Podcast Summary: The Clark Howard Podcast – Episode 05.20.25: Ask An Advisor With Wes Moss

Release Date: May 20, 2025
Hosts: Clark Howard, Krista Dibias, and Wes Moss

In this engaging episode of The Clark Howard Podcast, Clark Howard teams up with investment advisor Wes Moss and co-host Krista Dibias to delve into critical investment strategies and answer listener-submitted financial questions. The episode, titled "Ask An Advisor With Wes Moss", provides valuable insights into passive investing, dollar cost averaging, Roth IRA strategies, retirement planning, and more. Below is a detailed summary capturing the essence of their discussions, enriched with notable quotes and timestamps for reference.

1. Exploring Passive Investing and the Potential Passive Bubble

Timestamp: [01:07] – [09:05]

The episode kicks off with Wes Moss addressing a pressing concern among investors: Is the popularity of passive, index-based investing creating an unsustainable bubble in the stock market? He references recent articles from reputable sources like the New York Times and Harper's that question the long-term viability of the current passive investment trend.

Key Points:

• Evolution of Passive Investing: Wes traces the rise of index funds back to John Bogle of Vanguard in the 1970s, highlighting initial skepticism and eventual widespread acceptance due to their low costs compared to actively managed funds.

  "John Bogle from Vanguard really was the pioneer and started index fund investing back in the 1970s." ([01:05])

• Concerns Over a Passive Bubble: With more capital flowing into passive funds than active ones for the first time, Wes discusses fears that excessive passive investing might inflate stock prices, particularly of the largest companies, potentially leading to a market bubble.

  "One of the worries is that... it could drive the prices of those companies up... creating a bubble that could see outsized drops." ([04:30])

• Counterarguments: Wes counters the bubble theory by emphasizing that passive investing still contributes to price discovery since every purchase is matched by a sale. Additionally, he points out that globally, passive investments constitute a smaller portion of the entire market, mitigating the risk of a localized bubble.

  "There is price discovery even with passive investing because someone has to sell for you to buy." ([05:05])

• Active vs. Passive Performance: Wes acknowledges that while passive funds often outperform active managers due to lower fees, a significant percentage of active managers do succeed, especially in specific sectors like real estate.

  "About 42% of active managers beat their benchmark and beat passive indexes." ([07:50])

Conclusion: While acknowledging the concerns surrounding passive investing, Wes Moss remains optimistic, suggesting that active management still holds relevance and that a complete shift to passive funds is unlikely.

2. Listener Questions and Expert Advice

The bulk of the episode is dedicated to addressing listeners' financial queries. Here’s a breakdown of each question and Wes Moss's expert responses.

a. Akshay from North Carolina: Roth IRA Allocation

Timestamp: [09:05] – [11:37]

Question:
Akshay in North Carolina asks about investing his Roth IRA in more aggressive assets, such as all-stock index funds (S&P 500, mid-cap, small-cap), while keeping his Roth 401(k) balanced with bonds.

Wes Moss's Response:

• Time Horizon Consideration: Wes emphasizes the importance of aligning investment strategies with time horizons. Since Roth IRAs typically have the longest investment horizon, they are suitable for more aggressive, stock-heavy allocations.

  "Your Roth account... has your longest horizon. So the longest asset should be the most aggressive of all because you're not going to touch it for the longest amount of time." ([10:15])

• Strategy Endorsement: He supports Akshay's approach of allocating his Roth IRA towards stock index funds while maintaining a balanced portfolio in his Roth 401(k).

  "So the short answer is he's thinking about it the right way." ([11:20])

Key Takeaway: Align your Roth IRA with a more aggressive investment strategy if it has a longer time horizon, allowing for greater growth potential while managing risk through more conservative accounts like the Roth 401(k).

b. Joe from Virginia: IRA Allocation for a Newly Retired Son

Timestamp: [11:37] – [16:48]

Question:
Joe seeks advice on managing his son's recently rolled-over IRA, which currently holds various U.S. stock funds and an international fund. He is contemplating reallocating a significant portion into bonds and REITs for diversification and fixed income.

Wes Moss's Response:

• Current Allocation Assessment: Wes reviews Joe's existing allocations, noting a potentially high-risk profile given the aggressive distribution towards U.S. stocks with minimal bond exposure.

