← The Clark Howard Podcast
The Clark Howard Podcast
02.25.25 Ask An Advisor With Wes Moss
00:43:10
How To Calculate How Much You Need To Retire and Ignore “Doom and Gloom” Headlines
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- [00:00]
Sponsor Announcer
This episode is brought to you by bank of America. What if your business could see beyond what is and into what can be? And what if you had a partner as visionary as you are? Bank of America gives customers access to trusted experts, real time insights and digital tools to make every move matter. What would you like the power to do? Visit bankofamerica.com bankingforbusiness bank of America is proud to be the official bank sponsor of FIFA World Cup 2026. 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.
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Krista Dibiaz
Welcome back to Ask an Advisor where we go deep on all things investing. I'm Krista Dibiaz here with Mr. Wes Moss.
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Wes Moss
Wes Moss. Hi, Krista, how you doing?
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Krista Dibiaz
I'm great.
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Wes Moss
Good.
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Krista Dibiaz
I'm excited about today's show.
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Wes Moss
I know. Hopefully we've got the questions flooding in.
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Krista Dibiaz
We do. We definitely have a lot of questions. But I hear the first thing you're going to talk about is something we're all wondering, like, how do you figure out how much you need for retirement?
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Wes Moss
You know, I think that even if you know how much you need for retirement, you don't think about it every day. So you kind of forget. So you might do it and then you think, six months, like, wait a minute, how much do I need for retirement? And then you do it again and you think, okay, I got it. For some reason, it's because we're not focusing on it all the time. You can lose track. And then when you lose track of how much you need, there's a little uncertainty. And financial planning is tough and investing is really tough when you're uncertain. So it's always good to kind of have this certainty around the goal. That's my goal.
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Krista Dibiaz
I always panic, too, because I think, what if I'm wrong?
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Wes Moss
What do you need?
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Krista Dibiaz
I don't know. That's the thing. I want to hear what you have to say. But I know I've thought I had a number in mind, like say 10 years ago. And then I'm like, wait, is that number really going to be big enough? Inflation, you know, so I'm.
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Wes Moss
So there's a practical way. This is, I think, a simple way. I'm going to share two really, let's call it straightforward ways. Some people really like this. I think it's super simple. But I brought up this concept in one of my earlier books, you Can Retire Sooner Than youn Think, called Filling the Gap. And then it became ftg. And then I have folks that I've worked with over the years send me these spreadsheets and they'll say, this is my FTG analysis because it's a really nice, easy way to remember how much you will need and then how much you'll need to spend. So we're going to start with some spending numbers, some income numbers, which then rolls up to the big picture number of how much you'll need in savings to fund all that. So this is how FTG works. We start filling the gap. We start with what you know, that will be steady in retirement. So we start with our income streams. We're going to start with Social Security. Maybe you have some sort of pension or maybe your spouse has a pension. So let's just give a round number here to start out. Imagine you and your spouse each get $2,000 for social. That's four, and somebody gets a thousand. So now in a pension, that's 5k a month, okay? And you look out five years and you look at what you're spending right now and you think, well, I'm spending $7,000 a month today, but in retirement, I might need 8,000 for some cushions, some travel, some inflation. So you set a goal, a spending goal of $8,000 a month. So we take 8,000, which is the need, minus the guaranteed income streams, and we're left with 3k a month. That's the gap. We got to fill it. So we take $3,000 a month, times 12 is $36,000 a year that we would need to fund. Now we can use the 4% rule and say, well, what amount in my investment accounts, My retirement accounts would then be 4% to back into getting me that 36,000 a year or $3,000 a month. Or you can do the simple math, which is just multiply it by 25. So we just take 25 times three times our 36,000, and what do we get? We get 900 grand. So in this scenario, if your gap is three a month, 36,000 a year, multiply that by 25. We know that you would need a retirement account. If it were, if you're pulling out 4% a year, that would be $900,000. So that's your number.
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Krista Dibiaz
Okay?
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Wes Moss
It's that simple. The other way, I would say to make it, you could even further simplify and it's just another version of filling the gap is you say again, we'll use big round numbers. You need 150,000 a year and you're going to get $50,000 in Social Security. So your gap's 100, $100,000 a year. I got a fund for the rest of my life in retirement for 20, 30 years, God willing. So 100k times 25. Two and a half million. So now you know why I need two and a half million dollars. That would help fund my need of $150,000. 50,000 is coming from social, 100 comes from the investments. And it's that simple. So financial planning can be super complicated. You can do a 40 page analysis about it and there's a lot that goes into it. But I like to just start with something really simple, really easy to remember. That way you can kind of always stay on top of what your number is. That will fund your life so that we're not worried about ever running out of money.
