Active vs. Passive Investing

it’s the weekend and you have financial
questions that need answering that can only mean one thing
it’s time for Jill on money the show that takes the mystery out of your
finances here’s your host Jill Schlesinger welcome welcome it’s yet
another fun-filled radio show with me Jill Schlesinger this is Jill on money I
am your host with the most hostess with the mostess mark is running the program
as always and you are there and we are here and we’re hoping that we can come
together and help you take some of the mystery out of any aspect of your
financial life we are broadcasting live from the Capital One studios and in
order to help you demystify in order to help you get to the next phase whatever
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right-hand corner and in the spirit of college football season let us start the
program with Ben he’s calling from Indiana and I just like saying Indiana
Hoosier even though I think they’re more famous for basketball all right next up
Ben from Indiana Thank You Jill um things that I’ve gotten myself very
confused and so I mean you put your CFP wizard hat on okay your crystal ball and
let me know the answer okay so my question is this sort of an
active/passive debate i prescribe to the you know the index fund passive I like
that a lot however through various podcasts a few
groups and another certain radio personality you know there’s there’s a
strong argument for active funds now performance specifically Capital Group
American funds prime cap and so well you know what’s
your take on it yet do you prescribe to the efficient market
hypothesis – is there outperforming okay so I mean I generally if you listen to
the show you’ll hear me talk a lot about index funds and a lot of this has to do
with my own experience which is by the way I was a trader was Mike my first job
on Wall Street so I I really was schooled and educated in this concept
that you can beat the market okay so that was like my bias coming in and then
when I was a money manager you know I I had stocks an account then I had managed
funds in the account and I moved those funds around and then I really started
to get into the index fund universe the reason I bought into it I believed that
it was I was spending too much time thinking about squeaking out a half of a
percent a year better than the index rather than the more important prospect
of how do I help people save and make more money in their whole financial
lives so that was my bias coming in all right that said the research does show
that index funds generally do better for investors over time then managed funds
can you find certain funds in the american funds universe that have done
incredibly well absolutely i used to love the american funds as a matter of
fact so your question is more about you know if somebody came in to me and they
said i already own these american funds i’ve paid the freight I’ve paid the the
Commission I work with someone who you know whose Commission helps pay for all
of my financial planning and there’s a bigger story there then I’m fine with it
but if you been are just managing all of your money and you say should I just
have a portfolio a passive index funds generally speaking I’m going to say yeah
because I think that number one you’re less likely to shoot yourself in the
foot and number two the money that you spend on that Commission will fall to
the bottom line so did I confuse you further now that you reinforced what I
what I thought that I agreed with then we went nuts a tell me about your
situation exactly so what’s going on for you so I mean I we’re doing well I’m
we’re 40 42 got a couple kids we’re pretty squared away where we’re talking
away money in our every time it’s fun we just pay off the house yesterday five to
nine accounts are mostly already funded so that’s kind of where we’re at now
better so so who would have so who will sell you those American funds how would
you get access to them they would be in our retirement account or or or like an
IRA I have a Vanguard IRA and so I’m on the Facebook group and there’s some
there’s some intelligent people more intelligent I am and they you know
advocate for Capital Group and and they keep talking about their a strong
structure to them and their multi investor approach and specifically prime
cats you know they say so they recommend going through your IRA into those funds
yeah but you know you have to pay a commission to get in right I mean I feel
like there’s a lot of navel-gazing around like oh it’s a well structured
this that yeah it is I’ll give you to fund houses managed fund houses that I
like American funds is absolutely one of them okay so the Capital Group and the
other is called DFA dimensional Fund Advisors DFA and same thing these are
funds that are purchased through an advisor but you know the difference with
DFA is that they are very low-cost they are meant to provide management for
people working with an advisor so that the cost of the investment is
extraordinarily low and you then pay your advisor an asset under management
fee or a flat fee so prior if you’re managing your own money at the end of
the day I just wonder and you sound like you got your act together I don’t know
like it seems like extra work for not much more return so yeah
if yeah if you said to me oh I got I’ve got
capital funds inside of my 401k should I use it yeah you could use it like throw
it in there put some money in there why don’t you make that your large cap
position and see how it does versus the index and hang in there but don’t go
crazy this you’ve already done the hard work you know what the hard work is
saving the hard work is living within your means the hard work is not blowing
it for yourself that’s really what your hard work is now let me give you a
little perspective on the funds I offer so the 401k our 401k is great we have
some super low cost index times and I think we’re all indexed there so I could
point zero five percent like my 403 B the American funds are running around
point nine five percent almost a full percent whereas we just got our first
index fund and it’s a total market it’s not a vanguard tiaa-cref but it’s like
point three percent so 0.3 total index versus almost a full percent for the
American Sun is it is it worth going with the Americans how do you feel
you’re not gonna go wrong and if you want to run your little experiment you
can do it in real time I would just pick the TIAA
an index fund and not worry about it because again you’re right there could
be years where american funds beats it there could be years there where the
american fund lacks it you know where you’re gonna make more of your money is
really on your top-line allocation decision how much money going into
stocks how much going into bonds how much going into cash you’ve got
tiaa-cref right one of the big advantages to having tiaa-cref is that
you actually have one of the few annuities that works so you have a fixed
account on the TIAA side that kicks the butt of any bond fund that you’re ever
gonna find so I will tell you right straight up the best thing you can do in
your tiaa-cref account is use the fixed account on the
TIAA side is your bond position and don’t look back don’t look don’t even
worry about it all right during the break you’ve got a big
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address our website is Jill on you can click the contact button if you
would like a lot of people heading into the last three months of the year and if
you are considering a career change or you’re considering asking your boss for
a raise because you hear the labor market is really tight and Amazon’s got
thirty thousand open jobs and a bunch of holiday hiring is coming up you know got
