It's never going to be right. In fact, it's never going to be perfect. So the dream of having this perfect plan that's going to go perfectly as planned is never going to happen. So what's better than a perfect plan? Because a perfect plan doesn't exist, it's just a good plan. Put together a plan, make sure it's well thought out and it's good and that can get you started and get you so that you get momentum so you can be an investor for 10 years plus, not a speculator. And that's the three of my favorite lessons from John Jack Bogle, founder of.
- [32:03]
Krista Dibiaz
Vanguard Boy, I love, I especially love that third one and it makes me think about the idea, you know, we're not going for perfection. It makes me think about how each of us, I mean, I imagine, I don't know if you've ever, you've ever had a bad something you invested in that was unwise or you made an emotional decision. I know Clark has talked about he's made some unwise investments in his past that taught him. I definitely have. And so we all have made mistakes or maybe you've gone in and out of the market or tried to time it. That's just clean slate it. Nobody's perfect. And then we just all need to look at that 10 plus year horizon.
- [32:37]
Wes Moss
The other thing is that when it comes to the plan, I'm a believer of Just getting something down on paper, literally a plan. You can get a 50 page color charts, financial analysis, cash flow probabilities, and that's great, that's a really good plan. But a lot of times being able to have a timeline on a piece of paper where we are today, where we are in the future, how much we have saved, how much we're going to save per year, when our Social Security kicks in, when our pension kicks in, assumed conservative rate of return, and voila, we got a financial timeline. That can actually be a pretty good roadmap. And you can do that in a half an hour at a conversation. That's good. You could do a full blown financial plan, probably better or really good. But let's get started to do something.
- [33:31]
Krista Dibiaz
All right, we'll go to some questions now. This one's from Patrick in Illinois. I have around $100,000 in a Roth IRA and 185,000 in an individual taxable account, both in Schwab Intelligent Portfolio. The issue I have with Schwab in this case is they keep a sizable percentage of the money in cash, between 6 and 7% in each. And there is no option to change this with their Robo advisor model. I like the low fees and tax loss to harvesting, but I hate that such a large percentage is kept in cash. Oh, because I am 39 years old and want that money to compound a bit faster. Should I move my ETFs to another robo advisor and if so, are there any that you suggest also if I do, should I keep the same ETFs and just transfer them or do I sell them, move on, Move the cash to another financial institution with a robo advisor and let that AI software choose new ETFs and finally, when searching for a robo advisor, is it necessary that they offer tax loss harvesting?
- [34:32]
Wes Moss
Wow, Patrick. No Robo is perfect.
- [34:37]
Krista Dibiaz
Wow. Wow.
- [34:38]
Wes Moss
No Robo is perfect.
- [34:39]
Krista Dibiaz
No human is.
- [34:40]
Wes Moss
They're robo. They're robots for goodness sakes. So of course they're not going to be perfect, they're programmed. But look, there's a lot of good robo solutions out there. Schwab's is called intelligent portfolios. Wealthfront has one, Betterment has one, Vanguard has one. So there's a lot to choose from. Just know if you give up on XYZ robot and move it to another, they're going to sell everything. They all say that they're going to try to look at your current ETFs and see if they fit in their robot. They're all Different. There's thousands of ETFs. They all use something different. If you move your accounts to another robo, they're going to sell everything or most everything and you're going to have all these tax gains, long term capital gains. That's a no, no. Now, if you're going to move from one robo, and I'm not saying Schwab is bad or good or the other one is better, the account to utilize of what he talked about was the Roth money because it would stay in a Roth account. There's no worry about taxes because it's all shielded under the Roth umbrella. That's where you could try out another investment solution for that particular account and you could avoid worrying about the tax side of it. That's how I would approach this if he's going to change. Secondly, the Schwab option is really inexpensive. Most of them have an annual percentage fee. Schwab's is different. It's either zero cost or I think the premium is something like 30 bucks a month. I don't use this, but I've read extensively about it. So it is a really low cost solution. Part of the reason it's low cost, they have to make up for it somewhere else. And because a lot of these brokerage companies are also banks, they're known to keep a fair amount of cash. Now, the cash is still invested. It's still a decent rate of return because rates are at a decent rate right now. But it is a high percentage. In fact, some of those portfolios I've read can go up to like 20 over 20% in cash. Now you can pull it out, you can pull the cash out. But guess what? Next time they rebalance, they're going to rebalance to go back to where the cash was, probably. So you're not paying much in fees, but you're paying with the fact that not all your money is invested. So I still think if you're adding up all the variables, that's still a really good solution. It's giving you balance. There's so many different portfolios to choose from. I think it's worth exploring others. There's always other options. But I would not look at it for the brokerage account because there's going to be a huge tax consequence to do so.
