04.08.25 Ask An Advisor With Wes Moss

Summary

Summary of "The Clark Howard Podcast" Episode: Ask An Advisor With Wes Moss (04.08.25)

Release Date: April 8, 2025

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Introduction

In this insightful episode of "The Clark Howard Podcast," host Clark Howard teams up with financial advisor Wes Moss to tackle pressing financial concerns faced by listeners. The duo delves deep into topics such as market volatility, inflation, retirement planning, and effective investment strategies. Their engaging discussion is enriched with real-life analogies, practical advice, and responses to listener questions, providing a comprehensive guide for listeners navigating complex financial landscapes.

Market Volatility and Investment Strategies

Navigating Market Turbulence

Clark Howard initiates the discussion by highlighting the current state of the stock market in 2025, describing it as a "roller coaster" ride filled with uncertainty ([01:26]). Wes Moss responds with an analogy from the movie Brother, Where Art Thou?, comparing the allure of safety during market downturns to the sirens that lead sailors astray. He emphasizes the human tendency to seek security in cash during turbulent times, often at the cost of long-term wealth growth.

Key Insights:

• Stay Invested: Wes warns against moving entirely to cash, noting that "markets inevitably recover," and staying invested allows one to benefit from subsequent gains.
• Diversification: Maintaining a diversified portfolio helps mitigate risks associated with market volatility.

Notable Quote:

“We have to stay patient and participate. And that's how we build wealth. We've got to be able to cover our ears to not listen to that song of safety...” ([24:07])

Understanding and Combating Inflation

Inflation’s Dual Nature

Wes Moss articulates that while inflation is often perceived negatively, it plays a necessary role in the economy, akin to salt in cooking. A manageable level of inflation encourages spending and investment, aligning with the Federal Reserve's target of 2% to foster economic stability.

Strategies to Hedge Against Inflation:

1. Invest in Equities: Historically, diversified stocks have outpaced inflation, providing a real rate of return that safeguards purchasing power.
2. Real Estate Investments: Properties tend to appreciate over time, offering a tangible hedge against rising prices.
3. Fixed Income Securities: Bonds can offer returns that keep pace with or exceed inflation, especially when held within a diversified portfolio.

Notable Quote:

“Inflation is absolutely necessary. It's like salt, right? If you have steadily rising prices in a manageable way, they price stability...” ([20:30])

Listener Questions and Expert Advice

1. Catherine’s Retirement Dilemma ([08:53])

Situation: Catherine, aged 55, and her husband wish to retire but face market downturns. Their portfolio is 100% equities, and recent advice suggested shifting 20% to cash. With only $41k in cash, her husband is hesitant to sell stocks at a loss.

Advice:

• Diversify Portfolio: Shift a portion of equities to safer assets to reduce volatility risk.
• Postpone Retirement: Continuing to work allows time for the market to recover and increases savings.
• Pension Options: Evaluate the best pension payout options based on longevity and financial needs.

Notable Quote:

“You haven’t quite finished your retirement and investment planning because you really want a diversified portfolio...” ([10:22])

2. Roger’s Concerns on Roth Conversions ([16:29])

Situation: Roger feels advisors overly push Roth conversions, potentially leading to inefficiencies and loss of flexibility in managing tax brackets.

Advice:

• Balanced Approach: Maintain a mix of Roth and tax-deferred accounts to optimize tax strategies and financial flexibility.
• Consider Charitable Intentions: Keeping some traditional IRA funds can benefit charitable giving through Qualified Charitable Distributions (QCDs).

Notable Quote:

“Roth is great, but the balance here absolutely can work for you long term.” ([17:24])

3. Cal’s Family Savings Strategy ([33:54])

Situation: Cal, 28, wants to set up a family savings account to support his early-retired parents and his children's education, seeking the best structure to manage contributions and tax implications.

Advice:

• Avoid Joint Accounts: Potential for sibling conflicts and tax complications.
• Establish a Family Trust: Clearly defined rules and guidelines can prevent disputes and ensure equitable contributions.
• Consult Estate Planning Professionals: Legal guidance ensures the trust is set up correctly and meets all family needs.

Notable Quote:

“A joint account... is a recipe for absolute sibling disaster.” ([36:04])

4. Ryan’s Dollar Cost Averaging Query ([40:13])

Situation: Ryan questions whether increasing the frequency of dollar cost averaging (weekly/daily) is more effective than his current monthly investments.

Advice:

• Lump-Sum Investing: Often outperforms dollar cost averaging, especially when invested early.
• Market Unpredictability: Without knowing future market movements, more frequent averaging offers no guaranteed advantage.

Notable Quote:

“There's no perfect answer because we don't know how markets are going to react.” ([40:33])

5. Lisa’s Social Security Phasing ([42:10])

Situation: Lisa inquires if reducing earnings while phasing into retirement will negatively impact her Social Security benefits.

