05.26.26 Ask An Advisor With Wes Moss

Summary

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The Clark Howard Podcast

Episode: Ask An Advisor With Wes Moss

Date: May 26, 2026
Host: Clark Howard (featuring advisor Wes Moss, with Mallory Boggs co-hosting)

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Overview

This episode of “The Clark Howard Podcast” is a special “Ask An Advisor” segment, where financial expert Wes Moss (filling in for Clark), joined by guest host Mallory Boggs, addresses listener questions on retirement planning, tax strategies, mortgage challenges, annuities, and more. Wes shares recent research about the real-world retirement age gap, offers detailed guidance on rollovers and avoiding tax pitfalls, explains cutting-edge investment strategies like direct indexing, and revisits recent market recoveries with historical context. The tonality is pragmatic, encouraging, and educational—true to Clark’s mission of financial empowerment.

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Main Discussion Points & Insights

1. Retirement Expectations vs. Reality

[01:11] – [08:49]

• Key Data:
  National studies (Gallup & ERBI) show people expect to retire around age 65–66, but the actual retirement age is closer to 61–62.

• Main Causes of Early Retirement:

  • Health complications
  • Caregiving responsibilities for aging relatives
  • Job loss, layoffs, and corporate restructuring

• Planning Wisdom:
  Wes urges two-step retirement planning:

  1. Map out a plan for your ideal retirement age (e.g., 64).
  2. Create a contingency plan for retiring earlier (e.g., 61–62).

• Quote:

  “It creates a problem because most of these retirement actual dates are unexpected and weren't planned for… So we don't have as much time to save and as much time to have our assets grow.”
  — Wes Moss [05:14]

• Opportunity Mindset:
  Wes notes the upside:

  “If it were up to me, everyone in America would be thinking, how do I shave off two… I think of it as shaving off two minutes of a 30-minute drive… That can be three, four years of being able to stop sooner.”
  — Wes Moss [07:52 – 08:20]

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2. Listener Q&A #1: Rollover and Tax Pitfalls

Lisa in New York
[09:34] – [13:51]

• Scenario: Lisa is considering consolidating various retirement accounts (457B, 401k, Roth, and pension) into Fidelity, but was advised to “cash out” prior accounts.
• Wes’s Guidance:
  • Never “cash out” pre-tax accounts into a Roth without a tax strategy—this triggers huge taxable events (a “tax tsunami”).
  • Perform a direct, trustee-to-trustee rollover of traditional accounts into a traditional IRA, and Roth accounts into a Roth IRA, to avoid immediate taxation.
  • Match account types (“like to like”) for simplicity and to dodge tax pitfalls.
• Quote:

  “If you quote cash out… it’s basically a giant Roth conversion and you’ve got to pay taxes on the entire thing to do that. Oh, so that would be a tax tsunami nightmare.”
  — Wes Moss [12:37]

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3. Listener Q&A #2: Mortgage Modification Dilemma

Michelle in Virginia
[14:09] – [18:42]

• Scenario: Michelle faces a $160K deferred balance added to her mortgage after a modification during the 2008 crisis and wonders if it can be removed, citing bank misconduct.
• Wes’s Response:
  • Once you sign a modification, the deferred principal usually becomes legally binding.
  • There may be forgiveness provisions if you’re a model payer, but it’s document-specific.
  • Do not stop paying in hopes of renegotiation.
  • Consult a local real estate attorney for detailed options.
  • If the home’s value has appreciated, consider refinancing to restructure the debt—even though rates may be higher now.
• Quote:

  “If they added that to your deferred balance, it’s owed. And you probably signed new mortgage documents and modifications to do that. So I don’t know of a way to get rid of that.”
  — Wes Moss [15:49]

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4. Listener Q&A #3: Are Annuities Worth It for High Earners?

Lisa in California
[18:42] – [22:58]

• Scenario: Maxes her 401k and Roth, sits in the highest tax brackets, and wonders about using annuities for tax deferral.
• Wes’s View:
  • Clark Howard “calls annuities four-letter words.”

    “He calls annuities four letter words, Clark Howard. Four letter words.”
    — Wes Moss [19:20]

  • After-tax annuities use LIFO (last in, first out): withdrawals come from gains first, taxed at ordinary income, not capital gains rates.
  • Surrender penalties, limited liquidity, and high CA taxes make annuities unattractive for her situation.
  • Suggestion: focus instead on tax-efficient taxable investing using qualified dividends and long-term capital gains.
• Quote:

  “It’s LIFO... so if you put in $100,000 and now it grows to 300 in an annuity, the first 200 you pull out, Lisa, is going to be at your ordinary income rate.”
  — Wes Moss [21:17]

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5. Market Corrections & Recovery History

[25:23] – [32:38]

• Observation:
  The most recent stock market corrections (Spring 2025 “Tariff Tantrum” and 2026’s Iran war/oil spike) snapped back to previous highs within 12–29 days—much faster than historical averages.
• Historical Perspective:
  • “Average” intra-year S&P 500 drawdown is 15–16%.
  • 10% corrections: every 1–2 years.
  • 20%+ crashes: every 4–5 years.
  • “True bears” (30%+): every 7–10 years.
  • Average recovery time in “real” bear markets is typically 2–3 years or more.
    • Dotcom: more than 7 years
    • Great Recession: 5.5 years
    • 1970s Oil Shock: nearly 4 years
    • 2022 Tax/Inflation Bear: 2 years
• Warns Against Complacency:

  “Let’s not get lulled to sleep thinking that every time the market pulls back it’s going to snap back within a couple of days.”
  — Wes Moss [31:30]

• Emotional Investing:
  Larger portfolio balances amplify the nominal impact of corrections, increasing the emotional challenge of staying the course.