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Krista Dibiaz
I love that. And we also, if you're trying to do some calculations on I have this much money. If I put in this much a month, how much will it grow? We do have a ton of really good calculators@clark.com you just go to clark.com calculators. We were playing around with that earlier.
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Wes Moss
Yeah, I think this is another good thing to remember because if we can keep our planning and our investments just top of mind, we don't have to think about it incessantly every single day. But if we keep it top of mind, I think that's really helpful. Here are two. Again, rules of thumb. If you were to save right now. I like round numbers because people can remember. I can remember them 1,000 bucks a month. If we're saving 1,000 bucks a month, if it's growing at 7% a year. If, and let's say a balanced portfolio on average over time, then if you did that for 30 years, if you started at 30 and you did it until you're 60 and you had zero to start with, thousand dollars a month for 30 years at 7% gets you to about a million and a quarter over time. Let's say you had a shorter timeframe and you had only 20 years, you're 40, you want to retire at 60. $2,500 a month will get you there. So if you're, if you have 20 years of saving $2,500 a month, 7% a year, compounded annually, your savings gets you to about a million and a quarter so one's less money, longer time, one's more money, shorter period of time. But that, to me, is a way to think about how saving a million dollars, that sounds impossible from starting from scratch. Well, if we give it 20 years, it doesn't sound as impossible. Give it 30 years, sounds way less impossible. And I think it's just a good rule of thumb to remember the tax side of this. We do ultimately want to do this calculation. Net of taxes. The one thing that doesn't get talked about a whole lot about taxes, this is in a lot of states, particularly in the Southeast, where you have lower tax rates, zero state income tax rates. In some states, a state like Georgia will have a big exemption. So Once you hit 65 in the state of Georgia, you have a $65,000 state tax exemption for you and your spouse. So what I find is that really, regardless of the state, a lot of retirees end up in a much lower federal bracket and state bracket when they get into retirement. So that you're used to paying 25, 30% when you're working. Very often that number gets cut way down. So your net take home goes up, tax rates lower. But that's a. That's another calculation for another day.
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Krista Dibiaz
All right. This question came in from Mark and Lisa in Texas. Hi, Wes. My wife Lisa and I are both in our mid-50s, and we are starting to seriously think about retirement in the next seven to 10 years. We've been good savers, and we think we're in decent financial shape, but we're struggling with two big questions. Do we have enough money to retire comfortably? And what will we actually do once we stop working? Here's our situation. Combined income, $275,000. 401k accounts, 2.1 million. Combined Roth IRAs, 225,000. Taxable brokerage account, 400,000. HSA of 80,000. Cash savings of 150,000.
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Wes Moss
HSA is 80. Okay, so that's separate.
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Krista Dibiaz
Okay, and cash savings 150. Primary home will be paid off in the next year or so, valued at 750,000. And no big debts. Car payments only. We are targeting retirement between 62 and 65, and we estimate our spending will be around 120,000 per year in retirement. We're unsure if this is too conservative or too aggressive, but we know we don't want to feel restricted. The financial side is one thing, but maybe the bigger challenge we're wondering about is figuring out what we really want to do in retirement. We spent decades working hard, and while we love the Idea of more freedom. We don't have one clear vision of what our day to day life will look like. Lisa enjoys volunteering and fitness. I love golf and travel. But we're not sure if this will be enough to fill our days. We've heard you talk about core pursuits and the happiest retirees having three or more income streams. Should we be thinking about some type of part time work or side business?
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Wes Moss
Whoa. Okay. That's a lot. From Marco Lisa in Texas. To me, that's like the coolest.
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Krista Dibiaz
It's a great big picture though. Thank you for providing all that info.