to do a little research got to make sure you know what you want I always think
it’s a good idea to pick up a little side hustle especially as you come into
this end of the year but if you really are considering a career change check
out the blog post I wrote one just for you career change
101 and it’s gonna require some work on your part because I walk you through
some steps and some ideas but you really have to be serious here this is no fool
you don’t just go out and unlock take it seriously and you just may find a better
opportunity okay let’s get back to your calls next up John in Houston John
welcome to the program what can I do for you sir hi Jill I am so excited to talk
with you today all right we do I have what I think is a good problem I have
some money extra money that I don’t know quite what to do with I have a rental
property that was my bachelor pad before I got together with my husband that we
sold two weeks ago congratulations thank you very much I was tired of being a
landlord so I’m done with that so we received $75,000 from that day all I
have two options that are kind of obvious with what to do with that money
we on our primary home right now we have our primary mortgage and then we have a
secondary mortgage and we split it to avoid a jumbo loan when we run that
house okay my other option is my mother’s retiring next May and her
mortgage remaining mortgage is about seventy-five thousand dollars as well so
my husband I have talked about helping her out in either paying off that
mortgage or buying her house she heads into retirement a couple of questions
let me just ask before let me just pop in here you said you’ve got two seperate
mortgages on your primary what are the interest rates on those mortgages so on
the primary loan it’s 3.75 that’s good yes I’m happy with that on the secondary
loan it’s five point two four mmm okay I don’t like that one as much yeah alright
tell me a little bit more about yourselves are you guys both working we
are both working the caveat to that is my company is in the process of being
acquired actually it all closed next week so there’s a question mark on my
job but I don’t really have any information either way I could be here
for a year I could be here for a few months so that’s a big question mark
right now emergency reserves to cover you if you do get bumped yeah we have
about a hundred thousand dollars for an emergency fund that’s good the other
thing that we have going on is we we have one child and were in the process
of a surrogacy journey for a second so we have major expenditures coming up
with that over the next year but we do have about $60,000 set aside
to cover those okay is that enough is 60 enough to get enough yeah worst case
scenario for that era probably worst cases ninety thousand so we have at
least enough to get us most of the way and our staged out all that one hmm
okay so if we get into it the joy touring you more money we can find us
would you I mean if you were to lose your job do you feel comfortable and
confident I don’t know what field you’re in that you could get another job fairly
quickly probably within six months we if I do get let go within the next year
there is a severance package and which will give us a few months of a
buffer okay that’s great how about savings for both retirement and for the
kid you already have you have any college savings set aside so far so for
retirement we have about six hundred and thirty thousand in 401 K and IRA that’s
great thank you thank you and in just a
brokerage account we have about 400 thousand okay and how old are you guys
I’m 36 and my husband is 37 mark saying you’re in great shape he’s like the wild
guy on the phone what’s happening okay now let’s dive into your mom’s
situation right now is she financially in need of your assistance
so I reviewed her retirement stuff with her she worked for a school district so
she’s on teacher retirement she’s going to replace a good portion of her calorie
so she will be fine okay you would be like I want to be the
favorite child because you’re gonna want to basically
make yeah you’re gonna make that like the indelible mark that of course your
mother probably already favored you but now she favored you even more I get it
okay but she’s okay right she is okay yeah yeah yeah so you got a ton of money
that’s set aside I’ve got a million bucks basically right that’s great I’ll
tell you what this is going to be a boring piece of advice but I think it
works if you consider this that secondary loan right if you said that
your hope was that you were gonna pay that off just let’s say over the next 10
years right you said oh I really want to chip away at that that would be like a
decent goal I would really be interested in you paying that whole thing off in
one fell swoop because essentially what you are doing by paying that secondary
loan off is you’re basically earning two full percentage points more than you
would investing in a 10-year government bond right 10-year government bonds they
yield about three and a quarter your rate is five and a quarter you
essentially have a way to take money and get risk
free return 200 basis points 2 percent more than the 10-year Treasury I don’t
know many investments that give you a guaranteed better return with no risk
and I think that that is kind of fabulous so it’s just weird the money
kind of matches up but also I mean I would not give you this advice if you
didn’t have that big fat emergency fund I really would not I would say keep that
money make sure that you know you’re gonna pay for the surrogacy but you’ve
got it sounds to me like you’ve you’ve got a good emergency reserve you got the
money set aside to get that second kid you’ve done a terrific job saving for
retirement I guess the only other piece of advice I would have is that if you
have those proceeds from the rental property just make sure you don’t have a
weird tax hit next year because sometimes rental properties can ensnare
you in a attack situation where you’re recapturing depreciation that you took
during the life of owning that property so before you pay the whole thing down
just double check do you have a tax preparer say you work with them I need a
new one I fired my one sister nice fire okay so
when you’re looking at maybe before you pay off that second mortgage then I
would just double check to make sure that you’re not going to have some scary
tax burden come next spring but otherwise I think you’re in great shape
and even if by the way even if you had to keep 25 grand available for taxes
take the 50 and pay down the five and a quarter percent well yeah I mean my
biggest concern was with kind of some of the uncertainty in our life was moving
liquid money to non liquid money yeah I mean I would say that also except that
you got a hundred grand that’s banks right right I mean if you’re on if
you’re feeling weird about it or if all the sudden you’re like oh now you know I
have a little bit anxiety then don’t pay it all down at once see how the next
year goes right you’re not moving anytime soon you’re
staying where you are no yeah we’ve been in this house for two years and we’re
gonna stay in the a major life situation changes yes god forbid but I think
you’re in good shape I really do if I do in the future to
side up by my mom’s house mm-hmm have you dealt with a situation like
that and and I don’t know quite how to approach it with either paying off her
mortgage or actually buying her house different why would you why would you do
this I mean like you’ve just said to me she’s okay financially it just wouldn’t
make her life a lot easier if she didn’t have the markets payment I mean you can
do an agreement with your siblings where you say I am going to pay off mom’s