  “As your portfolio grows, these percentage market moves… emotionally, it hurts even more.”
  — Wes Moss [32:05]

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6. Listener Q&A #4: Direct Indexing for Tax Loss Harvesting

Jeff in Tennessee
[32:38] – [37:42]

• Question: Should I use an “enhanced direct indexing account” for better tax-loss harvesting? Is this powered by recent advances in AI?
• Wes’s Breakdown:
  • What is Direct Indexing?
    Instead of owning an S&P 500 ETF, own all (or many) constituent stocks individually, enabling systematic harvesting of tax losses among losing names.
  • Tech-Driven Accessibility:
    Advances (not only AI) have made direct indexing affordable, moving minimums from $1M+ to $5K.
  • Tax Efficacy is Temporary:

    “The efficacy of being able to generate losses in an otherwise growing portfolio go down over time… The portfolio becomes ossified.”
    — Wes Moss [37:12]

  • For the first 5–7 years (during market “churn”), direct indexing can be more tax-efficient; its effectiveness wanes in prolonged bull markets.
  • Next-level strategies (130/30 funds) exist for advanced tax optimization—future episode material.

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7. Listener Q&A #5: Diversification Alternatives for Bonds

Mikaela in New York
[38:11] – [43:17]

• Scenario: At 65, dislikes having 40% in “red” bonds; wants diversification without traditional bonds. What’s a modern strategy for risk-tolerant investors?
• Wes’s Suggestions:
  • Many statements understate true bond total returns by omitting interest income.
  • Consider alternatives:
    • Money market funds (for absolute stability)
    • Commodities (gold, energy)
    • Preferred stocks
    • Real Estate Investment Trusts (REITs)
    • Private investments (if accessible)
  • Caveat: All have greater risk/volatility than “super high quality government bonds.” A classic 60/40 stock-bond mix still has unique stabilizing properties, but ultimate allocation depends on individual risk tolerance and income needs.

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Notable Quotes & Memorable Moments

• On Real-World Retirement:

  “The expectation of when we think we’re going to retire and when we actually retire in America are two very different numbers.”
  — Wes Moss [02:42]

• On Tax Mistakes with Rollovers:

  “Be very careful there. Same thing—if you ‘cash out’...that would be a tax tsunami nightmare. So don’t.”
  — Wes Moss [12:37]

• On Market Snapbacks:

  “If you didn’t pay attention for a couple of days, you missed the recovery, particularly this last spring…Within 12 trading days, we were essentially back…”
  — Wes Moss [27:04]

• On Emotional Impact of Corrections:

  “As your portfolio grows…a 10% correction may not feel like a lot if you have $10,000…now if you’ve got $500K, a million, or several million, it starts to really—it hurts even more emotionally.”
  — Wes Moss [32:05]

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Useful Timestamps

• Retirement Age Disconnect & Preparedness
  [01:11] – [08:49]

• Q1: Rollover IRAs and Avoiding Tax Tsunami
  [09:34] – [13:51]

• Q2: Mortgage Modification Principal Dilemma
  [14:09] – [18:42]

• Q3: Annuities for High-Income Californians
  [18:42] – [22:58]

• Recent Market Crash & Recovery Speed “History Lesson”
  [25:23] – [32:38]

• Q4: Direct Indexing and Tax Loss Harvesting
  [32:38] – [37:42]

• Q5: Diversifying Beyond Bonds
  [38:11] – [43:17]

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How to Submit Questions

“If you have questions for the Clark Howard team or me directly...go to wesmoss.com, there’s an Ask Wes button right there.”
— Wes Moss [08:57, 43:29]

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Closing Thoughts

This episode is a dense, practical, and listener-focused dive into modern money management—balancing research, strategy, and emotional reality. Wes delivers empathetic, actionable answers on retirement, taxes, investing, and risk, arming listeners to plan flexibly and avoid costly mistakes.
Clark’s team is accessible for follow-up at wesmoss.com.

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Transcript

[Wes Moss]

If we knew more about our sleep, what would we do differently? Would we go to bed at a consistent time or take steps to reduce interruptions to our sleep? With Sleep Score, Apple Watch measures your

[Apple Watch Narrator]

bedtime consistency, interruptions and sleep duration.

[Wes Moss]

Then every morning it combines these factors

[Apple Watch Narrator]

into an easy to understand score from 1 to 100.

[Wes Moss]

So you'll know how to take the quality of your sleep from okay to very high. Know your sleep score with Apple Watch. IPhone 11 or later required.

[Mallory Boggs]

Welcome to the Clark Howard Show. This is today's edition of Ask an Advisor here with Wes Moss.

[Wes Moss]

You've done this before, Mallory, I've been

[Mallory Boggs]

on here before with you.

