July 15, 2026 • 32 mins
Can keeping up with financial news actually make you a better investor—or just make you more confident about making bad decisions? Don and Tom dig into research on how markets react to news, why investors tend to overreact to splashy stories and underreact to boring numbers, and whether sophisticated traders can actually exploit those inefficiencies. Then, a caller nearing retirement asks how to build a conservative brokerage account to bridge the years before Social Security. Plus, the guys compare Avantis global ETFs with Vanguard’s Total World Stock ETF, debate the value of factor tilts, and marvel at how quickly investors can pile billions into the latest hot investment idea.
- 00:05 Can financial news make you a better investor?
- 00:52 The illusion of being ahead of the market
- 01:44 Can investors profit from company news?
- 02:42 Are markets really efficient?
- 03:33 What 6.7 million Reuters articles reveal about news
- 04:40 How much financial news is actually predictable?
- 05:06 Why investing based on headlines is a fool’s errand
- 06:18 Bad news, numbers, and investor underreaction
- 07:06 Why investors overreact to ambiguous, high-attention news
- 08:10 Investment strategies that ordinary investors can’t realistically use
- 09:02 Be skeptical of your reaction to splashy news
- 09:36 Big news isn’t always new information
- 10:31 The factor zoo and the cost of complicated investing
- 11:04 Can expensive strategies overcome their fees?
- 12:28 Why diversified investors can mostly ignore the news
- 13:32 Soccer, summer football, and Orlando’s forgotten team
- 14:10 Listener call: Building a retirement bridge account
- 15:00 Retirement plans, Social Security, and a future inheritance
- 16:28 How soon will the retirement money be needed?
- 17:10 Matching asset allocation to short-term spending needs
- 18:04 Using bonds and cash for retirement stability
- 19:28 Is it okay to hold bonds in a taxable brokerage account?
- 20:43 A listener puts Don and Tom on his financial Mount Rushmore
- 22:02 Halloween in Celebration and 1,000 pieces of candy
- 22:46 Why did Avantis launch AVTM?
- 23:58 AVTM versus Vanguard Total World Stock ETF
- 24:06 Why Don and Tom prefer AVGE for a one-fund portfolio
- 25:29 The astonishing rise of a semiconductor ETF
- 26:45 Can VT plus AVGV replicate AVGE?
- 27:06 Why a 20% value tilt may not be enough
- 28:33 Factor investing, expenses, and expected returns
- 29:30 Tom returns from Greece and is ready for calls
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Episode Transcript
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SPEAKER_00 (00:05):
You're gone to a really great financial future.
Tom and Don are talking realmoney.
SPEAKER_02 (00:12):
One of the biggest things that investors do, people
who consider themselves seriousinvestors, I'm serious about
investing.
I read my Wall Street Journal, Iread my investors' business
daily, I read the New YorkTimes, I read the Washington
Post, I read uh whatever it is,uh Bloomberg, that thing, I
watch Fox Business and CNBC, I'mpaying attention, I know what's
(00:37):
going on in the world offinance, I follow the news, so I
am a savvy investor, therefore Iam going to make better
decisions because I'm ahead ofthe curve and all of the rest of
you aren't.
So can the news, knowing what'scome, what might be coming, the
reports from companies, thingsthat have happened to them
recently, can that be a means bywhich you profit in the stock
(01:01):
market?
Hi, everybody.
Welcome to Talking, Real Money,the podcast, Don McDonald here
in a beautiful FLA, where it'suh, I don't know what it is
today when this airs, but I'mpretty confident it feels like
108.
SPEAKER_03 (01:17):
We're in the salad days here.
It's a sunny in 75 every day.
SPEAKER_02 (01:21):
Now it feels like 78.
SPEAKER_03 (01:23):
Yeah, it's crazy hot.
Really out there.
So yeah, crazy.
I'm telling you, I'm stilltrying.
SPEAKER_02 (01:29):
I I think there's an escape to the mountains coming.
We were gonna go to Maine, butgas prices.
I think we're just gonna go tothe mountains and park for a
month.
I'm not sure.
SPEAKER_03 (01:38):
Okay.
You know.
SPEAKER_02 (01:39):
They in the trailer, of course.
SPEAKER_03 (01:40):
Now, when you say park to meet the city, not just
in the car, isn't it just we'rejust gonna pull into a parking
spot somewhere.
SPEAKER_02 (01:45):
It's been a month there.
Okay.
See what it's like to behomeless.
Absolutely.
Try it.
It doesn't sound like a funthing.
Anyway, what are we talkingabout?
Well, we're talking aboutreacting to the news.
Can you, as an investor, makedecisions based on, you know, a
company's reports of betterearnings, worse earnings,
something terrible happening,something great happening, you
(02:08):
know, the rocket not blowing upas opposed to it usually blowing
up or whatever it might be.
Can you make decisions?
Larry Swedro, good friend ofours, wrote a paper on that.
SPEAKER_03 (02:20):
Well, he writes a daily vlog.
I mean, I read it every day.
It's good.
And uh and I think I paysomething for it.
I don't think it's free, so Ithink you've got to pay to get
this every day.
Um we have a bias.
So the other thing is when Iread this, I thought I uh if you
would have to really work hardto convince me that markets in
the long haul are inefficient.
SPEAKER_02 (02:43):
In other words, Well, okay, you're talking about
the efficient market bias.
We believe that markets but butbut but let's let's let's codify
that let's not codify, let'slet's focus that a bit.
We believe that markets areefficient on a grand scale.
Yeah.
There are inefficiencies.
The problem is trying torecognize, to uh identify, and
(03:05):
then to use those inefficienciesand finding the inefficiencies
that actually work.
And I think that's kind of whatthis article is about, right?
SPEAKER_03 (03:13):
I think it is about that.
And you're seeing that I thinkyou're seeing that play out the
last year and a half with peoplethat have moved into
international stocks, which havegone up more than U.S.
stocks because they were kind ofpriced a little lower than U.S.
Right, okay.
So anyway, so Larry uh wroterecently about a news study
that's called the inefficientpricing of news.
And the paper suggests that theassumption of efficient markets
(03:36):
that you just described on iswrong.
Quoting Larry, mispricing islarger and lasts far longer than
the academic finance world hasdocumented.
Now they went back and looked at6.7 million Reuters new art news
articles over about a 25-year uhtime frame ending in 2022.
(03:56):
So that's a pretty decent amountof news.
Or is it?
SPEAKER_02 (04:00):
I don't know.
I I don't think it is.
I don't think 25 years is enoughdata points to draw conclusions
because it's very you're gonnagot a look at a lot of recency
bias biases in there.
