10.28.25 Ask An Advisor With Clark Howard & Wes Moss

Summary

The Clark Howard Podcast: Ask An Advisor with Clark Howard & Wes Moss

Episode Date: October 28, 2025
Hosts: Clark Howard & Wes Moss

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Overview

This special episode brings together personal finance veteran Clark Howard and advisor/author Wes Moss to tackle two hotly debated and often confusing topics for investors:

1. Whether the U.S. stock market is dangerously overvalued, especially in the context of the “AI boom.”
2. The entrance of private equity investment options into 401k retirement plans.

They aim to clarify their differing views and help listeners make smarter decisions amidst swirling hype and jargon.

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Key Discussion Points and Insights

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1. Is the Stock Market Overvalued? (01:40–25:30)

a. The “AI Bubble” and Stock Market Parallels to the Past

• Clark and Wes kick off by reflecting on listener confusion caused by their past, seemingly contradictory advice on the stock market and AI investments.
• They reference economist Mohamed El-Erian's assessment: We are in an AI-driven bubble, but a “rational bubble”—an oxymoron but a telling sign of current sentiment.
  • Quote [04:48], Wes Moss:

    “He said, yes, we're in a bubble. We're in an AI bubble…but he said, it's a rational bubble. Can you believe that? From Mohamed El Erian?”

• The duo draws comparisons with the dot-com era, recalling how companies with ever-growing losses soared in valuation until the inevitable crash. Modern AI, while profitable for some giants, may follow similar patterns for smaller players.
• Wes notes, unlike dot-com, key AI companies today are extremely profitable and reinvesting real earnings—e.g., Walmart using AI and IoT for logistics and loss prevention.
• Analogies: Webvan, pets.com (dot-com boom); today’s “MAG7” tech titans (Microsoft, Apple, Meta, Google, Amazon, Nvidia, Tesla).

b. Market Concentration and Valuations

• Wes shares alarming stat: The top 10 stocks comprise nearly 40% of the S&P 500’s value—a historical first ([13:27]).
  • Quote [13:27], Wes Moss:

    “The weight of just those 10 stocks, … is now almost 40% of the total market. That's incredible. That's never happened.”

• Standard price-to-earnings (P/E) ratios:
  • Long-term average: 17–18×
  • Today (2025): 25× overall, 20× equal-weighted ([14:35] Wes)
• Clark’s take: Market is priced for “perfection”—even equal-weighted indices are above historical averages. Dangers of sudden, unpredictable downturns and investor overconcentration.
  • Quote [16:02], Clark Howard:

    “When market declines happen, it's always out of nowhere. We don't know as we're sitting here right now, the reality is, …what meteor hits the market.”

c. Dangers of Overconcentration and Chasing Hot Sectors

• Wes criticizes “layered risk” — investors buying both the S&P 500 and then piling on sector- or specialty-tech ETFs and individual AI stocks.
  • Quote [17:08], Wes Moss:

    “What really damages investors…is when they are layering…risk upon risk. … If you were really to look under the hood, their whole portfolio is tech.”

• Clark warns: Leverage, heavy sector bets, and social media-driven FOMO can wipe out portfolios.
  • Quote [18:14], Clark Howard:

    “…I'm worried that people don't understand that…they get overextended, overextended and overweighted.”

d. Practical Advice: Diversification and Behavioral Insights

• Wes provides a key behavioral economics insight: The pain of loss outweighs the joy of gains; portfolios must be constructed to withstand inevitable corrections or bear markets ([19:33]).
• Balance: Maintain a diversified mix of stocks and “safety assets” (10–50% of portfolio, depending on risk tolerance), enabling investors to “stay the course.”
• Study referenced: Even horribly timing the market beats long-run returns of sitting in cash—it’s “participation, not perfection" that grows wealth ([21:30]).
  • Quote [22:23], Wes Moss:

    “Terrible timing still beat cash by more than four times.”

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Memorable Quotes from This Segment

• [05:13] Clark Howard:

  “The more a company lost in quarterly earnings, the more their shares went up.”

• [25:13] Clark Howard:

  “People are putting themselves in danger by not following classic models of spreading out your risk. Balance, balance…”

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2. Private Equity Options Coming to 401k Plans (30:08–48:11)

a. Introduction and The Debate

• Wes frames private equity in 401ks as a seismic, potentially positive change—yet Clark is “freaked out.”
  • Quote [31:04], Clark Howard:

    “…When a lot of brokerages are pushing private equity, they're selling a lot of these blind pools…big commissions, big fees…”

• Historical context: Private equity was reserved for wealthy, accredited investors. Now, mechanisms will allow regular workers to have access inside retirement plans for the first time.

b. Fee Structures, Transparency, and Risks

• Clark’s Concerns:
  • High, often opaque fees (sometimes “seven layers” of fees and commissions)
  • Locked-up capital, lack of liquidity—investors could wait 5–12 years for returns
  • Potential for exploitation of small investors, reminiscent of terrible, fee-heavy 403b plans pushed on teachers
  • Inadequate investor sophistication or understanding; risk that marketing and peer advice (“Hey, Jim in Accounting said…”) will steer people blindly
  • Quote [37:44], Clark Howard:

    “That’s where I fear here because…private equity has always been kind of hidden behind a curve.”