[Wes Moss]

Krista Dibias out on vacation and Mallory Boggs filling in.

[Mallory Boggs]

And Krista's so somewhere fabulous, of course,

[Wes Moss]

with an amazing deal, the best deals. So you're going to be asking questions.

[Mallory Boggs]

Yes.

[Wes Moss]

Okay.

[Mallory Boggs]

Very excited about that. But before we get into that, you're going to be talking about a couple things. I know later in the show you're talking about why this recent market correction is very abnormal, which I think will be interesting.

[Wes Moss]

Well, the recovery, right. We've had two recoveries that are abnormal over the last two years. And I want to go back and do a little market history about that so that, so that we can remind listeners not to get too complacent, that recoveries happen within days. That's not usually how it works. But before we do that, I wanted to talk about kind of a larger fundamental question I think that we're all asking ourselves. And that is when do we plan to retire? What age? What's the age? Over the past couple weeks, I just started talking about my new book, the Retire Sooner Method. And when I'm doing these talks, I do these slido questions, which are if you've never been in a presentation with slido, you can everyone in the audience scans on a QR code while you're talking and can answer a question. And they pop. The answers pop up as a word cloud. So I ask what year or what age would you like to stop working, slash retire? And it's a fun question because in the audience the last time I did this, we've got a couple hundred numbers will pop up. Some people will say now or yesterday. And then there's a lot of 60s, a lot of 60 fives, a lot of 55s. So the numbers are all over the map. But I know it's a question that we all think about. So I'd like, as we're going through this today, maybe just think about that number right now, what year, what age are you? Do you think you'll be able to have financial independence and stop working? And there's no wrong answer. But today's topic is that the expectation of when we think we're going to retire and when we actually retire in America are two very different numbers. And it's a very big gap. And the gap has persisted now for years and years and years. There are two big research companies that have followed this. One of them, Erbi, has done this for 30 some years. Gallup has done this, I know, for a very, very long time. So these are two separate research entities that are asking the question, when do you expect to retire? And then when did you actually retire? And in both cases, in Gallup's case and in erbi, the Employee Retirement Benefit Institute, the answer is, here's when people in America mostly expect to stop working. And the answer is 65 or 66, depending on one of the two. I think Gallup 66, Erbi is 65. When do people really actually stop working? And the answer is 61. 62.

[Mallory Boggs]

That's a lot earlier.

[Wes Moss]

It is a lot earlier. It is a lot earlier. If somebody would just have asked me in general this question and say, what do you think people retire three years later than they expected or three years sooner? I think my gut reaction would be later. It would be later because people, I see people often maybe delay an extra year or two and they maybe get to the point when they're ready to retire and then they say, oh, I'll work another year or two. But the answer is reverse. It's on average in America there is a three to five. There was a lot of time gap on sooner. It creates a problem because most of these retirement actual dates are unexpected and they weren't planned for. And that's the issue. And there's several reasons for this. But here are the big three. One, of course, as you might imagine, health concerns. So some people are in physical jobs. They can no longer do this physical job. Do you have any health issue? And they're not able to work. And that is a big portion of these folks that end up stopping work before they had planned on stopping work. Number two, and this is a big one, particularly with the sandwich generation, a lot of our listeners and viewers is that they end up being caregivers and you end up with mom or dad, your parents who get into their late 70s, in their 80s or 90s, and. And somebody really needs to help. And that is more than a part time job. That very Often is a very fully encompassing job. So caregiving is another really big reason for folks having to stop work sooner than they plan. And then of course, another obvious reason is just job loss. And companies are constantly, whether we're in a good economy, bad economy, over okay economy, particularly large corporations are always looking to modify their workforce. They're offering people early retirement packages and that's when it's going well. And when it's not going well, it's, they're mandating folks that leave and they're laying people off. And those are three reasons over and over and over again that we end up on average in America not working as long as we would have thought. So that creates the problem is that we're planning for an age and a saving Runway and an investment Runway. And very often we fall short of that from a time perspective. So we don't have as much time to save and as much time to have our assets grow. The simple solution goes back to planning. But think of it now as a two step planning process. You let's say on that slido presentation, when I asked the question earlier, you said in your mind, I, I think I want to be done at 64. Great. So we're going to be planning to 64. You're probably mapping that out in some sort of retirement plan, which is the right thing to do. The caveat to that is now once you've got that plan in place, change the number on plan design number two and say, okay, numbers work out to get to 64. But what if it needs to be 62 or 61? What would you need to do today over the next five, 10, 20 years, 30 years of planning to make it so that that sooner number works for you. So it is really about planning, planning for the unexpected. And just statistically, in the data that we know, and these are both 20, 26 studies, these are both brand new updated studies that just came out in the last several weeks that continue to tell the same story as so many Americans are being forced for one reason or to stop working before they had planned. So we've got a plan for an earlier date and that's got some ramifications. Anytime we have a problem in front of us, it's a heck of a lot easier to solve. And this is a very real one.

[Mallory Boggs]

Well, you are the champion of retiring sooner. So do you think that. Yeah, you love it. So do you think it's a problem or do you think it's an opportunity?

