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The Clark Howard Podcast
03.11.25 Ask An Advisor With Wes Moss
00:38:05
6 Mistakes To Avoid Before Retiring Early
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- [00:00]
Megan Coyle
Today's episode is sponsored by Smart Travel, a new podcast from NerdWallet.
- [00:05]
Wes Moss
Want to travel like a savvy jet setter?
- [00:08]
Megan Coyle
No, that doesn't mean monogramming your passport. It means making smart decisions every step.
- [00:12]
Wes Moss
Of your trip, which means knowing your options.
- [00:15]
Megan Coyle
Smart Travel unpacks the facts like which booking sites actually save money, how to fly first class using points, and if that fancy travel card is a smart.
- [00:23]
Wes Moss
Investment, all so you can save more on your next adventure.
- [00:27]
Megan Coyle
Stay tuned at the end of the.
- [00:28]
Wes Moss
Episode to hear the Smart Travel trailer and be sure to follow smart travel from NerdW so you can start traveling like a pro.
- [00:36]
Megan Coyle
This message is brought to you by Apple Card. Applying for Apple Card is quick and easy. Apply on the Wallet app today and see a credit limit offer in minutes subject to credit approval. Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and more@applecard.com.
- [00:59]
Krista Dibiaz
Welcome back to Ask an Advisor. I'm Krista Dibiaz.
- [01:03]
Wes Moss
You are Wes Moss.
- [01:04]
Krista Dibiaz
Wes Moss, who is a fiduciary fee only advisor among many other things, talented broadcaster, author and you have how many books have you written?
- [01:14]
Wes Moss
Nice. You're so kind couple I wrote about 10, 11, 12 years ago wrote you can retire sooner than you think. Five money secrets are the happiest retirees. And then the follow up to that several years later was what the happiest retail retirees know.
- [01:33]
Krista Dibiaz
And you've done tons of research and in addition to being an advisor, being a broadcaster, I don't know when you sleep and you have four children.
- [01:41]
Wes Moss
I do have four kids, four boys. Yeah.
- [01:44]
Krista Dibiaz
Pretty impressive. And now you're helping us out and answering investment questions that come in from the audience, complementing what Clark does with all the consumer information he provides and answers that he gives. And we're really loving this and the audience seems to be really enjoying it as well. So thank you to everyone who's tuning in every week, watching on YouTube and.
- [02:04]
Wes Moss
You know look the the way I'm answering these could be right, could not be right. This is financial questions are so there's such a unique DNA that this is just my best guidance and I'm help. I've done this for 25 some years and I've seen a lot of these situations. I've seen people in early stages when of retirement and they're just getting saving people who had big life events, big money events. Most people are saving their way to retirement but we're all going through the complexities of all the rules and investment options and so I'm just bringing kind of just the real life guidance that I've been able to do for a lot of years and trying to help here. Hopefully it's working.
- [02:48]
Krista Dibiaz
I think it is. And something we heard about a lot, I haven't heard about it so much recently was the fire movement, you know, to retire early. But a lot of us would love the ability to at least know we could retire early, that we don't have to work until we're old and unable to physically work anymore. And so I know you're going to talk about that today in the podcast, Right?
