Wes Moss (2:41)

Long term capital gains 0, 15%, 20%.

Krista Dibiaz (2:45)

Right. So you're going to expl. To get to that 0% or how.

Wes Moss (2:49)

To stay in the 0. We all start in the 0.

Krista Dibiaz (2:51)

Start and 0. Yeah.

Wes Moss (2:52)

How do we stay in that 0 bucket for. How do we stay in the 0 bucket?

Krista Dibiaz (2:56)

And then, of course, we have questions for you, as we do. We have lots of questions. I know. I'm sorry if we haven't gotten to your questions. We get so many. If you do want to ask a question, go to clark.com ask and you can indicate if that question is for Clark or for Wes.

Wes Moss (3:12)

We have a lot of cool listeners, too.

Krista Dibiaz (3:14)

Oh, my gosh. Best audience.

Wes Moss (3:16)

I love the messages we get and the questions we're getting. I can tell they're very much from kind of the heart, and people really are trying to figure things out, and we're happy to try to help.

Krista Dibiaz (3:26)

I think we have the kindest audience of any podcast. I really, absolutely believe that that's because.

Wes Moss (3:31)

Of you and Clark.

Krista Dibiaz (3:32)

I mean, I think it's. You know, I'm so grateful for Clark's attitude and how compassionate he is, but I think we try to have everyone on our team be like that. You're like that. You know, everyone who works behind the scenes. You know, it's really important, I think, to Clark that we see our number one job as helping people. And so that's always been part of our mission.

Wes Moss (3:53)

I agree.

Krista Dibiaz (3:54)

All right, well, let's help some people with their investing principles.

Wes Moss (3:58)

Five principles. Five foundations, I would say, are philosophical, foundational keys. What is an investment firm or what do I think about in our team? Think about in good times and bad, because investing is a perpetual event. It is not just, hey, let's invest today. It is forever. There's really no end to it. However, the environment and the climate that we're investing in changes dramatically. So we have some really good times, and we have some really bad times. We go through scary events in the economy, in the world, and that happens all the time. But we also go through periods of time where things are going really well, and that even creates some fear where the market's doing really well. Now, I don't know if I want to put money in the market at a high. So there's always a challenge. In good times, there's challenges, and bad times, there's challenges. So what are some kind of North Star ways to. I think, principles, and there's five of them to always be thinking about. And this is what I think about. And again, I start by saying there's always these questions. What are the questions now? Where are interest rates? Going? Well, we know that the Fed has been getting pressure to lower rates. So it sounds like short term rates are going to go lower. What does that mean? Well, also that it may actually mean that longer term rates go up and mortgage rates don't come down. So there's a lot of uncertainty around that. Valuations, The S&P 500 has had a good 2025 after a big rebound. After the April sell off, a big May and June rebound. Well, valuations are stretched, trading at 22 times. That's above historical valuations. And it's very concentrated, very concentrated in the top 10 companies, which are giant mega cap trillion dollar companies. And we're looking at 38 to 39% of the entire S&P 500 is concentrated in just 10 companies. That's a question. Well, there's high concentration. So those are all the things that let's say we're worried about today and there'll be a new set of things to worry about tomorrow and there'll always be a set. So the first kind of guiding light to me is participation over perfection. We need to participate as investors for as long as we can and not get thrown off. So how do we do that one? There's got to be a dose of rational optimism all the time. The most rewarded investors over history haven't been blindly optimistic, they haven't been greedily optimistic. They've been, I would say, rationally optimistic, which is believing that things will over time continue to evolving it better. The economy expands, we're more productive, we produce more companies, do more, earn more. And to some extent we've got to look at the overarching environment for that. And that's why what drives my rational optimism as an investor is just the I believe in the army of American productivity. It's 165 million people that either have to work, are okay to work or love to work. Either way, you're working in America and you're trying to do a little bit better your job every day. Some people a lot better put that together and you've got companies that are just continuing to methodically do better, faster, quicker, more efficiently. And that to me gives me a long term sense of rational optimism. Secondly, what does that translate to? It translates to owning stocks. It translates into being an owner of assets, meaning mostly equities. That's where we're going to get our inflation protection. That could also be in real estate. These are assets that should inflate along with inflation over time. That's what they're designed to do. Now There can be great volatility there and it's not easy to be a stock investor. But that is what will win the day over long periods of time. In order to do that, number three is to have safety assets. I call them dry powder. Because that dry powder not only keeps you having a portion of your assets in stable places that don't necessarily go down or limited downside. These would be high quality bonds and money markets, et cetera. It's more than just that. It gives you an overall force field of being a better stock investor. So the safety assets allow more people that have less of a stomach for volatility to have exposure to equities. I think it can make us better, more participation inequities which tend to really be where our gains come over time. Fourth, I can't overstate diversification as much as we talk about it. It almost seems like kindergarten 101 basics of investing, of course. But I still see over and over again examples of people that are overly concentrated in one area. One legacy stock that they never thought would go down. One legacy sector. That's the only sector that it's doing well. It's doing well. It's doing well. It's always going to do well. Nothing lasts forever in this market. No trend lasts forever except in my opinion, the overall expansion of America and the army of American productivity. But I still always as a reminder that diversification is so key to maintaining your assets over time. And then fifth is really about time and patience and behavior. And that's kind of what holds all these five cores together. All these are. There's math to this and there's science to this. But there's also the, the human emotion side to being a good investor and being a rational planner over time. Put all those five things together and that's what I think about over and over again as an investor. If you go back to the year 2000, 25 years ago that some really great markets and some horrible markets and multiple bear markets since 2000 to today, S&P 500 is with dividends reinvested up over 600%.

