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The Clark Howard Podcast
07.14.26 Ask An Advisor With Wes Moss
00:33:50
The 200-Hour Friendship Rule & Are Financial Advisors Worth It?
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A
Welcome to this week's edition of Ask an Advisor. We're freshly off of a week off. You had a week off, Wes?
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B
Yeah, I love it.
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A
Did you enjoy your Fourth of July holiday?
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B
Of course you did.
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A
All right. Well, today we've got a lot of questions. I've got a great story for you from some listeners about the core pursuit that they found.
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B
Oh.
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A
Which is really cool.
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B
I love to hear that.
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A
And so you're going to actually talk about something that makes us very happy is relationships. Everyone talks about that, how important our relationships are. And you've got some research on the time it takes to make a close friend, right?
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B
Yeah. I have a bunch of research around socialization that I wrote about in Retire Sooner Method and know how how hard that is. And there's brand new research out of the University of Kansas about how many hours it really takes to make an
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A
actual close friend and retire Sooner Method. Wes mentioned is his new book, which I really, really enjoyed reading. And so it's about the same color as your shirt. I hope you've ordered it.
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B
Yeah, I'm wearing Retired the little green book on Amazon.
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A
And then later on you're going to talk about. We had Amy in Indiana the last show we did, she was trying to break up with her financial advisor, but
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I felt bad for the financial advisor. Kind of hurt me a little bit.
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A
Well, because you are one. So when is it worth it? What makes a financial advisor worth it versus not worth it? And you're going to address that? We'll address that to go more in depth on that.
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B
Well, okay, so we're going to start with. Did you have a story for me?
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A
I do. Do you want to hear the story first before you talk about making a best friend. All right, let's start out with Earl and Joyce.
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The listeners are all like, well, Krista, tell us the story.
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A
I'll tell the story. And you haven't heard this yet. I didn't share this with you. I love the core pursuit discussion. My wife and I retired in February of 2020. What a scary time. But we sold the house and moved to live full time on our sailboat. We've been sailing the West Indies, Eastern Caribbean for five years now and are in no hurry to come back to the States. Every time we think about having a house and living in the same location year after year, going to the same church every Sunday and seeing the same people week after week, it makes us cringe. This sailing life is so good and the core pursuits are hard to count. On a sailboat, you have to be the captain, the mechanic, the plumber, the electrician, the weatherman, and so on. I often call sailing the Sudoku for old people. It keeps our minds and bodies very busy. Plus all the other sailors out here support and take care of each other. There's the community. It is such a close community. Expenses are mostly low throughout the year as we spend 10 months a year on anchorage. Sailing burns very little fuel and the fresh produce and food in the Caribbean is wonderful. And we get lots of exercise hiking the islands, exploring waterfalls and swimming in the sea as much as we can. We do haul the boat out for maintenance each year during hurricane season where we do a good bit of preventative maintenance and fly back to the States for two months to see friends and family. It's an amazing life and we will look out over the Caribbean Sea at every sunset and say we live here. Isn't that fun?
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B
That is so cool. It's such a good example of how one thing leads to one core pursuit. These are hobbies on steroids. These are your super activities, things that you love to do. One leads to another. That's the cool thing about having a long list of them. And this is an exact example of that. I haven't heard from a whole lot of sailors. Now I'm from a sailor type family. My wife's side is very sailor heavy and it is a little bit like Sudoku for. My father in law is in his 80s and he still sails. And you're. And you're totally right is that there's so many things to do on a boat to keep you sharp. It's gotta be cleaned, it's gotta be prepped, especially sailing because there's some intricacies around that and maintaining a sailboat and then charting a course, going to another destination. Wind is free, which is amazing. There's very few feelings that are better when you're going 10 knots sailing because of the wind and it's quiet. It's an amazing. As long as you don't get seasick, it's one of the coolest things that you can experience. But my favorite part of this is the sailing community part, and that's so true, is that you're anchoring or at a place very often for a long period of time, and you get to know all your other boaters around. And I've seen that happen with many folks that are big fans of sailing. So it is one of the ultimate core pursuits. Not a ton of people do it because it's a. It's a scary proposition to learn later in life, but it's pretty awesome.