• Wes’s Moderate Optimism:
  • PE fees have declined (now as low as 1%/year, 5–10% of profits in some funds)
  • If structured right—only as a sliver within well-diversified, target-date funds—could offer new opportunities and democratize access to returns from America’s many private firms (which make up 90% of large businesses by revenue)
  • The “devil’s in the details”: Will the industry “Vanguard this” (low-cost, transparent) or “403b this” (exploitative, fee-heavy)?

c. Liquidity, Complexity, and Regulatory Questions

• Old-school private equity often ties up money for up to 12 years—Clark fears most 401k participants will find this completely at odds with how they’ve been taught to invest (daily liquidity, flexibility).
• Newer models (open-ended PE funds) may allow more flexibility, but might still carry higher fees, less transparency, and illiquidity.

d. Ethical and Social Considerations

• Clark and Wes agree that private equity, as an investment structure, is not inherently evil—but company behavior post-acquisition too often harms employees and company culture.
  • Quote [47:39], Wes Moss:

    “It's the last thing you want…a private equity company buy your family culture, wonderful company because it will not stay that way.”

e. Final Thoughts

• Clark is wary but will “watch closely.” Wes is optimistic but agrees full transparency, low fees, and investor education are critical.
  • Quote [46:20], Clark Howard:

    “The problem…is how's this actually going to play out? And that's my fear.”

• Both stress that, ultimately, the addition of private equity must not compromise the low-cost, transparent essence that has made 401ks a fair tool for everyday investors.

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Memorable Quotes from This Segment

• [34:05] Clark Howard:

  “Private equity has always been kind of hidden behind a curve. And so that's what I worry about is the lobbyists running this through…they're going to do this in a way that the little guy is going to get taken advantage of.”

• [39:53] Wes Moss:

  “You're worried about the fox running into the hen house. And the hen house has been more and more protected over the years for the average 401k.”

• [47:48] Clark Howard:

  “If you look at capitalism as just a pure event, obviously private equity is ultra important and meaningful for investors. It's just how this is going to play out for everyday people. I'm freaked out.”

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Timestamps for Important Segments

• 01:10 — Show starts & banter about confusion (“fog”) on investing issues
• 03:40 — Stock market overvalued? Introduction to “AI bubble”
• 05:00 — Comparison to the dot-com era and “irrational exuberance”
• 07:26 — AI investment arms race and pitfalls
• 13:27 — Market concentration at all-time highs
• 15:06 — Index funds vs. equal-weighted funds: valuation debate
• 17:08 — Risks of overconcentration in tech/AI stocks
• 19:33 — Diversification as behavioral protection: “dry powder” concept
• 21:30 — “Perfect timing” vs. “perfectly bad timing” market study
• 25:13 — Summary of balance vs. chasing hot areas
• 30:08 — Private equity in 401ks: the start of the debate
• 32:38 — Clark’s red flags: fees, commissions, transparency
• 34:27 — Historical context: expensive “manager-led” funds
• 36:00 — Democratizing access vs. exploiting regular workers
• 43:30 — Illiquidity risk: PE holds can be 10–12 years
• 46:01 — Democratization: “Why should just the 0.1 percenters be able to access that?”
• 48:11 — Wrap up: importance of transparency, investor education, and systemic safeguards

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Original Tone and Style

The conversation is lighthearted yet direct and passionate, with friendly sparring, real-world analogies (roller coasters, “fox in the henhouse”), and clear concern for the challenges faced by everyday investors. Both hosts use approachable language, referencing both statistics and emotional finance “pain points.”

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Summary Takeaways

• On Overvalued Markets:
  • The stock market, especially large-cap tech, is expensive by history’s standards. Most dangerous: overconcentration and overconfidence, often driven by social/media hype.
  • Sensible, boring diversification—with a solid chunk of “dry powder”—is still the safest strategy for non-professionals.
• On Private Equity in 401ks:
  • Potential for democratization of private markets, but heavy risk of high fees, opacity, poor liquidity, and exploitation.
  • How plans are structured and regulated will determine whether this is a “Vanguard moment” or a “403b debacle.”
• Investor Advice:
  • Don’t chase hot sectors or over-layer risk—stay diversified, pay attention to costs, and build a portfolio that you can emotionally ride out through all market cycles.
  • Be particularly wary and demand utmost transparency with new 401k options, especially private equity.

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Final Note

Clark Howard:

“You can't become so myopic that you're only into whatever the hot flavor is.”
Wes Moss:
“Balance is so important…Try to limit that draconian loss before we go into the next major drawdown.” (20:50)

Transcript

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[Clark Howard]

Hi, Clark Howard here with a special edition of Ask an Advisor with Wes Moss.

[Wes Moss]

Hey, Clark Howard, who's the advisor, you or me?

[Clark Howard]

You are. And I gotta tell you why we're here. This is really funny because Wes and I both have very strong opinions about investing, but he is a professional. He is an expert. I am an amateur at it. Not really. But we approach it from very, very different styles. And Wes, I got to tell you, we even did a poll on social media, and our listeners and viewers so badly wanted you and me together to address two topics that we have confused the daylights out of our common audience, our shared audience. You know what they are.

[Wes Moss]

We're not supposed to be confusing people.

[Clark Howard]

I know. That's why we're here.

[Wes Moss]

Now that's probably my.

[Clark Howard]

To try to take. No, to take the fog we've created and see if we can lift that fog or if we even confuse people even more.

[Wes Moss]

I don't know. It could be the latter.

[Clark Howard]

Well, well, let's see.

[Wes Moss]

What is the fog? What's the. What do you think main confusion is?

[Clark Howard]

So first, the alleged overvalue of the stock market.

