Ever wondered how to steer clear of trouble with your investments? Today, we’re diving into an SEC investigation that’s rattling one fund and discussing what you need to know to protect yourself. We’re also unpacking the benefits of passive investing and index funds—because simplifying your approach to the stock market might just be the smartest move you make.
In our TikTok Minute, we’ll take a look at a quick clip that highlights a common financial misunderstanding, and along the way, we’ll sprinkle in a bit of British charm (no spoilers, but it’s classic).
Finally, we’re tackling a listener question from a soon-to-be parent who’s wondering how to plan for their child’s financial future. From custodial accounts to financial aid strategies, we’ll walk through the best options to ensure your kids have a strong start. Add in Doug’s trivia, some thought-provoking discussions, and a peek at upcoming events, and you’ve got a packed episode full of actionable insights.
Run of Show
Introduction and Opening Remarks
Kickoff and Today’s Topics Overview
Discussion on the SEC Investigation and What You Need to Know
Monitoring Your Money Effectively
Sponsor Messages and Lighthearted Banter
Headline: Western Assets Bond Fund in Trouble
Debating Active vs. Passive Management
TikTok Minute: A Quick Look at Financial Missteps
Listener Call and Doug’s Trivia Break
Listener Question: Financial Planning for a Newborn
Custodial Accounts vs. Other Savings Options
Tax Implications and Financial Aid Considerations
Upcoming Events and Community Meetups
FULL SHOW NOTES: https://stackingbenjamins.com/when-good-funds-go-bad-1605
Deeper dives with curated links, topics, and discussions are in our newsletter, The 201, available at https://www.stackingbenjamins.com/201
Enjoy!
Our TikTok Minute
Our Headline
- Western Asset’s flagship bond fund sinks below $10B amid investor panic (Investment News)
Doug’s Trivia
- Beethoven is one of the three badass composers whose last name starts with “B.” Who were the other two?
Better call Saul…Sehy & OG
- Stacker Ryan has a question about how he and his wife can financially plan for their soon-to-be-born first child and wants our suggestions on how to best do so.
Other Mentions
- Lessons from Market Wizards (with Jack D. Schwager)
- Could YOU Become a Stock Market Wizard? (SB1473)
- Unknown Market Wizards: The best traders you’ve never heard of
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Join Us Friday!
Tune in on Friday for a roundtable discussion on when it’s time to (finally) get intentional about your life!
Written by: Kevin Bailey
Miss our last show? Listen here: Life Doesn’t Get Easier, You Get Better (SB1604)
Episode transcript
[00:00:00] Bit: He got me invested in some kind of root company and so then I got a call from him saying, we don’t have to worry about money no more. And I said, that’s good. One less thing. [00:00:18] Live from Joe’s mom’s basement. It’s the Stacking Benjamin Show [00:00:33] am Joe’s, mom’s neighbor,, Doug, and abandoned ship. That’s what investors in one fund are doing after an SEC investigation. Involving the manager. That begs the question, what do you need to know about your funds to avoid hot water? Plus, in our TikTok minute, is mom savvy or sly when it comes to investing. [00:00:53] We’ll hear from one mother on her thoughts about financial markets. And of course we’ll answer one question from one stacker who thought, you know what? I’d better call Saul. See hi and og, and now two guys who are in the saddle ready to rustle up Wild Wednesday here in the basement. It’s. Joe. Oh and oh, [00:01:25] OG: isn’t [00:01:25] Joe: it? Rle Wrestling? I think wrestler was what they did in the 1950s in like small gymnasiums all over the country. [00:01:35] Doug: Wrestling. What kind of movies are you watching on the internet, Joe? I think it’s rustling. It’s rustling. [00:01:41] Joe: It’s ke [00:01:42] Doug: kettle cattle rustling kettle [00:01:43] OG: rustling. [00:01:44] Joe: Yeah. Hey everybody. Welcome to, uh. [00:01:48] Welcome to Not sure where we’re going. Podcast Retro Men in Gyms. Search term. Are you sure? Are you sure we’re settling up and ready to go? I’m, I’m not sure actually. I’m looking at the hand we’ve been dealt today, man. It is a great, it is a variety show Doug to your point, but it is a good hand. We’ve got, uh, we got a straight flush. [00:02:10] og. It’s gonna be a fantastic day on the stack. Your hands. Show your hands. Yeah. So sit back, relax ’cause we got you. Today we’re gonna talk about funds. We’re gonna talk about SEC investigators. What could be more fun than than SEC investigations? [00:02:25] OG: Depends on which end you’re on, I suppose. That’s right. [00:02:28] Joe: Sometimes you’re the windshield and sometimes you’re the subject of an SEC investigation. Or wait a minute, sometimes you’re the bug. Sometimes. Yeah. I don’t know. Anyway, one of those. We got a great show. How are you this morning, og? Just living the dream, [00:02:41] OG: you know? Yeah. Just having a good day. Doug. [00:02:43] Joe: You’re looking [00:02:43] Doug: spry. [00:02:44] I am particularly chipper this morning, Joe. He is. You are wood chipper this morning. What you got in the wood [00:02:52] Joe: chipper there. Fantastic Fargo reference. That’s two Fargo references in just the last few days. Man, we are, we’re on fire and fuego, as the kids say. I’m sure we’re gonna get into this SEC investigation. [00:03:05] I think it’s really important to know this line. On one hand, you see these people that just obsess over their financial accounts, they end up making dumb moves. But on the other hand, og, if you’re in the dark about what’s going on. Uh, that, that’s not great either. So where’s the middle ground? We’re gonna talk about finding that when it comes to monitoring your money, but before that, we’ve got a couple sponsors that make sure that this show is always free, that we can keep podcasting, we can pay mom the rent, we’re gonna hear from them, and then we’ll be back to get this show on the road. [00:03:38] Hold on. We pay for this dungeon. Not only do we pay for it, Doug, we have to pay an extra fee for the Super Nintendo. NES. [00:03:49] OG: When was the last time you played a Super Nintendo? We have one. That’s fun. There’s one sitting [00:03:52] Joe: right over there. [00:03:54] OG: I’m asking when’s the last time you played it? [00:03:55] Joe: I don’t know. I think we gotta play super tech mode as soon as we’re done. [00:03:58] With this podcast, fist down, [00:04:02] OG: fight out, or a punch out like Tyson’s Punch Out. [00:04:05] Joe: I think it’s time to get this show hunched up. Let’s do this. [00:04:09] headlines: Hello Doling. And now it’s time for your favor, part of the show our Stacking Benjamins headlines. [00:04:15] Joe: Our headline today comes to us from Investment News. It’s an industry online site for. [00:04:21] Industry insiders, which is why we like this. If you’re new to the