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A
And speaking of community, it's part of what makes people happy. Retirees, as you've talked about. And having friendships is an important part of that. Right?
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B
Yeah. Okay, so this is cool. First of all, this is the problem in America, is that friendship has been in decline for 30 straight years. More than that. And there's two things. One, I asked a question, how easy or hard is it for you to make a close personal friend? And I had a bunch of categories from really easy to really difficult. And.
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And this is part of your research.
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B
This is part of the research that I did for the retire sooner method.
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Just want to make sure.
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And so this shows up in the socialization chapter. That chapter is titled Get a Life. Because it is so important to have these close personal friendships. As we get older by decade, it gets harder and harder and harder for people to meet new people and to make actual friendships. There's two things. One, you got to meet somebody, too. They have to actually become someone that's close to you. And it just gets harder. From our 20s, 30s, 40s, every single decade, we. My research shows that it gets more and more difficult. It gets difficult for a lot of different reasons. One, when work stops, that's an auto socialization that kind of goes away. Number two, our kids get older and they move away. And there's so much socialization you have around your kids and their school and other parents. And then the third thing is just geographical and life change. So people move away. People unfortunately die. They get divorced. So friendships fracture over time. So just the natural evolution of geography and our own lives makes it hard to continue to maintain a core pool of folks in get a life, which is one of the chapters in the retire student method. My research shows you really want to maintain at least four or more close personal friends throughout your entire life. Now, that may be easy in your 20s, 30s, 40s, but. But it just gets harder as time goes on. So we have to focus in on it. So first step, meet somebody. I met somebody next to me on the dock. Great. How long does it actually take for them to become a real friend? Not a click friend, not an acquaintance friend, but a real friend. And the university of Kansas just published a new study about the time it takes, which is the first time I've ever, ever seen research on this. Here are the categories they give. They go acquaintance to casual friend, Casual friend to real friend, real friend to close friend. So, Krista, here are the hours it takes. Did I. Do you know the answer to this?
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I don't, actually.
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Okay. How many hours does it take to have a close friend? How much time do you have to spend with a human?
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Like the closest kind of thing. Like someone that's in your categories. That's the most. Yeah.
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Close friend.
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Oh, my gosh. I would think. I don't know, it'd be at least like 500 hours.
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Okay. Yeah. Think of it this way. Like if you're an evening out, a dinner.
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Yeah.
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That's like three hours. No, no, just think about the amount of time that's like three hours. So think about how many of those you would have to do to get to. It would be the number of hours.
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A lot. Yeah.
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The number according to this research is 200 hours. So we got to get to Dr. Jeffrey hall from the university of Kansas who published this. We need 200 hours to have a really close friend. 40 to 60 to go from just knowing somebody as acquaintance to a casual friend. Let's call it a hundred hours to become a real friend. And then 200 plus hours to become a close friend, according to the research. So think about what that takes and how much time that takes. The other thing is that the research also cited that work hours count less. School hours, Being in class with someone also counts less. It's time that we voluntarily choose to be with someone. So it takes some real time. And that's why traveling with friends. And one of the best examples ever is a sailing trip. I'll just use that as an example. Or a golfing. You get two, three, four days in a row with people you really get to know.
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Right. And sometimes that might backfire.
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Exactly. Then you'll know that that person's not going to be a friend. Like I can't believe I just spent three days on a catamaran in the BVI the I love the term West Indies. Doesn't it just sound like romantic and adventurous?
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It does, but sailing is not for me. I think that's great.
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That a great good for you.
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Earl enjoys yeah, Earl enjoys enjoying it is yeah. I like being on land, but I think that's so cool.
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So it takes time. It takes energy and effort. And naturally we have to fight the anthropological headwind of keeping and maintaining a friendship circle. And that's why we've got to focus on it.