[Wes Moss]

Okay.

[Clark Howard]

And then the second is private equity inside 401ks. I have been so unbelievably negative on this. I mean, like, just. Just trashing it. Private equity anyway. Yeah, but private Equity being inside 401ks, I'm like, could they come up with a worse idea? And then you do a podcast and YouTube show about this would be so fantastic to have private equity inside no, no, no.

[Wes Moss]

We're so black and white. You're right. I do. I think it's a good thing.

[Clark Howard]

But see, that's how our, our listeners and viewers that we share, they're like, wait a minute, wait a. Clark just said ba, ba, ba. And then you're saying, yeah, this is going to be wonderful. And so I want us to address these from our two perspectives together and see if we can lift the fog that we have jointly. Separately we've created. Okay, what do you think?

[Wes Moss]

I think that's a really good topic. I love this topic.

[Clark Howard]

Well, let's start with the stock market.

[Wes Moss]

Let's start with that.

[Clark Howard]

Okay. Stock market overvalued by a huge amount or what?

[Wes Moss]

There was a economist who is a very skeptical economist. His name is Mohamed El Erian and he was on this week.

[Clark Howard]

Is that how you say his last name? Oh, man, I read quotes from him all the time.

[Wes Moss]

What do you call him? El Aren't.

[Clark Howard]

I don't know. I look at it doesn't sound like that when I think of it. Yes, he's. He's really brilliant.

[Wes Moss]

He's brilliant. And he's pretty skeptical guy, too. He's not a pound the table bull type person, meaning some analysts, maybe Ed Yardeni is an example, who's, by the way, been mostly right most of his career. You almost know when Ed Yardeni comes on, he's. He's saying the market's great and it's going higher. The market's great's going higher. Mohamed Al Erin doesn't do that. He is very skeptical and he's very, very cautious, typically about the market. And he was asked the other day about, are we in an AI bubble? Is AI creating a bubble? Is the stock market in a bubble? So to talk about a confusing response, he said this. He said, yes, we're in a bubble. We're in an AI bubble. But he said, it's a rational bubble. Can you believe that? From Mohamed Al Erian? He said we're in a rational bubble. There's no such thing as a rational bubble.

[Clark Howard]

Right. So let's go back in the wayback machine 25 years.

[Wes Moss]

Yes.

[Clark Howard]

A lot of our listeners and viewers were not thinking about investing. They may not have even been born yet 25 years ago. And we went through the dot bomb.

[Wes Moss]

You know, I remember it well.

[Clark Howard]

And the more a company lost in quarterly earnings, the more their shares went up. And I kept remembering, and it's where this whole phrase but this time is different became such a buzzword on Wall Street. And you Know, those shares kept going up and up and up and up. There was something called Webvan, I Remember that, and pets.com among others. And so they were going up like a rocket till it ran out of fuel.

[Wes Moss]

And then what happened straight back down to earth.

[Clark Howard]

Yeah. And people just got wiped out. And so there were all these analysts then in the late 90s saying, yeah, well, this time so different. And this is such a different thing with this.com thing in this commerce, that it's just gonna keep going up and, you know, don't look at any traditional valuation measurements because it's different. And we're not hearing the same exact commentaries, but we're hearing similar kind of verbiage to try to convince investors that, yeah, it's great. We're throwing these trillions at these AI tools.

[Wes Moss]

Well, okay, so there's a couple of things. So I don't think it's ever really different. It's always some microcosm of what has happened before. And what happened during dot com was that we had a market to your point, where we had companies not only not earning, but losing more and more. What we're seeing in this environment is. And there will be players that are wiped off the map that are. They've raised capital, they're AI focused, and they're never going to earn back the money or they're never going to be as valuable to another company to pay them for their AI technology or their version of AI. And I think we're going to see companies that just go away just like we saw in Dotcom. So I think that there are going to be a lot of similarities. What's happening in this environment, though, is rather than a bunch of borrowing, we have a group of companies at the top of the stack of the market that are so profitable that they actually do have money to invest in AI.

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And.

[Wes Moss]

And it's become almost this AI arms race. There's an article this week in the Wall Street Journal. These data scientists and AI people feel like they're at war with each other and they're working 100 hours a week.

[Clark Howard]

I saw that too.

[Wes Moss]

I'm like 100 hours a week. Because they feel like they're.

[Clark Howard]

But how in the world can a human being sustain working almost 13 hours a day, seven days a week, never any time to breathe?

[Wes Moss]

Maybe if you're in your 20s, Clark. But not at my age. And probably not at your age.

[Clark Howard]

Well, definitely not at my age.

[Wes Moss]

Okay, so, all right, so what we have here in this environment, you have companies that are spending money but they're spending their free cash flow, they're spending their earnings and they're saying we don't want to be left behind. And because we think AI is very real, very real for productivity, so we, we're spending as opposed to having even more massive profits. We're choosing to invest and make sure we don't get left behind. So one thing in this environment is that there are companies and as opposed to just borrowing and not earning money and losing tons of capital, what they're doing is they're taking their massive earnings that they're using right now or that they're gaining and they're trying not to be left behind. Now the irony there is if AI as a technology turns out to be.

[Clark Howard]

A bust, oh, it won't be.