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Wes Moss
It's a cool big picture. Yeah. We've got to find our full purpose in retirement. And that's all these core pursuits that I've talked about over the years. More accurately, we don't have to find our purpose. I think that's a scary word for a lot of people. It's like, well, what's your purpose? So I'm going to save all the river fish in northern Alberta and start a nonprofit. Like we don't, we don't have to do something that dramatic. And I think people feel that pressure to do so. We can just think about our daily things that we love to do, which I call core pursuits or super activities that they're going to fuel our schedule and our day. And they can absolutely be. They can create what your daily purpose is. We got to fund it. We got to fund the purpose. So we're going to create it, but we got to fund it. We'll start with that right out of the gate. And Mark and Lisa gave a nice recount. I'm like scribbling here on jotting down these numbers, did they say what they're spending, they would want to spend or.
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Krista Dibiaz
They said they estimate it to be 100 and I think it was 20,000 a year. Yep, 120,000 a year in the spend.
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Wes Moss
Okay, so think of it this way. And this is a little bit like a filling the gap that we just talked about. Let's assume that a couple that's both working, making a big living, 275,000 is a couple. They're making lots of money. So they're probably going to max out Social Security. Now, depending on when they take it, will determine the amount. If they take it early, it'll be less. If they wait, it'll be more. It would be safe to say between a couple that's working, they're going to get $50,000 a year in social. So think of that as your. One of the quote Guaranteed income streams. I think that's a good estimate. The next estimate would be then what would the 4% rule or the 25x rule. What would it. We're going to use a 4% rule here on the assets that they have already saved. So they got 2.1 in a 401k a little over a little less than a quarter of a million in a Roth 400k in a brokerage account, 150,000. From my math that gets them to about 2.87 million. It's a lot of money in retirement. So if you're listening of course they can retire. All depends on the spending. If they needed 250 grand a year in spending, that wouldn't be nearly enough. If they need 80 grand a year, they only need 30 more than Social Security. This be super easy. I think this kind of falls somewhere in between on 2.875-2875 at 4% that's 115,000 that they could utilize with the 4% withdrawal rate in year one. Remember we get to increase that for inflation. So we're at 115 plus 50. We're at 165. Now we mentioned taxes and I'll look at. Remember the gross number is great to figure it out but you gotta. We're spending net dollars. We're not spending pre tax dollars. We're spending net dollars. So if we've got. If they have 165k and Texas has no state income tax. Right. So it's just federal. Again we'd have to do a tax calculator here on this. But I would as a couple. They're not gonna be paying I think more than 20. I would say it'd be less than 20% in federal taxes. All in. So 165 times 0.8 being conservative, they'd be netting about 130. 132. That's just assuming a 20% tax rate and that may even be a little bit high. So they're netting 130 after tax. They need to spend 120. They're good.
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Krista Dibiaz
Yeah.
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Wes Moss
So market lease are good. Now who knows with their budget are they building in 10,000 or $20,000 a year for travel and really their spending is 100 but they've got another 20 for travel. That's how I see a lot of called happy retirees do it. They've got their spending amount and then they've got their fun travel amount because that's usually a pretty big number. So funding retirement from what I can Tell here they're totally on track and they've got some time. They've also got seven plus years.
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Krista Dibiaz
Right.
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Wes Moss
The next question, and for some people, I think scary is probably the wrong word because it's very solvable to figure out what we want to do. Just like you don't want to start saving when you're 60 so you can retire at 65. It doesn't work. There's a lot of truth to saying, like you. You don't want to just start figuring out all the things you want to do the year before you retire.
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Krista Dibiaz
I'll golf when I'm retired.
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Wes Moss
Yeah. Oh, I'll just do that when I retire. I'll just. I'll just play a bunch of pickleball when I retire. I'll do what? The Harvard Business Review did a study about this and tracked retirees and then measured their level of how satisfied they were with retirement. A year out and two years out, and the families that planned a roadmap of what they wanted to be doing. And it's this nonprofit and this library and this family here and this visit, these friends here, and these five activities I love to do. And the folks that had just a visual map of that, whether it's colored pencils or stick figures or whatever it might be, they were the ones that ended up with the retirement that they were highly satisfied with, that they really enjoyed, they loved. So what I would say to Mark at least, is just start practicing that now. Don't wait. This is not a big ask. Because it's fun to do. Start testing out 3, 4, 5, 6 different hobbies on steroids. And doesn't matter what they are at all. But if they ultimately, over the next couple years, figure out they do love to garden, they do love pottery, they do love woodworking, they do love hunting, fishing, they. They do love golf, they do love pickleball. Those are the things that we're going to be excited about. And they're filling our schedules once we stop working. And I think the combo of this amount of money coming in and a full list of things that Mark and Lisa want to be doing, pretty tough to end up not having an awesome retirement.