SPEAKER_03 (04:14):
Yeah, but what they found is fascinating.
Researchers made an observationthat seems obvious in hindsight,
again from Leary, but haven'tbeen formally tested.
A lot of what we call news, theysay, is predictable.
Um, got to think that through alittle bit.
They found that that there's uhabout a 10% that it could
predict roughly 10% of thevariation in news contact before
(04:37):
the article is even published.
Uh wait a minute.
What can predict that?
The researchers.
They if you just looked atgenerally, here's what you would
expect this company.
The things that companies mostof the time report as news are
really not that good.
SPEAKER_02 (04:56):
They try not to report that.
You can't miss it.
SPEAKER_03 (04:58):
You can't miss it.
And that has no had no materialimpact apparently on the price,
which is skyrocketing.
It doesn't seem to matter.
Um so this is at the end of theday, what you said is absolutely
110% right.
I'm gonna say that 80% of thepeople that I talk to still
think that's investing.
That investing is reading allthose things, is knowing what's
(05:21):
going on in the world and what'sgoing to happen, and is basing
what I'm gonna do in the nextone, six, three months on that.
That we're gonna tell you isjust a fool's errand uh and and
or from everything I've everread or everything I know.
But in this case, they're reallytalking about the news shock
strategy.
It I'm not gonna give you thenumber because Don doesn't want
me to, but sharp ratio.
SPEAKER_02 (05:44):
I I I again I don't think this this is a robust
enough study to to to tellpeople that if you can find the
right kind of news, it improvesyour returns by X.
I just think that's misleading.
SPEAKER_03 (05:58):
Aaron Ross Powell Or how to respond to that, right?
Yeah.
This is this is always the thestruggle once you see the
reason.
SPEAKER_02 (06:05):
And we really need to explain what the different
kinds of news are, becausethere's there's the news shock
news, and then there's just thenews news.
And determining which is theright kind of news?
SPEAKER_03 (06:18):
Yeah.
And they mentioned negativenews, and they say that bad
news, this is quoting, travelsslowly.
Investors don't fully processthe negative implications right
away.
And it also, again, kind of getsback to our bias of investors'
reluctance to sell losers.
Quantitative news?
Number news.
Yeah, number news, investorsappear to underweight them
(06:39):
because people like stories, asthey point out.
When I read this, I was like,yeah, people would rather have a
story than they would a number.
SPEAKER_02 (06:44):
Right.
So what are they what are theysaying here?
Let's just read between thelines.
What they're saying here is thatwith just normal negative news
or somebody reporting badnumbers that nobody pays any
attention to, the market reallydoesn't react to that.
So you can't play that news,basically.
That's what they're saying.
You can't play that news for apotential higher return.
SPEAKER_03 (07:06):
And and the overreaction, ambiguous news.
They say investors overreact touncertainty, high attention
news.
You don't think the things Donjust mentioned, rockets blowing
up, et cetera.
The initial price moveovershoots and then a reversal
they say follows.
This is looking back again, 25years of data, at individual
companies and news stories, ifyou will, news information.
SPEAKER_02 (07:29):
That sounds so complicated already to me.
SPEAKER_03 (07:32):
Oh, I think it is.
And I think there's open to alot of interpretation, too,
right?
About what is news negative, isit positive?
It's just news in many cases.
It's I think it's hard to butwhat they found again was yeah,
there's an edge to doing allthis, but replicating the
strategy is not realistic formost individual investors
because you need access to thisagain from Larry, large news
(07:55):
databases, sophisticated AIinfrastructure, and the ability
to trade hundreds of stocks withshort horizon signals and manage
the turnover.
That that sounds real easy,doesn't it?
I love that.
SPEAKER_02 (08:06):
I love that.
They do all here's what we do inthis business.
We talk about all of thisesoteric research, and we say,
yeah, look at this.
There are there is a acorrelation between X and Y, and
and yet you can't play it.
It's like, yes, Warren Buffettwas better at investing than you
(08:27):
were for a while, but you can'tdo it.
Yes, uh hedge funds uh sometimeshedge funds beat the market.
But you can't do it.
You can't do this stuff.
We spend a lot of time spoutinga lot of hot air, and I'm sorry,
I love Larry, but again, this isone of those stories that it's
(08:49):
like, okay, here's all thethings that could happen, but
bottom line, you can't doanything about it.
SPEAKER_03 (08:54):
He mentions AQR, the fun family, in here as somebody
who could do it.
It doesn't say they're going todo it, but it's somebody that
could do it.
But he does mention he mentionsa couple lessons.
Uh the first one's uh the marketis less efficient than you
think, especially around newsevents.
I don't think that's a biglesson, Larry, because I think
there's always reactions,overreaction, underreaction to
(09:17):
news.
But in the long haul, what doesit really mean?
He said, but here's the part Ireally like.
He says, be especially skepticalof your reactions, your
reactions to splashy, ambiguousnews.
I think that's a great thing toknow.
Um because we all have atendency to, oh, wait, I gotta
do something there.
Um the story versus statisticsgap, he says, is real and
(09:40):
exploitable.
In other words, the fact thatpeople tend to respond better to
stories than to numbers.
Um, and then finally, don'tconfuse big news with new
information.
Uh, much of what appears to bebreak news is consistent with
what we already know about acompany.
Confirmation, if you will.
So he by the way, he I lovethis.
He calls the um the factor.
(10:02):
Is this a factor?
Hmm, I think not, but he hecalls the the whole aspect of
the number of factors now thefactor zoo.
In other words, there's so manyanimals that are ranging there
that uh that who knows what's areliable factor.
SPEAKER_02 (10:16):
And that's why I love the statement from many,
many years ago by Eugene Famathat there are all of these new
ideas that come out all thetime, and that only a very few
survive long-term scrutiny.
Everybody's looking for the newthing.
And I think AQR is a fund groupthat is guilty of that.
And guilty of exploiting that.
(10:38):
Do you know what the averageexpense ratio is uh for AQR
funds?
SPEAKER_03 (10:43):
I think it's spendy, right?
Half a percent.
SPEAKER_02 (10:46):
Oh, you are so far away.
SPEAKER_03 (10:49):
I'm not making enough money, apparently.
SPEAKER_02 (10:51):
No.
Uh the average expense ratio wasuh quoted by Portfolios Lab
across the entire family at 1.44percent.
Wow.
That's Yeah.
That's a number that's in Ibelieve that's a number that's
almost impossible to overcome.
unknown (11:08):
Right.
SPEAKER_02 (11:08):
You're not gonna be able to do that.
I don't know how you're gonnaconsistently squeeze an extra
one and a half percent out ofthe market with these very
esoteric factors, and I thinkthey're just that.