Advice:

• Top 35 Earnings: Social Security calculations are based on the highest 35 years of earnings, so reducing income later may have minimal impact if earlier years are strong.
• Strategic Earning Reductions: Part-time work can be managed to avoid significant reductions in benefits.

Notable Quote:

“Social Security payments are predicated upon... the top 35 years of your earnings.” ([42:10])

Final Insights and Recommendations

Clark Howard and Wes Moss reinforce the importance of disciplined financial planning, diversification, and resisting emotional responses to market fluctuations. They advocate for long-term strategies that account for economic variables like inflation and market volatility, ensuring sustained financial growth and stability.

Key Takeaways:

• Diversify Investments: Spread assets across various sectors to mitigate risks.
• Stay Invested for the Long Term: Avoid panic-driven decisions during market downturns.
• Plan for Inflation: Incorporate assets that historically outpace inflation to preserve purchasing power.
• Seek Professional Advice: Utilize trusted financial advisors and estate planning professionals to navigate complex financial decisions.

Notable Quote:

“We've got to stay patient and participate. And that's how we build wealth.” ([24:07])

Conclusion

This episode of "The Clark Howard Podcast" offers invaluable guidance for individuals facing retirement uncertainties, investment challenges, and inflationary pressures. By addressing real-world listener concerns and providing actionable advice, Clark and Wes empower their audience to make informed financial decisions, ensuring long-term prosperity and resilience.

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End of Summary

Transcript

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[Wes Moss]

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[Krista Dibias]

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[Wes Moss]

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[Clark Howard]

Welcome back to Ask An Advisor. Krista Dibias here with Wes Moss.

[Wes Moss]

Hey, Chris DA Dibias.

[Clark Howard]

Ask An Advisor is where we go deeper on all things investing. We here at Team Clark our hope to serve you in every way we can with Clark Monday, Wednesday, Friday and Wes with us on Tuesdays. And if you have a question for Clark or Wes, you can go to clark.com ask and people have questions and.

[Wes Moss]

They'Re getting more and more complex. They're getting tougher.

[Clark Howard]

Feels like we're kind of on a roller coaster right now with the stock market and everything. And today you're going to talk about a couple of things that are affecting us a lot. That and then inflation.

[Wes Moss]

Right, inflation. We need to talk about inflation. We, I don't think we've done a segment around that. It's always around us and it's scary, but it's necessary. So we'll talk about that too. But okay, but maybe we just start with the market. I was watching, I didn't watch this whole movie, but for some reason it was on. I don't know if it was Netflix or one of the many subscription video on demand apps on our television. And the movie was Brother, Where Art Thou? Have you ever seen it?

[Clark Howard]

I have not seen that one.

[Wes Moss]