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Krista Dibiaz
I love it. And also maybe consider going part time the last year or two of work just to see. Right. Just ease into it.
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Wes Moss
Yeah. I think of that as a retirement gray zone.
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Krista Dibiaz
Yeah.
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Wes Moss
Right. Forever growing up, I think we still think of retirement as stopping work. I see a huge benefit of people slowing down work and going from five days to four to three to two and doing that for a couple of years. A you're making more money. B you're easing into retirement. I see people love doing that.
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Krista Dibiaz
All right, one more question we can get to here. I think Tracy in Florida says we just met with an advisor from Fidelity. He recommended direct indexing separately managed accounts for our taxable investments investing in order to take advantage of tax loss harvesting. But what are your opinions on this? He said the Fees range from 0.3 to 0.8% but shows a higher annualized return net of fees when taking taxes into account. He said this wouldn't make sense in our tax advantaged accounts but it may be something to consider in our taxable account which currently has over $200,000 in it. Some additional background if you want. We're both planning to retire this year using the rule of 55. Estimated annual expense is 120 to 125k. Total savings approximately 2.6 million 401k. Traditional 1 point and they break that down into where all those are. Thanks again for all you do for us. Clark's advice over the years helped us save tons of money, take lots of trips and be able to retire early. I'm glad Clark is also starting his phased retirement and love the addition of Wes to the show as I've read his books and love his advice for a happy retirement. That was Tracy in Florida.
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Wes Moss
I love Tracy so thank you for saying that.
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Krista Dibiaz
Thanks Tracy.
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Wes Moss
Tracy saved a bunch. 3 million they've saved and said listen to Clark. They've accumulated a ton of retirement cushion. I think of it as a giant engine that's a big as a lot of horsepower to produce income for the rest of your life. There are two things here. The one is about early retirement and that's the question around the 50. The rule of 55. 99% of conversation when it comes to when you can access your retirement money is about the 59 and a half. 59 and a half. 59 and and a half. That's when you can pull money from your IRA or 401k without worrying about a 10% penalty. But if you work at a company and you stay until you're age 55 and then you leave after you've already turned 55 and you leave the money in that company 401k you can invoke the rule of 55 which allows you to tap the 401k. Doesn't work if it gets rolled in an an IRA but if it's still in the company 401k then you can access those funds without the 10% penalty early. So that's four years early or yeah, almost five years early. So I love that rule, particularly for early retirees. Secondly, we've been getting more questions around SMAs which are I've always known as separately managed accounts. I think of them as private mutual funds, like even mutual funds. You had 200 stocks in a fund, but you just see the five symbols in your Schwab Vanguard Fidelity account. You have no idea what's inside that fund. Well, you know what's in it, but you don't see it. A separately managed account is a fancy way of saying you've got your. It's almost a privately managed fund. You've got a manager or some sort of strategy and you get to see all the components and go back even five years. You really heard very little about direct indexing unless you had millions of dollars. But the advent of almost no trading costs, the advent of technology, artificial intelligence, it's now become really easy to replicate an index whether it's the Russell 3000 or the S&P 500 or a dividend index. You can get really specific using direct indexing. And the difference here is that you own the individual companies. Now I don't know exactly what she was asking about on the fee, what she cited, but the industry essentially is going to be anywhere from I think as low as a tenth of a percent a year to as high as half a percent a year. So half a percent a year is a lot for an index fund. When Vanguard funds or most index fund companies are 0.1 or even less than that in a lot of cases with ETFs. So you do pay a little bit more just to get an index when you're doing direct indexing. She's right. You don't need to worry about it in an IRA because there is no tax loss harvesting inside of an ira. You don't get any benefit. So you have a loss and you don't get any penalty or tax if you have a gain. It's all sheltered until you pull money out of a retirement account, a Roth. Again, no tax when it's getting pulled out. But on an after tax money, I do think that there's some, I actually do use some direct indexing and that's because if you want to pull from that amount, if it's just in one ETF and it grows, then by and large you're just, you're paying long term capital gain taxes on, on the gain. So if you put in 100k goes to 200k and you say, well, I need to take 20,000 out. You're going to be paying taxes on direct indexing because if you think about this, 500 stocks all in your account and they are always harvesting the ones that are at the, let's call it the losing positions. Even though the whole account's growing, they're harvesting losses so that when you do need to take some funds, they can offset your capital gain. The theory over time is that your net take home, if you need to pull money out of it because you can avoid some of the taxes by offsetting them with losses, you could end up with more net money. Now you're paying for it. But I do think that these are good strategies as long as you're keeping that cost in the call it 1020 basis point, 10 20, 30 basis point range.