mortgage for her just to make her life easier
and therefore I want to get a bigger piece of this house when it’s sold but I
wouldn’t do anything without actually talking to them about it and maybe
making it part of a larger conversation about estate planning for Mom
we will be right back during the break here’s your next thing to do why don’t
you order my book you can buy the book the dumb thing smart people do with
their money 13 ways to write your financial wrongs it’s right there on the
website Jilla and we’ll be right back welcome back to jail
on money where Jill Schlesinger takes the mystery out of your finances your
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that okay let’s do some emails I this is a note from Maria who’s 41 years old
she’s an immigrant she says my parents have absolutely no money to help me with
anything I moved to the United States got my PhD in computer science in 2017
how about that and she works for a big tech company she
went to private university she took on $60,000 student loan $27,000 is still
unpaid so she’s 41 she’s got $27,000 of student loan debt
and $10,000 of credit card debt and I am focused on paying these off ASAP but she
writes I’m scared I’m scared about retirement I’m scared about getting sick
if I don’t work I’ll be homeless I have no one to help me financially no place
to go I need help figuring out my life I’m very frugal because I want to pay
off my debt and start saving but I can’t wrap my head around financial matters
all right so let’s start small here first of all you didn’t mention how much
you earn but you got a job and it’s a big tech company and that’s great so the
first thing you’re gonna do is you you say you’re living frugally but you look
at how much money you’re spending and you try to allocate some money every
single month a little extra just scrape it up to pay down that credit card debt
first and then and then you make at least maybe even like a little bit more
than the minimum payment on the student loan
I also wonder are you using your retirement plan at work there’s probably
a matching component this is a huge company so maybe you just go put money
into the matching part of it you know maybe up to 6% of your salary and then
you’re doing exactly what you should be doing and don’t freak yourself out you
can only do what you’re doing you have a job you are employed that’s great and
you’re going to you you owe the only thing you have to wrap your head around
is paying off these two loans and if you could put a little bit of money into
your retirement account through work that’s it and going anywhere else from
there is just making yourself crazy ER than you need to be okay good luck I’m
so sorry it stinks okay Carolyn says she’s been
married for 34 years to her husband he’s 58 I’m 62 we’ve got no plans to retire
anytime soon thank goodness but I’ve been planning to go to three days a week
my husband works half days in the summer to help our youngest son on the farm he
has no interest in our company our oldest son does work
in the company he’s 31 several years before we turn it over to him we started
out with nothing we’ve built the successful business for the past 25
years we’ve always been conservative we have invested in land 401k mutual funds
index funds and CDs the last two years our income has been over you ready for
this gang a million bucks per year this is by the way when we get those nasty
comments sometimes son social they’re like oh why do they
why do you take questions from people who make a million dollars a year relax
guys it’s something yes so he is a million dollars yeah I’m not saying he’s
better or worse than you or she’s better or worse than you is they just they
emailed us so we’re answering okay here we go back to the email we decided to
find a fiduciary financial adviser he has a show on the radio station and we
only had two questions for him have we made wise investments and should we
switch from a 401k to a Roth IRA we gave him a list of all of our investments we
met with him several times usually for an hour or more he never answered our
question about the 401k he said and said he thought our other investments were
okay once we had once he found out we had over three million dollars in CDs he
was focused on those only he wanted us to cash in all of our CDs and invested
all with him when we told him that we only wanted to invest $750,000 initially
with him his demeanor changed and said that maybe he was not the right
financial planner for us if we did not trust him and that maybe someone else
would be a better fit I said that we didn’t really know him and that we are
not going to dump three million bucks with him we wanted to test the water
first and I was okay with not investing with him at all if that’s what he wanted
he said that if he were our financial adviser we needed to take his advice and
he rushed in his assistant to get us to sign papers and took the $750,000 but
did not invest it the way he suggested we invest the three million I tried to
check him out and everything looks legit but I think we need to meet with another
adviser what do you think is it common for
couples who have more than than one financial advisor our net worth is a lot
I’m not even gonna say because it’s gonna piss off these people who are
listening who don’t like when I have rich people who have questions but it’s
a big net worth that’s you know cuz it’s land this is a fascinating question to
me I’m gonna tell you something when I was a financial advisor I know like that
I was that guy like I have felt that feeling and it may not have said
anything but I think the many financial advisors believe it takes as much work
to manage 750 grand as 3.75 million and there is I think that they feel
conceptually that you know you’re either gonna hire me you’re not gonna hire me
so early in my career I can tell you that I probably did something like this
to somebody but you know what I learned it’s it’s really about the client it’s
not about me now some firms have minimums if this guy obviously doesn’t
have a minimum there are some companies that won’t deal with you unless you have
a two million dollar minimum but what I would say is this if you have a bad
feeling about this guy there’s no problem you can get another opinion
that’s not that that’s certainly not an issue but I also think that he may not
be stylistically the right guy for you you may be wanting you may want to deal
with somebody who says you know what look maybe you don’t need me at all that
I mean I bet if he said that’s you you might have given him the three million
so I I think that if he’s didn’t in first things first if he didn’t invest
the way he suggested you invested the three million the question is why and if
he doesn’t have a good answer to that then you really probably do need to find
another advisor um but I think that um if you’d like why don’t you let’s follow
up mark why don’t you let’s send him some names let’s send him like our
friend in Rhode Island could maybe help them electronically and give an overview
I would get a second opinion for sure especially cuz you feel weird about this
whole thing okay you are listening to Jill on money
don’t be mad about the millionaire’s be mad that nothing don’t worry about it
it’s just money they pretend it’s sent out
same questions okay if you like to get on the air with us ask Jill at Jill on is our email address and our website is called Jill on money comm
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the show you are back it’s Jill on money and it is an email marathon session so
we’re gonna get going with your questions Juliet writes I want to know
what to do with a lump sum of money earned through the sale of a company I