- [03:10]
Wes Moss
So again, a lot of the research that I've done over the years has, yes, been the habits of happy versus unhappy retirees. But the theme here is financial independence as early as possible. That's the retire sooner concept. My podcast is called the Retire Sooner Podcast. And the thought of just getting to financial independence a year early is music to my ears. Three years, five years early, I think fire the concept of, hey, I want to be financially independent, age 35, I guess it's possible. But my concept around getting to retire sooner was, is not 35. It's more like if you can retire at 62, you're doing great. 55, amazing to have financial independence. And the early retirement trends are continuing to happen. So I want to talk about six mistakes and we'll do three now and we'll do three in the next segment. Three things we need to make sure we avoid big mistakes that if you're retiring early, you've got to have in mind. So just recently in the news, two giant companies are saying, hey, we want to reduce our workforce. Chevron giant oil company reducing something like 20% of their workforce. Facebook reducing their workforce by thousands of people. It's just something you see every, every week in the news. Another big company is making some deal and they're doing buyouts and they're encouraging people to work a little less because they the concept of corporate America hasn't been, this is nothing new. It's just, it's the same thing, but it's, I would say it's taken on even more steam. Companies are saying, look, our more senior workers are getting paid a lot. We think we can cut costs by giving them an incentive to leave the workforce a little bit early. And if you look at the big numbers, here are some of the numbers back in 2015. So let's call it 10 years ago, 55% of people expected to work beyond 62. Today, that number's under 50%. So it's 48%. So we've dropped 7% of the workforce. 7% less people in a 165 million person workforce are not working. So fewer people working beyond 62. So we have a lot of people that I would consider pretty early retirees. The average expected likelihood of working beyond 67, 34%. So we talk about waiting. Wait to take Social Security. 370. Well, two thirds of America, they're not working beyond 67 anyway. So those are the trends. That's the reality. The question is, what do we have to make sure we do when it comes to making sure we're prepared and avoiding mistakes. So, number one, a mistake to avoid would be to not consider a phased retirement if you're 55 and you would like to retire today or say I would look at it not as so much as a black and white. Growing up, I really thought retirement was black and white. Just like my grandfather. Our grandfathers moved to Green Valley, Arizona.
- [06:31]
Krista Dibiaz
Mm.
- [06:32]
Wes Moss
About an hour outside of Tucson. It was 40 minutes from the border. It was just dry and nice. And he had asthma and it was healthy for him. And he was straight. I'm working at Dupont for 30 years to straight. I'm not working. You know, I remember him playing shuffleboard. I was like a little kid. I would go to Green Valley. It was just. He would play shuffleboard and he'd play poker and. And he watched the evening news and he was straight up retired. That's not the reality of America today as much as I see it, because we have the opportunity today more than ever because we don't have pensions and we're not counting typically on a company to pay us forever. Like he had a pension from DuPont to phase in that retirement. So, hey, I'm gonna. I'd really like to retire at 55. Maybe I'm not quite ready to do it financially. So my number's 62. So I phase in not black and white, but I have this gray zone period of time of I'm going to work part time. So I've worked with folks that have, let's say they're making $100,000 as a corporate project manager at a healthcare company. Barb, she's 55 and she's making $100,000 a year and really wanted to retire. And she saved almost enough to retire, particularly if she gives it some more time to mature at 62. Another call it seven years from now so she doesn't have to save as much. But she doing some financial planning too early to start pulling for that money. So instead of stopping completely, she phased back. She went to halftime part time and took her salary from 100 down to 50 and it allowed her to at least have almost enough just so she didn't have to dip into the retirement savings. But she wasn't saving anymore. But that's still better than having to pull money out that early. So then she did an even more phased down retirement from 60 to 63. So over that period of time she still earned something like $350,000, $370,000 over that phase retirement. And it gave her the opportunity to not have to tap the money a little too soon relative to our plan. So considering a phased retirement, I think is a really important thing to not overlook. Number two, this is totally on the different end of the spectrum here, is not making plans to be around your adult children. And there's a lot of thought to go into that. So I did a lot of research around this and those retirees who are within driving distance, so within close proximity to 50% or more of their adult children. So again, you can get four kids. You can pick your favorite two. Krista.
- [09:26]
Krista Dibiaz
Right. Okay.
- [09:27]
Wes Moss
So I've got four kids. So I'm always thinking, well, who are the two? Who are the two we need to live dear eventually when they're grown ups increases the likelihood you end up in the happy retiree camp versus unhappy by 4 times 4x. But a lot of thought has to go into that. You don't want to just be there to babysit your grandkids. Some people want to do that. But you also want an active life. And if your kids have spread out all over the country and a couple of them have moved to Texas or California and you're not from there, and I have lots of stories about this, you've got to figure out and plan for finding a new community. It's not just about your adult kids. It's being able to be near the adult kids and have your own social network, your own social community. You gotta plan for that. And it's hard to do that if you're just saying, oh, I'm retired and I'm done. And we've not thought about this big. What could be a big geographic.
