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Maria Bruno: Hi. I’m Maria Bruno, head of U.S. Wealth Planning Research here at Vanguard.

Joel Dickson: And I’m Joel Dickson, global head of Advice Methodology at Vanguard. Welcome to our podcast series, The Planner and the Geek, in which we’ll discuss topics that are important to individual investors.

Maria Bruno: And we’ll have some fun along the way.

Joel Dickson: Hello, Maria.

Maria Bruno: Hi, Joel.

Joel Dickson: Welcome, again. Not that we don’t see each other enough, right?

Maria Bruno: Exactly.

Joel Dickson: Well, this is a very special episode of The Planner and the Geek. They’re actually filming us.

Maria Bruno: I guess we weren’t getting enough of the audio, so now we have to go to video. It’s not going to help us very much.

Joel Dickson: No, it’s not going to help us. Radio face for me at least. But, in addition to it being Facebook Live, I think sometimes our listeners don’t believe that if they actually submit a question or a comment, we’ll look at it and consider it. So what did we decide to do today?

Maria Bruno: We do. We’re doing the Client Corner today. We are taking our listener questions.

Joel Dickson: Taking listener questions, and we have them all here sitting in a—what is this—fishbowl?

Maria Bruno: You asked for a fishbowl, we get a terrarium.

Joel Dickson: Okay.

Maria Bruno: We have a bowl of questions for those that can’t visualize this. But, Joel, this is a format that we’ve used in the past with Vanguard webcasts, like on Taking live questions in, we’ve been able to address them; so it’s a fun channel for us, I think, because we get real client questions. Real issues then.

Joel Dickson: Randomly, we’re going to select some questions here that have been submitted; it’s kind of like Forrest Gump, right? It’s like a box of chocolates. You don’t know what’s going to come out. It’s going to be great. We’ll see what we get in terms of questions.

Maria Bruno: Yeah, should be good in terms of the variety of questions that we get.

Joel Dickson: Are we ready to start?

Maria Bruno: Let’s go. How about I dig in first?

Joel Dickson: Okay, go for it.

Maria Bruno: All right, good. Okay.

So Tom from California asks, “Do the tax-law changes impact in any way the conventional wisdom around optimal allocation of different asset classes between taxable and taxed-deferred accounts?”

Joel Dickson: So there were a number of tax-law changes at the fall of 2017. We actually talked about them on one of the episodes. And a lot of those changes, though, weren’t so much about things that would affect what Tom is referring to, which is asset location, or where to put different types of assets to get the maximum after-tax return. But it does raise the question, overall, about how do you set up your accounts to maximize that after-tax benefit and potential, taking into account how much you have in tax-advantaged accounts like 401(k)s and IRAs versus what you have in taxable accounts and trying to get that diversification play? That holds true in thinking about where to allocate assets, both before and after the tax-law changes. And a general rule of thumb is, to the extent that you have taxable assets, you probably want tax-efficient equities there; and you want the sort of fixed-income investments and maybe actively managed funds in the tax-advantaged accounts.

Maria Bruno: That’s right. I think we’re at a good opportunity now because we’ve gone through a tax-filing period with the recent tax-law changes. So individuals can take a look at their 2018 tax return just to see if there is any tax inefficiencies. Look at the amount of taxable dividend income or capital gains and see if that makes sense to make some fine-tuning there. So I agree with you. I think, first and foremost, tax diversification is most important in terms of, you need to have different account types. And then diversify within those account types because if you have all your eggs in one basket, you really don’t have much flexibility in terms of how to allocate tax efficiently.

Joel Dickson: Yeah, the only thing I would say to that is, it’s not necessarily the case that you would want to set up taxable account assets just to be able to “asset location.”

Maria Bruno: Well, right.

Joel Dickson: Right, because it still may be the case for many people that the tax benefit of, say, traditional IRAs, Roth IRAs, and so forth, may swamp the benefit from being able to locate assets between taxable and tax-advantaged accounts.

Maria Bruno: Right, I think, though, first look at your account types and then diversify within those account types to the extent possible. You know, the other thing we can talk about there is, you had mentioned sheltering bond income within the tax-advantaged or the tax-deferred accounts, to the extent that you, from an asset allocation standpoint, need to hold bonds within taxable accounts. You want to be mindful of what your tax rate there is because you might have that decision-making of whether to invest in taxable bond funds or municipal bond funds. So that breakpoint there—and I think there you look at your marginal tax bracket as a starting point to see where you are. That, as a result of the tax-law changes, might have changed for some investors.

Joel Dickson: Yes, and now there’s a big jump between what is at the 24% tax bracket and it goes up to the 32% tax bracket.