have a large sum it’s sitting in a low-interest savings checking account
but I feel skittish about putting anything more in the market right now I
did put some money in wealthfront in a high interest savings which is just
under 3% some money in betterment just under 3% and some in Vanguard index
funds I still have more than I need to do something with long-term goal is
great life during retirement I’m 47 right now I mean 47 is really young so I
don’t know what else you have in the market maybe that’s the question maybe
you have a lot of money in the market I guess that you could do you could do
some later’d CDs some longer-term CDs to jam up the interest rate but it’s not
going to be much better than just under 3% if you just feel like you absolutely
do not want to do this have any money at risk
you know the options are limited so I think you’re gonna that’s what you’re
gonna find I would much prefer you treat this money as part of your overall net
worth your overall portfolio and then really allocate it even if it’s just a
conservative portfolio some money and you know low cost index funds but I
don’t know what 47 you got to imagine your you could be happy you could have
another 45 50 years ahead of you and so maybe the market being volatile right
now shouldn’t really bug you anyway we’ll see what you think about that
second question what is the best way to start giving money
my kids set up some small investment accounts for them but I’m wondering if
there are other options I should consider you don’t mention how old they
are I mean you can do trusts you can do 529
plans for college I don’t know if you have that already or you can just do a
just a supplemental brokerage account and I’m not you know again I don’t know
how old the kids are it really depends you can just gift outright to them you
know maybe we can give anyone fifteen thousand dollars a year so I need some
follow-up Juliet wherefore art thou Juliet I’m sure she’s never heard that
right mark Kenneth writes I’m sixty and a half years old I’m retired
I’ve annual income of $10,000 I’ve got $70,000 in a fidelity freedom fund and I
want to protect that seventy thousand dollars from a possible downturn in the
economy fidelity says they will roll it over
into a IRA and will and I can pay them one to one and a half percent to
professionally manage it they’ve got an alternative IRA for a lesser fee this
IRA comes with little or no management my uneducated view is to remain in the
400 so you’ve got it you got a 401 K okay yeah stay in your 401 K why would
you pay them a fee forget about it if you want to protect from a downturn that
fidelity freedom fun is not it’s it’s the fidelity freedom 2020 I’m sure that
it has pretty low risk in it at this point so III know you don’t need that
question is it a good time to move some investments into bonds well I mean
that’s a crazy question because you have to think to yourself anytime is a good
time to buy a bond or a stock or anything as part of a larger portfolio
decision as part of an overall game plan bond prices are actually high after all
the turbulence in August but but you know what you doesn’t mean you can try
to figure out where the top and the bottom is of those markets so yeah I
mean it’s a good time to re-evaluate where you stand that’s what I would say
it’s okay to do and then see if everything lines up the
way you think it should RiRi evaluation is always good Steve writes hi Jill my
father has always had his taxes done by an accountant who has a practice near
where he lived in New Jersey my parents are now both in their 80s and due to
health issues we had to get him and my mother moved out of their home and into
an independent facility closer to where their children and grandchildren live my
sister is trying to get his tax records from the previous years from previous
years from the accountant the accountant refuses to answer her calls and emails
what are your parents is it because I wonder if he has gosh I wonder if he’s
saying like it’s not your parent has to do it maybe you have to get your one of
your parents on the phone to request it the question is do we have any legal
recourse to get the accountant to hand over the tax records from the past years
I don’t know if your legal recourse but I think that what you could do is you
probably could go to the AICPA if this person is a CPA and and probably make a
complaint but I would try to get one of your parents on the line with you guys
and calling and if that doesn’t work we have to go into a plan B but I would try
to make a complaint there Kate says my spouse and I are planning on buying a
house in the next year we’re getting some help with the down payment from
family what’s the best way to handle the money for this are we subject to taxes
on it it depends how much money so if your family wants to give you a check
for $15,000 and your spouse a check for $15,000 and then it’s in your name I’m
it they may have to also sign an affidavit I remember that’s now after
the whole housing boom and bust that some lenders want to know where the
money came up where you came up with that money where it came from the source
of funds I’m but that’s the way to avoid taxation if they give you more than 15
grand each that would change the scenario if you’ve married parents who
are going to do it they can give you $30,000 each so
depends how much money we’re talking here all right you are listening to Jill
on money and if you’d like to follow us on social Marcus everything all set up
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it’s Jill on money and before we close out the hour let’s do another email this
is from will in Texas who says I’ve owned my home for 15 years and I’m now
considering selling it in this hot real estate market he lives in Austin he said
I paid around two hundred thousand dollars for it and I expect to be able
to sell it for around six hundred thousand Jing Jing Jing so I would make
over three hundred fifty thousand dollars over the cost basis given that
I’m single my understanding is that only the first two hundred fifty thousand
dollars would be tax-free true the rest is long term capital gains any way for
me to reduce the taxes on this well did you do any work on the house like did
you improve it because you can raise the cost basis on your house if you can say
no I’m not talking about improve like I painted it but you know I bought a
generator I added a room I have built-ins I something that wood is a
driveway new roof any of those things will increase the cost basis short of
that you got to pay well I’m sorry that’s just the way it is and it’s not
terrible you’ll move on I’m interested to find out what you’re gonna do next
are you gonna buy another house Kate writes my spouse has to workplace
retirement accounts and a pension fund I have four separate retirement accounts I
know it seems like a lot we’re in our mid 40s what’s the right
occasion for us between all of these guidances all over the place guidance is
all over the place because so much of this really depends on who you are your
view of risk in general when in doubt this is what I would say if you are in
your mid 40s and you’re not gonna touch this money for at least 15-20 years if
you just if you really like risk and he doesn’t really like risk maybe you just
go right down the middle that you maybe your growth and maybe he’s balanced
there is no one formula what you need to know is the right asset allocation is
the asset allocation that you guys feel comfortable riding out good times or bad
times so good luck if you want to call back we can chat a little bit more and
before we close out the hour I must remind you that we are broadcasting live