[Wes Moss]

I think it's both. I think that if it were up to me, everyone in America would be thinking, how, how do I shave off two. I think of it as shaving off two minutes of a 30 minute drive. You put your GPS in it's Waze or it's Apple Maps or Google and it says 30 minutes. Almost every one of you listening says, I think I can get there in 28.

[Mallory Boggs]

Oh, I did that this morning.

[Wes Moss]

You did that this morning. Except you probably hit, you didn't. You hit terrible traffic and it probably took you an extra half an hour.

[Mallory Boggs]

It was so painful.

[Wes Moss]

But that's a, that's a wrong retirement turn. That's when you're making wrong turns and you're hitting traffic. If you can shave off two minutes of a 30 minute drive at 6% faster may not sound like a lot. That can be three, four years of being able to stop sooner. If we're making the right planning decisions and we're mapping it out, it goes a very long way of getting there a little bit sooner. And I think this is a very real problem we can solve for by doing just that Makes sense.

[Mallory Boggs]

I love that. Well, we'll get into some questions.

[Wes Moss]

Q and A.

[Mallory Boggs]

And actually before we get into the questions, for the people listening who maybe have their own questions, where should they find you?

[Commercial Announcer]

Right.

[Wes Moss]

We just started this a couple weeks ago. And just as a reminder, if you have questions for the Clark Howard team or me directly that we're going to go into here today, there is an Ask Wes button for the Clark Howard show on my website. So you can just go to Wessmoss w-e s m o s s dot com. There's an ask question button right there. If it gets something really complicated and you really want to talk to someone, there's also a button where you can talk to our team as well, but that's where you can find us. And we've got a ton of great questions that we're going to try to get through. At least some of them here on air today.

[Mallory Boggs]

Love that. All right, well, we're going to start with Lisa in New York. She has written in and asked. She said, hi, Wes, I'm going to retire for the second time from a different job this year. I have a 457B from my first employer who I worked with since 2006 that is just sitting there. And a 401K and a Roth from my current employer. I'm 62 with a pension from my first employer. So I currently do not need any of the funds in these accounts. However, because this will be my Last year of working. I would like to consolidate both of these accounts into my Fidelity account, which I currently have a TOD and a Roth. A financial representative advised me to cash out these two outside accounts and put the funds into a Fidelity money account. I would like to just roll over these retirement accounts into my Fidelity Roth accounts since I don't need the funds for at least six years. What is your take on the matter? Thanks. I'm so glad you joined the Clark family, Lisa.

[Wes Moss]

Lisa from New York is a two time retiree. She's 2x.

[Mallory Boggs]

She didn't retire just once. She said let's do it again.

[Wes Moss]

She did it twice. And if happiness goes up when we get into retirement and say yes, if it goes up the first time, I've never researched this Mallory. I would imagine it goes up even more the second time you do it.

[Mallory Boggs]

There's no way it couldn't, right? It's exponential.

[Wes Moss]

Lisa, my gut is that you're very happy retire, you will be a very happy retiree. So that's cool. And as I'm scribbling down the notes here, I heard the word cash out. I want you to be careful about that. I'm going to get to the second you listed. It sounds like you have traditional retirement accounts and Roth retirement accounts. So you have a 457 and a 401k. Sounds like those are traditional and you have Roth. And in Fidelity you have a tod, which is just an after tax account. It stands for Transfer on death, which is just an after tax brokerage account. And then you have a roth and you're 62. And that's an important number because you're post 55, you're post 59 and a half. So you've got some leeway there when it comes to being able to access this money and use it when you're ready. It sounds like you don't need it right now because you have a pension. But it sounds like the one thing you are missing, Lisa, is a regular ira, traditional ira, a rollover ira. Those are all names for pretty much the same kind of account which is just a regular individual retirement account that you can roll money into. If you only have a Roth or you only have a after tax brokerage account. These traditional, when I say traditional Pre tax retirement accounts, 457 for 1K, you don't want to put them into a Roth because the minute you do that, it's basically becomes a giant Roth conversion and you've got to pay taxes on the entire thing to do that. Oh, so that would be a tax tsunami nightmare. So don't. So be very careful there. Same thing. If you quote cash out, and I'm going to say benefit of the doubt with your advisor on this, he's probably not saying cash the thing out. He probably is saying put it in this account and then roll it into a regular IRA so that you don't have to pay the taxes. So you have to be really careful on these rollovers from retirement plans at work. A Roth retirement plan at work can go into a Roth, but a traditional pre tax plan, it can go into a Roth, but it creates a giant tax issue. So what he's probably telling you to do is consider putting the traditional retirement accounts into traditional rollover IRA and do a direct trustee to trustee transfer so you don't have to pay taxes, meaning that the taxes continue to stay deferred until you start pulling money out. And this is the very fact that I've scribbled down 10 different things, financial planning in itself, before you even get to investing, Lisa, is complicated. So one of the best things that we can do is spend the time to make this simple and make sure that whatever your work accounts are, you've got your personal or accounts of Fidelity lined up so that they match. And that way you can hopefully avoid a tax tsunami.

[Mallory Boggs]

Okay. This is one of those things where it seems like it's very complicated word wise, but it's fairly simple and straightforward. Once you dig into it, if you

[Wes Moss]

map it out and you want like account to like account from a tax basis, it simplifies it and it makes sure that you don't create a tax issue.