Krista Dibiaz (10:05)

Wow, that's unbelievable.

Wes Moss (10:07)

We're going to questions.

Krista Dibiaz (10:08)

We're going to questions. This one's from Sam in Utah. Wes. I've always been big on Fidelity Zero funds. I'm part of an ESPP that will match 33% of the stock I purchased with company stock. My strategy has been to hold for a year and sell at a long term gain rate. Then I diversify into Fidelity Zero Funds. I was talking with my brother in law who works for a major investment firm. And he said that my favorite S&P 5000 or low cost funds are not broad enough and that I should look into a fund that has complete market exposure, including International. He recommended Earth U R T H upon research. It does have a great performance record. However, the expense ratio is 0.24%. Do you think it would be smart to diversify some of my ESPP company stock and buy Earth over Fidelity Zero funds?

Wes Moss (11:01)

Are you asking about diversification? Usually the answer is yes. And you're right. Your brother in law is right. The S&P 500, as I think I just mentioned, it's really Top Heavy. It's 10 companies out of 500, 10 out of 500 that make up approaching 40% of the whole thing, of the whole shebang. Because the size in relation to the overall it's dictated by market capitalization. Those 10 really carry the day. What's been interesting this year though, if you've looked at more of an equal weighted S&P 500. So again that you can also buy an ETF that has. Every stock has the same percentage that's called the equal weighted market OR S&P 500. And there are a lot of different indices that you can find in ETFs that are more equal weighted. So that's one way to do it is to try to get some more diversification is look at some of the equal weighted options that are out there. I don't know a ton about the ETF you mentioned, but just quickly looking this up. I think this is just the MSCI World index. So it's not just the US it is, it's going to have investments that are from Europe and Japan, et cetera. These total world indices are still pretty heavily dominated by the US because again, our companies are so much bigger than most other companies in other countries. So if you look under the hood for a lot of these total stock market funds, they're still really weighted towards the mega caps in the United States. So again, if you're asking about diversification, I'm usually a proponent of that. So if this gives you some diversification and you study this particular ETF and you feel like it does that for you, then I'm a proponent of more diversification. It does have a fairly high expense ratio. It's a quarter of a percent which is a little bit high for an etf. So you could instead look at the same fund family you're already using and just add an international type fund. If you're looking for diversification or add again a equal weighted index that it doesn't just weight everything towards the 40% just to the 10 out of 500. So a lot of different ways to diversify. I think that you're in the right mindset here. I believe in diversification beyond just the good old fashioned S&P 500, particularly today more than ever because it's the most top heavy it's ever been.

Krista Dibiaz (13:24)

Let's go to David in Oregon's question. This question's for Wes. When figuring out your withdrawal rate from your retirement funds, is it suggested that people use the 4% rule? Which when using that equation, shouldn't they also figure in their RMDs? How should they figure in their RMDs if need be? I always enjoy your show Dave in Oregon. I know you've covered this a lot, but it's always good to kind of go back to the rule.