from the Capital One Studios right here in New York when we return we’re gonna
get to more of your questions you can send us an email ask Jill at Jill on we’ll be right back it’s the weekend and that can only mean
one thing you’re listening to Jill on money the
show that takes the mystery out of your finances here’s your host Jill
Schlesinger welcome back it’s our number two of Jill on money thanks for joining
us July money is very excited because we
are broadcasting from the policy genius Studios policy genius is the easy way to
compare and buy insurance you know September life insurance awareness month
may want to go to policy genius comm check out if you got what you need
wouldn’t that be smart of you it’s really hard to talk about insurance and
get you excited but come on you know you got to do it all right
we’re very excited because we have a great guest today her name is Cynthia lo
she is the vice president of digital advice and innovation over at Charles
Schwab and you know we talk a lot about other alternatives for folks who are
looking to have their money managed well Cynthia has a lot of ideas for you so
here is our interview with Charles Schwab Cynthia Lowe Cynthia welcome to
the program thanks for joining us so tell us about why Schwab entered the
whole universe of digital advice and digital money management Schwab entered
into the digital advice at space in 2015 we launched our first Robo which was
Schwab intelligent portfolios which really is an automated investing
solution that has no advisory fee but you can get through 24/7 help from chat
and over the next couple of years we launched an add-on to that which was
Robin thousand advisory where you can get unlimited access to CFPs
and over the course of the last four years that platform has grown to over 40
billion the whole premise is that we are able to leverage
technology to make finance and investing much more accessible to our clients and
our clients have responded very positively so let’s say I’m a Rob client
and you know someone just called the radio show recently about this they said
I’m a Schwab client I’m managing my own money I use ETFs or index funds is that
a person who is not necessarily the right match for the intelligent
portfolio or is that somebody who is the right match in other words if they’re
doing it themselves why do they need you I think the way that we’ve sort of
envisioned Robo is that you know technology have come a long way in the
last decade and over the course of the evolution of rubber products and really
Robo is going to be over time more about just using technology for the things
that it can do better so you can free up your time to do other things I’ve heard
so many client stories about how they had their spreadsheet open and they’re
doing these investments and trades well now you can actually use tech tools
to screen for low cost funds to automatically rebalance your portfolio
to the right risk level to do things like tax flats harvesting where you can
sometimes report at gain on your overall portfolio but actually have a tax loss
and so really the idea and we have many of our clients that have done it
themselves previously that opted to use digital advice for that very reason let
me ask you a question about rebalancing and tax loss harvesting there are some
robo’s that are out there who basically are doing auto rebalancing and/or tax
loss harvesting on a daily basis now you smarty pants are a Chartered Financial
Analysts what is the proper amount of rebalancing
that just average Joe I’m not saying I’m a hedge fund looking to squeeze pennies
out but how often do we should we be rebalancing I don’t think there’s an
exact time that the fit for everyone if I said daily or monthly or quarterly
that wouldn’t necessarily fit for any individual investor I think the
important thing is to be able to monitor on an ongoing basis which is what
technology will allow you to do what your risk levels are or when there is
opportunity so instead of sitting in front of your computer and monitoring
gosh you know I wanted that call it a 60/40 equity fixed income portfolio and
when that drifts you know what’s the appropriate amount for it to drift like
there are so many tech tools at folks disposal now that they can leverage to
be able to do that automatically for them but I imagine isn’t there research
because I swear like a hundred years ago when I was still an investment advisor
there was a certain amount of research that was done weighing the difference
between monthly quarterly and annual and the difference was not vast so is there
research that shows the difference between how often one rebalances there
definitely is research across that and I think there are differing views right so
what’s what’s the view at Schwab like if you’re if I’m a client at rub and I use
the intelligent portfolio do I set a rebalance or do you have a default of
when you rebalance or how often we have a default and how can you rebalance the
idea with Schwab is that we’re going to take care of it for you so we will
automatically rebalance your portfolio as needed and based on certain
thresholds of where your risk levels go so you don’t do it on a time basis you
do it on a percentage from your ideal allocation right make sure that you
maintain your appropriate rest of all that’s correct okay so what is that what
is that differential I’m a 60/40 investor sixty stocks 40% bonds what is
the default when will the portfolio be adjusted on my behalf based on that
allocation will reallocate your portfolio in an ongoing basis and once a
year will look at your portfolio also looking at what your expectations are
for marks but what are see me what our expectations are for each of the various
asset classes aha for example like gold if you have gold in your portfolio we
would look at our expected ten-year forecasts of gold in your portfolio and
if that’s gene on an annual basis we might rebalance on
a risk level for that – got it perfect okay we’re done with rebalancing I was a
little weeds II I’m sorry here’s my question about the advice product that
you have is there a minimum amount that I need to have in my Schwab account to
qualify to get advice via a CFP there is for our digital advice maybe I’ll take a
step back and just talk about our overall digital advice platform yeah so
I mentioned we sort of started out in 2015 and our first project product is
Schwab intelligent portfolios and what this really is is we build monitor and
automatically rebounds that diversified portfolio there’s no Advisory fee and
it’s a $5,000 minimum so you answer a series of questions around a goal and
then we put you into a model portfolio based on that goal and we take care of
sort of the technology and automatically rebalancing it for you the other product
and where you’re asking about the unlimited access to CFPs
is our Schwab intelligent portfolios premium offer where you get through that
same underlying portfolio of Schwab intelligent portfolios plus you get a
much more sophisticated digital tool as well as unlimited access to CFP is in
that minimum is $25,000 and we recently change the pricing there from an asset
base fee to a flat fee Oh one-time planning of three hundred
dollars upfront and $30 a month on a subscription basis following that okay
we are gonna be right back but Wow we’re on break why did you do something useful
go to the Jill on Money website Jill on money comm you can listen to past shows
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there Jill Schlesinger can help you back to Jill on money your back it’s Jill on
money and if you’ve got a financial question you know we want to hear from
you our email addresses ask Jill at Jill on
and you know we have a sister podcast coincidentally the name of that podcast