show, we like talking about pieces from investment news. ’cause you kind of see across the table the stuff that advisors think about, which often it’s funny, I think, uh, the public needs to think about a little more. This one, I. I have a question about though, how much do we need to pay attention? [00:04:39] The headline, Western Assets Flagship Bond Fund sinks below $10 billion. Amid Investor panic. When I first read this og, I was like, why are people panicking about are, are you serious? Like, people are running for the hills. I don’t know, maybe they thought about the election or whatever might be going on, like they’re gonna make some stupid moves. [00:04:58] That’s not what’s happening here at all. The piece begins, A surge of investor redemption says slash the size of western asset management companies. Flagship core plus bond mutual fund below $10 billion with the bulk of the outflows coming amid a federal investigation of the firm’s veteran trader and co-chief Investment Officer Ken Leach. [00:05:22] Clients have been yanking their cash since the Pasadena, California based company set on. August 21st that Leach was going on leave after he received a notice from the US Securities Exchange Commission that it may recommend enforcement action. The core plus funds assets have shrunk to 9.96 billion as of November 1st, all the way down from, listen to this, $22.3 billion. [00:05:46] It’s a bad day when you lose $13 billion in a matter of just a couple months. og? Yeah, I’d say so. Franklin Resources who owns Wam Co. A couple weeks ago reported Justin rings per share for the fourth quarter that missed the average analyst estimate. So og I’m not gonna really get into what’s going on with the manager here, but it does beg the question that the one place that we see active management still holding its own is in the bond market. [00:06:12] It’s less transparent. It may be easier for a bond manager to add something to the pie. If you’re holding onto a fund that’s managed, you wake up today, you own this fund, you’re like, oh my God, everybody’s fleeing this fund and I haven’t gotten out yet. A, should I get out? And then B, should I have been paying attention more than I was if I didn’t know this was happening? [00:06:34] OG: Well, I’m not sure that you’re going to be able to catch, you know, SEC enforcement actions against a fund manager. So much disclosure and so much stuff that goes on in. In the investment world. I mean, you get the prospectus, right? So the prospectus would have on there or have in there a paragraph of, you know, we’re being investigated, you know, so they’re gonna disclose it somewhere on page 87, fourth paragraph, page 870, probably, which is worse. [00:07:04] So I don’t know that you really have an ability to like, I mean, you have to spend a whole bunch of time on this, and I think this is one of the reasons why. I like having a little bit more of a passive approach than an active approach because really, and, and this is how it was when you and I started, right? [00:07:20] It was like Peter Lynch is the guy. And this gal is the gal, and it’s like whoever’s this manager, if they leave, we have to know that for our clients and we’re gonna go follow them to their new fund. Because the strategy and the execution and all this stuff was because of the person. It wasn’t because Franklin did it, or American Funds did it, or Eaton Vance did it. [00:07:44] You know what I mean? It was the person who kind of made the name. When you switch from an active management strategy to a passive strategy, whether. It’s ETFs or otherwise you don’t care who’s in there pressing the buttons of the manager because they’re trying to emulate as best as they can, an index or an asset class that they’ve already predetermined. [00:08:04] So if you say, well, I wanna index fund that’s very close to the standard and poorest 500 to the SP 500, all you care about is how close are they to that? And if one of their traders gets in trouble, it’s like, well. That sucks, but that doesn’t affect the strategy of the fund. That’s not gonna affect the execution of the fund because the construct of it is to match the index. [00:08:26] It’s all programmed. Well, I mean, I, I’m not in that room, so I don’t know, but I’m guessing there’s a lot of technology. I don’t think they’re using, you know, notebook paper to figure it out. Yeah. Yeah. I, I’m sure there’s lots of technology, but the downside of that is there’s no opportunity to do any better, right? [00:08:41] Like, like you are gonna get the s and p return minus a fee. Forever. You’re never gonna have, well, the s and p did eight, but I did 10. You know, the s and p did eight. I did 11 also. You’re never gonna have the s and P did eight. I did four. You also don’t have that. The way that you put your finger on the scale for performance is through asset allocation, not manager selection, if that makes sense. [00:09:07] So if you want to have a higher return, then. The standard of poor is 500, then you have to buy indexes that traditionally have higher returns than the s and p 500. It’s not because John Smith over at such and such a fund is such a banger investor. That’s how you’re gonna get your out performances through asset allocation. [00:09:27] And if you outperform, that’s great. You’re not running the same race as the s and p then, you know what I mean? So it’s not really out performance, you’re just, you’re just getting the performance of the other index, which happens to have done better. During that period of time. So it’s, it’s a much simpler way to invest and I think it takes away a lot of this stuff of, well, I gotta pay attention to the, the manager. [00:09:47] The company and all that stuff. [00:09:48] Joe: Yeah. Run a Google search every quarter. I I, I, I may not want to do that. You know, Doug, I saw you laughing at, uh, I believe at OGs line about, I’m sure they’re not in the back room with just a, a, a piece of paper. It just, I don’t know. The look. Public book paper. Yeah. I saw your look. [00:10:04] I don’t know what you were envisioning. I was envisioning like, uh, the cafeteria at Vanguard where one woman comes up to. A dude she works with and goes, Hey, I was just listening to Stacking. Benjamins, we gotta stop using the paper. [00:10:17] Doug: Well, and I was thinking, what else would they use? Like how, I mean how I bet it’s lined paper. [00:10:25] How would they do? They’re back to the advocate. Are they drawing the [00:10:27] Joe: walls? Right. College ruled. It’s so great. They’re calling each other. Hey, uh, I’m down on the. I’m down on the exchange. It looks like we got a substitute in a few more shares of Nvidia today. Doesn’t Steve have one of those calculator watches? [00:10:41] We could probably try that. I think that’ll happen. Maybe a little bit more technology. That was the first thing. But the less serious thing is that people that are longtime listeners to this show know that