Maria Bruno: Right, so individuals before may not have been in that decision-making window, if you will. But their tax bracket could have crept up there by making municipal bond funds or ETFs more efficient.

Joel Dickson: Yes, and especially with the loss of different deductions, you could certainly see where that tax rate effectively is higher.

Maria Bruno: Right.

Joel Dickson: All right, next question.

Maria Bruno: Okay, we got one done.

Joel Dickson: What? No peeking. Jack from Milford, Pennsylvania, asks, “I am reviewing my charitable giving, and someone told me that I should consider donor-advised funds. What are your thoughts?”

Maria Bruno: Donor-advised funds is not a topic that we’ve talked about yet. So let’s talk a little bit first around what a donor-advised fund is and what the benefits might be. For individuals who are charitably inclined, a donor-advised fund is one mechanism to be able to manage charitable giving. So we have a donor-advised fund here at Vanguard—Vanguard Charitable—for instance.

Joel Dickson: Technically, not affiliated with Vanguard.

Maria Bruno: Correct.

Joel Dickson: But there is a close relationship.

Maria Bruno: So as an individual, if you make a contribution to a donor-advised fund to get the benefit of the full deduction on the contribution when you make that contribution, and then you, within the program management, you get to pick the investment selections. And then the nice part about that is, the account grows tax-free, and then you can make the decision in terms of when you want to actually make those charitable gifts and to which organization over time. So you don’t have to do that decision point when you make the contribution to the donor-advised fund.

Joel Dickson: Are there any kind of restrictions on the charities that you can assign that to?

Maria Bruno: Well, yes, and the investment manager or the program manager would then make the decision-making of doing the due diligence on the charitable organization to make sure that it fits the criteria.

Joel Dickson: But, basically, it would be any 501(c)(3) charitable—

Maria Bruno: Yes, where you could get the charitable deduction in any given point in time.

What’s interesting about something like that is that, if we go back to the conversation we just had about the tax-law changes, so many individuals are probably taking advantage of the standard deduction because that’s been increased now and may or may not be itemizing deductions. For those individuals that might be bunching charitable contributions, in other words, trying to make a bigger contribution in one year to be able to then take advantage of itemized deductions, something like this might be beneficial.

Joel Dickson: Yes and in part I think because the charitable contributions—the deduction was only available if you itemized.

Maria Bruno: Correct.

Joel Dickson: And now with that standard deduction higher, as you said, some people might say, Well, does it make as much sense to give to charity each and every year if I’m not getting the tax deduction? Now that gets into a philosophical question about why are you giving and how are you giving.

Maria Bruno: Right.

Joel Dickson: But it’s certainly an anxiety in the nonprofit community about what happens with maybe potentially less of a tax benefit for year-to-year charitable giving because of those changes to the standard deduction.

Maria Bruno: That’s a good point, right.

Joel Dickson: But as you said, the bunching might actually help with that in some ways. One, you get the benefit because now—

Maria Bruno: You get the immediate benefit, right.

Joel Dickson: You get the immediate benefit, but now you could designate maybe the same amount year-to-year to the charity. So their cash flow may not be going up and down, even though you are giving at different times.

Maria Bruno: That’s a good point. As an individual investor, though, it gives you a lot of flexibility and convenience, too, in terms of, you make the contribution to the donor-advised fund; you pick your investment selections; and then from there you can be very flexible in terms of how and when you actually decide to make the contributions to the charity.

Joel Dickson: I do think there’s one important caveat to all of this, which is, and we’ve talked about this on podcasts before, the use of IRAs to make charitable contributions as part of the RMD, or the required minimum distributions, the so-called QCD, or qualified charitable distribution—that cannot be used to fund a donor-advised fund approach.

Maria Bruno: Currently, correct.

Joel Dickson: Right, so that’s just one caveat to think about.

Maria Bruno: So I think there the decision-making would be, first, how do you want to execute upon your charitable contribution? So if you’re over 70½ and you want to take advantage of the QCD, for many individuals that might be a good first source.

Joel Dickson: Rather than the donor-advised fund.

Maria Bruno: Right. And then the other thing that I think might be worthwhile mentioning with a donor-advised fund is that many individuals think about contributing cash to a charity or appreciated securities. Some donor-advised funds will allow securities in terms of contributions but not all of them.

Joel Dickson: Yes. Much like some charities find it very difficult to administratively handle in-kind or appreciated securities. So, yes, that’s another consideration, obviously. Very good.

And for those listeners that are more interested in learning about donor-advised funds and maybe Vanguard Charitable in general, you can go to the website That actually helps us out, too, because then we know they came from listening to our podcast.

Maria Bruno: All right, Joel, next question. This is fun. Okay, Jim from Wisconsin.