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else you find your favorite podcast or you can just go to our website Jalan
money comm by the way for those of you who sent us notes after the federal
reserve cut interest rates complaining carping about how you’re bummed that
you’ve got lower interest and your emergency reserve funds why don’t you go
out and look around a little bit there are tons of opportunities you know
there’s I always talk about this website called deposit accounts calm deposit
accounts calm bank also has this where you can go that onto the
website and say where are there better yielding checking accounts savings
accounts high-yield money market accounts short-term CDs you don’t have
to take this lying down is what I’m saying okay so take some action and just
as I we go back to our interview I also want to point out that so many of you
write in and ask me questions about fees that you are paying your financial
advisors who essentially just ghost you they they go away or you only see them a
couple times or hear from them a couple times a year if all that you are getting
for one or one and a half percent a year is someone managing your money then you
need to pay attention to our guest Cynthia Lowe she’s from Charles Schwab
and we’re going back to our interview with her she is the vice president
digital advice and innovation and we’re going to talk about the different
options the places like Schwab are making available to all of us
so here’s the rest of our interview with Cynthia lo so the the folks in the
unlimited planning I would say there’s many similarities across both of them
but the biggest probably a couple of differentiators that we see in our
Schwab intelligent portfolios premium product is their investment experience
tends to be less so they’re less comfortable with financial concepts and
planning but also there is a actual event occurring in their life so they’re
at the moment where they are ready to start thinking about retirement planning
or they’ve just had a new baby and they’re looking at the best way to save
for their long-term college education or that type of thing so really getting
that advice for change in their financial picture or something that
they’ve started to think about more heavily tends to be when folks gravitate
towards our premium products I’m wondering also with the advice via CFP
do you get a dedicated CFP or whoever answers the phone so you get a team of
CFPs so you can request to get the same CFP
again but really is a team of CFPs that are serving your needs so you’ve now
been in the investment world for how long 20 years ok when I’ve interviewed
some people at the traditional wire houses it could be Merrill Lynch could
be Morgan Stanley it could be UBS they totally poopoo the
whole Robo advice they consistently will say to me yeah Jill that’s fine these
are teeny tiny accounts when people have real assets they want a dedicated person
who they can talk to and know that they can get to what is the answer to that as
a pushback against this model there are so many different types of clients right
that are investing and hopefully with the advent of Robo tools even more
people have access to investment and planning and I think there is absolutely
a segment of the client base in the investing population that is looking for
a dedicated one relationship where they go in and are
able to sit down within it by their faith based and Schwab offers that all
right you know we’re a full-service wealth management firm I would say there
are also other clients and you see this again in the consumer space as well
where people are much more comfortable with technology and they want virtual
and they’re comfortable with a team-based approach and so what I would
say is you know the number of assets under management in digital advice
continues to grow I think we’re at about 250 billion today and could reach 500
billion in the next five or so years and if it continues to grow at their current
clip so the other thing I would say is you know rowboat today is designed as a
specific category of you know typically low-cost ETS passive management a
diversified portfolio but I can also see a world over time where you know Robo is
really just about leveraging technology and why wouldn’t any investor want to
leverage tech tools to help them manage their portfolio yeah I mean look I’m a
big fan of the model and I think that a place like Schwab or Vanguard that
already has the type of person who might be engaged in managing their own money
or like you said you know look you could work for an advisor at any of these
places that that this was the game changer when you and Vanguard
entered that market the robos that have not yet sold did they miss their window
of opportunity like I remember it LearnVest sold to Northwestern Mutual
for a huge number hundreds of millions of dollars it seems like they didn’t
really get that much for that on a valuation basis have some of the smaller
robos missed the chance as big players like Schwab and Vanguard and even some
of the wire houses have their own platforms what do you think is the
assessment of like valuation today I think it will be very interesting to see
over the next 5-10 years but I think certainly there will be more
consolidation there will be less players than you see today thank you so much –
Cynthia Lowe don’t take it lying down take some action ok let’s do an email
this is from Ann who writes about investing the proceeds from the sale of
a home in New York she writes hi Jill my husband and I are
early retirees he is 57 I am 48 I know you don’t love that but it works for us
I have to tell you I’ve got to get less judgy about this mark I really do
because obviously I’m saying things on the air like what do you even do with
yourself but you know a lot of people will do fun things and they’ll figure
out how to be productive I’m happy if you’re happy how about that just
remember you got a long life ahead of you though look at in an situation she’s
48 she’s gonna have more years in retirement than she will have had
working that’s amazing okay let’s get back to Ann and get off my editorial we
recently sold our co-op in New York for seven hundred sixty thousand dollars we
don’t have a mortgage we’re wondering how should we invest the
amount in light of the potentially looming recession okay so here’s the
facts net worth is 3.1 million dollars with about a million dollars in a
brokerage account 1.4 million dollars in retirement accounts very little in bonds
and the rest in our recently sold apartment okay so now here’s what we got
so just keep that in mind guys so there’s 2.4 million dollars that’s the
nest egg outside of the real estate now and says we expect to buy a home in
Texas for 200 or 300 250 to 300 thousand dollars hmm that’s a great trade ok so
they’re gonna have $450,000 to add to the portfolio so there will be
essentially 2.8 5 million dollars in assets question bonds don’t seem to be a
great investment right now given interest rate movements and the current
yield curve so is the best bet an online savings account that yields just over 2%
or just below 2% or something else to help us protect and grow this money well
I mean ok let’s go back a second in my mind it is really hard to cherry-pick
what exactly you are going to do with your money like this
particular segment of your money without understanding what’s going on with the
rest of the portfolio I don’t know if you guys are managing the portfolio or
someone else’s but let’s just say that the 450 added to the the 2.4 should give
you about 85 grand a year in income and I guess I’m wondering number one is that
enough for you can you live on 85 grand a year maybe you can just let’s go there