I'm not going to say it's George Clooney's finest role, but he's kind of the main guy in it. And there's this kind of hapless group of he's part of this kind of hapless group of guys going around and I don't remember exactly what they're trying to do, but they're walking on this riverbank. And I think, I remember this because the song is so powerful in this. And I think I had the Brother Where Art Thou soundtrack. And this goes back to the song of safety that comes from Sirens, as in this alluring song that might lead you astray. Just like in the movie Brother, where aren't there. These guys are walking down the riverbank and they. There's these three women kind of. Kind of rise out of the water and they sing this magical, magically seductive, alluring song. It's like, wait a minute. Wow. And the actual singers, they're not in the movie, but it's Alison Krauss and who's a phenomenal singer, and I think Gillian Welch and Emmylou Harris. So they're like the most beautiful country voices of all time. And this, this song. And they are sirens. And what happens is these three, call them hapless guys that are on this adventure, ending up down by the riverbank, they end up getting pass out. They wake up confused, dazed and confused. One of their buddies is missing, and Pete, he's gone. And they listen to the song of the sirens, which is kind of. It seems like a good idea, but you end up in a bad spot. And I think that's what happens when we go through market turmoil. And there's been a lot of market turmoil in 2025. I mean, you cannot go more than five minutes. If you're watching the news, which I don't always recommend, always watching the news, you're going to have heard about tariffs and tariffs and tariffs. And the stock market's been reacting like a roller coaster. And there's been some real fear created in 2025. We've had a couple really placid years in the stock market, some really strong gains, not a lot of big pullbacks. But 2025, we've seen that. So what happens is that when we go into these tougher times and they get a little scared, we're worried about the economy, we're worried about the stock market. That siren song of come to safety really starts to be louder and louder. And that song of safety is, hey, just sit this thing out and go into. Just wait this whole thing out in cash. As investors, we don't always think of it as, well, maybe I'll have some cash. It's really. We naturally go to, I just want to protect everything. I want to just make everything safe. Because this whole safety thing sounds really good right now. And it's just the human emotion that drives us. And that's why we've seen. And there's been multiple reports throughout the year. And I'm sure this is only going to be exacerbated as the tariff worries kind of accelerate. More and more people are taking money out of just regular balance. Yes, they're taking money out of stocks and putting in them to money markets or cash. They're also taking out balanced accounts. So target date funds have been. We've seen money pulled out of even a balanced account and just go to cash. And that feels okay for the really short run. But what happens is when we listen to that song and it says, well, a, the world is scary. Go to cash. B, hey, this time is different is another real theme in that song, and that is what makes every correction characteristically scary, is that the sirens are saying, go to safety. And they're also saying, because this time it's different and this time it's worse than ever and this thing is going to be harder to come back from. And we just naturally extrapolate to, wait a minute, maybe they're right, Maybe they're right. So maybe it would feel good to go to cash. And it does feel good to go to cash. The problem is that markets inevitably recover, or they at least have in the past. There's no guarantee of that. But the American economy figures a way out to kind of move forward, and then markets recover. In fact, a lot of the best days in the market we see biggest gains usually come right around the biggest losses. So it's fear. Wait a minute, it's not that bad. And sitting anything out ends up really having our money stagnant. And then we don't build wealth. And here's how I think we avoid those sirens and avoid that allure to just go to cash and keep everything in safety. 1. And hopefully, I think a lot of our listeners probably have the following. One, if you have some sort of plan, remember your financial plan is not predicated on the market steadily and perfectly going up every year. It's just not. It's part of financial planning is the understanding that markets do go up and down and there is volatility. So if you have a plan, I think it helps you avoid the riverbank here and avoid the song of the sirens. Number two, you're already diversified. If you're listening to this show, you're probably not like a hedge fund that went all in on one specific sector, didn't get all in on a few stocks that were doing really well, only to have that unravel. So quickly that you see really big losses. So that just simple diversification really goes a long way to helping you avoid that alluring song that ends up putting you into cash, missing out on markets. And then three, I think it's always a good reminder, corrections are really normal. They are a fundamental part of the market, really. Without them, you wouldn't have the average 10, 9, 10, 11% rate of return we've seen. There's really no asset that's just a nice easy guarantee walk in the park to have that bigger rate of return. So along with these great returns we see over time, naturally comes some volatility and a little bit of pain. Otherwise everyone would participate. So this time, even though the situation every time is different and the market goes down for a new reason, it's not different fundamentally because markets do eventually recover. So the siren's job is to shake you out of the market, scare you. And we just have to remember the long term of the market. If you go back to the early part of the year 2000, right after dot com, the S&P 500 was at 1400, 1,400. Here we are today, around 5,500. That's an incredible more than double, more than tripling of the market over that period of time with lots of ups and downs. So we just remember that. And we have to stay. We have to stay patient and participate. And that's how we build wealth. We've got to be able to cover our ears to not listen to that song of safety that's sung by the sirens because they're there to make sure you don't grow your wealth over time.

[Clark Howard]

All right, well, we have some questions and of course you're going to have some related ones with everything going on. This came in from Catherine in North Carolina. Hi, Wes. I'm really enjoying Ask WES Moss. I'm 55 and my husband is 56. I would like to retire this year, but with the recent market downturn, my husband is reluctant to stop working. We're 100% in equities and stock. We should have shifted to a less aggressive portfolio sooner. We had about $2 million in retirement assets earlier this year. We were advised to start shifting about 20% to cash money market. Right now we only have 41k in cash. My husband can't bring himself to sell stocks at a loss to convert to cash. Therefore, he thinks he needs to keep working and wait for the market to recover. Next, I have a pension that I'm eligible to draw on this year with different options. $1,600 per month for life or $3,000 until age 62. Then it decreases to $800 or $3,000 until age 65. Then it decreases to 250. My pension is not adjusted for inflation. An advisor said we're okay to retire and we could withdraw more than 4% using guardrails. Our living expenses are around 60 to 70,000 a year. We would like to spend more time traveling, home improvements, etc. I plan on working part time which will bring in about 25 to 30k a year. I would love to hear your opinion.

[Wes Moss]