[Mallory Boggs]

Okay. Love it. All right, well, we're going to keep going. We've got Michelle in Virginia who wrote in. She asked. My husband is 61 and I am 65. We have two adult children who still live at home in Northern Virginia with us. We purchased our home in 2005 just before the mortgage crash to prevent foreclosure, when the banks were literally stealing people's homes. We got a modification. In order to receive the modification, the bank added on 160,000 on the principal balance labeled deferred balance of non interest bearing principal with a maturity date in 10 years. Can we get this deferred balance removed from the balance owed since it was not the original mortgage amount? Does the fact that the banks and servicers were doing very illegal things with people's mortgages give us a standing to have this deferred balance removed? How can we get this removed and what reason could we give to get this removed or reduced successfully.

[Wes Moss]

Michelle so this is a super tough situation. I hate that you're going through this. I think that the answer is, and I don't know your timeline here because it sounds like this is way back in 2005, maybe you did the modification a couple of years after that. But here we are in 2026. So it's been 20 some year. It's been a long time. And that's I think good and bad. The bad is that when you typically for these programs, these HAMP programs, these housing affordability modification programs, when they offer for you to continue to keep your home, they're adding that essentially as a penalty, if you will. And when you re sign those documents, that principal amount is added to your mortgage and you owe it and you agree to pay it. Now, I don't it seems like you would have already been past the ten year mark, but maybe you're coming up on that, Michelle. So it's really difficult to and you're right, there were a huge amount of problems with banks and the service providers and there's, there's a bunch of issues that they went through. Then there are a bunch of homeowners like you, Michelle, that ended up holding the bag. And unfortunately if they added that to your deferred balance, it's it's owed. And you probably sign new mortgage documents and modifications to do that. So I don't know of a way to get rid of that. Now there are programs that if you are current on your payments or you're a good payer, some of these programs did have provisions where you could get some forgiveness, but you would have to check with the mortgage documents to see if this is one of those loans. And it may or may not be. What I wouldn't do is stop paying on it, thinking that you would put yourself in a better position to maybe negotiate again. That just creates a whole nother issue. So I wouldn't do that. I would get a Virginia based real estate attorney to help look through those documents and see if there is any provision to help you with that 160,000. The other maybe easy thing, and this is when we go back to the time here, Mallory, for Michelle, is that it sounds like you've probably had this home for over 20 years and the value of the home has probably appreciated a lot. It's probably more than doubled over that period of time, maybe more than that. So I have a feeling that you probably now have some equity in that home. Even though they added $160,000 to the principal. So what you could do is just refinance the whole thing.

[Mallory Boggs]

Oh, that's interesting.

[Wes Moss]

You could just refinance. Now, again, you're still locking in the fact that you owe that 160. You're still probably not getting a great interest rate because rates are higher today than they were probably when she did this. When you did this, Michelle. So I don't know if that's a perfect solution either. But it is an option to potentially avoid this balloon type payment that she's talking about. Then you could just so that the payments work for you. Again, this is not ideal, but in the end, when it comes to housing, we've got to figure out a way to make it work. Right? We kept the home, the kids have stayed in the home, you and your husband are there and you've battled to keep may continue to be some work. And maybe if you were to refinance the whole thing, you get it to the point where the payments are more affordable or easier for you to make. So I don't know if there's a lot of great options here, but I would talk to a real estate attorney in your area in Northern Virginia to look at the modification documents to see if you have any leeway that makes sense.

[Mallory Boggs]

That's just a frustrating situation. All right, well, we're going to keep going. We've got Lisa from California wrote in. We have another Lisa, another Lisa. Other side of the country, though. Let's see. She said, hello, Wes, you are the greatest addition to Clark's show.

[Wes Moss]

Lisa, you are the greatest. Thank you.

[Mallory Boggs]

Love it. I really enjoy it. I am in the highest federal and California tax bracket, maxing out my 401k, also doing a backdoor Roth. How do you feel about building annuities in addition to taxable accounts since the gain is tax free for now? I think Clark does not like annuities, if I remember correctly.

[Wes Moss]

Just a little bit. Just a little bit, Lisa.

[Mallory Boggs]

He's a little passionate about it.

[Wes Moss]

He calls annuities four letter words. Clark Howard. Four letter words.

[Mallory Boggs]

Not flattering. She continues, when you withdraw funds out of an annuity, does the contribution base come out first? Thank you so much for your guidance on this complex financial world.

[Wes Moss]

Okay, so, Lisa, let me just remind everyone listening. And I know we have a lot of California folks, but for the other 49 states, if you are in the 37, which is the highest federal tax bracket, which means you're probably also in the highest California tax bracket, which is 13%, maybe even slightly higher than that. If I just do that. Math, everyone. What does that get us to? 55 0. 50%.

[Mallory Boggs]

That's brutal.