you’re not a big fan of bonds, but you’ve also said in the past that you’re not. It’s because you’re not afraid of the market, but you are afraid of. [00:11:00] What the person may do, and hey, if you need to lower the risk in your portfolio, not because of the market, but because of you, okay, so be it. Bonds are a place where we keep hearing this story that the manager can be additive, that the manager may have the ability to bump up your return a little bit. [00:11:20] You’re saying it doesn’t matter. Get rid of all that. Like get rid of this idea that there’s upside in any market. Just index. Even in an area like bonds, [00:11:31] OG: I think you can make a case for any sector of investing to have the ability for a fund manager to have an opportunity to outperform. I think where people get it wrong and it really matters the the language that we use here, people will say things like, you can’t beat the markets. [00:11:47] A why try. I can show you countless investments that beat the market today or over the last month, or over the last year, or over the last 10 years. It happens all the time. The hard part with beating the market is predicting that person in advance. That’s the hard part. It’s easy to find ’em in the rear view mirror, but there’s no persistence to performance. [00:12:13] So it’s like if you’ve beaten the market 10 years in a row. You don’t get to say, I’ve done 10 years in a row, therefore it’s pretty likely I’m gonna do the 11th. You know, there’s no predictive qualities to doing it, and it’s very difficult as an investor to find that person in advance and, and then also be right in terms of when you’re painting them your life savings. [00:12:36] The second component of that is to try to do that is relatively expensive. In the grand scheme of things, you have to wonder, is the juice worth the squeeze? I don’t, I, I’m sure that there’s fund managers and I’ve read the articles of like, oh, active bond managers are awesome. All of a sudden, is it worth it? [00:12:53] You know what I mean? Is it worth it in terms of the extra cost and the fact that now you’re gonna go, you’re gonna have to try to find the one that’s gonna do it. The problem, of course, is how do you select that person? There’s the, like the great fund lineup every January 1st where you just have the whole list and you’re like. [00:13:07] Okay. Uh, uh, the guy with the glasses, he looks pretty sharp, so I’m gonna go with him. And, uh, this lady, she’s got nice shoes on, so I’m gonna pick her like, how do you, how there’s no predictive qualities to, they’ve done it for 10 years in a row, so I’m gonna do it. You know what I mean? Like, there’s no way to, to pick that. [00:13:26] I just don’t, I don’t know how to tell that story, you know what I mean? Like, I think about it from a perspective of the advisor. How do I tell you, Joe, that we’re picking this fund? That’s actively managed because Doug’s managing it. Like what’s the selling feature of you have to pay extra because my friend Bill’s. [00:13:46] Got it. What does that mean? It just doesn’t seem like a repeatable process. It doesn’t seem like a process that you can be successful in over and over again, which I guess is the definition of repeatable process. So I just said the same thing twice. [00:13:59] Joe: Doug to OGs point though, there is a podcast you turned me onto called acquired. [00:14:03] We talked about it a couple weeks ago. They talk about Renaissance Capital, which, oh yeah, over long periods of time, beat the market. And we’ve had Jack Schwager on the show, a remarkable journalist who digs into this culture of outperformance. And in both of these cases, in all these cases, the people Schwager looks at. [00:14:27] Renaissance Capital. You can’t get in like you. Nope, you can’t. So og, to your point, the ridiculousness of you can’t beat the market. It is ridiculous. There are people, Schwager has proven it. I love sch Swagger’s Line, og. He said people can beat the market. He’s interviewed a bunch of them. They’re absolutely miserable. [00:14:46] So if you wanna try it, good luck, because most of these people are not people you wanna go to dinner with. I mean. Pick your poison, what do you want? Yeah. If you really want that, you may be able to be the next unicorn to go do it yourself. But his bigger point was if you want to have a normal life, markets are inefficient, but it’s better for the average person if we pretend they are efficient. [00:15:10] And I love that line. Yeah, [00:15:11] Doug: right. [00:15:12] Joe: It’s just better to pretend it is. ’cause for 99% of us it is, it’s more efficient than we’re gonna be. [00:15:17] Doug: It’s not even just more efficient for. Us. It’s even for the, I’ll say the institutional type investment. I mean, people hear VC and we think, oh, that’s just a license to print money. [00:15:27] They miss on almost 80% of their investments VC firms, because they’re, they’re looking for the unicorn and it takes the one or two to make up for all of the other losses. Yeah, most of us don’t have the bank account that the VC right firms have. So why the hell would you even try if they can’t do it? [00:15:45] Joe: Peter Lynch talked about that in his book, uh, beat the Street that, you know, outta 10, he’s looking to hit on two, right? Maybe three. Yeah. Just imagine that [00:15:55] OG: it helps if you have unlimited money or virtually unlimited money. To your point, Doug, I mean, thinking about the PE and VC markets, it’s like you hear these stories of companies or investors that, you know, it’s like, oh, I just have to be an angel investor. [00:16:08] It’s like, sure. Yeah. I mean if you, of course, yeah, that would be helpful that if you had that ability to do that, you would be able to get into PayPal before it started, you know, or at the beginning, or like these companies. But what do they do? These, these companies are thrown around hundreds of millions of dollars to hundreds of companies. [00:16:28] And, and you know, some’s theirs and some is capital that they’ve raised from other people so that they can make these investments. And to your point, they’re going, we’re gonna lose 90% of these deals and we’re hoping that one of them turns into the next Facebook one turns into whatever, lumen, Snapchat or something like that. [00:16:46] So if you have the capability and the capital to do that, of course you should. But you know, you’re putting $500 a month your freaking Roth, like do it the way that’s gonna be successful for you. [00:16:58] Joe: I think you should think about two things before you go off trying to win the, I can beat the stock market game. [00:17:04] The first one is realized just how relatively few people have done it. And number two, in these people that journalist Jack Schwager talks about in his books, the Moat to get there, to get good is also huge. So let’s say that you decide to become a. Venture capital angel investor, let’s say og. Now you got all