Whoa. Katherine in North Carolina. There's a lot there, a couple of things. So right out of the gate it makes me think as I'm kind of taking some notes here as you're reading this through Krista Katherine's 55. So you guys are young, you're really young and sounds like you've getting to that 2 million number when you're doing some planning. That number works for you guys. And remember if that works for you, just like we were saying earlier, financial plans are not predicated on a perfect straight line as these assets going up. So a financial plan knows that you're going to have these big dips. The only catch to that, and this is, I think what you were trying to accomplish by having some balance is that you don't want to go into retirement 100% in equities for this exact reason. Because then you almost get beholden. You become kind of a prisoner of how well the market does. I mean, you're trying to plan your life in the next 30 years, 40 years. The market could care less about your plants. So the market says, oh wow, we're down 20% or your assets are down from what, 2 million down to 1.8. They could go to 1.7, 1.6, depending on how big of a correction we have. And then now all of a sudden you're totally beholden to that and the market just says, oh, so sorry, you were supposed to retire and now those numbers just don't work anymore. That's why you really do need that balance going in. And that's why having 30 or 40% or even 50% now, you're, I think you're pretty young to have 50% in safety assets. But even having a couple years worth of dry powder and thinking about your spending need of 70,000, you're going to be making 25. So you really only have a need of 50,000. Three years of dry powder is $150,000 on 2 million. That's only a 7% or 8% weighting towards that. It's almost as you started to get some balance. This market didn't cooperate. I would lean towards the following. Your husband, I think his instinct is similar to what my instinct would be, which is, hey, we planned on having about 2 million. It's not just the number but also a diversified 2 million where at least some significant portion of it is in safety. So if I were Catherine, I would probably say, hey, let's just postpone this, let's keep working, keep saving and allow the market to recover. You don't want to go right into retirement in the middle of economic turmoil. If you haven't already had balance, balance would have solved for this, but you got caught a little quickly here or just a little bit too late. So I like the idea of just working a little while. It gives time for the market to recover, save a little bit more. Then I think you're in good shape. If I think about the bigger picture spending numbers and I did some math here, you've got this low pension amount that goes forever, something like $1,650 for the rest of your life. And then you have these tricky options of $3,000 or $3,500 until 62 and then the number goes down or till 65 and the number goes way down. Really depends on how long you live. If you think about it, if you're only planning for the next 10 years, just take the highest number that lasts for seven to 10 years. But if you're going to live till 90 and you're trying to have some longer term protection, that lower number times call it 30 or 35 years to get to 90. That of the options that you cited has the largest amount of cash that's given to you, even if you adjusted for inflation. So it's got the highest net present value as well. I think that's the choice you have to make. If you've got a bunch of if you think you're going to be living into your mid-80s or 90s, I wouldn't discount that option one which was the lower amount, but it lasts forever. The last piece of the equation here, from what I can tell, even if I inflate your spending to 80 and you're going to have Social Security and call it 10 years or so, call it 50 between you and your husband, that covers most of the spending and the gap is only 30,000, let's call it 40,000. Well, even if your portfolio only gets back to $2,040,000 on 2 million per year, super low withdrawal rate. It's like a 2% withdrawal rate. And that's probably why you guys are thinking about retiring so early already. Is that your withdrawal need? If you really start doing the math, it's pretty low on a percentage basis and that's an awesome place to be when you head into retirement. So I think you're really close anyway. If it were me, you hadn't quite finished your retirement and investment planning because you really want a diversified portfolio by the time you start having to pull a little bit from it. So maybe work a little longer. I think your withdrawal rates in a super safe place. And I can't answer all the questions perfectly here, but I think that gives you at least, I think I'm giving you my opinion on most of these. Don't discount that lower option that lasts for life.

[Clark Howard]

And I would just add in a little something. If you do keep working, your husband keeps working. Don't put off the home improvements and travel. I mean, while you have the higher income, maybe now is the time to do some of those things because people put off travel and things like that until they're older. And sometimes it becomes harder when we get older too.

[Wes Moss]

So the last thing you want to do, and I've actually done research on this Krista, where the home improvements are. Here's one. Retirement more than a pothole. This is like one of those jungle traps that you're running along and you fall through. And there's a bunch of bamboo spikes here. It's called a renovation.

[Clark Howard]

Oh, yeah.

[Wes Moss]

In retirement that is the worst possible thing you can do after you've stopped working. If you're going to do housework and it's going to be kitchen and bath, which you think you have a budget, it never works out exactly that way. It can bleed higher and more expensive. So happy retirees, one of the things that they know to do is take care of the bigger costs while you're still working.

[Clark Howard]

All right, we'll go to another question from Roger in Connecticut. Hi, Wes. I often hear advisors, in my opinion, overly pushing Roth and Roth conversions. Don't get me wrong, I'm all for Roths. We've personally done Roth conversions. But I cringe when I hear advisors talking about converting over time everything to Roth. I think it's better to have a balance of Roth and tax deferred accounts. If you converted everything, you would be at least throwing away the standard deduction and low first brackets. Also, to qualify for ACA insurance, you need some income or you would need to Go on Medicaid with a balance of Roth and tax deferred money, you can choose your tax bracket and have a lot of flexibility beyond my own finances. Should we be lucky enough to have excess money, I can QCD some qualified money into charity of my choice, avoiding tax completely. In my opinion, Roth and Roth conversions are awesome, but you should never convert at all. Am I wrong? And if so, how am I wrong?