[Wes Moss]

That's going to be a nightmare for those companies. But to your point, the odds are that AI will not be a bust. It's still, and I have this conversation every day, I think about what Walmart's doing with AI and we've gone from this phase of crawling with AI, as in crawling like a baby and just kind of using it and seeing. Oh, it's pretty neat to be able to utilize AI to seeing. I think companies are now walking with AI and Walmart is implementing Internet of Things IoT sensors on every pallet they have in the country. It's 90 million pallets, 4,600 stores. And because of AI and utilizing the Internet of things, which are just little sensors that can track almost anything, they can now track every shipment down to the square inch and they know exactly where their products are. Imagine what that could do for efficiency now, does it?

[Clark Howard]

And, and it reduces internal theft because, you know, shrinkage is such a big problem for Walmart and other big retailers. And the IoT devices are going to reduce the amount of theft that goes out the loading dock and never even.

[Wes Moss]

Makes it on the shelves.

[Clark Howard]

Right. And so, so I mean it's, it's an efficiency thing and it's also going to be a profit machine because every item that's stolen out the back of the loading dock is money that you've got to make.0. It goes straight from profit to loss and that is going to be absolutely reduced. So I mean, yeah, no doubt that these things are, are going to be awesome. And so, but will they be awesome.

[Wes Moss]

Enough to make a million dollar investment or $100 million investment worth a billion dollars eventually? That is the jury that's still out.

[Clark Howard]

Okay, so let's go back in the Wayback machine again to the Dot bot.

[Wes Moss]

Webvan man, I remember, okay, so I.

[Clark Howard]

Remember in my TV work I go.

[Wes Moss]

Out, they were Atlanta, right?

[Clark Howard]

I don't know where they were based. Okay, probably Silicon Valley where everything back happened. So I'm out at a web van facility and I'm watching this to try to imagine in 1998 or nine or whatever seeing the automation that they had in place. And it was unbelievable. And so if you don't know what this was, it was the first Internet based automated grocer and you'd go in this warehouse and early version of Instacart and so well, except this was all automation because you'd have these carts that were very early with the bullseye kind of thing. Instead of, instead of the pricing labels they had the full QR thing and, and they'd go down, they'd know okay, we got to get six bananas and it would go down and grab six bananas in this giant warehouse and then it would go get three honey crisp apples and on like that. And so you had all this technology and all these companies that were what I call successful failures. They led to the E commerce era we're in now. But how many of them actually survived and thrived? Very few. And you always end up with, in capitalism you end up with a very small number of survivors and thrivers out of these big number of players.

[Wes Moss]

And I think that's probably, I don't think history will be any different here. I think there will be thousands of AI related companies and there will probably be a dozen or two that really make it and they're going to learn from all these failures.

[Clark Howard]

You think a dozen or two dozen? Well, yeah, I do because survive as big.

[Wes Moss]

Because I think what'll happen is that the biggest the Mag 7 which are the big companies in the S&P 500, Microsoft, Apple Meta, Google, Amazon, et cetera, they're so giant that they will be able to find these on a relative basis. Small tiny companies that they can swallow up quickly. So I think that the winners will get swallowed up by the big companies and maybe there'll be a few companies that emerge and they're their own new company that we haven't even heard of and then now they're a multibillion dollar company in three, five, ten years from now. But I think that a lot of the little winners on relative and everybody's little relative to the MAG7, these are trillion dollar companies. So if you think of a company that's 2 trillion, 3 trillion, $4 trillion like some of them, Microsoft's a $4 trillion company. Nvidia is a $4 trillion company or close to it on both of those cases. A $10 billion company is just a speck of sand to them.

[Clark Howard]

Right?

[Wes Moss]

So they can. I think you'll see a lot of consolidation. But let me go to some of these numbers here. And this goes to overvaluation. The weight of just those 10 stocks, which are mostly the MAG7, is now almost 40% of the total market. That's incredible. That's never happened.

[Clark Howard]

We've never had that level of concentration.

[Wes Moss]

Now it's usually pretty high because The S&P 500 is top heavy market cap weighted. It's usually in the 20% range, but here we are close to the 40% range again. Just add up the value of the 10 companies at the top of the market and, and we've never seen the market this top heavy. You asked about valuation. Let's talk about valuation. And valuation is important because this is what we're paying per dollar of earnings. So if we pay $10 per share or dollar of earnings, 10 times that a multiple or priced earnings, multiple is 10. And that's on a relative basis really low. On average, it's been about 17 to 18 over the last 30 years. 40 years, 50 years. Today the market in general is trading at 25 times earnings. Now that's not as bad as we saw in the dot bomb, but it's getting closer.

[Clark Howard]

Right.

[Wes Moss]

Back then we were close to 30. Now we're at 25 now. So I think that's the bad news. And to your point, we're getting overvalued. If you look under the surface though, and you look at the average stock. So if you don't weight the S&P 500 by size and you just wait it equally. So equal weighted. We've had a lot of great listener questions about equal weighted markets versus cap weighted markets. The market is trading at about 20 times. So 20 is a little high, but it's not extraordinarily high.

[Clark Howard]

All right, so let's talk about that. Yeah, because I'm, I'm index funds, index funds, index funds all day long. So you're not going to be in an equal weighted thing. And the money so heavily is geared towards the things that have pushed the valuation so high. So in my book, here's what I worry about. The market is priced, in my opinion, for perfection, no matter how you slice it. Because even if you take the equal weight, you're still a little above historical averages. But if you go to the money in the market it's way above. Here's what I worry about. When market declines happen, it's always out of nowhere. We don't know as we're sitting here right now, the reality is we don't know what bolt of lightning comes in, what meteor hits the market. And then suddenly you have a down.

[Wes Moss]

10, down 20, down 30.