Wes Moss (13:47)

There's always these little nuances about the 4% rule. Dave, the reason this is an interesting question is that very often people will say I don't really need my RMD. And the IRS says you've got to take $20,000 out of your account. A lot of people will just take the $20,000 out of an IRA and they'll put it in a brokerage account and reinvest it. If that's the case, then no, your RMD doesn't really count. Now if you send 5,000 of that 20 to the IRS through a withholding, then that's a withdrawal that leaves your account. It's no longer in your possession. That counts towards the withdrawal. But if you just put money in another account, the vast majority of that doesn't count towards the 4% rule. The only things that count towards the 4% rule are money that is spent. So if you have $20,000 that's coming out of your RMDs, then yes. And you take it into a checking account and you eventually spend it throughout the year? Well, the amount that went to taxes, that counts towards the 4% rule. And the amount that you took out of investments and eventually spent, that counts towards the 4% rule. Interestingly, just this week a family that I work with, because they know I love this topic, sent me. It was a USA Today article about William Bengen.

Krista Dibiaz (15:03)

Oh, the founder of the 4% rule.

Wes Moss (15:06)

The godfather of the 4% rule.

Krista Dibiaz (15:08)

Yes.

Wes Moss (15:09)

I continue to learn new things about this and I've even interviewed Bengan, but evidently his original rule, the math he worked out, was 4.15% withdrawal. But he rounded it down just to simplify it.

Krista Dibiaz (15:22)

Okay.

Wes Moss (15:22)

And the reason people love the 4% rule is because it takes a really complex problem using your money without running out, maxing out withdrawals without running out. And it simplifies it. So that's why it's a really good rule to remember. But anyway, Bangin, I think he has a new book coming out.

Krista Dibiaz (15:39)

Really.

Wes Moss (15:40)

And I don't know again, I didn't. I should have checked the date of this article, but it seems very recent and he's upped his withdrawal rate to 4.7%.

Krista Dibiaz (15:50)

Whoa.

Wes Moss (15:50)

It's a big difference.

Krista Dibiaz (15:52)

That is a big difference.

Wes Moss (15:54)

Now the other thing that he's done is he's expanded back in the early days. This is why this is a never ending topic, Kristen. But there's nuances. What we haven't covered is what did bank and do differently is these added asset classes over time. Back in the beginning it was really just he used mixes of percentages of stocks and bonds and that was it. But over time he's introduced the usage of mid cap stocks and small cap stocks and I believe some international. So more diversification. And it seems like he's upped his rule of thumb a little bit.

Krista Dibiaz (16:30)

Okay.

Wes Moss (16:30)

But I love if you're using just the 4% rule, I call it the 4% plus rule that you can always, if things are going really well and you feel like you're underspending over time, you can always take out more easy problem to solve. One extra trip.

Krista Dibiaz (16:45)

Hmm. Michael in Georgia says, here's my question for Wes. I've been investing in a taxable S&P 500 fund for many years. How will Vanguard calculate the cost basis? When I start selling it periodically in retirement. And two, can you explain tax harvesting?

Wes Moss (17:02)

Tax harvesting, Tax loss harvesting too. Okay, Michael, I'm not going to pretend to know the default option for every different mutual fund out there. But my recollection for Vanguard is they default to average cost base cost basis averaging. And they're going to take your original basis and then look at all the reinvested amounts and then make an average cost basis when you start selling. If you don't elect something else. Other firms can use FIFO first in, first out. So they, they can default to selling what? Anything. That's the oldest lot, if you will. Remember, if you own a mutual fund for 10 years, you may get a distribution every month. So you might have 120 reinvestments. 100. It's 120 times the cost basis has been adjusted and they may just say, well, fifo first in, first out. And they're, and they're selling the lowest base or the, not necessarily the lowest, but the earliest basis that you purchased. And then there's a way for you to choose your lots. And I believe you can elect that. And I know in most brokerage firms you're able to elect selling the lot that you want. You identify all these different reinvestments and some may have been at bad times and then markets went down and then they've come back up. You can go back and systematically identify the lots you would like to sell. I think you have to make sure, think for Vanguard. I could, I could be wrong on this, but I believe you want to make sure you're electing that and choosing that. Because I think if you start with one method, it may be difficult to change it. So before you start pulling money out, I would call them, call a representative, verify which default option you're in. And if you can choose the option of choosing your basis, systematically identifying, believe that's what they call it, your lots and choosing which ones you'd like to sell, that I think is the best case scenario.