Joel Dickson: Always good to have a Cheesehead.

Maria Bruno: Did you plant this?

Joel Dickson: Yeah, maybe I did.

Maria Bruno: Okay, “We are in that sweet spot of pre-RMD retirement and are trying to take advantage of moving a traditional IRA to a Roth IRA. What do we need to think about?” I think you did plant this question.

Joel Dickson: Actually, in some ways, that’s kind of some of your favorite topics there. That sweet spot that Jim is referring to would be before age 70½ but retired, so you’ve already sort of seen the expected decline in income, so maybe the tax rate is lower. So when you think about the usual rule of thumb between whether it makes sense to convert from a traditional IRA to a Roth IRA, that traditional rule of thumb would say, Well, if you expect your tax rate in the future to be higher than maybe the Roth, if you expect it to be lower than the traditional, in this case it’s not likely to be a lot lower if you’ve already had that major income component. So that’s why it’s an interesting planning opportunity because one of the things that we have found, especially for those that may not need their RMDs come age 70½ to meet their own sort of required spending needs, is that there has been oftentimes an increase in their own tax rate and their tax burden because of the RMDs coming out as taxable income from a traditional IRA. So there might be an opportunity to avoid that higher rate in the future by converting before you’re age 70½ for part of it. And there are a lot of other interactions in retirement as well that might make that strategy beneficial.

Maria Bruno: So some of those interactions can be when to claim Social Security. If you think about this period where individuals might need to spend from their portfolio, number one, we’re talking about Roth conversions here. So that leads me to think that an individual isn’t necessarily spending. If someone in that situation does, you could actually be accelerating those IRA withdrawals pre-RMD, not necessarily converting.

Joel Dickson: Yes.

Maria Bruno: There may be benefits to that. You’re accelerating an income tax liability but presumably at a relatively lower tax rate. Then the other benefit with this, either whether you’re spending from that IRA or converting, is that you are lowering that IRA balance and then the RMDs that are subsequently associated with that. So that’s the interplay and the benefit there.

And then for individuals that are spending, the deferral of the Social Security benefits is financially valuable for many individuals as well. So it can, when you think about the interplay of this decision-making, make sense.

Joel Dickson: Well, and there are so many interactions, I mean Social Security taxation, Medicare premiums that may be higher or lower because anything that’s tied to taxable income can be managed a little bit with the whole move between traditional and Roth. It gets back to that tax diversification discussion we were having just a little bit earlier. I think there’s also another consideration here, and it’s exactly the conversation we were just having with respect to donor-advised funds, which is how do you think about your potentially charitable giving or legacy planning if you’re going to do the qualified charitable distribution, the QCD? Then maybe you might not want to convert over to the Roth IRA because that can come straight out of the traditional and meet the RMDs in certain ways without it impacting income.

Maria Bruno: Um-hmm.

Joel Dickson: Right, so there are a number of planning opportunities, and it can actually get fairly detailed and complex.

Maria Bruno: Right, and to further that example for individuals that are charitably inclined, when you do a Roth conversion, you’re adding to your taxable income. So the charitable—if you’re itemizing, a charitable contribution can help potentially offset some of that. I think what we’re trying to say here is, there are some unique planning opportunities during that window that one should explore.

Joel Dickson: Yes, or in the geek economist terms, the answer to every question is, It depends.

Maria Bruno: It depends.

Joel Dickson: Yes.

Maria Bruno: True. But I think those are the things to think about. I think they need to kind of run the numbers or talk to an advisor or a tax professional that can help discuss the tradeoffs there.

I mean, certainly, you want to be mindful of your marginal income tax bracket and what that additional income triggers from that number as well, not just the marginal income, but the taxable income.

Joel Dickson: Great, all right.

Maria Bruno: Okay, you’re ready to move on.

Joel Dickson: I am ready.

Maria Bruno: Okay.

Joel Dickson: Let’s see what we’ve got here. Clara from North Carolina, when she’s not dancing in The Nutcracker, asks, “What’s the #1 tip you would give a young woman at the start of her career about investing?” And then it says here in parentheses, “(with a limited budget).”

Maria Bruno: She’s probably [like] most people that are just starting out, right?

Joel Dickson: Exactly.

Maria Bruno: All right, we get that question a lot. I think the #1 thing I would say is just do it. Now that’s easier said than done, but just do it and keep it simple. So for many individuals just starting out, we talk about how much to save for retirement. For instance, we use this watermark of 12% to 15% of your income for retirement. You tell that to someone just starting out, and their eyes bug out. It’s not feasible.

So my message there would be to stretch yourself. And the first source of investing generally, I would say, is to, if you have a 401(k) with a company match, take advantage of that first and foremost.