Uh we're we're tr it's a it's itgoes back to this very human
problem.
We're trying too hard to thinkthis stuff up.
SPEAKER_03 (11:28):
Well, and he mentions that.
He says, learn to be suspiciousof your own reactions to news.
The market's reaction to asurprise announcement is
probably incomplete, right?
They have they haven't reallythought it through.
What's this all gonna mean inthe long haul?
We've seen that many, manytimes.
Well, so at the end of the day,um, is this something you really
need?
I'm gonna say no.
(11:49):
Is this something we all want?
Sure.
I want to know what XYZcorporation, what that change
downtown is gonna mean to myportfolio, but it's not gonna
change how I invest.
Uh number two, I do we need anew factor of some kind?
I you'd have to have a lot moredata and research to add one.
SPEAKER_02 (12:06):
I I I want more time.
I mean, I want them to go back ahundred years.
I I exactly.
SPEAKER_03 (12:10):
Yeah.
SPEAKER_02 (12:11):
And there's news, there are news resources from a
hundred years.
You could take this study back.
It would be very involved to doso.
And it wouldn't be as robustbecause of the the quantity of
news.
It was far lower in nineteentwenty-seven than in two
thousand twenty-seven.
I've quickly willing to bet thatthere was a lot, lot less news
(12:34):
out there.
I think I I kind of remembersitting around with the family
and nineteen twenty-seven?
No, in in nineteen sixty seven.
Oh, okay.
We just watched Walter Cronkite.
That was And that's the way itis, the two hundred
fifty-seconds.
We never watched Huntley andBrinkley, and we never watched
Frank Reynolds over there on ABCthat also ran network.
SPEAKER_03 (12:54):
You like the Tiffany Network, you're gonna stick with
them.
SPEAKER_02 (12:56):
Well, it was Walter.
Come on.
SPEAKER_03 (12:59):
Captivity for those fifty-two American hostages in a
row.
There would be no cable news.
SPEAKER_02 (13:04):
At the end of the day, my big takeaway doing it.
What?
SPEAKER_03 (13:06):
My big takeaway?
What?
Be suspicious of your ownreaction because we have biases,
we all have emotions aroundthings, and people tend to
respond, and that leads them tobad decisions.
That I've seen many, many times.
SPEAKER_02 (13:21):
Ignore the news.
It means really for adiversified portfolio, the news
doesn't mean a darn thing.
No need.
Why waste your time?
Do something more fun.
Go to a soccer game.
SPEAKER_03 (13:34):
Yeah.
Of course.
SPEAKER_02 (13:36):
Are those over yet?
SPEAKER_03 (13:37):
We're getting pretty close.
No, it's July now.
Yeah.
Yes.
Isn't it over?
Until July 19th, so it's notover yet.
SPEAKER_02 (13:44):
It's not over.
It's still going.
SPEAKER_03 (13:46):
You can still watch very early American football.
There's something somebody'splaying something.
SPEAKER_02 (13:51):
No, oh, there no, the UFL's even done.
SPEAKER_03 (13:54):
Is that done?
Okay.
I didn't watch any of it.
I'm I'm sorry.
SPEAKER_02 (13:58):
I saw some in a in a uh brewery I was in.
I went, wait, Orlando has afootball team?
I did not know that.
Have they been playing formonths and I didn't know that?
Apparently they had.
Anyway, uh we love questions.
Questions, we love questions.
Uh and you send them in to us alot.
(14:18):
Thank you, attalkingrealmoney.com.
The ones that Tom likes are, ofcourse, the kind that he gets to
print.
But the party likes even more isthat every once in a while
you'll send in a question thatwe we'll we'll look at it and
we'll go, that really needs aconversation.
So Tom just picks up the phoneand does this.
SPEAKER_03 (14:38):
Thanks, Don.
We are going to go to Durham,North Carolina, where Pam joins
us on the telephone.
Hey Pam, how are you?
SPEAKER_04 (14:46):
Hi, Tom.
I'm great.
How are you?
SPEAKER_03 (14:48):
I'm having a great day.
My pleasure.
How can we help?
SPEAKER_04 (14:51):
Wonderful.
Thanks for everything that youand Don do.
I have learned a lot.
SPEAKER_03 (14:56):
Wait, there's another guy on there's another
guy on the show.
I'm gonna have to I'll look intothat when we're done here, but
okay.
I'll I'll see what I can findout.
So, all kidding aside, what whatwhat what's your question?
How can we help you?
SPEAKER_04 (15:10):
Okay, I have a question about a brokerage.
My husband and I are 57 and 59,planning to retire in about
three to five years.
Um, he is likely to take SocialSecurity starting at 67, and I
probably will wait until 70.
We have about 1.3 milliondollars between uh traditional
(15:31):
IRAs, Roth, HSA.
Most of that is in thetraditional IRA.
And we're looking at opening abrokerage to save some cash um
to use as a bridge um prior toSocial Security.
And so we are also likely tocome into some money from the
sale of a parent's house in afew years, maybe$150,000,
(15:53):
$200,000, and we would considerputting that into the brokerage
as well.
And so we realize we do not havea long runway um you know,
before we would be using thisbrokerage, so you know, we would
want to be conservative.
So we wanted to ask what assetallocation should we use for the
brokerage, or should we juststick with the high yield
savings account for now?
SPEAKER_03 (16:15):
Wow, okay, so you threw a lot at me.
So um, in terms of that money,the the inheritance and the
other money you're saving, whenwould you be likely to use that?
How soon would you actuallystart to spend some of that?
SPEAKER_04 (16:28):
So I am thinking of possibly retiring in about three
years.
SPEAKER_05 (16:34):
Okay.
SPEAKER_04 (16:34):
And so, you know, I would want to be using that, you
know, between when I starttaking Social Security at 70.
So probably it would be like atime span of seven years or so.
SPEAKER_03 (16:47):
Okay, but you'd be starting that in th potentially
in three years.
SPEAKER_04 (16:52):
Correct.
SPEAKER_03 (16:53):
Yeah.
So yeah, I mean, so you want tohave those first three years
probably in fixed income in casestocks were to go down.
So I would figure out, I wouldlook at it the other way.
I would say, okay, here's whatwe need from income from that
particular holding.
Um, and I would I'd probablyhave all that in fixed income.
(17:13):
Um, or maybe even maybe even 80%in fixed income and 20% in some
sort of high yield savings, sothat even have a little more
conservative because you reallywant to make sure that money's
gonna be there.
You can't count on stocks,certainly in a three-year
period.
You could be looking at athree-year period where they're
down.
So I'd probably do it that way.