these millions of dollars and you don’t know what the hell you’re doing. [00:17:29] Like these people, all these stories, and I love sch Swagger’s profiles. We’ll link to a couple of his books in the show notes so people can see for themselves that they want to. We’ll also link to his, uh, past two times on the Stacky Benjamin Show, but when he tells these stories, when these people start off, they suck. [00:17:44] They’re absolutely hor. They’re absolutely horrible. And sometimes it takes ’em a few years. So imagine you get all your friends and family to trust you with all this money. You go off on your merry way, you lose all their money, and then you tell them, no, I finally figured it out. You gotta gimme another chance. [00:17:58] It’s gonna be gonna be great. It’s gonna be great. But on the other side, I think we’re getting a little bit off the topic because the topic is trusting other people to be that person. And I like the idea of not even playing the game. Plus you don’t have to do a Google search every three months to see if your manager’s in trouble. [00:18:14] Hey, let’s transition over to our TikTok minute. This is the part of the show where we shine a light on a TikTok creator who’s either brilliant or air quotes brilliant. This was sent in by stacker, uh, Rocky Mark sent me this one. Do you think og, we’re gonna see some brilliance because it was a stacker who found it? [00:18:31] Mm, it wasn’t just, uh, random stuff. Was it still on [00:18:34] OG: TikTok though, [00:18:35] Joe: out there? He actually initially founded it on TikTok, but. Because they had that stupid music in the background. I told him, I said, I love this, but I don’t think I can use it. So he linked to now a YouTube. [00:18:46] OG: Oh, well then it’s great. I think [00:18:47] Joe: so. [00:18:48] I mean, if it’s you, [00:18:49] OG: it’s [00:18:50] Joe: a YouTube thing. If it’s YouTube, it’s gotta be fantastic. If it’s on YouTube, fantastic. Yeah, [00:18:54] OG: absolutely. [00:18:54] Joe: Uh, this comes from a British comedy show. Let’s go to our British comedy expert, Doug Doug. You ever heard of the sketch show? Yeah. British Comedy show. The sketch show. Yeah. Some great comedians were on the sketch show during that show’s, during that show’s run. [00:19:07] Rocky Mark said this sounds a lot like he imagines og, either you or me and mom having a discussion about the financial markets. Okay. [00:19:21] bit: Oh, here he is. A little financial wizard. How was your first day on the stick market? It’s called the stock market mum, and it was terrible. The Dow Jones came up. The nick, I went down, I lost 37,000 pounds. Oh, wow. Where do you think you lost it? I told you where I lost it on the stock market. Oh dear. Did you call the police? [00:19:41] No. You don’t understand. The Nicki took a tumble. Oh, is that your little Japanese friend? Is it. Was he looking after your money? Did it fall out of his pocket when he took a tum mom? The Nicki is the Japanese market indicator and it fell by 12 points. Mm. Well, did you have a really good look around where he fell over? [00:20:00] Maybe somebody picked it up. Nobody has picked it up. It’s not actual money. Oh, was it a check? Because you can cancel a check. Do you want mommy to call the bank and cancel it or was it made out to mom? I’ve lost. I lost it on the share market. See you say that. But I left my purse at the market once and a very nice man handed it in and I did get it back. [00:20:24] Forget it. What’s for tea? Lee? Mommy’s gonna ask you a question and she wants it on a stance. All right. Did the bullies take your money? Is that what happened? [00:20:38] Right. I will tell you what happened. I bought a hundred thousand shares at five pounds each. As soon as I bought them, the price fell to four pound 63. Therefore, I lost 37,000 pounds. There’s no bullies or Japanese friend called Nikai. Well, it sounds to me like prices have slumped, but once the ordinary bounce back the Foote stage of recovery and you’ll recoup your losses. [00:21:01] A good point. Yeah, not a dummy. Now you say the Dale Jones is on the way up? Yeah. Oh well. Do you think he might wanna stay for tea? The Welsh love. [00:21:15] Joe: Oh mom, just messing with him. That was fantastic. So good. Thanks to Rocky Mark for sending that to us. That is og. The kind of discussion we have with mom on a daily basis. [00:21:24] OG: I mean, a lot of the times the discussion that I have with Doug, so it’s, [00:21:29] Doug: yeah. And then suddenly I come out with something brilliant [00:21:33] OG: and you’re like, absolutely. [00:21:34] Every so often your [00:21:35] Doug: friend do Jones [00:21:35] Joe: coming up for tea. [00:21:37] OG: Yeah. Good stuff. [00:21:38] Joe: What’d you like to stay for Tea. All right. Coming up next, we’ve got a stacker who calls and wants some help with an issue. We’re going to answer their call for help. Here in just a moment. But before that, we’ve got, uh, I know many people’s, well, at least one of you’s favorite part of the show, Doug’s trivia today. [00:21:59] Doug: Hey there, stackers. I can’t believe how excited Joe’s mom got when I told her that on today’s date in history, way back in 1770, Ludvig von Beethoven first performed Fidel. I’ve never seen her blush so quickly, and then I heard it. The Delio, like really Beethoven, hashtag disgusting. I so, so, so apologize to mom. [00:22:25] And I also promised I’d stop doing that thing with my tongue when I’m eating her spaghetti. Now I know how gross that is. Well, let’s take a deeper look at the man, not just his disgusting practices, like many other rock stars with some fairly gross practices, old Ludvig von nasty raked in the Benjamins while composing and performing during his lifetime. [00:22:47] He was one of the stars that critics called the three Bs of classical music. Well, I just gave you a luie as the girls called him. Make sure you use the hard D when you say luie, who are the other two? I’ll be back right after I figure out how to get out of painting the back fence. [00:23:13] Hey there, stackers. I am ABC’s fan and guy who knows what’s what? Joe’s mom’s neighbor, Doug. Well, I just had to apologize to Joe’s mom because while I thought that she was all excited about Beethoven’s Del, it turns out she just, uh, look. Uh, well, she just likes the music. Oh, sweet. Jesus. Thank you. I had no idea that Fidel was the name of Beethoven’s only opera. [00:23:38] It tells the story of how Leonor disguised as a prison guard named Filio, rescues her husband from death in a political prison. Hold on. Are we sure this isn’t the equivalent of an 18th century dirty movie? I mean, how she rescued him, I don’t think we wanna know. But the best news, Filio is just a song. [00:24:02] Woo. That was close. Beethoven, who it turns out isn’t as naughty as I thought he was, is one of the three Bs of badass composers Who were the other two? If you said Johann Sebastian Bach and Johannes