- [37:20]
Krista Dibiaz
Okay. Bob in Florida says because of the risk of someone getting into and cleaning out my Fidelity Brokerage account, which contains about $500,000, I was thinking about opening say a Vanguard and or Schwab account and spreading out my investments among the three Companies. My concern is, will this create a taxable event, or is there any way to simply change administrators of various mutual funds within my Fidelity account to other administrators, such as Vanguard?
- [37:47]
Wes Moss
Bob, look, it's a scary world. We're all worried about that, right? So before I give advice on how to avoid that and not be worried about that, because there are millions of people that have millions and tens of millions in one institution, and they're not up at night worrying about it getting cleaned out. That's part B. Part A is if you do want to move and spread this out to other companies, you absolutely can do so. And you can do so with transfers in kind. So when you're moving financial institutions, you're using a process that moves stocks and ETFs as they are, so that those are called in kind transfers. The cost basis comes over, the current shares come over, and you don't have to sell anything to move it, typically to another account. Now, sometimes if you've got proprietary funds at a particular company, I think he's at Fidelity, sometimes some of the mutual funds aren't held, or there's some complications around some of the proprietary funds going from one institution to another. Stocks, most mutual funds that are not proprietary, ETFs, bonds, almost everything can move as is. Once in a while, he gets in trouble with proprietary funds. But the way I would look at this is I would just make sure he's doing it in kind. That way he could open another account, another institution, not have to sell something in order to move it. Now, part B here is that we all have to be vigilant about our investment accounts, right? There are people out there every day, hundreds, thousands, millions of folks that are trying to access and get into people's accounts. Now, the big firms, Fidelity, Vigor, Schwab, the big financial institutions, have massive cyber teams that are always combating this. If you read about cases where people have kind of lost money, it's usually through human coercion or human error. Somebody says, hey, I'm from xyz, your financial institution. Can you give me your password? Like, you should never do that. And these financial institutions are not going to call you and ask for your password. You should have dual factor authentication on your accounts. If you have accounts linked to investment accounts linked to bank accounts, they should be in the same name so that they can't be moved to a third party. And you got to be vigilant. You got to be vigilant and know that when you're contacting your institution, they're not calling you and saying, hey, we've got an issue with your account. Can you help us log in? That's. That is a recipe for disaster. However, if you want to be super, if you, if you have the perception that it's safer to have it in other institutions, I'm not sure it's safer because now you've got. You're tracking different things and there's more entry points for people to mess with you. So I almost don't even like the thought of spreading things out just for that. I don't think it really helps. I think the vigilance dual factor authentication understanding they're not going to call you and ask for your password or text you. Those are the things that matter the most to keep the money in a safe institution. But if you're going to move, move in kind.
- [41:13]
Krista Dibiaz
Fantastic. And actually one time years ago, I had e trade account that had retirement funds in it. Like quite a bit of retirement funds in it. And someone had. I used to check it every single day. I think this was before we even had to do a factor authentication. I luckily logged in every day because I logged in and saw someone had started to transfer all of the funds out of that account and I caught it just in time. I was so lucky.
- [41:39]
Wes Moss
What?
- [41:39]
Krista Dibiaz
No idea how they got the password? Somehow they got the password. Yeah. So have to be vigilant.
- [41:48]
Wes Moss
Dual authentication.
- [41:49]
Krista Dibiaz
Right, Right. This was years and years ago, but because I'm sort of anxious about checking my accounts every day, I was lucky in that case. I thought it was a little much that I used to do that, but I still do it just to be sure.
- [42:00]
Wes Moss
Right. And there's dual authentication where you're getting a text to your cell phone, of course. And then there's applications where you're getting this universal number that's linked to be able to log in. It's a real time number.
- [42:12]
Krista Dibiaz
Pass keys, all sorts of stuff.
- [42:14]
Wes Moss
Gotta have to use that.
- [42:15]
Krista Dibiaz
There's three factor authentication now. So if you have that ability, use that as well. But that does it for us. Today on Ask an Advisor. Clark will be back tomorrow. Thank you, Wes.
- [42:25]
Wes Moss
Thank you, Krista.
- [42:26]
Krista Dibiaz
This is great. I love doing this with you. I feel like this is a great complement to everything Clark does. Your knowledge about investing, obviously being in the business is invaluable to Clark's audience. Thank you very much. We will be back next week with a brand new episode of Ask an Advisor. Have a great week, Wes.
- [42:43]
Wes Moss
Thank you.
- [42:44]
Krista Dibiaz
Have a great day, everyone.