  "It sounds like the overall portfolio is a little too aggressive." ([12:47])

• Diversification Strategies: He recommends increasing exposure to small and mid-cap stocks, bonds (both Treasury and corporate), and alternative income sources like REITs and energy pipelines to enhance diversification and stabilize returns.

  "Don’t forget some of the small and mid-cap areas." ([13:05])

• Alternative Income Areas: Wes suggests exploring sectors such as commodities and energy pipelines for higher income potential, while cautioning against over-reliance on volatile sectors like REITs.

  "REITs are just as volatile as the stock market... but they are a good category to think about." ([14:30])

Key Takeaway: A well-diversified IRA should balance U.S. and international stocks with bonds and alternative income sources to mitigate risk and optimize returns, especially for retirement planning.

c. Sup from Minnesota: Roth IRA Conversion Tax Strategy

Timestamp: [16:48] – [19:41]

Question:
Sup asks whether it is prudent to pay taxes on a Roth IRA conversion using funds from an existing Roth account, especially when lacking sufficient cash reserves.

Wes Moss's Response:

• Tax Implications: Wes explains that using funds from a Roth account to pay taxes on a Roth conversion is generally unwise, particularly for those under 59½, as it triggers taxes and potential penalties.

  "You’re going to pay the tax on it, but you’re also going to pay a penalty on that." ([17:15])

• Optimal Strategy: He recommends having separate cash reserves to cover the tax liability of a conversion, thereby preserving the full amount being rolled into the Roth IRA.

  "You really want to have that money outside of the account." ([17:25])

• Spreading Conversions: For substantial conversions, Wes advises spreading the tax payments over multiple years to manage the tax burden effectively.

  "Maybe you do 50%, then 25%, over multiple years." ([18:05])

Key Takeaway: To maximize the benefits of a Roth IRA conversion, ensure that taxes are paid from outside the account to avoid penalties and preserve the full investment amount.

d. Dennis from Connecticut: Retirement Withdrawal Strategies

Timestamp: [27:05] – [29:52]

Question:
Dennis, an early retiree planning to withdraw from his retirement accounts, inquires about the optimal timing for withdrawals—specifically whether to withdraw during down or up market years.

Wes Moss's Response:

• Withdrawal Timing Importance: Wes emphasizes withdrawing funds when the market is performing well to avoid selling assets at depressed prices, thus preserving portfolio value during downturns.

  "We do not want to be taking money out of stocks when they are down." ([28:00])

• Safety Assets Utilization: He advocates for maintaining a portion of the portfolio in safety assets (e.g., bonds, cash) to fund withdrawals during market lows, allowing the stock portfolio to recover during subsequent upswings.

  "Use your safety assets when stocks are lower." ([28:15])

• Strategic Drawdowns: During periods of market strength, Wes suggests drawing more from the stock allocation to lock in gains, enhancing long-term portfolio sustainability.

  "You're better off taking when markets have already done well." ([28:45])

Key Takeaway: Implement a strategic withdrawal plan that leverages safety assets during market downturns and capitalizes on strong market performance to sustain retirement funds.

e. Mark from Florida: Target Date Funds versus Balanced Funds

Timestamp: [29:52] – [32:16]

Question:
Mark asks for advice on investment options for those who find target date funds overwhelming, seeking alternatives that offer simplicity without sacrificing diversification.

Wes Moss's Response:

• Endorsement with Caution: While Wes generally supports target date funds for their ease and automatic diversification, he expresses reservations about them becoming too conservative as investors approach retirement.

  "A lot of target date funds... get way too conservative when you're at retirement age." ([30:26])

• Alternative Strategy – Target Date to Balanced: He proposes a hybrid approach where investors use target date funds during the accumulation phase (younger years) and switch to balanced funds upon retirement to maintain a steady 50/50 stock-bond allocation.

  "From age 20 to 60, use a target fund and from 60 to 100, use a balanced fund." ([30:29])

• Simplicity and Flexibility: This method retains the simplicity of target date funds while preventing excessive conservatism in retirement, ensuring adequate growth potential and risk management.

  "It's just that simple." ([32:10])

Key Takeaway: Combine target date funds with balanced funds to maintain optimal diversification and risk levels throughout different life stages, enhancing both simplicity and effectiveness.

f. David from Virginia: Reverse Glide Path Strategy

Timestamp: [32:16] – [35:52]

Question:
David inquires about the reverse glide path strategy, which involves maintaining a higher bond allocation at retirement and increasing stock exposure as one ages. He seeks insight into its potential downsides.