- [10:20]
Krista Dibiaz
Right. And then eventually later on, my parents who are in their 80s, are planning on moving closer to me because they need some extra help that they didn't need before and I can provide that for them. So that's another stage, I guess that you think about it.
- [10:34]
Wes Moss
It is interesting. It's kind of the, the boomerang of your parents. You as a retiree should be close to your kids. But then at some point your kids may need to be close to you to help. And we'll do three because we have six. So the last one quickly failing. Here's a mistake. Failing to establish multiple streams of income. We've gotta be able to think about this early on. We know we've got hopefully we have Social Security and, or a pension and, or what are the other areas. So we've gotta start thinking about our investment portfolio to generate income as another income stream. Maybe it is rental income. You have rental properties. Maybe it's as simple as you being more creative and having an Airbnb. Maybe you have some sort of annuity, maybe you have some sort of other income from a past company. Maybe it's part time work which goes back to that phase, retirement. So thinking about multiple streams of income in retirement is essential. We don't want to just have one or two. We want to have diversification of how we're getting paid. If we're not thinking about that, that's a mistake.
- [11:40]
Krista Dibiaz
And I was also thinking in the beginning when you talked about the percentage of people who are retired by 67, I wonder as pensions are phasing out over the years where most younger people will never have a pension, my guess is that age is going to rise and that stream of income will go away for people. So they're going to have to be creative. Creative and think of new streams of income as well.
- [12:01]
Wes Moss
Look, I don't know. It's not just that maybe there's less opportunity as companies are trying to get people to retire early. Sometimes people don't. To your point about a caregiver, and we saw a lot of this through Covid, it could be your own health issues, it could be a family member's health issues. That kind of forces you to not be able to work and take care of the family. We've seen more of that as we have an aging population. It's not just for workers are aging, it's workers parents are aging. So I think the trend of phasing out of work earlier may continue to get younger even though pensions have gone away. It just makes it that much more important to be saving.
- [12:36]
Krista Dibiaz
All right, we'll go to questions. John in Minnesota says, I just turned 55 years old, my wife is 54 and I feel I'm ready for early retirement this coming year. All right, John, I'm still working and get a full company match and contribute 15% to my 401 with an additional 1% to my Roth IRA, I have approximately $1.1 million between traditional IRA and 401k, of which 60k is in a Roth. I owe $180,000 on my $500,000 home at a 3% mortgage, which I'm currently attempting to pay down with $1,000 per month. Or should I instead pour more into my 401 or Roth while working? My retirement monthly budget estimates are as follows. 34 to $3,600, which includes an extra 1k from my mortgage. My wife is currently.
- [13:25]
Wes Moss
That includes the mortgage.
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Krista Dibiaz
Yeah. My wife is currently covering medical insurance until 60 years old before she retires. And then we plan on using healthcare.gov Both of us will take Social Security at age 67. What are your general thoughts or concerns?
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Wes Moss
I'm doing some math right now. So he's spending only $3,600 a month.
- [13:45]
Krista Dibiaz
That's what he estimates. Yeah, estimates.
- [13:48]
Wes Moss
So that's $43,000 a year. And did he say how much his Social Security is? He did not. Did he? There's a couple things here. I think John is going to be. He's 55, which is early. That's super early. We just talked about this. His expenses are so in check, which is awesome. He's already reaching in a lot of ways some of the major happy retiree financial checkpoints. So the median different than the average. The median happy retiree amount from my research today, for today's inflated dollars, three quarters of a million average is one and a quarter million. He's pretty much already there. He's pretty much already there. Why is that number important? Well, let's just do the math. 1.1 million at 4% is a little over 40,000 a year in income. 4%. It's $44,000 a year that he could safely withdraw. John could safely withdraw for essentially the 4% plus rule says you can do that for almost indefinitely. Minimum of 30 years when you're super, super early in retiring. That only gets him to 85 90, but it's still a safe guideline. And that in itself gets him to his spending number. Now he's going to have Social Security. Right. He didn't mention that he was going to have a pension because he's saving. He's going to have Social Security, he and his wife. That's probably going to be $3,000 each a month. Maybe. Even if it's only 2,500, that's another $5,000 a month. That's 60. So between his Social Security called around 60 a year. When he does start taking it and his withdrawal, that's $100,000 a year, and he's only spending $40,000. So I like this position that he's in. Another criteria of the happy retiree is they get rid of their mortgage. Their mortgage payoff is within sight. John, your mortgage payoff is in sight too. So I wouldn't be pulling out of the 401 to do that. You already have a Super low rate, 3%. It's baked into the spending. Yeah. You can slowly. You can pay that down a little extra every month.