[Clark Howard]

And so my big fear is that people are chasing the hot stuff. They're not doing market weight. They're overwhelmingly in AI this, AI that, and they're on all the, you know, they're on Reddit, they're on passage boards and they're like really fired up and they're so dangerously unbalanced in what they're in that they're going to get their clocks cleaned when that meteor, whatever it is, hits the market. Because it's a win. It's not an if. I mean, look, I mean, you know the history of bear markets and corrections and all that.

[Wes Moss]

So you bring up two really good points. One, there's, there's a difference between being balanced and having a structure to your portfolio where you have some safety assets and you have some highly diversified stock assets, even if they're market weighted. I would take at least being highly diversified in market weighted, different indices, large companies, middle size, small. Where you're exactly right. Where I see people really get burned and it's hard to just hold on for the ride, which we'll get to in a second, is when they are layering. Think about what we're seeing right now. I think the people that ultimately can get burned are the ones that are laying a multi layer tech cake. They own the S&P 500. Well, the S&P 500 is 35 to 40% in tech already. Then they're laying on another tech ETF and an AI ETF and three or four big AI oriented companies. And that's what happens. That's what really happens and damages investors. It's not so much the diversified investor that has to deal with a 20%, 30% correction that we need to be able to muscle through, ride through and have the patients through. It's the folks, Clark, that you're kind of alluding to here that are layering on risk upon risk. And the next thing they know, if you were really to look under the hood, their whole portfolio is tech. And when that one sector has a big Correction, it's not 20 or 30% and it's very difficult to ride that through. That's when you, you get 50, 60, 70, 80% losses that are almost impossible.

[Clark Howard]

To come back and then they get burned and they're like, well, I'm out, I'm out. And they don't go back in and they miss the future. So that's what I'm so worried about is that there's so much information available now and people gravitate so quickly into. They get overextended, overextended and overweighted. They're even doing these leverage things where they're doing 2x or more. More into this, into some of these AI things. I'm worried that people don't understand that, that. What was the thing Greenspan said, like.

[Wes Moss]

30 irrational, irrational exuberance.

[Clark Howard]

So, I mean, I want to know what would you say to somebody so that they. Now you can't bulletproof your portfolio.

[Wes Moss]

Right.

[Clark Howard]

And you don't go to the sidelines. But how do you do this methodically? If, let's say I'm a more casual investor, what should I be doing so that, yeah, correction is going to come. A bear market is going to come. It always does. What should I be doing to overcome those impulses that all the social media, traditional media, everything's like pushing people to put themselves at too much risk.

[Wes Moss]

Yeah. Think of it almost as the light gets brighter and more moths end up to the. The bul. Until it cracks. And what you're trying to protect against, and here's where my advice would come in, is that I think it's hard enough for investors to stick with and stay with a balanced portfolio that's highly diversified. Again, these are just the fundamentals of investing highly diversified. Lots of different categories in the stock section and then a healthy amount, whether that's 10% or 40% or 50% of safety assets. I could think of this as dry powder. This is not private equity dry powder. And that in itself creates a situation where even if markets go down, you're usually going to have less pain because the pain of loss is twice or three times worse or more impactful than the joy of gaining. So we know that. So my advice is to try to limit that draconian loss before we go into the next major drawdown. And I think that means a highly diversified, balanced portfolio that will still go down in a stock market correction, but it allows you to ride through and not sell out just for the market to finally snap back and then you miss both ways.

[Clark Howard]

So we're talking about behavioral economics. This is people investing, people emotionally who say, oh yeah, I can handle it, I'm fine, I'm great. And then the market starts cratering in the same social media and every other kind of media feeds into what becomes their panic and they sell out and they go into hibernation.

[Wes Moss]

Let me give a quick example of a study that originally started with Charles Schwab. They did a great study that looked at, I think they called it perfect timing and perfectly bad timing. So they did a study many years ago and our team kind of latched onto this and said this is a great concept. So we now continue the study. Imagine if you're the perfect investor and you know you only buy when the market is at the very lowest point, the absolute trough, which we know is semi impossible. Let's just say you could do it versus the perfect perfectly wrong investor who only buys when the market is right at its peak before a big correction. So those are the two investors. I call this participation versus perfection. Because the third category we look at is just leaving money in cash, treasury bills. And I want to give you a couple examples for our listeners. And this is the difference between being a participating and being in markets versus being a perfect investor. So it's participation, longevity, marathon, not sprint versus perfection and thinking you can time the market. So if I go back to, I'll do two quick examples. You mentioned the tech crash, so we'll do that. Imagine back in the year 2000, right. Or the end of 99 year 2000 and this is when the S&P 500 fell 49% peak to trough. The peak was March of 2000 and the trough had finally bottomed in October of 02. So it was a long stretch down almost 50%. And we're going to use $10,000 here. If you put your 10 grand to work at the very bottom of the market and you just happen to know you had the newspaper of tomorrow, you had the Michael J. Fox Back to the Future newspaper tomorrow and you nailed it. And you put your $10,000 to work today, that'd be worth 134k. So it's up 13x. If you were perfectly wrong and invested your money, your $10,000 on the day before we started that crash, of course you would have gone down 49%. It would be worth $71,000 today. If you had been scared and just chose not to participate in markets and just put your money in treasury bills or cash, it would be worth 16,000. So terrible timing. Still beat cash by more than four times. Now how do you ride out that difficulty? That's where balance comes in. Because to your point, so much of investing, we think of it as dollars and cents and Math, but it is behavioral. And one of the very best things we can do for our own retirements is to be able to stay the course. JOHN Bogle Stay the course and for some people you're able to stay the course with stocks all the way up and all the way down and all the way up and all the way down. For most families that I've seen this now over 25 some years is that you need to have some semblance of balance for the overall pie that helps you stay the course. And that's why I think balance is so important. That's why I talk about dry powder. That's why I talk about diversification, which should try to eliminate the very real problem that you bring up, which is layering what is already working on top of what is already working so that you get a highly over your skis, way ahead of your self portfolio. And that's where people really get hurt. The balanced investor has to endure some pain. But the investor that gets overly concentrated thinking that every new technology is going to grow to the sky, that's the investor that almost can't recover when there's a correction. And I think producer Chris is saying we wrap it there.