Joel Dickson: Free money.

Maria Bruno: Free money is good money, right. So take advantage of that. And then the key there is to set it up in an automatic disciplined way in terms of either contributions, either outside of that account or within the 401(k) do what’s called an auto increase. So you can set this up systematically so every year you can increase that percentage. The key there is that you’re starting the savings program early, and then you’re incrementally increasing that throughout the year, as presumably your income increases as well. And then from 2 other things, I would say, is think Roth. For many individuals who are early in their career, the benefit of the tax-free growth from a Roth account is attractive. And the last thing I would add is, from an investment standpoint, to keep it simple, focus on low-cost investing, perhaps through a balanced fund or a target-date fund that offers broad diversification through a single investment choice. So those would be my nuggets there.

Joel Dickson: Am I your #1 tip?

Maria Bruno: Exactly.

Joel Dickson: Yes.

Maria Bruno: Okay, moving on. Next question. John from Virginia asks, “If I’m not mistaken, over most longer periods of time, domestic equities and bonds have seemed to always outperform international equities and bonds. If so, why bother with diversification unless the investment strategy is short-term-oriented?” Okay, Mr. Ex-Portfolio Manager. Give that one a crack.

Joel Dickson: There have been certainly substantial periods of time where one asset class does better than another asset class. But that doesn’t mean that the value of diversification isn’t there. And, in fact, just like in, let’s say, a recent period, domestic or U.S. equities have outperformed international equities, there have been long periods of time where that goes the other way. The thing is about being able to predict that, and as we often say, market returns are not really under the investor’s control. We don’t know except at the end whether we should have been invested in one asset class versus the other. So I think the value of diversification is still very strong. I would say that there are so many different things that play into good return versus less good return in various asset classes. And when we’re talking about U.S. versus international, currency issues may come into play, as currency movements can affect the returns of those investments as well. So I would say, though, that one reason that people will often make for holding maybe more U.S. equities then might be the global market-cap weight, which would be roughly half—is the fact that, when I retire, for example, my expenses are in dollars. And so I might have a little bit of a home bias and don’t want the currency risk associated with the returns meeting up with my future investments. It’s one justification for having a little bit higher. But it’s not so much because we think that domestic equity is always and everywhere going to do better than international or even on the fixed-income side. All right?

Maria Bruno: Yes.

Joel Dickson: Go for the next one?

Maria Bruno: Sure.

Joel Dickson: All right. So this one is from Mary in Texas, and she wants to know, “Okay, so I listen to your podcast, but do you folks walk the talk in your own portfolios?” So what would you recommend, Maria, if somebody brought your portfolio to you and asked for your guidance? And then there’s a second part to this question, and I think it’s related, “Do you have an investment cheat?”

Maria Bruno: All right, so there are 2 questions there. The first one would be, Do—

Joel Dickson: Do we walk—

Maria Bruno: —walk the talk?

Joel Dickson: Yeah.

Maria Bruno: Yes. For the most part, yes.

Joel Dickson: There we go, we already have the hedge.

Maria Bruno: Yes.

Joel Dickson: All right, good.

Maria Bruno: I do, and I think it’s because I live and breathe this every day. I think I may have mentioned this in the past. I may be a little bit too heavy in cash; but beyond that, in terms of global diversification and disciplined investing, not market-timing, yes, I walk that talk.

Joel Dickson: And do you have an investment cheat?

Maria Bruno: I don’t.

Joel Dickson: No?

Maria Bruno: No, from an investing standpoint, maybe I’m a little bit boring. What’s your cheat?

Joel Dickson: So I actually have kind of 2 cheats.

Maria Bruno: Oh, of course you do.

Joel Dickson: Yeah. One cheat is that, although I don’t really view it as an investment, there was—yeah, and I think I’ve talked about it before, and certainly, Maria, you know me well that you know this part—but I’ve been collecting this 100+ year-old set of tobacco baseball cards, and it comes from something I liked when I was a kid. And if I viewed it as an investment, though, it would be like the world’s worst investment. The transaction costs on it are high. It’s really just kind of, Hey, I kind of wanted to do it. But it’s not what I would ever recommend to anyone thinking about building a long-term portfolio.

But my other cheat—and it’s related to the conversation we were just having about U.S. and international diversification—is, I’m a big believer—and I say it a lot—about global market cap. But I also will tend to think that over long periods of time, like a decade or more, that there are certain elements of predictability in relative returns. So right now the fact that international non-U.S. equities have done poorly relative to U.S. equities actually makes international equities a bit more attractive to me, not so much over the course of the next year or 2 years, but over the course of the next, say, 10 years at some point. And so I might have a little bit more international equity based on my view of a little bit of predictability long-term on the returns.