Krista Dibiaz (19:12)

Okay, well, speaking of taxes coming up straight ahead, you're going to talk about long term capital gains taxes.

Wes Moss (19:19)

Well, there's changes with the new tax bill, the one big beautiful bill act. And there's some nuances there and I think maybe some opportunity to stay in that favorable long term capital gain category. We'll talk about that.

Krista Dibiaz (19:32)

Zero percent.

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Wes Moss (22:12)

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Wes Moss (22:55)

See mintmobile.com welcome back to Ask an Advisor. Krista Dibias. You still have questions?

Krista Dibiaz (23:02)

Oh my gosh. We'll never run out of questions.

Wes Moss (23:05)

Never keep sending them in. And a lot of people send little notes in and they're, they're very cool. So I love, I love reading them. I've gotten some cool emails from folks, you know, all over the country because you guys have such a big audience. It's really, it's pretty cool. It's very cool. I want to talk about this. We've got the one big beautiful tax bill or act is that was passed this past summer and there's some new deductions that make things. I think this is a good window for and I think it's always a good window but a particularly good window if you're 65 plus because there's a new higher deduction if you're 65 plus that starts in 2025 and lasts through 2028 of $6,000 each. And so a couple, that's another $12,000 in deductions. And all of these things really add up and they matter. When we are trying to navigate and be smart about what our tax rate is, particularly with long term capital gains. The stock market has been good for the last 25 years now. We've had some real ups and downs, but up 600% over that long period of time. So people have gains. If you have individual stocks or ETFs, you probably have gains that you've had for more than a year in some cases way longer than that. But as long as it's over a year and you sell a piece of that ETF or stock and you have a gain that's counted as a long term capital gain. The tax brackets are really interesting to navigate. Now this came from CNBC and I've Talked to different CPAs about this. So it might change a little bit starting next year. I don't know exactly, but this was just published this week on CNBC. Long term capital gain rates for 2025 by taxable income and filing status. So I'll look at a married couple filing jointly. It says that from zero income to $96,700. What is the long term capital gain bracket there? Zero. It's fascinating, isn't it? Then $96,701 all the way up to 600,050 bucks. That lands you in the 15% category. So the question is when we're in retirement we have a lot more control over our income, right? We're going to get Social Security. So there's not a lot we are going to get that and then it's 73. We're going to get RMD and we're going to have to take money out that'll Create income. But think about that, from 65 all the way to 73, you have this window where you can really try to manage what your taxes end up being because you don't have to pull from retirement accounts and create taxes and you could potentially, potentially live off long term capital gains. Now again, I will just stress this, that taxes are super complicated and I am not a cpa, I am not a tax advisor, but I'm always looking at taxes. So I just want to couch this as saying this is a hypothetical example that there are so many nuances when you look at a full blown tax software. There's hundreds and hundreds of lines and there's deductions and there's these new credits or new deductions for the new tax bill that technically nobody's really done their taxes for 2025 yet because we're 2025 is still not even over. Right? So let's say A, this is subject to change and B, this is something that, by the way, I really can't help you with this. I think I can get you somewhat close, but I've compared trying to do taxes and tax scenarios and then done it on real tax software and I doesn't quite have it.

Krista Dibiaz (26:43)

It doesn't have it yet.