[Wes Moss]

Roger, you're becoming like a Jedi Knight when it comes to managing your tax bracket. And I love hearing that. I think part of it is just to get heard sometimes in financial media, Roger, you got to take a really strong position. You know, there's people that I've interviewed on my show that write books about Roth conversions, and they write an entire book about why it's the only option you should ever consider. And the real world is it's really rarely ever like that. Sure, having money in a Roth, of course, we know, is great because it's tax free. Money grows tax free, comes out tax free. But there's a really high cost to put money into a Roth, and you are throwing away some things. You brought up a couple good points. If you have zero income, then you're right. First of all, you don't need income to pay for a supplemental plan or a health care plan. You can be on ACA Healthcare. As long as you can pay for it, you can be on it. But if you have zero income, and that's hard to do too, because you're going to at some point have Social Security, if you have zero income, then you do run the risk of ending up looking at Medicaid. So I think that being able to control your income, having a regular IRA can help with that. Now, I don't think you need to manufacture your income because there's going to be enough in retirement with Social that you're not going to have zero income. The second part is that the two things that really stand out is when you're managing your tax bracket, the standard deduction does work. Now, this is going to be different for everybody. Consult your CPA for your particular situation. I'm not a cpa, but I'm always looking at my tax brackets, and I have definitely known families that I've worked with that, let's say somebody was in a student year or have very little income. They were way away from Social Security. The standard deduction helped them do a Roth conversion. So you're right in a big sense that that standard deduction kind of gets wasted. If you have zero income and you can utilize that if you keep your tax brackets really low to even do future Roth conversions, because you can utilize that. The other piece here is, if you're charitably minded, the QCD, the qualified charitable deduction that you can start at 70 and a half from your regular IRA. That goes away if there's no IRA money. So you don't want to imagine the amount of money you're saving by doing a charitable gift from your ira, because you don't pay taxes on that. Everything's in a Roth. You've kind of guaranteed that you're going to pay taxes on the money to get it into the Roth, and then you're giving the money away. So just for that reason alone, you may want to keep some regular IRA money if you're charitably inclined and you're going to give away dollars after age 70 and a half. So, short answer, you're not wrong at all. Roth is great, but the balance here absolutely can work for you long term.

[Clark Howard]

All right. And when we get back, you're going to help us understand inflation, which has been frustrating so many people.

[Wes Moss]

So frustrating.

[Ryan Reynolds]

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[Wes Moss]

But can I really get in the.

[Clark Howard]

Game in this economy?

[Krista Dibias]

I do have savings and I am responsible.

[Wes Moss]

Ish.

[Clark Howard]

I should bury it.

[Ryan Reynolds]

I'm being wild.

[Krista Dibias]

But what if I'm not being wild though?

[Ryan Reynolds]

Could I actually score a kick off.

[Wes Moss]

Your home buying journey with Zillow's new buyability tool? It makes it easy to find out what you can afford so you can get off the bench and onto the playing field with confidence. Check your buyability only on Zillow. Welcome back to Ask an Advisor. Wes Moss, along with the Christa Dibias. It's so much fun to be here with you. You're such a pro when it comes to all this stuff.

[Clark Howard]

Oh my gosh. No I am not.

[Wes Moss]

I feel like you should just answer the questions.

[Clark Howard]

Absolutely.

[Wes Moss]

You really could. You could probably answer a lot of these.

[Clark Howard]

I don't think so. But I do learn something for sure every week and I've gotten some great feedback from other people who are absolutely enjoying the more in depth way that you get into investing as an advisor yourself. So.

[Wes Moss]