Wes Moss's Response:

• Understanding Reverse Glide Path: Wes acknowledges the concept as staying heavily invested in stocks during retirement, reducing bond allocations temporarily, and then increasing stock exposure again in later years.

  "It's the reverse, where you... increase the stock allocation." ([32:36])

• Practical Challenges: He points out the complexities and annual adjustments required for this strategy, making it less practical for most investors compared to more straightforward approaches.

  "You’re going to have to change your allocation every year." ([34:20])

• Comparative Effectiveness: Wes analyzes research indicating that the reverse glide path offers only marginally better outcomes than traditional balanced allocations, without substantial long-term benefits.

  "It doesn't have materially better results... it's a little too complicated." ([35:40])

• Preference for Simplicity: He advocates for maintaining a balanced portfolio throughout retirement, emphasizing ease of management and consistent performance over potentially unreliable complex strategies.

  "I like to make things simple in a very complex world." ([35:45])

Key Takeaway: While the reverse glide path may offer theoretical advantages, its complexity and marginal benefits make traditional balanced allocations a more practical and reliable choice for most retirees.

3. Deep Dive into Dollar Cost Averaging (DCA)

Timestamp: [19:41] – [32:10]

After addressing listener questions, Wes Moss and Krista Dibias transition to an in-depth discussion on dollar cost averaging (DCA), a fundamental investment strategy.

Key Points:

• Definition and Analogy: DCA involves systematically investing a fixed amount into a particular investment at regular intervals, regardless of market conditions. Wes likens it to a "safety harness" for investing, allowing investors to manage uncertainty about market movements.

  "It's like a safety harness... you can make the choice to dive in and just adjust immediately." ([22:12])

• Psychological Benefits: DCA makes investing more psychologically manageable, especially when dealing with large sums, by reducing the anxiety associated with timing the market.

  "It's a palatable way to get bigger amounts of money to work as opposed to never jumping in the water." ([25:00])

• Research Insights: Studies indicate that lump-sum investing outperforms DCA approximately 70% of the time in rising markets, as markets generally trend upward over time. However, DCA can mitigate losses in declining markets, offering a more balanced approach.

  "Almost 70% of the time... your rate of return is actually better just putting everything to work right away." ([20:00])

• Strategic Implementation: For those uncomfortable with immediate lump-sum investments, Wes suggests splitting large deposits into smaller, regular contributions to balance potential gains with risk management.

  "Maybe you do 50% now and spread the other 50% over several months." ([27:05])

• Applicability Across Scenarios: While DCA is beneficial in volatile or declining markets, it may underperform in consistently rising markets. Nonetheless, its role in fostering disciplined investing remains invaluable.

Conclusion: Dollar cost averaging serves as an essential strategy for investors seeking to manage market volatility and psychological barriers to investing, despite its occasional underperformance compared to lump-sum investing in bullish markets.

4. Closing Thoughts and Final Takeaways

Timestamp: [35:52] – End

As the episode wraps up, Wes Moss reinforces the importance of simplicity in financial planning. He echoes John Bogle's sentiment:

"The enemy of a good plan is the dream of a perfect plan." ([35:52])

Key Takeaways:

• Balanced Approaches Over Complexity: Opt for investment strategies that are easy to manage and understand, ensuring consistent application without getting bogged down by overly complex methods.

• Diversification and Risk Management: Maintain a diversified portfolio aligned with time horizons and risk tolerance to optimize growth and mitigate potential downturns.

• Strategic Withdrawals in Retirement: Implement thoughtful withdrawal strategies that leverage safety assets during market lows and capitalize on gains during market highs.

• Consistent Investing Habits: Embrace strategies like dollar cost averaging to foster disciplined investing and reduce the psychological stress associated with market timing.

Conclusion

In this comprehensive episode, Clark Howard, Krista Dibias, and Wes Moss provide listeners with nuanced perspectives on key investment strategies and practical advice for retirement planning. From dissecting the nuances of passive investing and exploring the merits of dollar cost averaging to navigating the complexities of Roth IRA conversions and retirement withdrawals, the trio offers actionable insights tailored to diverse financial scenarios. Their balanced approach underscores the significance of simplicity, diversification, and strategic planning in achieving long-term financial well-being.

For more personalized advice or to submit your own questions, visit www.clark.com/askclark.