Maria Bruno: Didn’t we just talk about market?

Joel Dickson: That’s why it’s a cheat.

Maria Bruno: And then this whole baseball card collection, that’s not necessarily a cheat. It’s just a way how you’re spending your money.

Joel Dickson: But it gets into like the emotional sort of elements that sometimes come into play.

Maria Bruno: Okay, let’s just move on.

Joel Dickson: Move on.

Maria Bruno: Okay. That was a fun question, though. Okay, Jean from Los Angeles asks, “Does having guaranteed income, like a pension or an annuity, allow one to add more risk to a portfolio than you would if you didn’t have these guaranteed investment streams?”

Joel Dickson: That’s one that I think ultimately you get back to the answer I gave before on another question: It depends. To the extent that you have a stable source of income that is kind of guaranteed come heck or high water as it were—

Maria Bruno: Social Security is one example.

Joel Dickson: Social Security, a pension, and so forth. There is an argument to be made that with the rest of your financial portfolio, you might be able to take on additional risk where, in essence, you treat it like a bond or a fixed income investment.

Maria Bruno: Right.

Joel Dickson: And so your asset allocation in the remainder could be more equity-focused. I tend to view my own portfolio that way in many respects, but I think it also depends on what are your spending needs and where will you be in retirement. If you’re going to need the rest of your financial portfolio in addition to your guaranteed income to meet your spending needs, then it’s not clear that you would want to necessarily take more risk in the remaining part of the portfolio, because at the end of the day you’re still needing to hedge your investments and your spending patterns in such a way to meet those needs in retirement.

Maria Bruno: Well, could I just go back, though, to—you were talking about your own, how you view things in your personal portfolio. Do you have guaranteed income? Are you thinking about your income stream from your salary, for instance, which, newsflash, is not guaranteed?

Joel Dickson: Thank you very much, especially after another couple of these podcasts, yes.

Maria Bruno: Are you thinking about it from a human capital standpoint, as an income stream and how that income stream affects how you invest?

Joel Dickson: Actually, I do have a fairly stable income source. I view that as another form of a bond-like instrument.

Maria Bruno: Okay. We get that question a lot, and that’s a good one.

Joel Dickson: How do you think about that, when you’ve talked with clients and from the planning days?

Maria Bruno: Yes, I tend to agree. Particularly when you think about what they’re investing for, if they’re investing in maybe legacy planning or things like that. The fact that they might have guaranteed income to cover their baseline expenses allows them to make different choices or how they think about the remainder of their portfolio in terms of risk capacity.

Joel Dickson: Yes, great. All right. Let’s see what we’ve got here.

Maria Bruno: Shuffle away.

Joel Dickson: Shuffle, shuffle.

Maria Bruno: Shuffle, shuffle.

Joel Dickson: Elizabeth from our home state of Pennsylvania asks, “I’ve been debating whether or not I should hire a financial advisor. What should I expect in terms of an advisor to add value, and would they be able to help me avoid market declines?”

Maria Bruno: Okay.

Joel Dickson: There’s a lot to that question.

Maria Bruno: So, I’m sorry, I just hung onto the end where it said, “Avoid market declines.”

Joel Dickson: Do you want to see the question?

Maria Bruno: Sure. You can certainly avoid market declines by not investing in the market. But there’s a huge opportunity cost to not doing so. So I think I would rephrase that a little bit in terms of avoiding the market declines. But where I would see the value in working with an advisor would be to help position the portfolio so that you are comfortable when there are different types of market environments that you feel comfortable in terms of how your portfolio is allocated. So that’s one aspect of how an advisor can add value in terms of portfolio construction, making sure that you’re diversified according to your goals. The other thing where a financial advisor could add a lot of value would be in terms of how do you—and we talk about this all the time in terms of how do you construct your portfolio in terms of directing your next marginal dollar, for instance? How do I allocate across the household in terms of investing or paying down debt, for instance, and then what types of accounts should I be investing in? And then, when spending, for instance, what’s that interplay between different account types? How should I be spending for my portfolios tax efficiently? So I think it’s that decision-making across the household and the elements that come together where a financial advisor can work with an individual and personalize the plan to meet his or her goals.

Joel Dickson: A professional financial advisor can be extraordinarily knowledgeable on a lot of topics, but he/she gets out the crystal ball just like I do, just like anyone else does when it comes to, Is the market going to decline here? Let me see if this gets cloudy. Is the market going to decline over the course of the next several months? The fact is, we don’t know. Everyone has an opinion. Those types, especially short-term market returns, are not predictable. There might be other reasons to be out of equities, if you’re uncomfortable with the risk or whatever it might be.

Maria Bruno: Or you have a very short-term goal where you shouldn’t be exposed to market declines for principal preservation.