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Krista Dibiaz
When we come back, you're going to talk about something your mom actually called you about, right? Super scary headline.
- [22:02]
Wes Moss
Scary headlines. They happen every day. It's only but only once in a while I get a text from mom about it.
- [22:11]
Sponsor Announcer
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- [22:15]
Wes Moss
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- [22:46]
Sponsor Announcer
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 this episode is brought to you by Lifelock. During tax season, your personal info travels to a lot of places between payroll, your tax consultant and the IRS. If your W2 gets exposed, that's just the ticket for identity thieves. That's why Lifelock monitors millions of data points every second. If your identity is stolen, they'll fix it, guaranteed or your money back. Don't let identity thieves take you for a ride. Save up to 40% your first year. Visit lifelock.com podcast terms apply welcome back.
- [23:46]
Wes Moss
To Ask An Advisor with Krista Dibiaz and Wes Moss. That's me. What do we got?
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Krista Dibiaz
I Want to hear what made your mom, your sweet mom text you is.
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Wes Moss
A text from an article.
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Krista Dibiaz
Scary article, Scare lines.
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Wes Moss
The Coming crash is what it is, the coming crash. So I look it up, it's the same. First of all, I don't fault the authors of these things. There always could be a crash. There could always be the market going down. The market goes down all the time. So it's not as though I fault these authors. It's everyone has a right. You can look at the economy and then slice it a thousand different ways and you can come up with a conclusion that hey, things aren't going all that well and they're going to get worse. Or you come up with a conclusion that things are going to be pretty darn good. I mean, I studied economics. It's a social science. It is not a perfect science. So when you're talking about a crash, you're talking about a bad economy and you're talking about a stock market or, and, or in this particular case, real estate. And this latest article, the Coming Crash, I look at it, you know, when you get a text from your mom, from anybody, you usually will see the image of the article. The image of the article is that famous bronze statue of men in the breadline during the Great Depression. Every time you read about a crash, you see some sort of breadline and you immediately think, are we going back to the Depression? Are we going back to a terrible economy? So it gets your attention, scares you a little bit.
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Krista Dibiaz
Sure. I mean, everything's gonna be fine. It's not a catchy headline.
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Wes Moss
Yeah, everything's gonna be great. Goldilocks is back and everything's great. But Porridge is just right. The author of this particular article, it's also a recycled article, so I looked it up and you can find it on Yahoo and five other places. But it is a really well known author, Robert Kiyosaki, who was the author of Rich Dad, Poor dad and he is a super bestselling author. Rich dad, Poor dad, super famous. I read those books back in the 90s. I thought those books were great. So I think that he's had some good advice over the years, but he's also been kind of a pretty much one of the kings. He's not the king, but the king of doom and gloom. And to your point, headlines that things, everything's going to be okay. They don't sell, nobody reads them. So he purposely is trying to get your attention. But if you go back and look at his track record on the crash is coming, he essentially Said the crash is not over in 2011. Well, the crash, that stock market cycle had really ended and we moved higher from there. September of 2015, he said, I've been predicting since O2 that we would see another stock market crash in 2016 again a year later. Market up 9.5%. 2017 another sign a real estate crash is coming. I looked at the Keith Shiller home price index back then, which is a measure of home prices in aggregate the United States it was at 192. Today it's at 323. Home prices are 70% higher than when that tweet or that headline came out. August of 2018 predicted the biggest crash of all. Instead 2018 onward since then S&P 500 is up 140%. Now we did have a big downdraft during COVID The market's down 33%. Technically that was a bear market. That happened really quickly and violently. So these aren't totally wrong. But the point here, keep going here. October 28th of 2020 everything crash is coming. September 26th, 2022 everything everything crashes coming. Everything is in all different assets are going to lose huge value. 2023 severe shock. Market crash coming. December 10, 2023 get some cash out of banks. This may be the start of the biggest crash in history. So you get the point.
- [27:48]
Krista Dibiaz
Yeah, just scare line after scareline, scareline, scareline, scareline.