Brahms, he’d be absolutely correct. And now let’s get back to two guys who are great with their tongues every Monday, Wednesday, and Friday, it’s Joe and og. [00:24:30] Did I just make it weird again? [00:24:32] Joe: No, again. When did it stop being weird? Oh my goodness. Hey, uh, time to shift gears really fast. Maybe we can go wash Doug’s mouth. That was, so let’s see if we can use the shake weight. [00:24:50] It got weird again, again, again. Time to answer a call from a stacker who said, you know what? I better call Saul. See. Hi and og. This is where we help a stacker in need. And if you have a question for the show at Stacking Benjamins dot com slash voicemail. And you know what, four, calling in and being a part of this show. [00:25:11] We pay. Yes, we do. In sweet Swag. And we’re, um, we’re working on right now trying to get the new logo on the shirts. Is it [00:25:21] Doug: gonna [00:25:21] Joe: be this? Is this gonna be Godzilla? Well, if by Godzilla you mean Ben Franklin with a hat on and winking? Yes. Then yes, absolutely. He’s the Godzilla of finance. Duh. Well, today we’re going to say hello to the Godzilla of Colors. [00:25:38] Calling in. I don’t know if that’s a good transition or not. So we’ll leave it Ryan. Hey Ryan. What’s up? [00:25:45] caller: Hi Joe and og. I assume Doug isn’t there ’cause he’s planning his cabinet and moving into the White House, but if he is there, he’s welcome to chime in as well. Nice. My wife and I are expecting our first kid in the first part of next year and I’m just trying to look ahead to set up the little guy for financial success. [00:25:59] We’re planning for them to need some for some mission Church. We would love to have some money left over for their next adult decision, whatever that may be. Um, I’m leaning a little bit away from a 5 29 plan just because we’re from a more entrepreneurial family and I don’t wanna, you know, stick them into college or trade school. [00:26:16] I’m aware that you can do a Roth IRA conversion and things like that, but I want that money to be available to them as their, uh, young adults making decisions. I’d like to have a little bit more flexibility for them to start a business or pursue some other endeavor or pay for college if that’s what they decide. [00:26:31] I’ve kind of settled on putting some money into a custodial account. Specifically just running a monthly contribution into an s and p fund and letting it grow. Um, if they appear to have a higher chance of college later on, I’ll probably start at 5.9 as well. Um, do you have any advice on blind spots that I might have in this thinking? [00:26:47] The biggest priority is having the money available for that missionary service if they choose to use it. But I’m also looking at ways to, you know, optimize taxes and things like that. [00:26:58] Joe: Ryan, Hey, congratulations on the little stacker. Yay. And I like little babies. Little babies. Absolutely. Gertrude’s. Gotta send, uh, the baby some swag too, I think. Yeah, for this one. And I also think, oh gee, thinking about this early, it’s gonna pay so many dividends so, so, so many dividends because no matter what the little stacker decides to do, this could be expensive. [00:27:22] So it doesn’t like the 5 29 plan because of the restrictions. Which I can appreciate og, but do you like the idea of a custodial account? [00:27:30] OG: Well, first of all, I just wanna highlight the impact of how little savings can make a big impact. We’ve talked about this a couple times on the show, and undoubtedly there’s thousands of people listening who have done a similar thing for their own kids. [00:27:42] So it’s not, uh, life shattering info here. But for those who haven’t quite got there yet, we started a 5 29 plan. For our niece and for our nephew with the two oldest on each side. And when they were born, put $50 a month in pretty much every month. There were some months we didn’t, some periods of time where it was a little snugger around the OG house and we let off the gas there. [00:28:03] But largely we put in $50 a month, which is $600 a year for, you know, probably 15 of those 18 years. When the two kids, the niece and the nephew went to college, both of those accounts were somewhere in the 13 to 14,000 range. Wow. Which is just mind boggling. Wow. How much That’s cool. 50. I mean, 50 bucks is not a ton of, it’s not zero, but it’s not really a ton of money. [00:28:29] And how little it was in terms of, you know, as our income increased over that roughly 20 year period, obviously $50 was a lot of money 20 years ago and not maybe as much today. And you know, you get the idea, but. It didn’t pay for all of their college. Heck, it barely paid for a year of it. But, um, but it was, I mean, it’s such a huge benefit to have some sort of flexibility. [00:28:51] Both of these kids are using it for college, so, you know, that’s what they chose. But for all the people out there that are going, I’ll just wait a little bit. Just don’t just, just do something. I mean, 50 bucks or 20 bucks, or $10 or a hundred bucks or something, it turns into so much freaking money if you just don’t touch it for a long period of time. [00:29:09] Um, a couple of thoughts here for Ryan on the custodial versus other accounts. Basically has to decide, do I want this money to be in my name or do I want this money to be in my kid’s name? And, you know, excluding the 5 29. Those are basically the two choices. And I’ll also add to one thing he said about 5 29. [00:29:25] It’s like, Hey, if I want to use it later, I’ll, I’ll, you know, maybe I’ll open one in the future. So let’s say that you’re saving money and you say, actually, you know what, I do want this money to go to college. I do want it to be 5 29 money. You can make a contribution. Up to five years worth of 5 29 contributions at one time. [00:29:43] So unless this custodial account has in today’s numbers, it would be $90,000. You can put all, you can like literally just take all the money one time and dump it in the 5 29 if you wanted to do that in the future. So there is some flexibility going in that direction. Maybe not as much going the other direction. [00:30:03] Anyways, back to what he said. So there’s ultimately two places in the kid’s name or not in the kid’s name. Some downsides about having it in the kid’s name. It’s considered a transfer to the kid, the, when you put the money in. So technically, although I don’t know of any situations where somebody would come after you for this, but technically you can’t use that money for yourself. [00:30:23] So if you’re like, oh, it’s a little snug around here, we need to kinda use some of this money for putting food on the table. Technically you’re not supposed to. Again, I’ve never heard of anyone ever getting in trouble for it or whatever, but it’s a, you know, you’re, you’re gifting it to your child. The second issue could be that the money is theirs a hundred percent at age 18. [00:30:42] That