Well, we're going to get into a controversial topic and it's called inflation. And we all know about it, we all think about it. I just remember the last couple of years I Do a radio show in Atlanta called Money Matters. And at some point I think we started calling Inflation Matters because that's. It was the only topic. Inflation, inflation, inflation. So I want to talk here for a minute about how to beat inflation, how to think about inflation, and how to protect yourself from inflation when it comes to retirement. So first of all, we had this long stretch where we didn't really worry about inflation. We had about a 10, 11 year stretch after the great financial crisis where we had really low inflation because we had a rough, not a great economy, but it lasted for a really long time. You can call it globalization or whatever. The. There's a lot of reasons for it. And we almost forgot that inflation was a problem. It was so mild. I think even in 09, we actually had one year of deflation. Prices went down about a half a percent for just that one year. And then we had a bunch of years where it was one, one and a third, one and a quarter. I think this also manifested when it came to Social Security. We had big inflation back in 2022 and 23, and people got big raises for Social Security. And it was because we had big inflation and people had forgotten that their Social Security was even tied to inflation because you didn't Even notice a 1.1% bump in your Social Security check. Right. It was just, we just got lulled to sleep for almost a decade that there was almost no inflation. It was actually below what the Federal Reserve even, even wants. Which brings me to the point that inflation is absolutely necessary. It's like salt, right? If you're the right, a little bit of salt in a biscuit makes for a great biscuit. A little bit of salt in a stew makes for an amazing stew without it. Like, remember we used to have wars over salt. It's a big deal. But the minute you dump salt into a stew or into a biscuit, it ruins everything. So it's very much. It's an ingredient we want to manage. And that's exactly what the Federal Reserve does. They don't have a target of zero inflation. They have a target of 2% inflation. Because if you have steadily rising prices in a manageable way, they price stability, but it's price stability at 2% every year. And it kind of has this gentle nudge for all of us to go out and spend because we know that things are going up in price. We're not rushing to the store to get avocados because we think they're going to go up by 2% over the course of the year. But we have this general sense of things get a little bit more expensive. So it's very healthy for the economy to have this pinch of inflation. Now as another example, and I'm not going to say this is a good thing, but we see if you go back to the beginning of 2025, the tariff worries of hey wait a minute, I think prices are going to jump a lot for XYZ car. We saw sales for cars go through the roof because people are trying to get ahead of the inflation. Just as an example, it motivates us to go spend today. So it's a really good thing to have. We just don't want a salt block in our stew. It kind of ruins everything. So we need it. It's also back in the vernacular in America. Investors who didn't talk about it for a really long time and forgot about it. The reality here is that even at a 2, 2 and a quarter, 2 and a half percent inflation rate, it wilts the purchasing power by 20, 30, 40% depending on how long your retirement is. And I think of it through go go back to a car example. If you only had dollars for specific items, imagine if you only had a wallet for food and you. So you had food dollars and you had gasoline dollars and you had car dollars and you had. And if you let's you go back to 2020 and I think about where inflation was for cars, we had a decade of car prices not going up, actually went down a little bit. If I had $30,000 in my car wallet and I was eyeing, let's say a entry level Lexus, that's a happy retiree car. So I use that. If I waited for two years, imagine we're talking about dollars in your wallet. They're not invested in anything. They're actual. It's in your car wallet. Now two years later because of all the supply chain disruptions in the pandemic, now that same car went from 30 to 40, but your wallet still only has 30 grand in it. So your car dollars, they didn't change, but they became way less affected. They essentially wilted by 25%. But now that was a rapid example. We had big inflation in just a two year period, but it happens to almost every category and it happens pervasively over time. So I want us to remember that it's a part of the equation. It's not as though we didn't have inflation. Now we had inflation, we're going to go back to no inflation. That's not the case. It's always there. Part of the Fed's mandate. So what do we do? The very simple answer here is you have to. You have to invest your assets in areas that inflate along with inflation. Your main quarterback for this, probably the best historical example of something, has given us a rate of return above the rate of inflation. So remember, if stocks are up 10%, inflation up 3, your real rate of return is only 7. So the main quarterback in being able to fight and get a rate of return above inflation has been historically broadly diversified equities. I think of it in terms of categories to see how that works. Why do stocks protect us from inflation? Think about these sectors like health care. Think about sectors of utilities. As their cost goes up, they pass it on to you, and we just have to keep paying more as consumers. That goes back into earnings. Companies now have more money because they've passed on the price to us. Well, we can now be the beneficial owner of that company that continues to have more earnings because they're inflating their prices along with inflation. Potato chip company. If you're making potato chips and potatoes become 10% more expensive and now your end chip costs 10% more, what do you do? That little yellow bag of potato chips is just 10% higher. If you don't own the potato chip company, then you've now been hit from inflation with no sort of recourse. So we've got to own the potato chip company, if that makes sense. And we've got to own a broadly diversified basket of companies that are able to inflate their prices along with inflation. And we've got to be the owner of those companies to benefit from from that. And that's how we protect. So stocks are your main quarterback. I would put real estate into that same category. That's been very effective to hedge against inflation. And I think about there's a recent billionaire list. I don't know if you've seen this.

[Clark Howard]

No.

[Wes Moss]

Bruce Springsteen is on the list.

[Clark Howard]

Okay. The Boss.

[Wes Moss]

The Boss is on the list. He's a billionaire.

[Clark Howard]

Wow.

[Wes Moss]

Arnold Schwarzenegger, okay, is on the list. How did he get to be a billionaire, you think is his royalties from those hit movies like the Terminators.

[Clark Howard]

Terminators franchise.

[Wes Moss]

You think that really got him there?

[Clark Howard]

No.

[Wes Moss]

Supposedly back when he was Mr. Universe, he got a little bit of Mr. Universe money. What did he do with it? He bought California real estate way back in the 70s. So the path to being a billionaire is on saving. It's about investing. And I don't know the exact properties he bought, but I think he bought a lot of it and it's worth a ton of money today. And that inflated along with inflation for that 40 year period. So real estate does that. And then I would say more of your defensive line. This is not high powered offense, but owning bonds at least can keep you pace with inflation and maybe a little bit of a real rate of return. So if inflation is 3 and bonds are paying you 4 and a half, you're not only keeping up inflation, but you have a little bit of a real return rate of return above that. So collectively you've got your quarterback, that stocks and real estate, you've got your defensive line, called that fixed income or bonds. And collectively, that grouping should keep us ahead of inflation because we own assets that inflate along with inflation and it's not going away.