[Wes Moss]

50%. So you are rightly thinking, how should I invest, being tax conscious. And when she says building annuities, Lisa, I think you're just asking about an after tax annuity that defers the growth, almost like an IRA would underneath the annuity. Crock pot, if you will. But it doesn't work. FIFO, like you ask, FIFO would mean first in, first out, so that you put money in in 2026. When you start withdrawing in 2030, your first dollars would come out. And because they are your contributions, like we think of a Roth, you can take your contributions out first or within five years. Well, no, with an annuity there's no. It's just over the entire life of it. So it doesn't work that way. It's LIFO. It's last in, first out. So if you put in $100,000 and now it grows to 300 in an annuity, the first 200 you pull out, Lisa, it's going to be at your ordinary income rate.

[Mallory Boggs]

Oh, that is not a tax.

[Wes Moss]

So if you're still in a high tax bracket, you're paying 37%. And then your state tax could be another 13, could be 50%. Now the reality is retirees in general typically don't stay in that super high tax bracket because you've now managed your income and your investments in a way that you are only pulling out what you need to be spending. So you may be in a lower bracket when you actually need this money. But it's really hard, in my opinion, to make these things work from a tax perspective when you're in, particularly when you're in a really high tax state. And it makes these even less annuities less attractive because you've got LIFO to worry about. Last in, first out, you've got surrender penalties. Typically when you put these things to work to begin with, you have less flexibility, less liquidity. If it were up to me, I would try to be more tax conscious and utilize the investment tax code for qualified dividends and long term capital gains, because those are favorable rates for you from a federal perspective in any state we live in. And those should be much lower, Lisa, than the ordinary federal rates and in the state, state of California, or any state for that matter. So I would be leaning towards investing money that's not in an annuity wrapper. So in a tax efficient way. Qualified dividends, long term capital gains for when you finally need the money. Those tax rates are typically much lower on the federal basis.

[Mallory Boggs]

Okay. Okay. I love this. Well, we are going to run to a quick break and when we get back we are going to have you talk about this odd 12 day recovery that we had recently.

[Wes Moss]

Stock Market Corrections and Recoveries this episode

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[Wes Moss]

Welcome back to Ask An Advisor. I'm Wes Moss. Here on the Clark Howard Show. As we do on Tuesdays, you send in your questions I do my best to try to answer them. And Mallory is here today. Krista's on vacation, so Mallory is asking the Q and A. And again, if you have questions, you can go to wesmoss.com and submit them right there on the website.

[Mallory Boggs]

It's been really fun to see those questions coming in. Over the last couple weeks, we've gotten some very interesting ones.

[Wes Moss]

I think we're gonna, it's probably our job to truncate some of these because sometimes they're like a full two pages of financial planning and it's hard to just read that on the air. So we'll figure out the best way to do that as well. But I wanted to start here today. And I take out my digital pen and pencil and usually I'll take chart snapshots and then draw on them. And the last recovery from the last almost correction that we just had over this spring due to the Iran war and oil prices. And then if you go back to the spring of 2025 in March and April due to the tariff tantrum the market had, which was down almost 20%, what I want to focus on is the speed of the recovery. The sheer quickness of getting back to where we were before the markets fell

[Mallory Boggs]

is, it was shocking.

[Wes Moss]

It's shockingly fast. And that's a good thing.

[Mallory Boggs]

Oh, it's wonderful. But I remember coming into like we were doing a recording and I came in and you were like, oh, we're back at market all time highs. And I was like, wait a minute. I thought we were in the dumps. I thought this was going to take a while.

[Wes Moss]

Yeah, if you, if you didn't pay attention for a couple of days, you missed the recovery, particularly this last spring. So it was about 29 days. If I go back to 2025, the tariff tantrum took markets down almost 20. And within 29 trading days we were almost back to where we were to begin with. Same thing in the March April drawdown because of the Iran war. Within 12 trading days, we were essentially back to where we had started after an almost, almost 10% correction.

[Mallory Boggs]

That's like two weeks.

[Wes Moss]

The point of me bringing this up is that we know as investors that over time recoveries take sometimes years. And I just wanted to make sure to remind our viewers as good stewards and investors over long periods of time that the last couple recoveries have been, I would say, the exception, not the rule. I don't want folks to get to the point where we think that recoveries, all this market damage gets done over the Course of a month or two. Oh, it'll snap back in 30 days if we go back over time. Well, first of all, here's the frequency of corrections. First of all, in any given year, the average intra year drawdown for the s and P500 is around 15%, 15 to 16%. That's in any given year on average we get a full 10% pullback or an official correction every one to two years on average. This is happened, it's happened 56 times since 1928. We get a 20% or more correction every four to five years. So we've had about, we've had 22 of them since 1928. That's every four and a half years. So call it four to five on average and then a 30% plus correction. And we're going deep into bear market territory here every on average seven and a half years. So call that every seven to 10 years. And the recovery time of course. And that's why we. One of the foundational principles of the dry powder principle is that on average it takes about 2 and a 2.6, 2.7 years to get back to where we were to recover. And that's why we've rounded it up to three years on average when we go through. Now these are for bear markets, but if you think about some of these really, really difficult recoveries, the dot com crash that was March of 2000, we didn't bottom until October of 2002. So that was call it over two years. And then we didn't get back to even until the spring of 07. So that took a little over seven years to break even. The great financial Crisis took about five and a half years to break even. The 1973-74 oil shock took about three years and ten months to get back to even. And then the most recent bigger bear market, the 2022 tax inflation bear market that took about two years. So we've just had a couple big market drawdowns in the last year and a half that were recovered in a matter of days and weeks. And the reality is over the course of market history it's taken much longer than that. So the reason for me bringing this up, and I love studying market history, is that. But let's not get lulled to sleep thinking that every time the market pulls back it's going to snap back within a couple of days. We know that the part of the reason we've had the great fortune of high double digit market returns is the very fact that we've had to persevere through these big drawdowns and it takes a while to get back to even. So I just want us to remember that it's not an if we go through another correction or another bear market in your investing lifetime. It's a when that happens and know that it can take some time for recovery. And that's why a lot of the guardrails and planning tools that I think are important, like the dry powder principle, what our asset allocation is, what our diversification is, those are all designed because it takes, typically does take a long time for stock markets to recover. And we've got to have some tools from an investment standpoint and emotional and psychological standpoint to get us through those longer gaps. And that's where a lot of these rules of thumb, these planning realities come from.