involves them knowing it exists. So if they don’t know it exists, they might not know that it’s their money. But again, from a legal standpoint, your name comes off of it on their 18th birthday and their name stays on it on their 18th birthday, and if they go missionary work, how about a Corvette? You know, you’re just hoping you’re a good parenting for 18 years prevails in that decision. [00:31:02] I’m on a [00:31:02] Joe: mission to go to the car dealer. I’m on a missionary [00:31:04] OG: trip to the Corvette dealer [00:31:06] Joe: dad right now. You know, you know, I used to have clients that would play that game, og, and it is a bit deceitful, but I remember a few discussions where a parent would tell me, you know, the kid comes home from school, they’re, they’re home for Thanksgiving, they need to get money out to pay for the next semester of school. [00:31:26] And they’re like, Hey, uh, you need to sign here. And the kid’s like, what am I signing? Oh, you gotta sign so you can get your college money out. Not telling them the kid has to sign because it’s their money. Their money, yeah. Because they can do whatever the hell they wanna do. And mom and dad are just like, yeah, just sign. [00:31:40] This is your college money. [00:31:41] OG: Yep. If you’re doing the right thing and teaching your kid about money the whole time, you know, hopefully that’s not an issue. [00:31:47] Joe: Nothing to worry about. The [00:31:47] OG: thing that I want to just spend a little extra second on is the taxation. And there is some scenarios where that account gets big enough where the income is great enough that the tax bill is not so great. [00:32:01] Because of the way that custodial or you know, kitty, it’s called the kitty tax. And you can kind of look this up. But basically if you’re, it’s not a kitty, not A-K-I-T-T-Y. It’s not that. Oh, it’s has nothing to do with cats Doug. I know you’re not a cat fan. Send all your hate mail to Doug at Stacking Benjamins dot com. [00:32:19] Cats suck. Kitty tax is when kids have unearned income from investments like interest in dividends and the tax rate’s a little bit higher on that money because. The government looks at it as an opportunity for you to kind of shelter money. They’re going, well, we know why. You’re giving your kids a whole bunch of money and so you don’t have to pay. [00:32:37] You know, and so you have to be aware of that, and it’s not the end of the world. It’s just a little bit higher tax rate that goes on your tax return. Again, not the end of the world, but something to be aware of, especially if you think the number’s gonna grow to be a big, like if you’re thinking, Hey, I’m gonna put $50 a month in this account like OG did, and it’s gonna be 10, 12 grand. [00:32:56] Okay, fine. No big deal. If you’re like, I’m gonna put a thousand a month in this account. Because I want my kid to have millions of dollars and have all this flexibility in their life probably becomes an issue. All those other things become an issue too, right? Because you’re not handing your kid, uh, an account with 10 grand in it. [00:33:10] You’re handing your kid an account with 500,000 in it at 18, and you know, that’s just a whole different, different problem. I think the better solution is just to keep it in your name in a separate account. I think it gives you the most flexibility for whatever happens in your life. You don’t have to worry about. [00:33:28] Making a decision that is asymmetrical in your family, right? You’ve got a kid that wants to go to college, you got a kid that’s gonna be an entrepreneur and you’ve got a kid that’s gonna go do missionary work, and the kid that’s an entrepreneur needs a $200,000 loan to start their ice cream business. [00:33:43] You know? And the kid that’s gonna college needs 15 grand because yeah, they got full ride scholarship and you’ve got three accounts and each one of ’em have 20 grand in it. You know you’re going, ah, well the right thing to do is probably help this one out a little bit differently than help this one out than do a little bit. [00:33:57] You don’t have the flexibility to do that if they’re all in UGMA accounts. I’m fast forwarding, Ryan. I’m giving you two other kids, by the way, so congratulations. Yes. Wow. [00:34:07] Doug: Some good nights coming up for Ryan, [00:34:09] OG: so congratulations on your two additional children that you’re gonna have. Bonus kids. Bonus your bonus children. [00:34:13] It may be more, but my point is, is I think I like making the decisions that give me the most opportunity to have future decisions. If that makes sense. Like I, I just wanna have a lot of flexibility and if you just set up a separate account in your name and just say, Hey, this isn’t gonna be our retirement money. [00:34:30] This is for the kids, or this is for the kid at this time. And, you know, in the future you decide to do something different with that. You don’t have to ask anybody’s permission. You know, you don’t have to tuck tail and you know, Hey, sign this real, real fast kid. What’s it for, dad? Eh, sign it. It’s a thing for your mom. [00:34:48] It’s just your money and if you decide to say, oh, well I want to take this money and I’m gonna dump it into 5 29, you can do that. If you say, I’m gonna give it to my kid at at 18, you can do that too. You know, there’s all these places you can do with it and there’s not a, a downside to having it in your name, I don’t think, in the long run. [00:35:05] Joe: Yeah. I think the another aspect which leads me OG to the same conclusion that you reached is. The issue of the possibility of financial aid and, uh, the expected family contribution, the way that these rules work, if you end up applying for financial aid at a college really makes a lot of sense when you dive into the why behind it. [00:35:25] If money’s in a kid’s name, the way the formula works for. The vast majority of schools is this. Your number one priority is to go to college, so any money in your name is going to be used toward that education period. Full stop before we give you any money. Yeah, so dollar for dollar money, that’s in a kid’s name. [00:35:44] Counts against any aid the child might get if you’re eligible for it. Now that that’s not, by the way, aid, that’s based on merit, that’ll come, that’s fine. Right. Uh, also schools have lots of different programs, but I’m talking about if, if somehow you’re in a situation where the child would get aid money in their account, dollar for dollar, and to OGs point, once you put it in their name, it’s almost impossible to get it back into your name at that point. [00:36:13] You’d have to. This laundry list of crap. Like, well, I took him to the movie and they paid for themselves, so I reimbursed myself for the movie. Like, uh, I don’t want to get into all that. [00:36:23] OG: Yeah, I don’t, I don’t wanna scare people too much with that. I’ve never heard of a scenario where people have gotten in trouble for