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All right, let's take a couple more questions here. Sharon in California wrote into us with this one. I'm three to four years away from retiring as a public school teacher in California. When I retire, I'll have a pension that covers about 60 to 70% of my present salary. I'll also have about $100,000 in a defined benefit supplemental account that I can draw on for up to 10 years. I have about $30,000 in my savings. Two questions. I presently have about $300,000 in VT Sax and Vanguard. I have both a 403 and a Roth IRA. Should I diversify despite having the pension? And if so, what percentage should I leave in vitae SA X and what percentage should go into a different investment and which other products should I consider diversifying into? If you say to diversify A grateful educator. We're grateful to you for being an educator.
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B
We are. We are, Sharon. Very few jobs as tough as being a teacher and an educator. And it is like the foundation of America to be educated and particularly in the world we live in. It is one of the most directly correlated variables in a productive economy. So thank you to have an educated population. Sharon, you can look at this a couple different ways. One, you get this pension, I'm going to do round numbers and it's California. So this probably higher than this. But if you're making 100k and your pension's 50k a year, you can equate that back to what you would need to have in liquid assets to do that. Krista. So on $50,000 a year and it may be more than that for you, Sharon, but I would divide that by even 5% or 4, 4 to 5%. It's $1 million. To some extent you have $1 million in the pension is worth that. But you also can't get to it when you need to fix the air conditioner or buy a new car. You do need some liquidity or you do want some liquidity. And the fund you mentioned is, I believe, a 100% stock fund. So you can make the case, Sharon, that you could just keep 100% in that stock fund because you technically have a giant amount of dry powder that is the pension, but that's not quite right because you can't get to it. So I would still have some balance. And for me, I would probably have at least 10, maybe 20% of my investments. In those safety categories we consider dry powder, I talk about, which would be high quality bonds, U.S. treasuries, high quality corporate bonds, because of the same reason anybody else would have that is that when you need to dip into it, let's say you need to put on a new roof or get a new car and the market's down 30%, it's nice to be able to get to a sliver of the overall pie, a part of the bucket that didn't go down during this period of market correction. And that's why to me, it does help to have some dry powder. And I think it also helps maintain. I think it may makes many of us better stock or equity investors because we have some safety.
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A
All right, and this one is from Ray in Florida. He wants you to explain the pros and cons of Fidelity's fully paid lending program.
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B
Hey, Ray. The fully paid lending program, I do not use it, but it's an interesting program. So I'm not advocating for it or against it, but it is interesting. You're essentially pledging, allowing Fidel or any firm that does this, allowing the firm to pledge your assets so that they can go borrow on security so people can short stocks. So it's good for them for you to be able to allow them to do that. It helps them allow other clients and investors to short stocks. What's interesting about it though is that you, if you own really high quality blue chip stocks that are often not all that shorted, the apy, the annual percentage you're getting on a program like that is super low. It's like maybe a quarter of a percent, maybe one, maybe one and a half percent, which is not nothing. So that's the pro, is that you get a little bit of money for it. The con is that if you're pledging money for this, those assets don't count under the SIPIC protection at a firm. So there's a little bit of a risk there. I don't think it's a risk with a giant brokerage firm, but that is a Very real risk. What's interesting is the more volatile the stocks that you own in that account, the more you start getting paid on this program. So if you have volatile growth stocks, you may get more like 1 1/2 to 3% a year. If you have really speculative stocks that are heavily shorted and people want to short them and the brokerage firm wants to make that available, then you may get 5% a year or 10 or 20% a year. So that's a huge upside. The downside, of course, is that you're owning super speculative stocks that everyone wants to short. So does it really make up for it if your stocks are losing 30 or 40% and you're getting 10% in a program like this? So there's a lot on both sides of the equation, but that's the program, Ray.
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A
All right, we're going to take a break and straight ahead you're going to talk about when financial advisors are worth it and not worth it. Isn't that kind of like asking a therapist if you should get a therapist? You would think that, but actually, Wes, I've found you to be very fair about this and you're very open to people diying it, which so many people listen to.
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Ask a barber if you need a haircut. You know what he's going to say.
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We'll be right back.
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B
Your squad book direct@ChoiceOhTales.com welcome back to Ask an Advisor. I'm Wes Moss along with Krista Dibiaz here on the Clark Howard show. And we're going to go into a topic which is kind of a funny title. I'm going to read the actual title.