- [16:07]
Krista Dibiaz
I think he baked in an extra thousand dollars, he's saying, for his mortgage, because he's putting an extra thousand dollars toward his mortgage every month right now. And he's saying he will still do that.
- [16:17]
Wes Moss
Look, I think he's in good shape. I would just be at that early. It's 55. I would just think back to what we talked about first. Always consider phasing out as opposed to stopping completely. It's hard to stop work and then go back. There's been a big unretirement trend in America that people have stopped working and then they want to go back. So I would just. I wouldn't cut cold turkey here. I'd consider scaling back work. But I think financially he's reaching a lot of the really important checkpoints.
- [16:51]
Krista Dibiaz
Okay, this one is from Michael in Georgia. Hello, Wes. Thanks for all your advice and financial wisdom. What do you think is better? Vanguard VTEB Municipal Tax Free Bond ETF or Treasury Series I bonds? The current VTEB yield is listed at 3.52% versus I bonds at 3.11%.
- [17:14]
Wes Moss
Are these the inflation bonds or I bonds from iShares that own Treasuries?
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Krista Dibiaz
He just says I bonds at 3.11%. I'm planning to sell I bonds and buy VTE.
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Wes Moss
Oh, that would be. Those would be the inflation.
- [17:31]
Krista Dibiaz
Unless you convince me otherwise. Two, what should I start gradually selling first when I retire? Taxable stocks, my Roth IRA or a traditional 401k and IRA. And three, can you recommend some income ETF or fund that will provide a stable annual income instead of me deciding what to sell and when? I do not want to deal with annuities, per Clark's disgust for those.
- [17:54]
Wes Moss
Yeah. Okay. So, Michael, a couple of things. Here's the order of distribution. When it comes to retirement, you would. We want to manage our tax rates. So to keep our tax rates low. And the way to do that is to start with your brokerage account. You're able to pull money from that strategically to minimize the amount of gains you have to take. So that's basket one to draw from. Basket two would be the Iraq then ultimately we want to typically save our Roth IRA for the, for the latter years. It's got kind of the most horsepower because it's growing tax deferred, comes out tax free and there's no required minimum distribution. So you're going to have to start drawing from your IRA anyway once or once you hit 73. But I think that's typically the order of operations. Doesn't mean that you can't sometimes supplement if you need the income out of a Roth just to keep your tax rate low. If you maybe have a big chunk of an expense you want to utilize it for. But that's generally the cadence is taxable IRA then Roth to draw from. Secondly, the decision to use municipal bonds. And I don't know this particular fund, but again let's call it a broadly diversified municipal bond fund. Assuming it's high quality, you've got to look at it on a tax equivalent yield. So if the yield on a tax free fund is 3 and a half percent and a treasury for you or. Well in this case he's looking at an inflation bond. First of all, you, there's only so much money we can put in inflation bonds. So if you're really talking about retirement, you're looking at either a bond fund or a bond ETF that allow you to do well beyond the annual amount you can do in the, in the Treasury I bonds. There's a limit there. But I would look at your tax equivalent yield when it comes to municipals. So you take the yield of three and a half percent and you divide it by your tax rate or one minus your tax rate. So 3.5%. If you're in the highest tax bracket, 37% one minus 0.37. You're going to divide that tax free yield federally. Tax free state's another issue. But let's just talk Federal now by 0.63. So three and a half divided by point 63, the tax equivalent yield on that is about five and a half. But if you're in a low tax bracket, if you're in the 10 or 15% bracket, maybe the treasury makes just as much sense because the treasury yields today are more like 4% or 4 and a half. So they're above, but they're taxable. So it depends on your net. You take the municipal yield, divide it by 1 minus your tax rate. In this case kind of the bogey if you're in a really high bracket would be 5.5%. So I'm totally comfortable with municipals, but I wouldn't be using them unless I'm in the 35% tax bracket or higher.