- [27:53]
Wes Moss
And they all have some DNA or shred of. Well, remember Silicon Valley Bank? That bank went under. So the great thing about being a scary headline writer is that it's not really hard to find actual real life scary things because they happen all the time. So you can extrapolate that in one respect. I do appreciate newsletter companies and authors that are keeping people on their toes. There's plenty of people that say things are going to be good. I'm one of those people that army of American productivity. And I think we're going to get through this and over time. I'm long term optimistic on the US economy and stocks. As an investor, I think it's one of the few places you can really outpace inflation. But if you are listening to scare headlines, you'll be scared away from ever really investing anyway. It's already hard enough. You've got to take scare lines, scary headlines with a grain of salt, understand who they're coming from and that way you at least can not get completely knocked off track in the long term sport that we're all in, which is the marathon wealth accumulation investing looking at history is always stock Markets, housing market again since he started making these forecasts. The one I go to first back in 2011 S&P is up about 280% since that first June day prediction.
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Krista Dibiaz
All right, we'll go to some questions for you. This one came in from Mary in Michigan. Mary says I would like to have a secondary source of income other than my W2 job and I'm curious about your thoughts on whether I should invest in rental properties, including hiring a property management company or dividend yielding ETFs. My goal is to have a secondary income stream of around $60,000 a year within the next 10 years. I'm leaning toward rental properties, but I've been hearing more about dividend yielding ETFs and want to make sure my money is going to the right place to achieve my goal. Would the monthly income from rental properties with around 6 to 9% cap rate be greater than the monthly income from a dividend yielding etf? What should I consider with this decision and Wes, We've had a few questions come in just this past week. People wondering about having real estate as one of those income streams that you talk about.
- [30:17]
Wes Moss
The answer is yes. I've invested in real estate and I've seen it work for people over and over and over and over again. It's a lot like the equity markets because it takes a ton of time. It does depend on what the market looks like. So first of all, let's talk about this word cap rate. The way you look at a rental property, similar to how I would look at a dividend stock. Now, one takes a lot of work, one takes no work. You're not going to get similar yields. But if you think about a property that is paying you, let's just do round numbers here. Let's do a $500,000 property and it's paying you. You're getting $30,000 in net rent. So it's net operating income, right? If you've rent a 50 but you have to spend 20 to maintain the property, you're really only getting a net of. So this is the cap rate, the net income divided by the price. Just like you'd look at a stock yield or a bond yield. Same thing with real estate. How much cash are you getting for the investment you put in? If that property is $500,000, that's a cap rate of 6%. And that to me is about the floor really. 5 to 10% is the rate of yield you want in order to make a property worth. The time, the trouble, the energy and That's a pretty good rate of return, but that's also just the yield. And this is that we're all after total return. Total return equals growth, income plus growth. So imagine you have a property that's appreciating at 3% a year as well. Three plus six is nine over time. That's a pretty darn good rate of return and great way to diversify for retirement. And the way I've seen this work, when it really works out, is that you end up accumulating one property, maybe the next year or two years later, another property. And you do that over 20 or 30 years, and by the time you're getting to retirement, most of the properties are paid off. And then you get this net cash flow. But it takes a long time for that to all work out. But once you have the property paid for, you've got this, what can be a really nice yield coming in. And it's truly mailbox money, right? It's just coming in every single month. Now. There's a lot of work involved. And if you think about real estate, investors are not just going out and saying, hey, I want to go find a property, and they look at a few places and they say usually it's just like anything else that turns out that's hard to do, that's profitable. It takes a ton of searching and scouring the landscape. So you're going to go look at 10, 20, 30 properties to find one that has a good cap rate. If you have a $500,000 property and the rent in that area is not all that good, and you end up with $10,000 in rent on 500, you know, that's a 2% cap rate. That's just not worth the time. The trouble to go find a renter, once the renter leaves, you got to find another renter. Problems with the toilets, the roof, the windows. So it's an active sport. But if you find a cap rate that's 6,5% minimum, the way I'd look at it, or higher, then I think that's when you want to start getting interested. Just like a bond, though, if the cap rate is way high, like 12, 15%, that means there's something going on too. So you've got maybe a risky property as well. So I like that sweet spot. 5 to 10%, that's cap rate. And I think that can make a lot of sense for anybody, but it just takes a lot of time.