Joel Dickson: But really, I know some advisors will sell their services or their approach as improving your investment returns or keeping you out of the market when things are rough and so forth. I’m pretty skeptical on a lot of those, and to me that’s more marketing than the real value that you would get from it.

We have a framework for thinking about what are kinds of the potential ways for advisors to add value—it’s called Vanguard Advisor’s Alpha®—it really is more focused on the things that are under the investor’s control or through the financial advisor under the investor’s control and not so much the returns from a market or a particular asset class or even asset manager at times.

Maria Bruno: Okay, all right.

Joel Dickson: All right, I think I’m—No, you’re picking, that’s right.

Maria Bruno: Yes.

Joel Dickson: I’m sorry.

Maria Bruno: Grabby today, aren’t you, Joel? Okay, let’s see. Oh, here’s an interesting one. So Tom from New York asks, “Joel … ?” And this one’s to you, actually.

Joel Dickson: This one’s to me, oh, great.

Maria Bruno: So, “Joel, if you were not an economist, what would you be?”

Joel Dickson: Oh, if I were not an economist—although no one, I think, thinks I’m an economist anymore. Well, the quick answer is, I don’t know what I would be. I do think, though, about when I retire, because I’m now within, say, fifteen-ish years of retirement, more or less depending on the particular day. I think about, what would I like to do in retirement? And I’ve told you this before, I think kind of my dream retirement opportunity would be to be the official statistician for a minor league baseball team in a small- to mid-size midwestern city that has access to a lake as well as being able to go to the ballpark every day in the summer. So I guess that’s the way I would answer that question about what I might do in terms of retirement dream job.

Maria Bruno: You’ve never thought about if you didn’t do this what you would be doing?

Joel Dickson: Nah.

Maria Bruno: That’s not normal, Joel.

Joel Dickson: I really haven’t. What about you?

Maria Bruno: Me? Oh! I think I would be doing something nonfinancial-related at all, probably—

Joel Dickson: Gardening?

Maria Bruno: Flipping houses.

Joel Dickson: Flipping houses?

Maria Bruno: Rehabbing houses.

Joel Dickson: Interesting.

Maria Bruno: With a contractor and a whole team there, of course.

Joel Dickson: Oh, of course, of course. All right, moving on.

Millie from Vermont says, “I graduated from college 2 years ago and joined the working world. I constantly hear about the need to start saving early for retirement, but how should I think about it when I also have student loans and plenty of other goals that I want to meet much sooner than 40-or-so years from now?”

Maria Bruno: Go back to school? Just go back, go back. No, we get this question a lot. You know, we kind of went through it when we were young in terms of how do you allocate resources? And here the message is—really, it’s not all or nothing. It’s really balancing how do you allocate resources across.

So most individuals in that situation, they’re trying to invest. We mentioned this earlier. You tell them they need to invest 12% to 15%, that’s not economically feasible. So the message there is to manage to do both, right? So start small, stretch yourself, go on an automated investing program through payroll deduction, for instance, or some type of automatic investment program. But then, also balance paying down that student debt. The other thing to think about, and we’ve talked about this in the past, is how do you think about an emergency savings bucket? Right, a liquidity fund? You need that as well. Any investor needs a rainy day fund. And how you think about that is, it doesn’t necessarily have to be all in cash. You can think about other things like a Roth IRA, where contributions are accessible, so there you’re saving for retirement, but there’s a level of liquidity there with that type of account should you need that.

Joel Dickson: Yeah, I think about this, too, as constantly needing to remind folks that paying down debt is saving.

Maria Bruno: Yes, yes. You’ve mentioned that a lot, and I totally agree with that.

Joel Dickson: And so there are opportunities for an investment portfolio, saving through an investment portfolio. There are opportunities in paying down debt that’s the foregone interest rate that otherwise would accumulate and how you think about that can often be put on a similar plane, which is, Where do I get the potential best-expected return for that incremental savings dollar?

All right, next?

Maria Bruno: Oh, that’s me.

Joel Dickson: That is you.

Maria Bruno: Okay, I was waiting for you to go in again. Let’s see, Steve from New York asks, “How often do you suggest rebalancing?”

Joel Dickson: There are a lot of folks out there that’ll give all sorts of answers about these different rebalancing choices. I actually think it can be summed up somewhat similar to one’s love life, which is, It’s better to have rebalanced and not come out ahead than not to have rebalanced at all. And, in fact, that’s in many ways—I know, you’re looking at me like, What, you’ve got 2 heads?”

Maria Bruno: You really stretched that one.

Joel Dickson: Did I stretch that one? Oh, well. And, as a matter of fact, Vanguard has just written a research piece on smart rebalancing.