I'd probably say, okay, we'regonna need this much, and I
don't want to take SocialSecurity until I'm 70, which is
(17:36):
wonderful, um, because you'regonna get the obviously the
larger benefit there by waiting.
So yeah, I'd probably do itsomething like that.
Um, and then you might want tolook at the whole portfolio
since it's traditional Roth,HSA, and then brokerage to make
sure that the whole portfoliostill meets your need for
return, your amount of riskyou're willing to take, and your
(17:57):
comfortability with ups anddowns in the market, so the
volatility.
But that's probably how I'd lookat the inheritance part of it.
SPEAKER_04 (18:04):
Okay.
SPEAKER_03 (18:05):
And so uh in terms of fixed income, like money
market, bonds, uh Yeah, no, Iwould be looking at probably,
you know, a total bond, maybeBND at Vanguard.
That's a very fine total bondfund.
So that's a that's an exchangetraded fund that holds, you
know, thousands of uh ofsecurities that are fixed.
(18:27):
They are an IOU, right?
They're they're issued bygovernments, corporations, et
cetera.
And uh Vanguard runs this in asomewhat conservative manner so
that you get some yield.
I'd just be curious, I hadn'tlooked at the BND yield in a
while, but it's still showing ayou know almost 4.5% yield,
according to uh that's whatVanguard's telling people.
(18:50):
So you're still making somemoney there, but it's the idea
for you is it's the cushion.
It's the money that uh again, ifstocks went down, you could take
the money out of that.
That's my preferred situation.
As I say, yeah, probably withthat shorter runway, put 80% of
the fixed income portion insomething like a BND and then
20% in a high yield savings ofsome kind that's still probably
(19:14):
paying, you know, four, fourplus percent, but uh it's not
gonna have any motion up ordown, right?
It's basically set.
So that's what you're lookingfor, stability there.
But yeah, BND, a total bond,something like that would be a
good place for you.
SPEAKER_04 (19:27):
Okay.
And it's okay to have bond in abrokerage account.
SPEAKER_03 (19:32):
It depends on your income.
Um, you know, really the onlytime bond interest per se
becomes a tax issue generally isif you're in a very high
bracket, you know, 30% orhigher.
Otherwise, it really is not thatmeaningful.
It's okay to collect interestfrom there and have to pay a
(19:53):
little bit of tax out of thebrokerage.
So you could, so the differencethere is you could use, you
know, municipal bonds of somekind, uh, the municipal bond
fund, you're paying, you'regetting less in interest, but
you're not paying any tax on it.
It just turns out that thedifference between the interest
between the two generally,unless you're in a pretty high
tax bracket, it just makes moresense to collect that higher
(20:14):
interest from a total bond andpay a little bit of tax you may
have to pay on it.
SPEAKER_04 (20:19):
Okay.
All right.
SPEAKER_03 (20:21):
Does that help?
SPEAKER_04 (20:22):
Well, yes, it does.
SPEAKER_03 (20:24):
Well, thank you for your kind comment, uh, which we
really do appreciate, allkidding aside.
It's uh it's nice andcongratulations on your upcoming
retirement.
It sounds like you got a prettygood plan in place.
SPEAKER_04 (20:35):
We hope so.
Thank you so much.
SPEAKER_03 (20:37):
Thanks, Pam.
You take care.
SPEAKER_02 (20:38):
All right, we're done with our behind-the-scenes
thing while we edited in that uhcall.
And now it's time for Tom toread one of his paper questions.
SPEAKER_03 (20:48):
I know.
Fun, right?
Columbus, Ohio, Thomas writesus.
You know you're moving to thetop of the pile if your name's
Thomas.
That goes without saying.
And this is lengthy, so pleaselisten carefully.
Don and Tom, I've been wantingto write to you both for a long
time.
I actually found your show rightafter your first Clark Howard
commercial, and you're both onmy Mount Rushmore of financial
advice now.
(21:10):
I'm gonna go by again and check,see if I'm there, because that
takes a lot of work.
Don, I'm putting Tom right nextto Dave Ramsey, even though I
know he's- Wait a minute, wait aminute.
What did he say?
He's putting Tom right next toDave Ramsey on Mount Rushmore.
Um, even though you know I haveyou have some strong feelings
about that.
But I completely agree with youguys.
Dave should stick to budgets andleave investing to Don and Tom.
(21:31):
So we're right there with you.
Maybe another time we can talkabout whether Rick Edelman
should be removed from themountain based on what he did at
the end, becoming a total cryptobro.
Rick's always on the next hotthing.
Yes, bye, Rick.
Yeah, Rick's gone.
Uh, but Clark he says isuntouchable.
And you know, I I I like Clark'swork.
Don, you're not only the HOApresident, but Celebration can
(21:52):
thank you for promoting theirtourism.
You're the reason I visited backin February.
It's a beautiful town.
By the way, how much candy doyou actually have to buy for
Halloween down?
There.
SPEAKER_02 (22:01):
I uh we buy we generally buy between 600 and a
thousand pieces of candy everyyear.
SPEAKER_03 (22:10):
We had three people this year at my house.
SPEAKER_02 (22:12):
We had uh about five hundred.
That's crazy.
SPEAKER_03 (22:15):
All right, here's the actual question.
And thank you, by the way,Thomas, for all of those very
kind comments.
We do really appreciate it.
The question is about AVTM.
That's the Avantas Total MarketsETF.
It's not A V G E.
Why did they launch it?
What's the actual differencebetween the two?
AVTM is a more of a market likeuh index-like product.
(22:39):
It's going to reflect the factthat the market is made up more
of large stocks than smallerones.
Um it has a similar U.S.
international split to A V GE,but it's going to own larger and
more growth-oriented stocksversus I'm answering this for
you.
SPEAKER_02 (22:56):
Oh, are you answering that?
That's not the question.
SPEAKER_03 (22:58):
That's not the question.
SPEAKER_02 (22:58):
This is just my Yeah, but you're absolutely
right.
It it it falls uh just slightlysmaller cap than the typical
large stock fund.
But when you compare it to A V GE it doesn't have the small and
value tilt.
It's way off to where he says,why did they launch it?
SPEAKER_03 (23:17):
I think that's the reasonable question.
Money?
I'm just guessing.
SPEAKER_02 (23:21):
I I think it's it's trying to be all things to all
people.
I think that I mean look atVanguard.
SPEAKER_03 (23:27):
We asked them at the time.
They said, well, becauseadvisors have asked for it.
SPEAKER_02 (23:30):
Yeah.
That's what I mean.
It's trying to be all things toall people.
Uh if you if you look at AVGE,you see that it's a dramatic
tilt towards small companies invalue.
Uh and um AVTM have you everheard us suggest it?