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A
It is funny.
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B
Financial advisors are popular, but are they worth it? I don't know who came up with that title but it is a good topic to explore. Krista, before the break you said that. I really find it. I think we've got to be transparent about everything. This, this is no different. My transparency here is that yeah, I'm a financial advisor and I have been so for over a quarter of a century now. Geez, it's a Long time on most of my working life. So I obviously think there's real value there in a lot of different ways. But the reality is that there are many different organizations that publish how many people actually go seek and utilize financial advisors. And some of them are wealth management groups. And I think they may overinflate. So some, when I was writing this article, one of them said for folks that have over $500,000, 76% of them all use financial advisors. I think that it was a wealth oriented group. So I just discounted that. But even if you go to Gallup, which is they do surveys on everything from consumer sentiment to the economy to everything Gallup, I always have. Really. I like Gallup. And they say that it's 51% of folks that are getting close to retirement age are using financial advisors. It's also important to understand that that means about half of folks don't use financial advisors. The reality is that not everyone needs a financial advisor or wants a financial advisor because there have always been, not just in the world we live in today with artificial intelligence and great software, easily accessible. The reality is that most of these tools have been around for decades. Even when I was early 25 years ago there, some of this was available. It's very much over the past 10 years. And there's been a democratization of lower cost investment that's been around for 30 plus years, 40 years. So all, all of these things have been around and it allows folks that do like to have an overall purview and be in charge of their investments to have that as a job. And if you enjoy it and you are on top of it and it doesn't kind of make you nervous or that human reaction. We know when we don't want to do something, you know, it as a human, some people love to work in the garage, some people love to cut their own lawn. And we can all do it.
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A
I mean, you've told me you even use other people to help you with your investments.
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Well, I'm also surrounded by a lot of great financial advisors, but I use somebody separately for a long time just because I like a different opinion. Because there's no perfect answer on investing and because we can't see the future. There's so many paths that you can take and it's nice to have other opinions about feeling confident in the decision that you've made. But it's more than the investing. It's much more than just investing. It's the planning side, it's the cash flow side, it's the projection side, it's the tax planning side, which I know that I think one of the things that you've noticed as we've done this segment now for a year and a half of how much of financial advice has to do with tax planning.
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It's, there's so much, it's a big,
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really big part of it.
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Definitely the biggest surprise to me.
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B
Then there's the estate side, there's the family side, there's the trust side. And if you've got a very simple financial life and you have a hundred thousand dollar four hundred one k and that's it. Do you really need an advisor? No, I don't think you. I really don't think you do. You could still have one or get some advice from the retirement plan you're in. But when you start having many accounts, lots of people, multiple assets, some public, some private, it can very easily make people's heads spin. And if you're not one of those people that love doing it, then I think there's great value in having some sort of counsel for it. Vanguard, which is the ultimate do it yourself investor advocate, publishes a study called Advisor Alpha. They say that it could add up to 3% per year in your rate of return. Now to be fair on that, that's not the market does 10%. Your advisor should do 13 every year. That's not what they're saying, but they're saying is relative to you doing it totally on your own. They're saying an advisor could add up to 3% a year through a big part of it is behavioral coaching and keeping you disciplined in times when there's some real extremes, both good markets and bad. There's asset location, there's tax planning for your investments and all of those different things put together. That's what they say with Advisor Alpha is about behavioral coaching, spending and withdrawal strategy, which is also tax oriented. Asset location, which assets go in which accounts and then cost effective implementation and rebalancing, put all that together over time. It's not necessarily about beating the market by this 3% it's doing slightly better on a net basis than you may have otherwise done on your own. So even Vanguard says that. But again, I'm the first to say you may not need one and you may enjoy the process of quarterbacking your financial life and being involved in it on a very regular basis. And I think there's nothing wrong with that either. It's always been that way. I think it'll always be that way. Some people love doing it on their own. And obviously a giant percentage of the population, particularly as net worth goes up, is going to want some outside counsel and reassurance.