[Clark Howard]

Okay, let's go to questions. Cal in Georgia wrote in with this one. I'm 28, married with two kids, and my wife and I max out our Roth IRAs and contribute 15% of our income to 401ks. My parents recently retired early, but my siblings and I are concerned that they didn't account enough for inflation and may run out of money in their 70s or 80s. We want to set up a long term family savings or brokerage account that we can all contribute to over the next 15 to 20 years. This would create a safety net in case they need financial help later, which could also be when my kids are starting college. What's the best way to structure something like this? Should we use a joint investment account, trust or something else? Any advice on the managing contributions, investments and tax implications would be greatly appreciated. I just have to say, wow. Most people would not think of doing this for their parents and have the foresight to realize this could be a huge problem.

[Wes Moss]

It's pretty cool. It's interesting though. Cal's 28. Cal, you're now making some good money. You're maxing out some of your retirement plans and you're thinking about your folks who it sounds like they retired early but without a lot of money. So I don't, I don't understand that one. But I'm all for retiring sooner, but if we don't have the money to do it, then it really is going to be the, the burden would be on the kids to help, which is cool that he's able to do that and he's got siblings through it. So you've got multiple people that are able to contribute to this. So naturally he's thinking, okay, well let's open up an account, let's all put money in and it'll grow over time. It's a safety net. And I'm just gonna assume. I don't think Cal said how many siblings he had, but I'm gonna assume I'm from a family of four. I'll assume he has two siblings. So you have three people to try to help with this safety net. And Cal has two kids. And the way I think about this is that in 10 years, Cal's kids are gonna be in high school, middle school, and then Cal's sister's gonna have kids that are in middle school and high school, and then his brother's gonna have kids in middle school and high school. And one of them is going to say, I want my kids to go to private school so I don't have enough money right now to contribute to the joint account for mom and dad. And then one of the siblings is to say, well, I'm not sending my kids to private school. My kids go to public school, so I have more money. So that's your choice. So you still have to contribute. And wait a minute. We get this joint tax return, and it's now three people have to sign it, and somebody just got a bunch of interest. And wait a minute. I didn't realize it was so tax expensive. Expensive. Because we all are on this joint account and so. And so stopped contributing. So those gains are my gains and not. And I've done more. See where I'm going here, Cal?

[Clark Howard]

Ah, yikes.

[Wes Moss]

Absolute nightmare. Absolute nightmare. If you collectively, with your siblings, start a joint account, which sounds awesome and noble, but it's also a recipe for absolute sibling disaster. So how do you do it right? As though I've been speaking from experience from this. I've seen this happen a lot.

[Clark Howard]

I bet you have.

[Wes Moss]

Because what is a guarantee is that everyone's life will change financially and everyone's financial priorities change, and everyone's different kids. But the priority to take care of the parents still remains. Question is, who's most responsible? How do you keep it fair? How do you keep it equitable? Couple ways to do it. One, in my opinion, you never would want to do a joint account. It gets complicated and then imbalanced, and people owe taxes and people stop contributing. So the way to do this would be to open up a family trust where you write the rules to begin with. So you set up some sort of guideline that is, hey, we're just going to start this year. We're all going to. We all agree that we're going to each put in $10,000 or whatever it is, $50,000 each, and then we're just going to let that grow. And here are the rul trust. The money goes to our parents and an estate planning attorney can do that for you. And it's about laying out the guidelines today so that you don't have these sibling rivalries down the line and these family issues that will inevitably come up. Because we're talking about money and priorities and everyone's always are going to eventually be different, even if they're almost exactly the same today. So that is one way to do this is to kind of pre script the rules. And that way I think it'll really help long term, not have any sort of family divide the second way. And more practically the way I could see doing this, and this isn't necessarily perfectly fair either because let's say you're making a ton of money and you're paying 40% in taxes and your sibling is making good money but paying 20% in taxes. It takes you more earnings to end up with $1,000 at the end of the day to give to mom and dad. But we're also trying to help mom and dad here. So I think that it may be a more practical way to think about this, and I've seen this work, is that everybody at some point when they need the money, which also will should give you a long time here, 10, 20 years before they start running out. It allows you to save money and increase your earnings over time. Then you start supplementing the parents once a month. Everyone says we'll all chip in $1,000 a month. And that helps fill the gap between what mom and dad are getting and what they really need. And that's kind of an easier, more palatable way I think may not be perfectly fair because everyone's tax rates are a little different. But this is a charitable endeavor here. It's a charitable act. So I would look at it as if you're going to do it now. You're going to want to look at some sort of trust formation. You're going to have to talk to estate planning attorney to do that. Otherwise think of it more practically down the road. Everybody contributes a little bit over the course of time.