that. [00:36:31] Joe: No. However, but legally, letter of the law, that’s what you gotta do. [00:36:35] OG: Yeah. Well, you’re right. And certainly you don’t want to play to the exception. I can see a scenario where you know your kid has a hundred grand in an UTMA account and they decide to join the Navy because they don’t want to do missionary work. [00:36:52] Right? And maybe that’s a big point of contention in your family. And you say, well, I’m not giving you this money. And they go, yay, you are, because this is legally, I looked this up, dad, this is my money. And you go, no, I’m not. And now you’re gonna lose you. You would lose that battle. Like there are some scenarios, you know, like on just Judge Judy where this stuff comes to ahead and it’s not that. [00:37:17] It’s not that it doesn’t ever happen, it’s just we don’t really hear about it a lot versus like you’re talking about, and what I’m saying, Joe, is you just have the money in a separate account. Go, awesome, join the Navy. We thought you would go this direction. You’re choosing choosing that direction, you know? [00:37:31] Okay, cool. Do your thing. I got a hundred grand. That’s not going to you. Now you know this is my money and now I get to do, now this goes to your siblings or mom and I are gonna go do something. [00:37:42] Joe: And if it stays, if it stays in your name, when it comes to expected family contribution. It isn’t dollar for dollar two, things happen much less. [00:37:49] The first thing is the government says, you know what? You need an emergency fund. You’ve got other priorities. You’ve other kids, you have other things. So they give you a, a, it’s an amount that changes every year, but there’s a bump amount that just doesn’t count. It doesn’t count at all. And then it’s roughly a little bit less than a third of every dollar counts against you before you get aid. [00:38:08] So you could really mess up your chances for financial aid by having money in the kids’ account. [00:38:16] OG: Yeah. And those numbers that you’re talking about are roughly the four year total contribution. Right? Right. Like the FAFSA thing, they divide it out by four and like however many years you’re in school and so on and so forth. [00:38:26] But, uh, but yeah, they basically assume if kids have money, it goes to co, it’s going to college if parents have money. Some of it, a lot of it even needs to go for retirement and maintenance of the house and family and that sort of thing. But you’re still on the hook for 25, 30, 35, 40% total of whatever money’s left. [00:38:45] That they assume you wanna use for, for kids? [00:38:48] Joe: Yeah. And Dick, to clarify this even more, what OG is clarifying is the fact that in year number one, they’re not gonna make you spend a hundred percent of your money. There’d be no money left for year two, year three, year four. Yeah. So the actual calculation for a kid is about 35. [00:39:00] It’s 35% of their money. And in a year by year case for a parent after that amount, that’s not quote, taxed at all. In this, it’s, uh, 10%. I’m about ready to [00:39:11] OG: do our fafsa. [00:39:13] Joe: Oh. You know my advice to anybody doing the faster, happy. Happy, [00:39:16] OG: joy, joy. [00:39:17] Joe: Well, you look at this thing, oh gee, I just remember doing it and I know it’s changed some, but not a ton. [00:39:22] It changes a little bit. You should do a video [00:39:23] OG: on me doing it just to see how long it’s most years. [00:39:27] Joe: Well, I’ll tell you that’s the thing is don’t look at the full thing. What? When I looked at the full thing, even though you and I have done this for a long time, I freaked out. I was like, oh my God, look at all these questions. [00:39:37] I’m never gonna just answer question one then answer question two. Then don’t look at the full thing. And by the way, 45 minutes later, you’re finished if mm-hmm, if probably less than that for most people. Ryan, thanks for the question and uh, congrat, congratulations again. Absolutely. If you’ve got a question for us, again, stack your Benjamins dot com slash voicemail. [00:40:03] But if you’ve got bigger questions and you really need a financial plan that dovetails all of the aspects of your life. You know, in OGs answer, he talked about, what if this impacts your retirement? What about control? What about all these other issues that may play a factor? That means you need a better overall financial plan. [00:40:22] OG and his team are taking clients, so to get on his calendar for early 2020. Five we’re already booking into Stacking Benjamins dot com slash OG is the first step. All right, time to transition out to the back porch and Doug. We’ve got a couple things. I’m gonna be going on YouTube. On November 21st at 8:00 PM Eastern, do the math on wherever you are. [00:40:47] I’m going to be walking you through Portfolio visualizer and the Efficient Frontier. We’ve had a lot of people ask questions about how the Efficient Frontier works. What is it? How does it work? So I said, you know what? I’m gonna walk you through it. Stack your Benjamins dot com slash frontier is how to sign up for that session, and we’ll send you a reminder. [00:41:11] Just before we go live over on the Stacking Benjamins YouTube channel. Also, thanks to everybody who hung out with me a couple weeks ago in Las Vegas. It’s had such a great time, OG in Vegas. We missed, you missed Doug, but the stackers say hello and we had a, it’s a good thing. [00:41:27] OG: I, I don’t, I, I shouldn’t go to Vegas. [00:41:30] We, [00:41:31] Joe: we had a fantastic time in life. That’s a dangerous place for OG. Yeah. Uh, three to one odds that that’s a dangerous place [00:41:38] Doug: for [00:41:39] Joe: og. [00:41:41] Doug: Oh, you don’t mean you shouldn’t go to any of the meetups. You just mean the odds [00:41:44] OG: are way better than that, sir. [00:41:47] Doug: You just mean you shouldn’t go to the ones in Vegas. [00:41:49] Joe: Yeah, just, uh, Vegas. [00:41:51] Well, the good news is Doug, uh, he is coming to New York City. We’re having a joint meetup with our friends, Paul Pant, doc G, and a special guest, Julian Johns root is going to be there among other stackers and forwarders and earners. We’re gonna get all the money nerds together, but OG and I will be in the big apple. [00:42:13] December 12th for details on that meetup, there’s only 85 slots. That’s gonna fill out quickly, stackers. So if we wanna get, uh, our stacker presence there, sign up quickly. If you’re in the area, stacky Benjamins dot com slash nyc is the link to, uh, to sign up in those tickets Is 85 spots in New York that’s gonna be gone. [00:42:34] Gone. Gone. Very soon. All right. That’s all that we had today on the back porch Doug. I think you got it from here, man. What should be on our to-do list today to get working on now that the show’s over? [00:42:50] Doug: Well, Joe, first take some advice from our headline. What do you need to know about your funds? Not