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A
All right, I've got some questions for you. If you have a question for Wes, you can go to wesmoss.com ask and wesmoss.com is where you can find out more about Wes. Candace in California sent a question in at that form and she says, my husband and I are 52, married and have three, three children still at home, ages 13, 15 and 17. We currently rent, but we'd like to buy a home. We have about $15,000 saved, zero debt. And my husband has a very stable Union job, earning $200,000 a year with a $2 per hour raise each year for retirement. We have $29,000 in a 401A and 53,000 in a PSP. We also have the option to contribute up to $8 per hour to a 401, but we're currently contributing zero. We're planning on buying a $500,000 home with a 30 year conventional loan with 3% down after monthly expenses, including the mortgage, we expect to have about $700 extra per month. That should increase by about $200 per month each year for the next 13 years until retirement at age 65. Our projected combined retirement income, including Social Security is $9,600 per month. Here's their question. How should we invest our extra income each month? Should we make higher mortgage payments, contribute to the 401ks or do both? Our goal is to pay down the mortgage as much as possible, so we don't have a large mortgage payment in retirement. We're also wondering if it'd be smart to use the 401A and PSP funds to pay down the mortgage balance when we retire. We appreciate your consideration.
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B
Hey, Candace in California and Wade is her husband. Candace and Wade, by the way, you guys have done a lot of planning. I mean, you're talking about $700 a month extra after you get the mortgage, which is going to go up another 200 to 900amonth extra with three teenagers at home. Yeah, I have a similar mix. Plus an extra kid. I know the phase you're in, Candace and Wade. And the other thing is that if you're mapping out the long run, it sounds like Wade's pension plus your socials will be. It's almost 10 grand a month, so it's 120 grand a year. So you're good now. And yes, we would also love. That's a money green zone. I just Heard a register ring. That's one of the money green zones I write about in the retire sooner method. So you're good there. And you're also saying I want to get another money green zone, which is basically having my mortgage paid off or getting close to it. It's another one. But in your case though, Candace and Wade, even though you have the extra money, I would be really leery of putting extra towards the mortgage right now. Normally I would say yes. And you guys, Krista on clark.com have a great mortgage calculator where you can see extra 200 bucks a month, 300, 500amonth. How, how much? It shaves off your long term years of your mortgage. So it saves me seven and a half years of mortgage payoff, which is awesome. But in your case, I wouldn't be putting money extra right now or at least over the next decade to paying down the mortgage. You're about to get beyond making the regular payments because you guys need some liquidity. That's the short answer here is that you have the income and you're going to have a house and you can afford. Seems like here, but you don't. And the kids will be out of the house, but you all need some liquidity. So I would be absolutely leaning on the retirement plans that you have offered. Maybe you have a Roth retirement plan option as well. And that's where I'd be putting that 700. That goes to 900amonth and you've got another 10 plus years. You could save a ton and at least have a cushion on top of all the income. That's what I'd be doing.
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A
Candace didn't mention an emergency fund. I don't know if they have one or not. But wouldn't you recommend building that up to house expenses and things that could just come up when you're a homeowner, you know, suddenly your AC unit's out
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B
and I think she said something like 15,000.
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A
That's what they have saved for a down payment on the mortgage.
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B
Oh, yeah, yeah. You need a cushion for house stuff that's going to come up. So, yes, be careful about putting too much towards that giant debt, leaving yourself no flexibility for all the things that are come at you as a homeowner.
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A
Okay, this one came in from Ron in Michigan. You often encourage him.
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B
Ron in Michigan?
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Yes, Michigan. One of your favorite states.
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B
That's my father in law and he's in Michigan. And he's in Michigan.
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A
All right.
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B
Could it be for my father?
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A
It could be. You often encourage investors to hold their equity investments during a downturn. But I'm wondering what your recommended strategy is for rebalancing the portfolio as your desired allocation of equities diminishes during this downturn. It takes some fortitude to retain your equity investments during a significant downturn, let alone pulling funds from your safe investments to replenish the diminished equity investments to maintain asset allocation.