- [20:48]
Krista Dibiaz
Okay, all right, we're going to take a quick break and when we come back, more mistakes that early retirees.
- [20:54]
Wes Moss
Mistakes to avoid Mistakes to avoid.
- [20:56]
Megan Coyle
This message is brought to you by Apple Card. Apple Card is everything a credit card should be. It's easy to manage, built to be secure, and gives users up to 3% daily cash back on every purchase. The best part about Apple Card is applying is quick and easy. Apply in the Wallet app on your iPhone and see your credit limit offer in minutes subject to credit approval. Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and more@applecard.com hi, I'm Don McDonald from.
- [21:27]
Don McDonald
The Talking Real Money podcast. Simple, honest financial advice is hard to find because there are too many people in the financial services industry and even the media who will do or say anything to get your money. Well, for decades, my co host Tom and I have been trying to help people better manage money on the radio, TV and in our podcasts. About five times a week we share simple, low cost advice on building the wealth you need to enjoy a better future without making your broker richer. And ironically, you broker Listening to Talking Real Money could not be easier because you're already listening to a podcast. Just search for talking real money on your podcast service or ask your smart speaker, give us a try. You have absolutely nothing to lose except a few minutes of time and you might just discover something to help you enjoy a more prosperous and secure future along with a simpler present. Just visit talkingrealmoney.com or search for Talking real money in this podcast service. It's that easy.
- [22:25]
Megan Coyle
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- [22:49]
Wes Moss
This episode is brought to you by. Indeed, when your computer breaks, you don't wait for it to magically start working again. You fix the problem. So why wait to hire the people your company desperately needs? Use indeed sponsored jobs to hire top talent fast. And even better, you only pay for results. There's no need to wait. Speed up your hiring with a $75 sponsored job credit@ Indeed.com podcast. Terms and conditions apply. Welcome back to Ask An Advisor with the great Krista Dibiaz Westmoss. The Westmoss. We have more questions to get to.
- [23:27]
Krista Dibiaz
We do.
- [23:27]
Wes Moss
We've got to get to early. Early retirement. Yeah. Mistakes to avoid. So we start there.
- [23:33]
Krista Dibiaz
We'll start there. And if you have a question, remember you can go to clark.com ask and indicate to us whether your question's for Clark or Wes.
- [23:41]
Wes Moss
Pick it up where we left off here. The trend in America, people are whether they're doing so by necessity because there's health reasons or their family has health reasons and they need to care for folks. People just aren't working as long. And in some ways I think it's a good thing because people are saving more. We've got more millionaires in the United States than we ever have. 12% of the population has a net worth of $1 million or more. So people are saving so that we're retiring a little sooner for some good reasons. And then I think we're also retiring a little sooner because we just have to in some cases. And companies are constantly pressured to reduce the workforce. And some good reasons, some bad. If we are going to retire early, what are some mistakes to avoid? We've gone over a couple. Number four on my list at a six would be is waiting to collect Social Security for too long. If we want to maximize Social Security, sure, it's great. Wait till age 70. And if you're able to do that financially, then I think it is great. And then you get a max amount at max amount gross or inflation, it could be helpful for your spousal benefit. So there's a lot of advantages to it. So I don't disagree with it. But it does take about 12 to 13 years to break even from taking it sooner. So if you are retired and you're 60, 61, 62, or let's call it 62 when you could start Social, social isn't necessarily about maximizing. It's about optimizing it for what's right for you and your overall plan. So in some cases, if you're stopping work and you're 62 and you could take Social Security or 63 or 65 and your withdrawal rate to pay the bills is 5, 6, 7, 8% from your accounts, then you start worrying about running out of money. And that's our biggest fear. So sometimes turning on Social Security will eliminate having to pull too much as a percentage out of your retirement accounts. So it's about optimizing Social Security. Sure, we'd all love to maximize it, but it doesn't always work for folks. So while I love to see people who are able to wait till 70, it's also okay in some situations. In a lot of situations, it may make sense for folks to take it at 63, 4, 65, depending on your situation. Number five, failing to appreciate the massive cost of health care. And I think we all do in America. It's become 15 years ago your mortgage is your biggest bill. Your today your mortgage is, it's health