[Clark Howard]

I would also just one other thing, I would have them, I would pay for them. If you can find a fiduciary who's willing to do an hourly sit down with the parents, they may need a reality dose of what they're going to need to save and spend in order to maintain their money. Over time and look at their Social Security and the whole picture. And then maybe they can get on the kind of budget that would enable them to sustain themselves. Like, I don't know if they've done something like that, but I would definitely recommend that as well.

[Wes Moss]

That's a really good point. There's got to be some transparency when you've got a bunch of siblings and you in. Mom and dad retired early. Why did they retire early? Maybe they have plenty of money coming in. Maybe they have ten grand a month coming in. But mom and dad are, you know, twirling the world and they need 20 grand a month. Now are all the siblings going to be willing to kick in for that? So it's, it always goes back to kind of these priorities. If it's really, look, hey, mom and dad just don't have enough money and then we. They've got to be able to just live and then it's a different conversation. So to your point, Chris, that the transparency with the family is so important, and I think you're right. If you sat down with a CFP or a fiduciary, they can really get you some clarity around their financial situation, which I'll give you clarity around how you really can help.

[Clark Howard]

Okay. Ryan in Wisconsin wrote in with this one. Are there any advantages to dollar cost averaging more frequently? I currently buy index funds once per month. The market can change drastically over a month. So I'm wondering if weekly or even daily buys would be a better way to smooth the ride while still being an average meet the market investor.

[Wes Moss]

Okay, Ryan, there's no way to know this because we don't know how the market is going to ever react into the future. If you were to say I want a really dollar cost average and you were starting in 2007, then slower $ cost averaging would have been better because the market went down for two straight years. If you were deciding to dollar cost average in early 2020 when the pandemic bottom came, then dollar cost averaging would have cost you money. So forget more frequently. You want to do this all in one lump sum. We should really talk about this as a larger segment. But there is no perfect answer because we don't know how markets are going to react. So there are plenty of studies around this around 70% of the time, 7 out of 10. But there's 3 out of 10 where this doesn't work. Putting money to work faster is better because markets do have the propensity that they are up over time. Right. So the quicker you get money invested, the Higher the probability, no guarantee here that your money has a better rate of return. So to answer your question, I would say invest it when you have it, particularly when you're younger and sooner is better. That would be my short answer to that really more complicated than it sounds question.

[Clark Howard]

And we'll definitely do that in the future. Mark that down. Lisa in Texas says Wes recently mentioned phasing into retirement. Aren't Social Security benefits driven by the beneficiary's annual earnings? Will reducing earnings or cutting those in half for the final years of a working history adversely impact annual benefits?

[Wes Moss]

Not necessarily, Lisa. Remember, Social Security takes your top 35 years and then they average them. Really? This depends. But for a lot of folks when you worked really early on, you've got some really low years in there. And even if you're scaling back to halftime and you're phasing into retirement, I call it the retirement gray zone. Your 2025 earnings that are, that are kind of working half are still probably replacing some of the really low years. Right. If we work from age 20 to age 65, I mean that's 45 years. So we get a lot of years you can cancel out that don't even matter. We're only taking the top 35 and that's what your Social Security payments are predicated upon and of course your age. So usually it does not hurt. It sounds like wait a minute, I'm making less at the end and now it's going to reduce my Social Security. Usually the formula doesn't really doesn't have that big of a negative impact because again we got you can look at the best 35 years and even part time work may be replacing some of the smaller years. Way back when you were young working, super young working. Well.

[Clark Howard]

Thank you so much Wes. Thanks everyone for tuning in today. We really appreciate it. We will be back tomorrow with a new Clark episode. Hope the rest of your day is fantastic.

[Krista Dibias]

Today's episode is sponsored by Smart Travel, a new podcast from NerdWallet. I'm Sally French. And I'm Megan Coyle. We're Travel writers at NerdWallet and we love helping you make your travel budget work smarter. Because who doesn't love more trips for less money? People who hate fun, Megan, that's who. But that's definitely not you person who is listening to this right now. On Smart Travel we don't just hand out travel advice, we break it down. Like should you get that fancy airline credit card with the huge sign up bonus or is that just a shiny trap leading you to financial ruin. We have the answers. The answer is it depends. By the way. That's why we do the research for you. We crunch the numbers, dissect the fine print, and make sense of loyalty programs so you don't accidentally spend all your hard earned points on a sad airport hotel booked amidst a canceled flight. Each week we tackle real travel questions like is travel insurance worth it? How do you spot a good flight deal before it's gone? And can you actually use those random miles your aunt gave you for Christmas? Also, I want that aunt. Look, we don't just sit here and talk about travel. We live it. I once turned a canceled flight into a free trip to Denver, $200 in United vouchers and $45 in Starbucks gift cards. And you were so patient. Through it all, we've had practical tips, expert interviews, and plenty of hot takes. I call them hot takeoffs to help you travel smarter, not harder. So whether you're planning your next getaway or just love staying ahead of the travel game, follow Smart Travel on your favorite podcast app. Your passport will thank you and so will your wallet.