much, but maybe it’s time to stop keeping tabs and checking in on the management asset class and volatility every six months. [00:43:02] Instead, running with the index can save you from panic later. Second, take some advice from our TikTok minute. Your mom’s pretty smart, even if you think she might not be, but the big lesson, Joe’s mom is now taunting me. She just shared that she loved Beethoven’s Del. Oh God, no. God no. Somebody saved me. [00:43:24] It’s disgusting. [00:43:28] This show is the property of SB podcasts LLC, copyright 2024, and is created by Joe Saul-Sehy Joe gets help from a few of our neighborhood friends. You’ll find out about our awesome team at Stacking Benjamins dot com, along with the show notes and how you can find us on YouTube and all the usual social media spots. [00:43:49] Come say hello. Oh yeah. And before I go, not only should you not take advice from these nerds, don’t take advice from people you don’t know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I’m Joe’s Mom’s Neighbor, Duggan. We’ll see you next time back here at the Stacking Benjamin Show. [00:45:00] Joe: Doug, you’ve, you’ve got some, uh, shows you’ve been watching? I’ve got shows. I do. You’ve been busy? [00:45:06] Doug: I’ve been busy ’cause I’ve been traveling a bunch over the last several months and so I’ve been watching a lot of stuff that I can download and then, you know, when I get home I gotta finish ’cause I’m a completionist. [00:45:17] There is one show that. You strongly recommended that I finally gave up on, on the last plane ride, I was just on, um, dark Winds. Oh, it’s so good. That show sucked, [00:45:30] Joe: dude. That show’s so, so, so good. No, that show’s amazing. [00:45:35] Doug: Oh my God. Well, I, that is one of [00:45:36] Joe: my, that’s one of my favorite shows on tv. [00:45:39] Doug: Unreal. I made it halfway through the second to last episode, and when there were like all of these like. [00:45:46] Native American magic shaman stuff happening. I’m like, no, I’m not. That’s the cool thing [00:45:50] Joe: of the, about the show. That’s the great piece of the show is it’s a great look in a Navajo culture, which I think is, is just absolutely fascinating. [00:46:01] Doug: Well, of course it is, but I don’t think they. Executed well on that from a culture standpoint, it just seemed, oh, I thought [00:46:08] Joe: it was, it was so good. [00:46:09] So, so, so good. I think they did, uh, Tony Hillerman proud. But anyway, I’d love to hear what stacker say about that. Did you like Dark Winds? Did you not like Dark Winds? Uh, you on Team Doug? You on Team Joe? That’ll be a good, good debate. [00:46:23] Doug: But here’s some stuff I really did end up liking, and this is gonna be another, uh. [00:46:28] Well, I was gonna say reversal because I thought I liked dark winds at first, and then I hated it, and now I’m doing the opposite of that with slow horses. [00:46:36] Joe: When we first, we talked about this, [00:46:37] Doug: yeah, we [00:46:37] Joe: brought this up a few weeks on the show that I had all of a sudden seen all this PR around slow horses and how great it was and all these seasons. [00:46:45] I’m like, oh yeah. And the setup sounds great. Doug, the setup sounds fantastic. Like this is a show about bad secret agents, like what’s not to like. [00:46:55] Doug: Right. And it’s British and we all love listening to British accents. Uh, but at FI think we talked about this, it was probably now been a month ago on the show, or if not longer, but we both said, and I think you said Cheryl had the exact same, uh, reaction, which is kind. [00:47:12] Slow, no pun intended, kind of a, it’s a, it’s a slow burn by like the third episode, you’re like, eh, it’s a little boring. But I kind of pushed through that and then it, I, I sort of got it. I got the rhythm of the show. I got the humor, and I. I just really liked it and then I couldn’t finish it fast enough. I watched all four seasons and can’t wait for the next one. [00:47:35] There are certainly parts of it that are not amazing. Some of the battle scenes, you know, you’ve got, you got four or five of the slow horse agents who are. With handguns, with unlimited ammunition, apparently. They’re all, they’re all As You do. Yeah, they’re all, they’re all, they’ve all got like 12 magazines hidden somewhere in their clothing because they could just shoot forever against, you know, guys that are basically our version of seals. [00:48:01] With, you know, full weaponry and they’re taking them all out. But if you can look past that, the, the general plot lines are very interesting, complicated. You’ve gotta be a person who likes multiple plot lines and have the patience for them to come together about two each season, six episodes. So usually around episode four or so of each season, you start to realize how they’re all related to each other, the, the, the plot lines. [00:48:25] So, I mean, some people just hate that. Like you can’t stand the lack of clarity and the. First few episodes may not be your thing, but, but overall, I really like that. And another show I want to talk about is the Detroiters, which I should have gotten on board with back in 2018 when it first came on Comedy Central. [00:48:45] I’m a Detroiter ish and I just didn’t, I heard about it. Didn’t tune in, watched the first season. Holy cow. Is that funny? There’s some really funny stuff in there, and it’s not start to finish. You’re gonna be side splitting, but there are some moments that are just fantastic. So it’s strongly recommend the Detroiters. [00:49:05] Uh, OG reminded me that Diplomat season two had come out. Oh. Oh yeah. [00:49:13] OG: Is it out or it’s about to be out? [00:49:14] Doug: Oh, it’s out. I’ve already watched, uh, four episodes. [00:49:18] OG: Oh, [00:49:18] Doug: wow. Three episodes. But yeah, I just finished [00:49:20] OG: Old Man surprised by the, uh, rather abrupt ending in that season. [00:49:25] Doug: Oh man. Now you’re making me wonder if I finished it. [00:49:28] ’cause I started watching season two and now I can’t remember abrupt ending. So I gotta think about that. I might not have finished it, but, uh, Kerry Russell wins over old man over John Lithgow and [00:49:44] OG: Jeff Bridges. [00:49:45] Doug: Yeah. The other old dudes is Kerry Russell. Yes, please. That’s about what I think I have. I mean, we can talk about music and other time I found a few new bands that I don’t think we’ve talked about on the show that I, that I really like, but, uh, Detroiters and Slow Horses. [00:50:01] Yes. Diplomat. Yes. Dark winds. No. We’ll put a poll [00:50:08] Joe: in the basement. Not a poll for Doug to dance on. Just, just gonna clarify that because I saw Doug get all excited. Not that type of pole Doug. [00:50:17] Doug: Yeah. ’cause that lolly column that’s supporting the second floor, that’s not an, it’s not slippery enough for me to do what I normally do.
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