SPEAKER_03 (23:45):
No, we you have not.
And by the way, it's 22 basispoints.
So I think you can basically goon the same thing with V Tom, V
as in Tom Tom, or V as inVictor, V is in Tom.
VT.
unknown (23:57):
Right?
SPEAKER_02 (23:58):
Yeah, VT VT is going to match it almost exactly.
Let me just get that one for Letme look at the portfolio real
quick.
Single digits.
Uh V VT is down to six basispoints.
Six one hundreds.
SPEAKER_03 (24:10):
No offense to our friends who are not.
SPEAKER_02 (24:12):
VT is slightly larger.
SPEAKER_03 (24:14):
Okay.
SPEAKER_02 (24:15):
But that's all.
That's the only difference isthat VT skews a little larger
cap, a little, not much, just alittle.
So they are almost well, they'revery similar.
Yeah.
They're very, very similar for atiny fraction.
And by the way, AVGE is just onebasis point or one one hundredth
of a percent more expensive thanuh AVTM.
SPEAKER_03 (24:39):
So if I was picking a single stock fund, it would be
AVGE because it's global,because it has the small value
tilts.
So I'd rather have I'd ratherhave my money invested that way.
SPEAKER_02 (24:52):
And and I think the the market is also uh doing the
same thing.
I mean AVTM is is should bebigger, you would think, than
AVGE because it's moremainstream and they're both the
same size.
They have the same amount ofmoney in them.
SPEAKER_03 (25:06):
So Wow, AVTM has the same amount as AVGE?
SPEAKER_02 (25:09):
Yeah, they're both one billion dollar funds.
SPEAKER_03 (25:12):
That's it, huh?
Okay.
Little babies.
SPEAKER_02 (25:15):
Uh well they are actually in the grand scheme of
funds.
Yeah, they're tiny.
I mean what's what's VT sittingwith right now?
Um ninety-five billion.
SPEAKER_03 (25:25):
And what's DRAM have?
SPEAKER_02 (25:29):
Uh that's only been around for a while.
A little bit of scotch, just adram.
SPEAKER_03 (25:32):
Just a dram get through this program.
What's DRAM?
Roundhill memory?
Somebody wrote me about that.
It's only been around for ashort term.
It's already like the tenthlargest ETF in the world, or
some ridiculous number.
Oh,$20 billion.
Yeah, it just has come out ofnowhere because everybody's
invested in these semiconductorsthis year.
SPEAKER_02 (25:51):
It's wait a minute.
Wait, the darn thing onlystarted in what?
When did in like March?
SPEAKER_03 (25:59):
Yeah, it's just popped up on the screen and gone
straight up.
The the fundraising has beenbecause it's been the hot place
to be the last couple months,right?
So guess what?
Money's slowed in.
SPEAKER_02 (26:09):
What is that portfolio?
I've got to look at that.
It has 18 stocks in theportfolio.
Yeah.
It's a semi-board.
No, I take that back.
12 stocks, the other stuff'sbonds.
SPEAKER_03 (26:20):
This is nuts.
Yeah.
And it I think it's like the10th largest ETF already.
Some ridiculous lower.
SPEAKER_02 (26:27):
Well, you guys deserve the insanity you're
gonna get.
I mean, it is mega cap growth.
Yep.
Mega cap growth.
Nuts.
This is crazy.
This is nuts.
SPEAKER_03 (26:40):
You want to squeeze one more in, or do you want to
call it?
Yeah, yeah, yeah.
Do another question.
Come on.
We're having fun now.
California is a little bit more.
SPEAKER_02 (26:46):
It's keeping me inside where it's cool.
Let's go.
There you go.
SPEAKER_03 (26:48):
Don and Tom, thank you for all the good work.
What do you think about aportfolio of 80% VT?
Yeah.
That's a Vanguard Total World.
Plus 20% AVGV to achieve a valuetilt similar to AVGE.
SPEAKER_02 (27:04):
Not really.
SPEAKER_03 (27:05):
It helps cost the portfolio.
Is it worth it?
Looking forward to hearing yourtake on this.
SPEAKER_02 (27:10):
Okay, if you're trying to get a portfolio
similar to A V G V.
Why don't you just buy AVGV?
Why don't you just buy AVG?
SPEAKER_03 (27:16):
I don't know.
It's a lot of work.
SPEAKER_02 (27:18):
No, A VGV does not tilt that much farther towards
small value to pull over that80%.
SPEAKER_03 (27:27):
That you're thinking basically large cap, even though
you got an international.
SPEAKER_02 (27:32):
It's not going to do it for you.
50-50 might get you a littlecloser.
SPEAKER_03 (27:35):
But V20 isn't going to do it.
SPEAKER_02 (27:38):
And if you want to just nail the same allocation as
AVGE, I have an idea for you.
Move everything into A V G E.
SPEAKER_03 (27:45):
If you're trying to accommodate that'll be a good
one.
Okay.
SPEAKER_02 (27:54):
So we're we're quibbling over, yeah, okay.
Yeah.
Uh again, we our expectation.
Expectation based on pastperformance.
We don't have a long-term trackrecord for AVGE, but we do for
some of the dimensional funds.
And what we do see over the longhaul is that you you have
(28:15):
received a more than the expenseratio difference in return, a
much higher return,substantially higher in these
small value tilt funds.
Again, ABGE doesn't have enoughhistory for us to say with any
confidence that they're beatingthe market, but over the past
(28:37):
several years, they've actuallyshown a tendency to do that.
But we don't like short-termdata.
SPEAKER_03 (28:43):
No.
SPEAKER_02 (28:44):
As we mentioned.
If you you look back at thethree-year average annual
return, that's all we have tocompare for AVGE, you'll see
that the index with with whichthey're being compared returned
about 19.7 over that three-yearperiod on average per year,
(29:04):
whereas AVGE returned abouttwenty point seven for that
additional less than twentybasis points or two-tenths of a
percent.
Yeah.
Put your money ahead.
SPEAKER_03 (29:20):
In the long haul, we would expect you to do better,
but can't guarantee that.
Yeah.
By the by the way, when doesthis air?
I hate to do this publicly, butum I don't care.
SPEAKER_02 (29:31):
I don't care if we tell them that these are
recorded.
You were on vacation.
So we had to we had to frontload the funds.
I mean the funds.
We had to front load.
It sounds like a mutual fund.
We had to front load the show.
There's my brokerage.
There's a compliance comingback.
They're gonna love that one.
No, no, no.
They'll they won't care aboutthat.
Uh this is when are we recordingthis?
(29:52):
Uh let's see, 17.
This is gonna air on I think the16th of July.
SPEAKER_03 (29:59):
Okay.