that’s a 3% withdrawal rate if I knew a tiny bit more about how much you need to
spend we could make different decisions about the 450 but the general idea here
and is that you would need to have a larger game plan and if you need to hop
on the line with us to talk about that you would put the money to work to get
the game plan working for you and so that may include buying some bonds but
if you really hate the bond market sure you could have some short-term interest
in strim until on term you’re going to want some bonds
alright it’s Jill on money if you’ve got a financial question send us an email
ask Jill at Jill on we’ll be right back do I invest here should I put my money
there Jill Schlesinger can help you back to Jill on money you are back it’s Jill
on money you guys should just be happy that I am not inflicting upon you my
passion and deep dive into the details of brexit because I cannot stop reading
about it it is you know maybe it’s one of those things where if you think your
own government stinks it’s nice to see that someone else’s government is like
also in complete disarray not like I’m not being political here I’m just saying
the inaction anyway you are listening to the program that takes the mystery out
of your financial life please refrain from sending nasty emails to that
comment that I just said okay we’re just talking about paralysis at the
government level okay if you would like to get on our program send us an email
ask Jill at Jill on or go to the website Jill on
we are coming into almost the fourth quarter of the year that means the end
of this quarter end of September this means this is your opportunity to look
at all of your investment accounts and make sure that things are properly
diversified and make sure that you are not getting ahead of yourself meaning
that if things are looking good in one one asset don’t say oh I’ll just leave
it in there because it’s doing well stick to your game plan he keep looking
at that diversification make sure that your asset allocation plan that you have
what you want in each asset category there was also recently an article mark
which I thought was interesting about the ideal number of mutual funds in an
account mark just snarled I think it depends but you know was interesting of
course when they do surveys about this they find that people have a gazillion
funds including idiotic brokers who put like somehow think that more funds means
that somehow signals to your client that you’re smart I think four is fine
I think a cash a bond a US stock and an international here’s how I could add a
few more I could add emerging I could add a
commodity I could buy at a REIT I could get to
like seven or eight pretty quick but that’s it I haven’t seen much more that
seems fine did you just make a note to yourself to add a REIT to your account
all right what was that note then okay here’s from Susan Jill my husband and I
are 60 years old he’s self-employed and I work part-time outside the home and
for him we have about a half a million dollars saved but not invested in an IRA
or anything we have other assets our home his work
condo shop cars equipment what would you suggest we do with some of our cash so
we can go with so we can see some growth CDs something else my husband plans on
working for at least another 10 years I hope so because I have a million dollars
is not that much money I mean I don’t know it depends how much you actually
spend but okay first and foremost go to the website Jill and click on
the September 9th blog post that says retirement plans for self-employed this
is probably a good start that you don’t have IRAs
I understand I’d be interested in figuring out at least with you or maybe
you can do this with your accountant or tax preparer whether you need to be
putting in a different kind of retirement plan or some kind of
retirement plan you could do an IRA but there are a lot of other ways depending
on what your tax liability is that you guys could sock away a bunch of money
and you know maybe what you do is because you’ve got some money sitting in
cash you look at on one of these plans as a way to really wipe away your tax
liability this year maybe even next year maybe you do it right at the end of this
year and then again next year some of these plans allow you to put in 56 like
fifty six thousand dollars each so you could have a hundred thousand dollars
this year $100,000 next year and you could
probably wipe away your tax liability for a couple years that would be kind of
nice that said I cannot give you a clear allocation until I really understand
what’s going on in your lives generally speaking if you want to get the money to
grow more you could simply go to deposit accounts calm and search for some higher
yielding accounts that could be a CD could be a money market could be a
savings account if you are really interested in trying to put a portfolio
together then I look I would encourage you to give us a holler back because you
don’t want to walk into some financial professionals office and say I’ve got a
hundred five hundred grand in cash help me because I think that that’s could be
a recipe for disaster for you guys you’ll probably get sold some annuity or
some nonsense I’m going to encourage you Susan to give us a holler back and let’s
let’s get some more details and I can help steer you in the right direction
Ernie wants to know my thoughts on marijuana stocks are they worth taking a
risk on Ernie this is what I would say what are my alternatives if you’re
telling me you want to throw a tiny bit of money 1% of your total portfolio you
want to throw $1,000 into a pot stock all right or you might say I want to
take $1,000 and go roll craps at your local craps Emporium
I mean whatever you put in it my thought is be prepared to lose it ok
andrew is 66 years old he’s thinking of retirement he works he makes ninety nine
thousand dollars per year well that’s rather detailed and precise I like that
he started taking Social Security when he turned 66 almost 67 $2,400 a month he
also receives $140 a month in VA benefits his wife is retired she nets
eleven seventy in Social Security and eleven fifty in a pension that’s great
he’s got eight hundred forty five thousand
in TIAA which is a provider for nonprofits so tiaa-cref is usually the
company how it’s referred to another quarter of a million dollars in CDs at
2.4 percent he’s got 60 grand in cash he owns a sort of home free and clear I
feel we can live on about fifty five thousand dollars per year do the numbers
work to retire or will have a shortfall at some point uh mark do you want to do
the math with me those numbers work for me twenty four twenty five twenty five
hundred a month she’s got this you have five grand a month coming in come on
you’re in great shape you can retire whether you want to is something else
but absolutely you’ve got plenty of money coming in you’ve got a beautiful
portfolio keep working though if you like it
it always it always does make the numbers work really well okay that said
you are listening to Jill on money and if you’ve got a financial question just
give us a shout go to Jill and that is our website and you can click
the contact button or you can email us ask Jill at Jill on money comm we’ll be
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cheese all over the place go to jail on to find it all now back to the
show with Jill Schlesinger you’re back its Jill on money if you’ve got a
financial question we’d love to hear from you our email address is ask Jill
at Jill on and if you’re hopping around our website
which is Jill on very easy all you have to do is click the contact