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B
I think it's definitely not the Ron I know from Michigan because I think he's out on a sailboat somewhere not writing in about this question. Ron, I would tell you that you've got, you bring up these are two prongs that, that hurt us. Withdrawing the money. That's always a little painful for retirees to get used to when the market is down and then two, having the fortitude to be rebalancing when the market is down. Which is what? Krista, what are we buying when the market is down? If we're rebalancing.
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A
Buying more stock.
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B
Yeah, because. Because the stock side has gone down. So he, what he's saying is that if you normally have 60% in stocks and now you're at 55% because the market went down, you're pulling money out and roncing. But am I also supposed to go back to 60? And that's the other side that doesn't get talked about. Now this is where there's a slippery continuum, is that you don't have to be rebalancing every time your allocation's off by 1 or 2%. That I think will drive people crazy. But in general, if you get way off target, the very nature of markets going down. Typically rebalancing once a year is a good practice that you would want to not only be taking some of your assets because you need to live on them for spending, but also rebalancing when markets are down. That's absolutely true. But it works on the other side too. When markets are if your allocation to equities is 65% and that's your target and now it's at 70, then your reallocation would be to sell stocks.
- [31:51]
A
All right. Sue in Wisconsin says on a recent show you talked about having some investments in a brokerage account. I would like to buy a five or seven year treasury note and put it in a brokerage account at Vanguard. The problem is when I look at the seven year note, there are many options with all different yields, prices, coupons and maturities. How do I know which one is best? Secondly, are treasury notes a good choice for a low budget investor such as myself. Thank you and keep up the great work everyone's doing on the Clark Howard Show. Sue.
- [32:19]
B
Hey, Sue. In Wisconsin, it is complicated if you, when you bring up a list of bonds and you see different maturities, different prices, different yields to maturity, so many different options. I think of bonds as a par value. Thousand bucks for One bond at 5% makes it all very simple. It pays you 5% a year. End of five years, you get your thousand bucks back. Unfortunately, when you pull up a page of of bonds, you're going to see bonds at 980 and bonds at 100 and at 1100. And you're starting to think, well, what am I wait, do I buy the premium bond? Do I buy the discount bond? Yield to maturity is what you get over the life of the bond. So if you have a bond that's trading at a discount, that may mean that it had a lower interest rate and the price has now dropped. So you may get lower income throughout, but the price should go back to maturity. So if it's trading at 95, it remember, it's coming back to 100 by the time it matures. And that can be tax advantageous if you're in already in a really low tax bracket. So buying individual bonds is tricky and there's a lot to think about. But I would just tell you, if you're looking through that list, yield to maturity is your friend because that's ultimately the rate of return you're going to achieve over the life of that bond.
- [33:52]
A
All right, that's going to do it for us this week. Thank you, Wes, for another great show.
- [33:57]
B
Thank you to our listeners for all these great questions.
- [33:59]
A
Lots to think about. I learned something new every single time we get together and do this, Wes. Many things usually. And if you want to buy Wes's new book, where can they go? Amazon.
- [34:09]
B
Wesmoss.com People should make fun of me.
- [34:12]
A
Why?
- [34:13]
B
I think of this every day. The fact that we do not have a link on any of our websites that just go directly to the book on Amazon, Wes has got to be. This guy can't be a good marketer, okay? It's because all of the regulation around books and reviews and all of those things, I can't list it. Oh, so. So that's why I don't know if you notice, I say go to Amazon.
- [34:37]
A
Okay.
- [34:38]
B
I don't ever say go to my site and click on something because there is no link to the book.
- [34:42]
A
Well, can we put a link@clark.com?
- [34:44]
B
no, you can't do it. Either.
- [34:45]
A
What about in the. What about in the. The notes on this episode?
- [34:48]
B
Never. That's why I always say it's. You just go to Amazon. Which. The world we live in is. Makes it so easy to do this.
- [34:55]
A
I know.
- [34:55]
B
You just go to Amazon. You. You type in retire sooner method, and it's the green book that comes up.
- [35:01]
A
Okay.
- [35:02]
B
It's that easy. Thankfully.
- [35:04]
A
All right. Well, thank you for being with us. I hope that you. If you enjoyed this, you'll share it with a friend. Please subscribe wherever you listen or watch and hope the rest of your day is fantastic.