So I'll just that this is agreat lead-in.
I've had enough pasta.
I've had enough uzo.
Oh, because you're back fromhome and I'm I'm ready for your
calls again.
So dial them up.
I've I'm home for the summernow.
So um and did you spend thesummer in Sparta?
Do you like me the way I look inmy little Yeah, you're all
(30:19):
buffing your little skirt?
Wouldn't that be nice?
Uh so if if you'd like somehelp, yeah.
SPEAKER_02 (30:25):
Because of the pasta and the uzo.
SPEAKER_03 (30:28):
Won't help.
I'll have my one thimble of oozoand then that'll be that.
Uh already have, I guess.
So if you'd like some help, I'mback.
I'm ready to go.
Tan rested and ready, as we liketo say.
So uh go totalkingrealmoney.com, click on
meet an advisor, and then say Iwant to meet with Tom.
SPEAKER_02 (30:46):
Burned with white t-shirt lines.
SPEAKER_03 (30:49):
It won't be pretty.
It can be sure it's so pretty.
SPEAKER_02 (30:52):
Yeah, go to talkingrealmoney.com, click on
meet an advisor if you want oneof those meetings.
Uh, otherwise, just ask yourquestions at
talkingrealmoney.com.
And if you want to know where tosend people, well, send them to
your favorite podcast service tolisten, or just send them to the
website, talkingrealmoney.com,because all over the place, all
these various places, almostevery day of the week, we are
doing this most important thingof all.
(31:14):
You know what it is.
Talking Real Money.
SPEAKER_01 (31:18):
The opinions of views expressed on this podcast
were current on the daterecorded.
Opinions, estimates, forecasts,and statements of financial
market trends that are based oncurrent market conditions
constitute our judgment and oursubjects change without notice,
including any forward-lookingestimates or statements which
are based on certainexpectations and assumptions.
Although information andopinions given have been
obtained from or based onsources believed to be reliable,
no warranty or representation ismade as to their correctness,
(31:39):
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Information presented on thepodcast is not personalized
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The views and strategiesdescribed may not be suitable
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This podcast does not identifyall the risks, direct or
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We hope you realize that theinformation provided on
(32:01):
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The podcast is not trying to getyou to buy or sell any financial
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(32:22):
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(32:44):
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The lawyers get richer.
You're gone to a really great financial future.
Tom and Don are talking realmoney.
SPEAKER_02 (00:12):
One of the biggest things that investors do, people
who consider themselves seriousinvestors, I'm serious about
investing.
I read my Wall Street Journal, Iread my investors' business
daily, I read the New YorkTimes, I read the Washington
Post, I read uh whatever it is,uh Bloomberg, that thing, I
watch Fox Business and CNBC, I'mpaying attention, I know what's
(00:37):
going on in the world offinance, I follow the news, so I
am a savvy investor, therefore Iam going to make better
decisions because I'm ahead ofthe curve and all of the rest of
you aren't.
So can the news, knowing what'scome, what might be coming, the
reports from companies, thingsthat have happened to them
recently, can that be a means bywhich you profit in the stock
(01:01):
market?
Hi, everybody.
Welcome to Talking, Real Money,the podcast, Don McDonald here
in a beautiful FLA, where it'suh, I don't know what it is
today when this airs, but I'mpretty confident it feels like
108.
SPEAKER_03 (01:17):
We're in the salad days here.
It's a sunny in 75 every day.
SPEAKER_02 (01:21):
Now it feels like 78.
SPEAKER_03 (01:23):
Yeah, it's crazy hot.
Really out there.
So yeah, crazy.
I'm telling you, I'm stilltrying.
SPEAKER_02 (01:29):
I I think there's an escape to the mountains coming.
We were gonna go to Maine, butgas prices.
I think we're just gonna go tothe mountains and park for a
month.
I'm not sure.
SPEAKER_03 (01:38):
Okay.
You know.
SPEAKER_02 (01:39):
They in the trailer, of course.
SPEAKER_03 (01:40):
Now, when you say park to meet the city, not just
in the car, isn't it just we'rejust gonna pull into a parking
spot somewhere.
SPEAKER_02 (01:45):
It's been a month there.
Okay.
See what it's like to behomeless.
Absolutely.
Try it.
It doesn't sound like a funthing.
Anyway, what are we talkingabout?
Well, we're talking aboutreacting to the news.
Can you, as an investor, makedecisions based on, you know, a
company's reports of betterearnings, worse earnings,
something terrible happening,something great happening, you
(02:08):
know, the rocket not blowing upas opposed to it usually blowing
up or whatever it might be.
Can you make decisions?
Larry Swedro, good friend ofours, wrote a paper on that.
SPEAKER_03 (02:20):
Well, he writes a daily vlog.
I mean, I read it every day.
It's good.
And uh and I think I paysomething for it.
I don't think it's free, so Ithink you've got to pay to get
this every day.
Um we have a bias.
So the other thing is when Iread this, I thought I uh if you
would have to really work hardto convince me that markets in
the long haul are inefficient.
SPEAKER_02 (02:43):
In other words, Well, okay, you're talking about
the efficient market bias.
We believe that markets but butbut but let's let's let's codify
that let's not codify, let'slet's focus that a bit.
We believe that markets areefficient on a grand scale.
Yeah.
There are inefficiencies.
The problem is trying torecognize, to uh identify, and
(03:05):
then to use those inefficienciesand finding the inefficiencies
that actually work.
And I think that's kind of whatthis article is about, right?
SPEAKER_03 (03:13):
I think it is about that.
And you're seeing that I thinkyou're seeing that play out the
last year and a half with peoplethat have moved into
international stocks, which havegone up more than U.S.
stocks because they were kind ofpriced a little lower than U.S.
Right, okay.
So anyway, so Larry uh wroterecently about a news study
that's called the inefficientpricing of news.
And the paper suggests that theassumption of efficient markets
(03:36):
that you just described on iswrong.
Quoting Larry, mispricing islarger and lasts far longer than
the academic finance world hasdocumented.
Now they went back and looked at6.7 million Reuters new art news
articles over about a 25-year uhtime frame ending in 2022.
(03:56):
So that's a pretty decent amountof news.
Or is it?
SPEAKER_02 (04:00):
I don't know.
I I don't think it is.
I don't think 25 years is enoughdata points to draw conclusions
because it's very you're gonnagot a look at a lot of recency
bias biases in there.
SPEAKER_03 (04:14):
Yeah, but what they found is fascinating.
Researchers made an observationthat seems obvious in hindsight,
again from Leary, but haven'tbeen formally tested.
A lot of what we call news, theysay, is predictable.
Um, got to think that through alittle bit.