- [33:43]
Krista Dibiaz
A lot of markets, I mean, I'd say around the country still, like, you know, we saw the huge run up in property values. But do you have concerns about the fact that you know, a lot of markets seem pretty high right now?
- [33:55]
Wes Moss
Well again we were just, I'm just looking at the Case Shiller Home price index. It's gone essentially straight up and that's the measure of home prices in general in the United States. I mean I'm looking at a chart right here. There was a tiny little dip after Covid and then it's essentially just been straight up. I mean even if you go back to January of 2020 for the pandemic index was at about 210 it said 323. So home prices are up 30, 40, 50%. In some markets they're up more like 100%.
- [34:35]
Krista Dibiaz
Right.
- [34:36]
Wes Moss
So I think that we've got to be careful particularly in those markets that have doubled versus up 30, 40%. And it's all relative to how much rent we can, how much rent we think we're going to get. The other thing is that the real estate dynamics in my opinion are pretty favorable for property we've under built in the United States for really since the 2006 7, 8 financial crisis housing crisis hit the housing industry just like a absolute brick wall. Housing activity went down 80, home building went down 80% and and it's never really, really recovered and caught up for that. So we're a little bit of this shortage for the number of homes number people would like to get homes. So I think that housing is still a has solid fundamentals because we're kind of under built but it's hyper local and wherever you are asking from you're going to know your market, you're going to the the economy of your hyperlocal market and you're going to know how easy it is to rent places out.
- [35:39]
Krista Dibiaz
So true. Okay. Sherry in Oregon sent this in for you. Wes. I'm a beginner in the investment world and looking for short term investment options only because my project viability in the USA currently is for about two to three years. I might need to move out of the country in case my project doesn't get an extension. Currently I have around $30,000 in a 401k invested in the S&P 500 in Fidelity. I have cash of around $30,000 in a Fidelity brokerage account. I'm 40 years old. Kindly advise on the below queries. 1 Should I keep or take out money from the 401k considering short term visibility? I know about the early 10% withdrawal penalties and taxation. If you suggest keeping the money in. Would there be any complications if I try to withdraw money after the age of 60? In this case I'm thinking to keep it in there for the kids education in the usa. Two, I'm also planning on buying some low cost funds. I need advice to know if it's worth buying considering my short term visibility. Do you have any other suggestions for low cost funds? And how about T bills? And three, I also want some exposure to cryptocurrency. So I put $500 into Bitcoin and Ethereum. I hope that should be fine.
- [36:54]
Wes Moss
I think that would be fine. It's not a ton of money and I think that again I'm not a big believer in. I don't have a ton of. I have a little bit too probably just like her that I bought many years ago. But it's just not a big part of how I invest over time. It's just too hard to value it as an asset. I know that some people are crazy, love crypto and then you still have Warren Buffett's of the world says it's terrible you can't value it. The answer probably lies somewhere in between. But I just can't value don't like it. So don't really own much of it at all. But I would say a couple of things, Sherry, I don't think you want to tap the 401k. You're too young. The very simple answer is that you're going to. You want to wait until you are of age to be able to not get penalized. That's 59 and a half. So you get some time there. Don't. You don't want to be taking money out just because you think you need to leave the country. I don't see how that would work. Secondly, I do like this idea of keeping money safe because you're in a short term and highly uncertain position. So when you're in short term highly uncertain position, meaning you don't know if you're going to have your project renewed and you might have to move to another country where you were from. That's expensive and you need some flexibility and some cushion for that. So I would want to leave that 30 she has. I would want to have most of that in cash, maybe put 10 of that in a low. I like that she said low cost funds. I like low cost funds too. Some sort of low cost, highly diversified index fund. But I would be leaving 20,000 in some sort of money market. So she mentioned T bills. Again, any sort of government money market is essentially investing in T bills. So if you're buying a government money market, they're investing primarily in super short term Treasuries, which are T bills. And usually those are super low cost funds. Right now, where the Federal Reserve has interest rates, they're paying about 4%. So you're getting something. And I would want to leave that and keep that dry powder ready. If she does end up not getting renewed on a project and has to move. Expensive. I would keep that money. At least 20,000 of the 30 in some sort of money market. Keep it safe. That's my take share.
- [39:14]
Krista Dibiaz
All right. Well, that does it for us today. We'll be back next week with a new episode. Clark will be back tomorrow. Hope you enjoyed this episode of Asking. Thank you, Wes. Have a great day, everyone.