[Clark Howard]

Yeah, I think that's perfect to wrap there. The point is you, you can't become so myopic that you're only into whatever the hot flavor is.

[Wes Moss]

That's the moment that that's diversification gets thrown out the window there.

[Clark Howard]

And so I think where we both confuse people, but where we both come back to is yeah, the market by historical measurements is overvalued. The question is what degree in which chart you look at. But the bigger thing is that people are putting themselves in danger by not following classic models of spreading out your risk. Balance, balance which allows you, when things do are on the roller coaster come, you know. Were you ever a roller coaster kid?

[Wes Moss]

Yeah, yeah, I did.

[Clark Howard]

Yeah. I didn't like roller coasters because when that, when my stomach would come, you know, up into my throat, I didn't like that. And investors don't like that either. That's why you got to be diversified. So I hope, I know this was a lot of stuff winding around that Wes and I talked about, but ultimately.

[Wes Moss]

Comes back to the basics right that.

[Clark Howard]

Right now if you look at what you got and you're just way too much every latest AI thing you've heard of, that's too much risk. And that's why you need to do classic portfolio balancing. And you're saying also you talk about powder dry and all that, a certain amount of money in cash so that you can have the patience to ride out the decline in a market and have money available that when the market does get really, really depressed and negative sentiment and all that, that you then at that point could actually put dollar cost average in.

[Wes Moss]

Exactly.

[Clark Howard]

Yeah. So coming up ahead, we're going to deal with something that we're going to be really at opposite sides of the room.

[Wes Moss]

Yes.

[Clark Howard]

Fact. I'll go. I'll go sit in the next county when we talk about this. And that's private equity.

[Wes Moss]

Yeah.

[Clark Howard]

Because that's something that private equity and 401ks.

[Wes Moss]

It's coming.

[Clark Howard]

Scares the daylights out of me. And yeah, it's coming. It's that light coming through the tunnel. And it's not light, it's the train coming right at me.

[Wes Moss]

You think we're going to get hit by the train? I think we can in some way hop on the train.

[Clark Howard]

Well, that's what we're going to discuss straight ahead.

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[Clark Howard]

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[Wes Moss]

Welcome back to Ask An Advisor. I'm Wes Moss, along with the great Clark Howard. There was a comment this week on our Private Equity episode that said Wes is calling Clark out on his own show and before the break you hinted to now, in fairness, I wanted to bring up the topic that private Equity entering into 401k plans over the next call it couple of years is a giant change. So I think that's part of the reason I think I wanted to bring it up is that it's the first big change for 401k since 401ks started. The question is, is it going to be good for investors? I try to have a balanced view on it. Private equity can be super risky, but I also think it could be a really good opportunity and open up a massive market. The 99.9% of people haven't been able to participate out, but you have another thought or angle why it may not be a good thing in 401ks? Yeah, so you haven't told me yet, right?

[Clark Howard]

So private equity is such a big part of American capitalism and more and more worldwide capitalism, companies don't want to be publicly traded anymore. They're privately held and this works great for Wall street, the big money center, banks in Europe, in the US and Asia, they love private equity. It can be more opaque. There's not as much disclosure what's going on. And when a lot of brokerages are pushing private equity, they're selling a lot of these blind pools where people are putting money in, big commissions, big fees, they don't even know what the money's going to be in because it's so magical, it's so secret, it's behind this curtain. And so what I'm freaking out about with it being in 401ks is one of the great things that's happened, and my hero Bogle is really one of the great influencers on this, is that today the ordinary investor, somebody who's working at a regular job, who doesn't make a lot of money, can put money into this 401k, hopefully the Roth version, because most people don't make enough money that it makes sense to be traditional 401k. And they can put money into a fund that has virtually zero expenses to it. So a dollar invested, whatever it earns.

[Wes Moss]

Almost all of it's going to 99.999% goes to work.

[Clark Howard]

Right? But the problem with private equity is the commissions that the ordinary investor faces are humongous. And not only do they pay these massive fees up front, but then 20% of the profits that whatever they're in make are grabbed by the private equity player. And so, yeah, private equity at this point is probably bigger in American capitalism than publicly traded companies. But the deck always seems stacked to me against the small investor. Which is why historically going into private equity you had to be a sophisticated investor who's wealthy already, right, to go into private equity. Now you're talking about somebody who Maybe is making 30, 40, $50,000 a year, who's, they're taking hard earned money and throwing it in this 401k and they're playing with fire because the private equity thing is a whole different animal. And I have enough trouble explaining to people what the choices are, the plain vanilla choices in a 401k because they're not normal investors. And then you're throwing this private equity thing on top where they say, trust me, trust me, this is going to be great.