They found that that there's uhabout a 10% that it could
predict roughly 10% of thevariation in news contact before
(04:37):
the article is even published.
Uh wait a minute.
What can predict that?
The researchers.
They if you just looked atgenerally, here's what you would
expect this company.
The things that companies mostof the time report as news are
really not that good.
SPEAKER_02 (04:56):
They try not to report that.
You can't miss it.
SPEAKER_03 (04:58):
You can't miss it.
And that has no had no materialimpact apparently on the price,
which is skyrocketing.
It doesn't seem to matter.
Um so this is at the end of theday, what you said is absolutely
110% right.
I'm gonna say that 80% of thepeople that I talk to still
think that's investing.
That investing is reading allthose things, is knowing what's
(05:21):
going on in the world and what'sgoing to happen, and is basing
what I'm gonna do in the nextone, six, three months on that.
That we're gonna tell you isjust a fool's errand uh and and
or from everything I've everread or everything I know.
But in this case, they're reallytalking about the news shock
strategy.
It I'm not gonna give you thenumber because Don doesn't want
me to, but sharp ratio.
SPEAKER_02 (05:44):
I I I again I don't think this this is a robust
enough study to to to tellpeople that if you can find the
right kind of news, it improvesyour returns by X.
I just think that's misleading.
SPEAKER_03 (05:58):
Aaron Ross Powell Or how to respond to that, right?
Yeah.
This is this is always the thestruggle once you see the
reason.
SPEAKER_02 (06:05):
And we really need to explain what the different
kinds of news are, becausethere's there's the news shock
news, and then there's just thenews news.
And determining which is theright kind of news?
SPEAKER_03 (06:18):
Yeah.
And they mentioned negativenews, and they say that bad
news, this is quoting, travelsslowly.
Investors don't fully processthe negative implications right
away.
And it also, again, kind of getsback to our bias of investors'
reluctance to sell losers.
Quantitative news?
Number news.
Yeah, number news, investorsappear to underweight them
(06:39):
because people like stories, asthey point out.
When I read this, I was like,yeah, people would rather have a
story than they would a number.
SPEAKER_02 (06:44):
Right.
So what are they what are theysaying here?
Let's just read between thelines.
What they're saying here is thatwith just normal negative news
or somebody reporting badnumbers that nobody pays any
attention to, the market reallydoesn't react to that.
So you can't play that news,basically.
That's what they're saying.
You can't play that news for apotential higher return.
SPEAKER_03 (07:06):
And and the overreaction, ambiguous news.
They say investors overreact touncertainty, high attention
news.
You don't think the things Donjust mentioned, rockets blowing
up, et cetera.
The initial price moveovershoots and then a reversal
they say follows.
This is looking back again, 25years of data, at individual
companies and news stories, ifyou will, news information.
SPEAKER_02 (07:29):
That sounds so complicated already to me.
SPEAKER_03 (07:32):
Oh, I think it is.
And I think there's open to alot of interpretation, too,
right?
About what is news negative, isit positive?
It's just news in many cases.
It's I think it's hard to butwhat they found again was yeah,
there's an edge to doing allthis, but replicating the
strategy is not realistic formost individual investors
because you need access to thisagain from Larry, large news
(07:55):
databases, sophisticated AIinfrastructure, and the ability
to trade hundreds of stocks withshort horizon signals and manage
the turnover.
That that sounds real easy,doesn't it?
I love that.
SPEAKER_02 (08:06):
I love that.
They do all here's what we do inthis business.
We talk about all of thisesoteric research, and we say,
yeah, look at this.
There are there is a acorrelation between X and Y, and
and yet you can't play it.
It's like, yes, Warren Buffettwas better at investing than you
(08:27):
were for a while, but you can'tdo it.
Yes, uh hedge funds uh sometimeshedge funds beat the market.
But you can't do it.
You can't do this stuff.
We spend a lot of time spoutinga lot of hot air, and I'm sorry,
I love Larry, but again, this isone of those stories that it's
(08:49):
like, okay, here's all thethings that could happen, but
bottom line, you can't doanything about it.
SPEAKER_03 (08:54):
He mentions AQR, the fun family, in here as somebody
who could do it.
It doesn't say they're going todo it, but it's somebody that
could do it.
But he does mention he mentionsa couple lessons.
Uh the first one's uh the marketis less efficient than you
think, especially around newsevents.
I don't think that's a biglesson, Larry, because I think
there's always reactions,overreaction, underreaction to
(09:17):
news.
But in the long haul, what doesit really mean?
He said, but here's the part Ireally like.
He says, be especially skepticalof your reactions, your
reactions to splashy, ambiguousnews.
I think that's a great thing toknow.
Um because we all have atendency to, oh, wait, I gotta
do something there.
Um the story versus statisticsgap, he says, is real and
(09:40):
exploitable.
In other words, the fact thatpeople tend to respond better to
stories than to numbers.
Um, and then finally, don'tconfuse big news with new
information.
Uh, much of what appears to bebreak news is consistent with
what we already know about acompany.
Confirmation, if you will.
So he by the way, he I lovethis.
He calls the um the factor.
(10:02):
Is this a factor?
Hmm, I think not, but he hecalls the the whole aspect of
the number of factors now thefactor zoo.
In other words, there's so manyanimals that are ranging there
that uh that who knows what's areliable factor.
SPEAKER_02 (10:16):
And that's why I love the statement from many,
many years ago by Eugene Famathat there are all of these new
ideas that come out all thetime, and that only a very few
survive long-term scrutiny.
Everybody's looking for the newthing.
And I think AQR is a fund groupthat is guilty of that.
And guilty of exploiting that.
(10:38):
Do you know what the averageexpense ratio is uh for AQR
funds?
SPEAKER_03 (10:43):
I think it's spendy, right?
Half a percent.
SPEAKER_02 (10:46):
Oh, you are so far away.
SPEAKER_03 (10:49):
I'm not making enough money, apparently.
SPEAKER_02 (10:51):
No.
Uh the average expense ratio wasuh quoted by Portfolios Lab
across the entire family at 1.44percent.
Wow.
That's Yeah.
That's a number that's in Ibelieve that's a number that's
almost impossible to overcome.
unknown (11:08):
Right.
SPEAKER_02 (11:08):
You're not gonna be able to do that.
I don't know how you're gonnaconsistently squeeze an extra
one and a half percent out ofthe market with these very
esoteric factors, and I thinkthey're just that.
Uh we're we're tr it's a it's itgoes back to this very human
problem.
We're trying too hard to thinkthis stuff up.
SPEAKER_03 (11:28):
Well, and he mentions that.
He says, learn to be suspiciousof your own reactions to news.