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someone just name us is like top newsletter personal finance or something
newsletter policy genius huh how about that their editorials separate from
their sales don’t worry ok Michael writes I live in Anchorage Alaska I’m
about to retire and move to Utah I’m 62 my wife is 60 she may retire or work
part-time I have a pension from the military I also will have one from
federal civil service my goal is to conserve but not preserve money ideally
we don’t want to leave a lot of money on the table when we die two areas of
inquiry these are worth hiring a financial advisor we haven’t had one and
we would like to hear your thoughts because we find them expensive toward
that issue what kind of equity versus bond split should we consider so and let
me just finish the second part is having two government pensions what kind of
distribution should we consider okay here’s the thing you know let’s go
backwards what you really want to do is first say you’ve got two pensions
right a military and a civil service pension right there we go and now I need
to know how much money do you need to spend will those pensions cover your
basic spending needs and then how much money do you have in other assets and
let’s just make up the number let’s say you had $500,000 in
all other assets and the question is should you be able to withdraw this what
you called the traditional 4% a year that’s called a withdrawal rate and I
don’t call it traditional I mean I think that withdrawal rate should probably be
closer to three or three and a half percent just because I don’t think
returns are gonna be so great so the question about how to manage the
money you have is dependent on how much money you need to withdraw right because
that’s going to be part of the equation and how much risk you can tolerate a
financial advisor may be able to help you with that but it is expensive so
what you may want to do and this is something that I have are right on the
resource section I might steer you towards a planning website called e s
planner dot-com they will run different retirement scenarios and I think it’s
kind of a cool way to play with what your options are so that’s a cheaper way
than you hiring an advisor now remember don’t go crazy because if you are if
you’re really thinking that all of this seems too much but it may be good to do
is just lay it out what are the options and then you can always hire an advisor
later okay this is from Sandy her husband passed away in 2012 no life
insurance which stunned me she says in order to ends meet I used a few credit
cards some have high interest rates he 26 to 28 percent I’ve been receiving a
lot of junk mail from companies about debt consolidation and until I read the
fine print they seemed really good I tried going to my local bank to get a
home equity loan I’ve been turned down because my debt to income ratio is too
high I’m I’ve pulled my credit score up from 580 to 700 I stopped using plastic
three years ago can you recommend a good way for me to consolidate this mess yeah
how about this you know what we have a podcast sponsor Marcus by Goldman Sachs
and they offer installment loans for people just like you who are basically
credit worthy but can’t quite get all these bills paid down so go to Marcus
com try that out I think that might work for
you okay college savings question I’ve been listening to your show thank you so
much for the advice I’m 36 my husband is 41 we’ve got two small children four and
two we live in Connecticut we’ve got $15,000 in an emergency reserve fund a
small investment account from an insurance payout I received a few years
ago our only debt is a small mortgage I max out my 457 plan my husband maxes out
his simple IRA he’s been saving for quite some time so
has a much larger reserve built up at this point we also both have Roth IRAs
which prior to children we were maxing out as well which brings me to my
question we use the Connecticut higher education trust the check plan it’s a
529 plan under Connecticut state law we’re able to claim up to ten thousand
dollars of any Chet deposits which are after-tax as a state income tax
write-off we don’t presently have enough extra money to fully fund both our
Roth’s and fund 10k into the Chet accounts where should we putting our
money to get the most out of it it was our understanding that the Roth could be
used for college as savings or retirement whereas the Chet must be used
for education would you recommend funding the Chet and taking the state
income tax write-off or funding the Roth accounts to have greater flexibility hmm
I think split the difference really I mean I love the idea that you
have a lot of money saved I think it’s great let’s split the difference I like
using 529 plans tax-free it’s easy and I probably would want to know a little bit
more about how much money you both have saved before making that a definite but
that’s my first instinct okay that’s it all right if you got a financial
question ask Jill at Jill on we’ll be right back your back and before we close out the
show I just want to remind you we are broadcasting live from the policy genius
Studios policy genius is the easy way to compare and buy insurance go to policy
genius comm hey you know what September is SIPP is a life insurance Awareness
Month so perfect time for you to go check out whether you have enough
insurance or the right kind now gang sometimes you send me these
ranting Randy emails that crack me up sometimes I get really mad when I first
read them but now I actually am smiling here’s Barry misses lesson dear miss
Schlesinger first off let me start by saying I’m a saver I’m one of the few
people in this country that didn’t put it into the sorry ass state of affairs
who say yes you alone are that guy Barry goes on didn’t use our home like an ATM
we didn’t buy crap we didn’t need we didn’t buy or lease a new car and so we
would search for things that whatever savers are and this way his his nut is
savers are the most screwed segment in this country which brings me to the
reason for writing this email are you this is by the way guys the fact that
I’m actually reacting to this is hysterical because here I don’t know why
you think this is the best path to take when writing about this here he goes are
you kidding me about the past few years as being good ones for savers what
planet are you from we’ve been getting the crappy end of the
stick since 2008 do you honestly think two two-and-a-half 2.75% if you’re
extremely lucky maybe 3% that doesn’t even cover inflation by the way 3% is a
dream now most of the institution’s rolled that back right after the last
Fed cut but wait there’s more for all those people who are living way beyond
their means they’re gonna get a break so they can roll out more debt how
convenient MS Schlessinger I can tell you now that this country is in some
kind of serious danger blah blah blah blah blah he that makes a bunch of club
political stuff then he says sorry about the rant are you you’re not sorry cuz he sent it
okay Barry calm down first of all you can still get I’m at I’m literally on
the deposit accounts calm website where it for two-year CDs you can get two
point eight two point seven five second of all the insurance the inflation rate
is below two percent and the last thing is you know what you took no risk and
you’re a saver good for you why you go so mad why you so mad don’t be mad
everything’s okay Barry okay you’ve been listening to Jill on money save your
rants for your friends on the weekends but do send us emails whenever you get a
chance throughout the week we always check the email inbox ask Jill at Jill
on money comm have a great rant free week we’ll see you next week

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