[Wes Moss]

Let alone blue al infrastructure 17 fund that we're going to eventually go build a bridge with your money. And you're right. So this is why private equity is in some respects, it takes us back to 30 years when the only thing that we could Invest in or 40 years were managers. Remember those days?

[Clark Howard]

I do remember expensive managers.

[Wes Moss]

Peter Lynch, I'm choosing this fund because he's a good manager and I'm putting money into this fund in a lot of ways. Not knowing what Peter lynch will buy in the future because he was supposed.

[Clark Howard]

To be the most brilliant investor in the history of the world. And he was very good.

[Wes Moss]

He was good. He was good. So the, the same thing with the, the popular mutual funds. I remember Bill Gross managing the Pimco bond fund. He was the just put money in the Pimco bond fund because Bill Gross eventually will be buying the right bonds for you.

[Clark Howard]

You're betting on the right jockey.

[Wes Moss]

And it does take us back, Clark. It does. It takes us back 30 to 40 years when it comes to that kind of leap of blind faith. Saying now in fairness, these funds that will eventually become a sliver probably of a target date fund is, I think, how they're going to work inside of 401ks. They are going to be, it's, it's going to be a collection of managers that have done private equity probably for 10 or 20 or 30 years that supposedly, and we don't even know how this is going to be structured yet supposedly have a good track record. That I think is what is supposed to happen. But to your point, there are a lot of things to worry about. The fees. Now, I've participated in private equity for many, many years and I have noticed over the last five that the fees have come down. So it's not, it's actually a little more rare now to see a fund that charges 2% and then 20% of profits. That used to be the model. And there are still, there's still some out there like that. But just like with mutual funds went from 2% to 1% to a half a percent to 0.1, private equity expenses have been coming down because people are sensitive to it. So now it would be more common to see a private equity fund that's more like 1% or even a little less per year or 10% of profits or 5% of profits. So I think the devil though will be in the details. How are we going to really access this? You bring up another good point, is that this used to only private equity investing and venture capital investing used to only only be for accredited investors or qualified investors. And these are people that have to have $5 million or more even to participate. How are they getting away with putting private equity in 401k plans? The rationale is that the 401k plan is the investor so that now they can own the private equity and then the participants making 30 to $50,000 a year, they can participate.

[Clark Howard]

So here's where I freak out. You take the 403B plan. Yeah, that the insurance industry has made the worst retirement plan in the History.

[Wes Moss]

Of planet Earth because of expenses.

[Clark Howard]

Expenses, commissions lock up conflict of interest. And they are treating our nation's school teachers as cannon fodder. They're just exploiting them, cheating them, charging these massive fees to the point that a hard working teacher trying to build up financial security for his her future ends up with less money at the end of the year, even in a good year for the market than they started with because of all the layers.

[Wes Moss]

The layers, seven layer dip of fees. That's what I.

[Clark Howard]

And so that's where I fear here, because you're talking about something. Private equity has always been kind of hidden behind a curve. Right. And so that's what I worry about is the lobbyists running this through the administrative process. Because Congress, you know, the President did the executive order, the Congress will pass whatever law, the administrative agencies listening, having their ears bent by the industry, by the big players, the big money crowd, private equity lobbyists, that they're going to do this in a way that the little guy is going to get taken advantage of. And I would use stronger language. I would use stronger language. But this is a family podcast here. And so that's my thing is that you deal with, you're a really sophisticated guy. You deal with wealthy people who have a lot of sophistication to them. They may have run their own businesses, they understand risk. And I really worry so much about what's going to happen the masses of America to the average American just trying to have a little piece of American capitalism and build up some financial security. That what you said? It's the devil's in the details. Yeah, I am going to be sitting here. Yeah.

[Wes Moss]

Let's see.

[Clark Howard]

Are they going to 403 be this or are they going to vanguard this? Yeah. And so there's a big range between the absolute terrible, horrific financial corruption of the insurance industry with the 403bs and what they've done to our nation's teachers and people work in nonprofits and then what Vanguard and others have done to make investing fair for the average person. So that's why you talk about private equity. This is like, this is like a fire that I'm worried gasoline is going to be poured on people's own money.

[Wes Moss]

Yeah, you're worried about the fox running into the hen house. And the hen house is, has been more and more protected over the years for the average 401k. It's gotten less expensive, more options, more transparent, better reporting and viewership, more technology around helping people plan within their own 401k. So again if we fast forward a year from now or two years from now, and there's private equity as an option and this is a good thing, it's going to be. These are going to be options within probably target date, like funds where if you're in a 401 plan, you can choose one of the target date funds that likely has a sliver of private equity, maybe a big sliver, but it'll be your choice. And I think that's the good news here. I don't see the addition of private equity polluting the entire stream because you as a participant will be able to choose if you want to go into this. And hopefully we'll have the disclosures and we'll have the transparency to say, look, this is an expensive sliver. Do you really want to participate or do you want to stick with more traditional models that are ultra low cost, which may still be the right path for a lot of folks? So we'll see. We'll see. I think the option will become available.

[Clark Howard]

And see, here's what I think so important about us doing this is we did really confuse viewers and listeners. They were like, wait a minute, wait a minute. I listener watch Clark and he says, private equity is the devil's workshop. And here you are saying, this is so great. We're going to have private equity and retirement accounts. And so it really. Private equity by itself is an investment vehicle, is not an evil enterprise. That's some of the ways for some private equity firms treat the employees at companies that they acquire really badly.