care, particularly if you don't have good health care coverage. Now remember, Medicare at 65 covers 80%, but it doesn't cover the other 20. So if you've got a big medical bill, that can be huge. And that's why people have Medicare supplement plans. I am a big believer in making sure that you're meeting with someone in your state that knows your state supplemental plans to get you the right plan so that you can keep most of your doctors. And making sure that plan aligns at least somewhat has some coordination with what you used to have while you're at work. Now, it's not always going to be perfect, but really put some time into utilizing someone who specializes in Medicare supplemental plans in your state to get the right plan for you. Because if you don't do that and you get the wrong plan, healthcare costs are through the roof. And then finally, Krista, another mistake that we have to make sure we're avoiding is supporting our adult children too much at the expense of our own retirement. I did a bunch of research around this and there's a real correlation. I guess it's an inverse correlation. The more money we're spending for our adult kids, the less likely we are going to be happy in retirement. So the average happy retiree spends on their adult kids a lot less than the unhappy retiree. And there's a lot of variables here. And is it a perfect correlation or causation? I don't know, but there's a relationship there. One, we want our kids to be independent. We don't want to have to pay for their normal bills. We don't want to pay car payments, mortgage payments for adult kids if we don't have to. And we certainly don't want to do that if it's cutting into our own retirement. So just be very cognizant that you can't refund and resave for retirement once you stop working. So if you are having to over supplement the kids. It can take a big bite out of your retirement plan, your retirement happiness. So make sure that we're not making the mistake that our kids are too reliant on us once we get to our retirement.
- [28:36]
Krista Dibiaz
And that even starts with college. Clark always says there are no scholarships for retirement. So if you're saving for your kids college and you're not maxing out your own retirement, that's not a good plan either. That's starting even then. So. Yeah. Okay. Well, those were great. Thank you so much, Wes. We'll go to some questions now. This one came in from Terry in California. I AM single and 2026 will be a busy year. I'll be retiring, signing up for Medicare, turning 70 and starting Social Security. As if that wasn't enough, I will be selling my home.
- [29:07]
Wes Moss
Terry.
- [29:08]
Krista Dibiaz
I'll be selling my home in California and moving to Arizona to join family. I assume that I will not have purchased an Arizona home prior to the sale of the California home and thus will directly transfer over funds I'm likely to be renting at first. While I'm searching. Let's assume I will net $1 million. Can you please clarify any options to hold these proceeds while I'm house hunting? Obviously, I want to make sure all funds are protected, not just a national bank. With a $250,000 cap. I would need immediate liquidity. I have accounts with Fidelity, perhaps open a brokerage account and deposit funds in their money market.
- [29:46]
Wes Moss
Terry, she has a lot going on.
- [29:47]
Krista Dibiaz
Yes, a lot.
- [29:48]
Wes Moss
70 moving from California to Arizona, signing up for social and Medicare. It sounds like she's gonna be looking around. Getting close to family I love. But it may take a little bit of time in California to sell the house. Sounds like it'll be a million dollars or more. And rather than worrying about the FDIC limits of 250 per named account and coordinating it that way. I'm very comfortable with money market mutual funds and there's a lot to choose from. You've got general money market funds that are meant to maintain a dollar as their net asset value and meant not to move. Now they're not guaranteed, but they are. Invest in very short, very short term, very high quality securities to be even safer. And I think that it was back when we saw Silicon Valley bank go under, which is a couple of years ago. Yep, Got me a little bit nervous, even more nervous around taking risks with our safe money. So I'm really comfortable utilizing a money market mutual fund that is specific to government bonds. So you can find a government money market fund or a Treasury money market fund, or those are the two that'll identify that they're not messing around with high quality corporates or other instruments that are short term that could be outside government bonds. Short term government bonds. So that's to me where I feel comfortable. And I'm not worried about $2,000 FDIC limit. When I've got the full faith and credit of US Government short term bonds inside a money market that makes me feel really comfortable. So million dollars to $5 million, $10 million and you want to keep it safe for a short period of time. A government money market fund, that to me is where I would feel comfortable.