Wes Moss (26:44)

It doesn't. So I would just be really leery of that. I think it gets you directionally correct, but it can be pretty, it can be pretty off. So you really need to be running these scenarios with actual, with an actual tax person, a cpa, and sit down and fill in all the categories because they all matter. So how do we stay in the zero percent category? I went to for a long term capital gain. Remember that? It's not siloed. So it's not as though you've got, let's say a $40,000 in Social Security income and you say, well, that's my ordinary income. And then I'm going to go sell $60,000 over here in long term capital gains. I have all the way up to 96. It doesn't work that way. All of your income, whether it's wage income or pension income or Social Security income and the gain you have in any given year, that all goes to the mix of calculating your net taxable income. But I did a rough scenario here. Let's just call Bob and Mary. They're in their late 60s so they should be getting that new higher deduction for the next couple of years. So again, reducing their taxable income. Key to staying in the 0% bracket or bucket. $40,000 in Social Security income, $40,000 in IRA withdrawal, so that's $80,000 and they sell stock for $67,000. That gets them to almost close to $150,000 in income. You would think there's no way they're going to pay zero on all of that capital gain. But go through and look at their taxes and look at all the standard deduction and the other new deductions and I'm not going to get into the exact numbers on this, but this particular scenario they still owed some taxes overall but they stayed in the 0% bracket for their long term capital gain. Now a little bit more they would have been in the 15 bracket. But that's the other thing long term capital gain isn't. It doesn't all of a sudden the minute you go a dollar over the bracket it doesn't mean that now all of your gains are taxed at 15%. It's just that your gains from after filling up the zero bucket and beyond then they're taxed at 15%. Same thing works when you get into the 20 bracket. So particularly if you're in this category, you're trying to manage your income in a smart way. There's a big window to pay a very low capital gain rate for a lot of people in America. So in order to map that out, I would be sitting down with a CPA or a tax advisor or a financial advisor that can run taxes for you as well and figure that out because managing your net take home pay is so, so important. We talked a little bit about tax loss harvesting. Tax loss harvesting is something that you can do in any given year where you're selling some of your losers even though you may have an overall gain and you're offsetting capital gains that way you can even do tax gain harvesting. Krista. So you could potentially sell something at a gain. And this is kind of the opposite of the wash sale rule where you're not allowed to sell something and then just buy it back and collect the can't do that at a loss and bank it and buy the same security. But when you're selling it again you could and you could rebuy the same or similar, similar stock and lock in a higher basis. So that's called tax gain harvesting. I would just say there's an awful lot to think about here but I think there's a window with the new tax changes coming up for 2025 to be really cognizant of what bracket you fall into when it comes to your long term capital gains.

Krista Dibiaz (30:25)

Okay. You know what I'm going to ask Helen and Georgia's question first because it's really a continuation of what you said.

Wes Moss (30:31)

With the new Helen in Georgia.

Krista Dibiaz (30:33)

Yep. With the new bill increasing senior tax deductions for the next four years, how can a current retiree benefit in planning to make this work toward a future benefit after the four years pass?

Wes Moss (30:44)

Hmm. A future benefit. So, Helen, here's what I, I'm thinking is that we've got this window over the next couple of years if you're 65 plus supposedly in this new tax bill. And again, this is what's interesting about this. Nobody's done their taxes for 2025. We're still in 2025. So we don't know the exact nuances that it might change. And I think it's important to note that you talk to a cpa, they'll tell you, well, we don't know the exact, exact numbers because their software is still going to get updated when they're doing people's taxes in 2026 for 2025. But what I would say, Helen, is that let's assume you're going to continue to get that new higher deduction, the 6,000, you and your husband, let's say, so now you've got $12,000 of deductions that you didn't have before. And it may go, that may go away. There's no way to say, hey, how do we keep this deduction moving forward? Because the tax laws might change. The tax laws always change. Tax laws always change. So I think what we need to do is just take advantage of it while we can. And what would you be doing in this window where you have more deductions so you have a lower overall net income? Think about Roth conversions right now. Maybe you have more room now to convert IRA to Roth because there are higher deductions. Maybe today you've got a window to be able to sell more stock at a long term capital gain and still stay in that 0% bucket because you have greater deductions today that we don't know if they're going to last beyond the four years. So, Helen, I would just say take advantage of these semi one time deductions that are benefiting you and utilize them to their fullest over the next three to four years. You're going to want to sit down with somebody and talk taxes in order to do that.

Krista Dibiaz (32:39)

Okay. This question came in from Kate in Alaska. Hi, WES. I have two teenage sons, 15 and 17, that are saving their summer earnings to buy cars when they get in college. I have opened a custodial brokerage accounts for them at Schwab. I think they have the best customer service to put their money in. Is there any other investment option for them besides a money market fund for this kind of time horizon? The 17 year old would hope to buy a car in one to two years. I've also opened a brokerage account for my 11 year old daughter to put some birthday money in and that money will eventually go towards a car. Are there any good investment options for her? Thank you. Your advice has been super helpful these last few months.