[Mallory Boggs]

That makes sense.

[Wes Moss]

A little market history. There's been good news that we've recovered so quickly, but I just don't want folks to get too used to those quick snapbacks.

[Mallory Boggs]

Yeah, the whipsaw effect, it's a positive one at least recently. But yeah, it always helps me remember how impactful this is. When I think of it, I'm so bad with numbers, so I have to do round numbers. So if I think about if it's a million dollars and a 20% drawdown, that's $200,000, it just disappears. That's terrifying. And then to think you could be you couldn't recover $200,000 for several years if you're depending on it is that's

[Wes Moss]

the other thing with investing too. I think of the law of large numbers. As your portfolio grows, these percentage market moves are the percentages. So you psychologically, once you get to a large balance, 10% correction may not feel like a lot if you have $10,000 saved. But now if you've got 500 or a million or several million, it starts to really. It hurts even more emotionally. And I think that's why as we get older and our balances grow, that asset allocation becomes even more important.

[Mallory Boggs]

That makes sense. Well, we're going to go ahead and jump into some questions. The first one is from Jeff in Tennessee. He wrote in and said, wes, during my recent yearly update with my financial advisor, it was recommended I consider establishing and funding an enhanced direct indexing account for tax loss harvesting. Looking for your insight and recommendations for the strategy as well as an overview. Is this a new concept? Is this now possible with advances in AI with financial planning?

[Wes Moss]

Thank you, Jeff. Thank you for your questions. And again, if you have questions, you can go to westmoss.com and submit them. And we're happy to try to get to them here. And if we don't get to them here, we're able to get back to you via email within, I want to say 48 hours. I don't want to promise that we'll do all of them that quickly, but within a couple of days we're going to get back to you with an answer. So Jeff in Tennessee Direct Indexing the Wall Street Journal just ran an article about this. What used to be a small corner of the investment landscape and now is a big pillar almost it's billions of dollars are in direct indexing.

[Mallory Boggs]

Is it the new cool thing?

[Wes Moss]

Well, it's funny indexing we all know Vanguard is called, the original indexer is now a multi trillion dollar company. Wall Street Journal, by the way, just wrote an article about this as well, that indexing there are trillions and trillions of dollars in indexes and that's been great because it's brought the cost of investing down and it has helped investors be again highly diversified. Now you can argue the s and P500 is gotten less and less diversified. But indexing in general is helped bring the cost down and the diversification up for the most part. And that's why it's become a popular strategy over time. And it's not just the s and P500, it's indexing to lots of different indexes what direct indexing is. And think of it this way, you've got an ETF or a fund that's got all 500 stocks and you buy it for $100,000 and it grows to a million over time. Whenever you're ready to access that money, you have to sell. And every time you're selling you're creating a capital gain. Hopefully it's a long term capital gain so you have to pay taxes in order to access the money. Now that's still a better evolution than the way it was maybe before there were low cost indexes. But the evolution here is a direct indexing. Instead of having one ETF with 100 stocks in it or 500 stocks in it, you actually own several hundred stocks that mirror the index. Technology has made this more possible, particularly in the last couple of years.

[Mallory Boggs]

That makes sense.

[Wes Moss]

It's been around before the big jump in advent that we know of as AI, but it's around the same time it was a couple years before that technologically companies were able to do it. But we've seen it. I remember it used to be a million dollar minimum to do one of these direct indexes and then it went down to 100,000 and now I think there are companies that do it for $5,000. So. So the. So the technology, Jeff, you're right, has brought down the cost and the accessibility to being able to do this. So instead of having one basket with all these stocks, you have an account that has enough stocks that essentially create the same, pretty much the same rate of return and same correlation as the index itself. But in any given year, as we know, out of hundreds of stocks, there are going to be some losers and then there are gonna be some winners. And just like what's happening inside, let's say a basket without necessarily seeing it, there's winners and losers there too. The difference on the direct indexing is that technologically the company running that is selling those losers and replacing them and taking the loss.

[Mallory Boggs]

Oh. From a tax perspective.

[Wes Moss]

Right. So you still may have a similar rate of overall rate of return, but you accumulate some losses. So when it's time to start selling, you have losses to offset the gain. So it may be a much more attacks, it may be a more tax efficient way for you to access your money. That's why they've gotten so popular.