Maria Bruno: And that’s accessible on, yes.

Joel Dickson: That is correct, where basically the message is: It doesn’t really matter how you rebalance, just do it.

Maria Bruno: Right.

Joel Dickson: And that’s the most important thing. Whether you do it annually with a 5% trigger when things get out of whack or monthly with a 3% trigger or every 2 years with a 10% trigger. That doesn’t really matter as much as—just have a systematic plan and stick with it.

Maria Bruno: Right, because the goal of rebalancing is to manage the risk profile of the portfolio, not to maximize returns. So certainly the more you do it, the closer you keep the portfolio to that risk profile; but you need to think about the costs that go into doing that, so you want to find that balance. But we run the numbers on it. One method is not necessarily better than the other, particularly when you’re thinking about taxes as well. So pick a rebalancing strategy and stick with it. Okay.

Joel Dickson: This one is from Alan in Colorado. “How do you think about being a tax-efficient investor, and really what does that even mean and why should I care about taxes rather than investment performance?”

Maria Bruno: Okay, so when we think about the things you can control, cost is one of them. Costs and the investment management fees, but then also taxes. So the goal with investment selection is to maximize the after-tax return, not the amount necessarily that you pay in taxes. That’s your line. You always use that.

Joel Dickson: Yeah, well, there’s that old line about don’t let the tax tail wag the dog.

Maria Bruno: Right.

Joel Dickson: And my response is usually a happy dog wags its tail. Yeah, don’t let it be the main piece of it, but if you’re thinking about taxes and, again, the thing that you can control, you’re going to be better off over the long run and happier with it.

Maria Bruno: Um-hmm. And then for most investments, you can get after-tax returns on like or on the website in terms of pretax and after-tax returns, right?

Joel Dickson: For individual portfolios or funds, yes.

Maria Bruno: Funds, right.

Joel Dickson: That’s right.

Maria Bruno: Okay, move on?

Joel Dickson: Move on.

Maria Bruno: You probably could spend another 10 minutes talking about that one.

Joel Dickson: Oh, I could talk about taxes forever.

Maria Bruno: Okay, Marina from North Carolina asks, “What resources do you recommend for learning the basics for what we have to know to successfully invest?” Okay, so here is basically, Where do I learn the foundations to get started in investing?

Joel Dickson: I think this is both a positive and a negative. There is so much available in many different places on how to invest, how to make money, what should I do as I’m starting out, as I’m reaching retirement? So there is a plethora of opportunities to be able to decide how you want to go about learning about the basics. Trying to then figure out how to navigate through that I think is a big challenge. I’m going to go back to, Maria, what you said earlier in response to a couple of the questions of the young folks starting out, the younger investors starting out, which is, at the end of the day, it can be pretty basic. And if you can keep it simple and straightforward, that’s probably the best approach to think about. Save what you can. Prioritize tax-advantaged vehicles—take “free money” like employer match and so forth, where you get benefits for investing. Invest in an appropriate mix of assets like a target-date fund. And, honestly, if you do that, just live your life. Don’t stress about it then so much, because you’ll probably be on at least the right track initially. But trying to learn about the basics with all of this information being thrown at you can often be a challenge. Tune out the noise. Don’t start listening to every pundit or person, because you’re going to find a different viewpoint for every issue there.

Just keep it simple; keep it straightforward and stress-free.

Maria Bruno: Okay, all right, good.

Joel Dickson: All right. This one I think is for you.

Maria Bruno: For me?

Joel Dickson: Yeah.

Maria Bruno: All right. Eh, we have another Joel question.

Joel Dickson: See, I knew it. Just like, Hmm, something tells me this one isn’t, I shouldn’t be asking this one of you.

Maria Bruno: So this is MaryAnn from South Carolina.

Joel Dickson: MaryAnn from South Carolina.

Maria Bruno: Yes. So she wants to know, “Joel, when you think about your investing journey, what has been your biggest regret or the one thing you wish you would have done?” That’s an interesting one.

Joel Dickson: Biggest regret.

Maria Bruno: Maybe you don’t have any regrets.

Joel Dickson: Regrets, I have a few. No, nothing really comes to mind about biggest regrets. I guess what I wish I would have done, probably saved a little bit more earlier in my career, think a little bit more about my future self as it were. The psychologists like to say, Hey, try to picture your future self and what would you do to help your future self. That’s kind of the one that I would say I would save a little bit more because the spending that I did when I was younger, you look back and go, Ah, I could have helped with my future self a little bit more and say—

Maria Bruno: Did you live your life by a spreadsheet back then? I’m going to add to MaryAnn’s question here.

Joel Dickson: I did not live my life via spreadsheet.