Wes Moss (33:18)

Hey Kate in Alaska, this is a time horizon question. John Bogle from Vanguard, famous for saying the late great John Bogle, any time Horizon Less than 10 years is speculation. You shouldn't invest in stocks unless you have at least a 10 year time horizon. But I would say he's somewhat of an extremist, so I don't know if I totally agree with him on that. What I would say though is that your 17 year old does have a really short horizon. It's a year, a year to two years that I would just find the best money market. Schwab has lots of different money market fund options. You should be able to find approximate 4% rate of return with really pretty much minimal if to no risk. That's for your 17 year old. But the 11 year old, I think you had a 15 year old, maybe there's somewhere in between. The 11 year old has a long time, call it five, six, seven years. I personally as a parent would have some stock exposure there. So I would have a diversified total market, some sort of total market ETF. Maybe it's the S&P 500 and I don't know if it's 100% Kate for your 11 year old, but I would say at least 50% and the other 50% in stability money market. So you have half in stocks, half in money market. And that at least gives you a five to six year window to potentially get some real growth out of at least half of that and a little bit of and some decent income year after year in the money market. You may even want to look at bonds for that half as well to lock in bond rates in case bond yields go lower. We don't know where yields are going to go. But again I'm not a purist in the fact that you need 10 years in order to buy a share of stock. So yes, for your 17 year old, more money market based, more of a mix. For your 11 year old it's Pretty cool.

Krista Dibiaz (35:09)

Okay, going to read John in New York's question now. I know last week you took a question about E Trade, but I'll explain why I included this in a second. John says, I know Clark's favorite investment firms are Fidelity, Schwab and Vanguard. I'm curious what Clark or West think about investing with E Trade. I have all my retirement accounts with E Trade and I'm wondering, is there any reason to move that money? And I thought, you know, Clark always talks about his favorite children and you've done it a little bit. But I'm kind of curious what your perspective is on who to go with and should you be with one of those three.

Wes Moss (35:42)

To me, the first principle on the custodian is the strength of the custodian. That's why you absolutely want one of the giant mega custodians in America. Meaning these are firms that have trillions of dollars in assets under management. And those assets, they don't own your assets, they hold your assets. So even if something goes wrong with these giant companies, I think there are a lot of different protections when you're dealing with one of the really big companies. I still think, and this is just speculation, I still think we're in a too big to fail world. Some middle tier or small custodian has financial trouble, do they get bailed out? I don't know.

Krista Dibiaz (36:35)

Right.

Wes Moss (36:35)

If somebody giant like Fidelity, Schwab or even E Trade, which is now owned by Morgan Stanley, gets in some trouble, first of all, it would be super rare. But anything can happen. We all went lived through the great financial crisis, if you're listening. So you can't count on a bailout, but you can count on always having your assets with a firm that's among the largest in the world. And that is why to me, the very first thing to think about is the custodian, the prowess and the size. And that's why I feel comfortable, most comfortable with big companies like Schwab and Fidelity is in that conversation as well. And that's why Vanguard is in that conversation. E Trade is really part of Morgan Stanley. And I don't know if they custodian their own assets or they use another custodian. I don't, I don't even know that's what actually I would check. That's a good question. Ultimately, as an E Trade user, which I don't use, and there's again, I don't think there's anything wrong with E Trade, but it would be a good exercise for you, John in New York to look under the hood and say, okay, wait a minute, E Trade is actually part of Morgan Stanley. Is my money, where is my money held? Is it held at E Trade? Is a held Morgan Stanley or is there another custodian that they outsource and hold your funds? And that to me, having that knowledge for all of us as investors is the ultimate sleep well at night piece of the equation. It is the concrete poured foundation. Before you even worry about what stock or bond you're going to buy, know where your money's being held. And that's a great exercise for John in New York. Great question.

Krista Dibiaz (38:18)

Awesome. Well, thank you so much, Wes. That does it for us today for this week's Ask an Advisor. Park will be back tomorrow. We'll be back with you next week. Hope the rest of your day is excellent.