[Mallory Boggs]

That makes a lot of sense.

[Wes Moss]

The downside. And they've gotten very inexpensive too. They used to be 1% to manage. They've gotten to be way lower than that. So I appreciate the strategy. I think it is more tax efficient, but it doesn't work forever.

[Mallory Boggs]

Oh, that's.

[Wes Moss]

Think of this way, think of this, Mallory, is that over the course of five or seven years in the market runs, eventually every stock is higher.

[Mallory Boggs]

Yeah.

[Wes Moss]

Hopefully there are not losses to be taking.

[Mallory Boggs]

Yeah.

[Wes Moss]

So the efficacy of being able to generate losses in an otherwise growing portfolio go down over time. The word is ossified. You get to the point where everything in the account is at a net gain, then the portfolio becomes ossified. So I think these sounds like a

[Mallory Boggs]

good problem to have.

[Wes Moss]

It's a good problem to have these, let's say, are more going to be more tax efficient than just an ETF over the course of five to seven years, depending on markets. But eventually they lose their tax harvesting potential. Okay, maybe I need to do a segment on this. But there's a whole nother evolution on top of that. Jeff called a 130/30 fund, which is similar but does even more harvesting of losses. That's probably another topic for another day.

[Mallory Boggs]

Sounds great though. We'll definitely get into that. I'm very intrigued. But we will hold onto that. We've got another question here from Michaela in New York. She wrote in, she said, I am a 65 year old single woman currently enjoying the gains in my Roth and Ira holding 142 investments. I made my own ETF. Speaking of believing the old 6040 split is antiquated, is diversity enough to avoid future regret? 95% of my bond holdings are cost based R E D and I despise buying them.

[Wes Moss]

I think R E D, she means in the red.

[Mallory Boggs]

I despise buying them. What is a contemporary strategy for a risk taker?

[Wes Moss]

Okay, Michaela, you are essentially saying your retirement age and you're saying, gosh, it seems like these bonds are all in the red and you've got 40% of your portfolio in everything that is red and you no longer believe in bonds. How do you still get diversification if you don't use them? First of all, I would check there is a little bit of a. You would think that everything gets solved for in the world of AI and it's 2026 and you can build anything with vibe coding overnight. For some reason, financial companies still haven't figured out how to really give you your total return of anything that's really income oriented. So that almost everybody looks at their bond holdings because really you own them for the income that you accumulate every quarter, every six months, every year. It doesn't usually get counted, it goes into your account. But your positions in bonds often look like they are flat to down even though you've made money on them because it's not showing you the income that you got, it's not showing you the income that you got. So I would also just challenge you, Mikaela, to do take another look and look at your bond total returns. You wouldn't look at a stock without the dividend, but very often people will look at their bond holdings without the income. Yeah, so that's one thing. But if you're an investor that wants to say, okay, I want 80% in stocks, what is my other 20%? How do I stay diversified? Or if maybe you want, you want to continue 60% in stocks, what is my other 40%? There are other options, of course. One, the simple option would be instead of dry powder, including bonds, just keep it simple with money markets. So that's an option for you. You can say, I don't want to deal with bonds so I can just lean in on high quality money market funds. So that's one option. And you shouldn't see red on those because that value is meant to stay level and you're supposed to get your interest. But there's also all these other areas. Think of commodities. So you've got gold, gold is one as a diversifier. Other commodities that would include energy, various forms of energy. There's oil, there's natural gas, and then there's the energy pipeline areas that are to some extent they're still stock like, but I think of them as diversifiers as well. And then there are preferred stocks, which are another version of fixed income bonds that you may not have looked at, and real estate. So you've got REITs, real estate investment trusts that are also dividend oriented. And there's a lot of different categories within the real estate sector as well. And many of these are publicly traded and you can have access to them. Which then brings us to either private investments or public companies that are doing private investments are another way to potentially diversify. I would say that the risk and the volatility for this entire arc I just drew out with gold and commodities and oil and oil pipelines and preferred stocks and REITs, et cetera, and private investments, the risk arc on all of those is still going to be more than super high quality government bonds. You should just know that. So there is something that is somewhat hard to replace if you think that a balanced stock bond portfolio doesn't work anymore, which I don't necessarily agree with. I still like that diversification. It's hard to have an asset be stable, to go up in a world where, let's say stocks are going down and all of those other diversifiers I think can be good for the right investor, but they're not going to have the safety stability profile that bonds would have. So that's a decision, Mikayla, for you to make. If you've got a higher risk tolerance, maybe your diversification can be in some of these other things that we just mentioned versus plain vanilla paint drying on the wall bonds. But that obviously is a risk tolerance and time rising question, does it meet up with your goals? Does it work for you individually? The answer? I don't know. Maybe yes, maybe no. But I think at least worth a thought.

[Mallory Boggs]

Awesome. All right, well, that's everything we have for today. Wes, thank you so much for people here.

[Wes Moss]

Thank you for being here. Thank you for filling in for Christa.

[Mallory Boggs]

Oh, it was fun. Well, listen, when people have questions, where do they find you?

[Wes Moss]

Easy to do so at westmoss W E S M O S s dot com and thanks so much for tuning in.