Maria Bruno: When did that start?

Joel Dickson: Uh, that started about 10 years ago, where I’m just like, Okay, let’s figure out where, project all this forward.

Maria Bruno: All right, I get to ask the next question.

Joel Dickson: And it looks empty now.

Maria Bruno: Yeah, it’s our last one.

Joel Dickson: All right.

Maria Bruno: So John asks, “I wanted to know what an investor is to do when the markets are in a downturn. I am on a regular investment schedule making contributions to my 401(k) and Roth IRA every 2 weeks. I know the common advice is to make a plan and stick to it. But to continue making biweekly contributions and realize immediate losses takes thick skin.”

Joel Dickson: Yeah, so, first of all, kudos for having and sticking with a plan, right?

Maria Bruno: Absolutely.

Joel Dickson: Regular investment, put it on autopilot, some of the things that you were saying earlier. I guess I would say, and I actually remember this comment. This comment came last fall from one of the episodes. And at the time the market was going down. You might remember in the fourth quarter of 2018, there was actually a fairly significant short, what ended up being short-term decline in the U.S. and international equity markets. And just think if you would have stopped your contributions or switched from equities to fixed income and so forth, in the first 3 or so months of 2019, there was a strong rally in those markets. And the idea is just, we don’t know when these are going to occur—the downturns, the updrafts if you will. And so it’s really about managing those elements that you really don’t have control over. And as hard as it is, it’s not the head that is the necessary sort of organ to be able to invest effectively. It’s the stomach.

Maria Bruno: You’re on a roll today, Joel.

Joel Dickson: I’m on a roll, okay.

Maria Bruno: You’re on a kaiser roll today.

Joel Dickson: Yeah, thank you very much. So, it’s really about, can you handle the volatility? If you’re finding that you can’t handle it, maybe you don’t have the right portfolio for your risk tolerance.

Maria Bruno: Right, right.

Joel Dickson: But you should stick to that plan and just kind of close your eyes and walk away.

Maria Bruno: Yes, and I guess, you know, listening to the question and then listening to you respond, the one thing I would add to this as well is, it takes even thicker skin if you don’t dollar-cost average and put all that money into a lump sum when you think it’s the “opportune time” to invest. And then if the market goes down, so you need thicker skin to endure that.

So kudos again to doing this discipline investing program because it’ll smooth it out.

Joel Dickson: And that’s a really important point, right? It’s not one decision, it’s 2 decisions in these cases, right? Oh, I’m going to get out or I’m going to stop my contributions in this case. Okay, when are you going to restart them?

Maria Bruno: Right.

Joel Dickson: Are you restarting them now, after 15% up or so, or do you think that it’s going to downturn again? And so you get into this paralysis almost at times.

Maria Bruno: Um-hmm. Okay, all right, well these were really good questions.

Joel Dickson: They were a whole bunch of different issues.

Maria Bruno: Yes, so we’re really glad to have the opportunity to take listener questions, and we welcome the continuance of that. So we would ask our listeners to give us comments on iTunes and so that we can have this opportunity to take more questions.

Joel Dickson: Yes, and also, I think we’re going to switch topics for the next episode. We’ll do one on education savings or college savings. We’ll have a very special guest joining us to help think about reducing the costs of those obligations.

Maria Bruno: Yeah, I think that’ll be a good discussion.

So, as usual, thank you, Joel. It was good to spend time with you and get your perspective as we took real client questions this time.

Joel Dickson: Yours as well. Hopefully it was topics of interest to our listeners and, in this case, our viewers.

Maria Bruno: So, Joel, that was fun. We would be remiss, though, if we did not celebrate today.

Joel Dickson: Today?

Maria Bruno: Which is—

Joel Dickson: Today, being the day we’re recording this?

Maria Bruno: Yes, and also International Haiku Poetry Day.

Joel Dickson: It’s International Haiku Poetry Day!

Maria Bruno: You’re welcome. I told you this at 8 o’clock this morning.

Joel Dickson: It just so happens I might have a haiku to actually close this podcast.

Maria Bruno: Go figure.

Joel Dickson: So—

Planner and the Geek,
A great investing podcast.
Rate us on iTunes.

Maria Bruno: And that’s a wrap. We hope you enjoyed this episode of The Planner and the Geek. Just a reminder that you can find more episodes of The Planner and the Geek on iTunes and on

Joel Dickson: Or simply subscribe to our series and you won’t miss an episode. And please don’t forget to rate us on iTunes. Your ratings will make it easier for others to find us when they’re looking for investing podcasts. Please join us next time for another episode of The Planner and the Geek.



All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Diversification does not ensure a profit or protect against a loss.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

Although the income from municipal bonds held by a fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

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