- [31:45]
Krista Dibiaz
This one came in from Brian in Texas. I have a question for Wes. On a Facebook investing page I saw someone else post about tsly, which is yieldmax TSLA Option Income Strategy etf. I bought a thousand dollars of it, something I like to do so I can better track it and see what it does. In the five months following my $1,000 investment, paid me $324.89 in dividends or about $65 per month. I was intrigued and then bought a thousand dollars worth of other Yieldmax ETFs. Each of these also paid out pretty good dividends, not pretty good.
- [32:20]
Wes Moss
34% in five months. That's a 60, 70% annualized return.
- [32:27]
Krista Dibiaz
Yeah. So these other ones paid pretty good dividends. Not quite as good as tsly, but way higher than any stock or REIT that I currently own. Overall, the value of these ETFs has stayed pretty much the same. Some are up a little and some are down a little, but very little and swing in their value. Can you explain how these yield max ETFs work? And also are these too risky to put more money in? Thanks for joining the show, Wes. A good ad to the already great podcast, Brian.
- [32:54]
Wes Moss
This is, this is a cool question. I will just full disclosure, I've never used these. I've looked into these because they're interesting, but I've I don't use them because I think of these as they are financial weapons of mass destruction. Oh, anytime you have max in the name of something, I don't know how much if they're using leverage, but they are selling options and they're bringing in premium and that's how they're paying that out to you. But there's got to be a huge component of what the underlying stock is doing as well. And then you've got to look at volatility in the market. And you've got to worry about leverage and all sorts of things. Anytime you have an ETF that has the word max in it, yield max, and it has to do with options. The way I typically see these things happen is that these products get created when the environment's right for that product. So a big fund company will say, oh, there's great option premium on this, and this is a popular stock and the stock's doing well. So let's just create a wrapper and make it an etf and then it does. Well, the thought is, oh, wow, this, this new strategy was created and it's. It's a brand new mousetrap. When reality. When I think what is typically happening is that a company's taking advantage of a trend that's already happening, that doesn't happen forever. So maybe the first year these do, these might do well, and then the environment sours for them, and this thing goes very wrong. Again, full disclosure, I don't own these. I don't know exactly how these things work, but anytime you're getting a 60, 70% rate of return, that's coming out as a dividend. I mean, that's wildly speculative, and as I think Buffett would say, it may be good for a while, but ultimately, these are financial instruments of mass destruction.
- [34:50]
Krista Dibiaz
That's gonna do it for us today. Oh, that's it. That's it. Yeah.
- [34:52]
Wes Moss
That's a cool question to end on.
- [34:55]
Krista Dibiaz
Yeah, keep the questions coming. Wrap up on Clark will be back tomorrow. I hope the rest of your day is great. Thank you so much.
- [35:01]
Wes Moss
Thanks for having me, Kristin.
- [35:07]
Sally French
Today's episode is sponsored by Smart Travel, a new podcast from NerdWallet. I'm Megan Coyle. And I'm Sally French. We're NerdWallet travel writers who help you turn dreamtrips into trips you can actually afford. Because, let's be honest, dream trips are usually synonymous with spending money. But my dream is to not spend much money at all. That's where Smart Travel comes in. We break down the best ways to stretch your travel dollars. Whether it's scoring an upgrade without selling your soul, decoding loyalty programs so you can actually get something out of them, or figuring out if that ultra discount airline ticket is too good to be true. It usually is. And while we're at it, we'll show you how to turn canceled flights into lounge dinners and free hotel stays. Spoiler. It involves a lot of patience and a little bit of research. But don't worry, we've already done the heavy lifting, because being financially savvy doesn't mean you have to skip out on an adventure. It just means you're the genius who paid less for it. Each week, we bring you travel news, expert insights, and even some of our own travel wins and mishaps, all so you can travel more while paying less. And, hey, you'll even have some fun along the way. So if you're ready to make your travel budget work harder And Smarter, follow Smart Travel on your favorite podcast app. First up, SmarterTravel. See you soon.