[Wes Moss]

Yeah.

[Clark Howard]

But as an investment vehicle, it's not by itself a bad thing. And it can be a good thing. The gap between us is you're much more trusting than I am about how this would be implemented. And if everyday person.

[Wes Moss]

Yeah. You're worried about the entire ecosystem of retirement plans getting expensive, polluted. Illiquid.

[Clark Howard]

Illiquid. See, that's.

[Wes Moss]

That's right.

[Clark Howard]

That's right.

[Wes Moss]

Can't get to the money.

[Clark Howard]

And just explain for people who don't know, how long might they not be able to touch their money in private equity? Five years, traditionally.

[Wes Moss]

I'd say it's anywhere from a long time to forever. It's, it's.

[Clark Howard]

Thank you. I just wanted to make that point.

[Wes Moss]

It is, it's real. And again, that's one of the drawbacks. Now, it depends. There are a lot of categories in private equity, just like there are a lot of different categories of mutual funds. The traditional, what I would call old school private equity is a very long cycle because again, to your Point. You blindly put money into a manager who has a track record of buying private companies. It takes forever. It might take three years for the fund to even buy the companies. That's three years. Then it takes another three to five years to make the companies more profitable. So now you're at seven years or bankrupt them out. True. Or eight years. Now we're eight years in. And then think about how long it takes to sell a company that's a hundred million or two hundred million or five hundred million dollars private company. Well, that takes a long time to find a buyer. So that could take for them to buy all the companies they want to buy, then turn them around, then sell them. That's where you get these 10 to.

[Clark Howard]

12 year lead times where, where somebody with normal investments in a 401k can change their allocation every day, tomorrow.

[Wes Moss]

Right.

[Clark Howard]

And so I, I'm not sure that the average person in a 401k has ready for any idea that they would put money in. And by the way, they can't see that money again for 12 years.

[Wes Moss]

A long time now. There are now a lot of other, a lot of other layers and versions of private equity that are much shorter. That could be what they're looking at doing are these open ended private equity funds where money comes in, they're buying a company. It doesn't just, it's not a closed fund if you will. What they're trying to do in the 401k sense is have just a running fund, almost like a mutual fund. Money goes in, they buy a company and they may be selling a company a year later. So there may be more liquidity. It still remains to be seen how it's implemented. It really is going to be with the details. It'll be about the disclosure, it'll be about the transparency and it'll be about the fees. And we'll see. Does the whole system, the ecosystem get polluted? I would say I see where you're coming from. I, I'm going to remain positive and say that it's it, it does not. I think it's going to be a benefit. But I'm going to be watching real close.

[Advertisement Voice]

Clark.

[Clark Howard]

And I hope you're right. You know, the negativity that you're hearing from me is based on history. And I just, I get so upset about people who get taken advantage of, who don't have a lot to start with and they get rooked.

[Wes Moss]

Yeah.

[Clark Howard]

And they come into this in a 401k. You know how most people figure out what they're going to put in their 401k.

[Wes Moss]

They look at their, the three year rate of return.

[Clark Howard]

No, they, they ask, hey you know that guy Jim over there, he knows money stuff. He spends a lot of time fooling around with investor. Hey Jim, what should I put my 401k?

[Advertisement Voice]

Yeah.

[Clark Howard]

You would not believe how much it's like that. Yeah, I mean people aren't looking at charts like you're talking about.

[Wes Moss]

Yeah, you're right. Well I think the jury's still out. The other thing too though is that if you look at how this statistic is, 89% of large businesses in America defined by $100 million of revenue or more, that's considered large. Almost 90% of them, nine out of ten companies in America are private.

[Clark Howard]

Right.

[Wes Moss]

So why should just the 0.1 percenters be able to access that when the other 99.9% can't? And the point one is saying well I'm doing this because these are 15 to 20% returns per year. Like why should only the point one be able to get that when everybody else gets locked out?

[Clark Howard]

No disagreement at all. The problem as you've said and is so clear is how's this actually going to play out? And that's my fear. So I love that we did this because if it helps you understand that we don't disagree that private equity is and privately held companies are obviously a key engine of worldwide capitalism. It's for a small investor. This could be, depending on how it's done, a stack deck up front against you based on lack of disclosure and fees and also have restrictions like having to hold something for a long, long period of time that would make this bad ugly for a regular small investor. And so that's really where I come at it so negatively. And I do have a beef about how a lot of these private equity companies really harm the employees at the companies that they buy. Yeah, that it is, I mean it is brutal, take no prisoners, it is capitalism and it is mean spirited towards human beings.

[Wes Moss]

It's the last thing you want to have happen is a private equity company buy your family culture, wonderful company because it will, it will not stay that way.

[Clark Howard]

But that's, I mean that's the thing about humanity that I always worry about. But in terms of money, if you look at capitalism as just a pure event, obviously private equity is ultra important and meaningful for investors. It's just how this is going to play out for everyday people. I'm freaked out.

[Wes Moss]

We're on watch.

[Clark Howard]

Well, thank you so much for letting me be a guest on this podcast so much.

[Wes Moss]

Don't tell Krista that. It's so fun to have you here.

[Clark Howard]

A lot of people miss her. Hey, Krista, can you just come in and wave? Because, you know, everybody really wants you here. Not me.

[Wes Moss]

Not true.

[Clark Howard]

Here she is.

[Wes Moss]

Great job, guys. Great job. Thanks, Krista.

[Clark Howard]

Okay. Thank you, Clark. It was great.