The market's reaction to asurprise announcement is
probably incomplete, right?
They have they haven't reallythought it through.
What's this all gonna mean inthe long haul?
We've seen that many, manytimes.
Well, so at the end of the day,um, is this something you really
need?
I'm gonna say no.
(11:49):
Is this something we all want?
Sure.
I want to know what XYZcorporation, what that change
downtown is gonna mean to myportfolio, but it's not gonna
change how I invest.
Uh number two, I do we need anew factor of some kind?
I you'd have to have a lot moredata and research to add one.
SPEAKER_02 (12:06):
I I I want more time.
I mean, I want them to go back ahundred years.
I I exactly.
SPEAKER_03 (12:10):
Yeah.
SPEAKER_02 (12:11):
And there's news, there are news resources from a
hundred years.
You could take this study back.
It would be very involved to doso.
And it wouldn't be as robustbecause of the the quantity of
news.
It was far lower in nineteentwenty-seven than in two
thousand twenty-seven.
I've quickly willing to bet thatthere was a lot, lot less news
(12:34):
out there.
I think I I kind of remembersitting around with the family
and nineteen twenty-seven?
No, in in nineteen sixty seven.
Oh, okay.
We just watched Walter Cronkite.
That was And that's the way itis, the two hundred
fifty-seconds.
We never watched Huntley andBrinkley, and we never watched
Frank Reynolds over there on ABCthat also ran network.
SPEAKER_03 (12:54):
You like the Tiffany Network, you're gonna stick with
them.
SPEAKER_02 (12:56):
Well, it was Walter.
Come on.
SPEAKER_03 (12:59):
Captivity for those fifty-two American hostages in a
row.
There would be no cable news.
SPEAKER_02 (13:04):
At the end of the day, my big takeaway doing it.
What?
SPEAKER_03 (13:06):
My big takeaway?
What?
Be suspicious of your ownreaction because we have biases,
we all have emotions aroundthings, and people tend to
respond, and that leads them tobad decisions.
That I've seen many, many times.
SPEAKER_02 (13:21):
Ignore the news.
It means really for adiversified portfolio, the news
doesn't mean a darn thing.
No need.
Why waste your time?
Do something more fun.
Go to a soccer game.
SPEAKER_03 (13:34):
Yeah.
Of course.
SPEAKER_02 (13:36):
Are those over yet?
SPEAKER_03 (13:37):
We're getting pretty close.
No, it's July now.
Yeah.
Yes.
Isn't it over?
Until July 19th, so it's notover yet.
SPEAKER_02 (13:44):
It's not over.
It's still going.
SPEAKER_03 (13:46):
You can still watch very early American football.
There's something somebody'splaying something.
SPEAKER_02 (13:51):
No, oh, there no, the UFL's even done.
SPEAKER_03 (13:54):
Is that done?
Okay.
I didn't watch any of it.
I'm I'm sorry.
SPEAKER_02 (13:58):
I saw some in a in a uh brewery I was in.
I went, wait, Orlando has afootball team?
I did not know that.
Have they been playing formonths and I didn't know that?
Apparently they had.
Anyway, uh we love questions.
Questions, we love questions.
Uh and you send them in to us alot.
(14:18):
Thank you, attalkingrealmoney.com.
The ones that Tom likes are, ofcourse, the kind that he gets to
print.
But the party likes even more isthat every once in a while
you'll send in a question thatwe we'll we'll look at it and
we'll go, that really needs aconversation.
So Tom just picks up the phoneand does this.
SPEAKER_03 (14:38):
Thanks, Don.
We are going to go to Durham,North Carolina, where Pam joins
us on the telephone.
Hey Pam, how are you?
SPEAKER_04 (14:46):
Hi, Tom.
I'm great.
How are you?
SPEAKER_03 (14:48):
I'm having a great day.
My pleasure.
How can we help?
SPEAKER_04 (14:51):
Wonderful.
Thanks for everything that youand Don do.
I have learned a lot.
SPEAKER_03 (14:56):
Wait, there's another guy on there's another
guy on the show.
I'm gonna have to I'll look intothat when we're done here, but
okay.
I'll I'll see what I can findout.
So, all kidding aside, what whatwhat what's your question?
How can we help you?
SPEAKER_04 (15:10):
Okay, I have a question about a brokerage.
My husband and I are 57 and 59,planning to retire in about
three to five years.
Um, he is likely to take SocialSecurity starting at 67, and I
probably will wait until 70.
We have about 1.3 milliondollars between uh traditional
(15:31):
IRAs, Roth, HSA.
Most of that is in thetraditional IRA.
And we're looking at opening abrokerage to save some cash um
to use as a bridge um prior toSocial Security.
And so we are also likely tocome into some money from the
sale of a parent's house in afew years, maybe$150,000,
(15:53):
$200,000, and we would considerputting that into the brokerage
as well.
And so we realize we do not havea long runway um you know,
before we would be using thisbrokerage, so you know, we would
want to be conservative.
So we wanted to ask what assetallocation should we use for the
brokerage, or should we juststick with the high yield
savings account for now?
SPEAKER_03 (16:15):
Wow, okay, so you threw a lot at me.
So um, in terms of that money,the the inheritance and the
other money you're saving, whenwould you be likely to use that?
How soon would you actuallystart to spend some of that?
SPEAKER_04 (16:28):
So I am thinking of possibly retiring in about three
years.
SPEAKER_05 (16:34):
Okay.
SPEAKER_04 (16:34):
And so, you know, I would want to be using that, you
know, between when I starttaking Social Security at 70.
So probably it would be like atime span of seven years or so.
SPEAKER_03 (16:47):
Okay, but you'd be starting that in th potentially
in three years.
SPEAKER_04 (16:52):
Correct.
SPEAKER_03 (16:53):
Yeah.
So yeah, I mean, so you want tohave those first three years
probably in fixed income in casestocks were to go down.
So I would figure out, I wouldlook at it the other way.
I would say, okay, here's whatwe need from income from that
particular holding.
Um, and I would I'd probablyhave all that in fixed income.
(17:13):
Um, or maybe even maybe even 80%in fixed income and 20% in some
sort of high yield savings, sothat even have a little more
conservative because you reallywant to make sure that money's
gonna be there.
You can't count on stocks,certainly in a three-year
period.
You could be looking at athree-year period where they're
down.
So I'd probably do it that way.
I'd probably say, okay, we'regonna need this much, and I
don't want to take SocialSecurity until I'm 70, which is
(17:36):
wonderful, um, because you'regonna get the obviously the
larger benefit there by waiting.
So yeah, I'd probably do itsomething like that.
Um, and then you might want tolook at the whole portfolio
since it's traditional Roth,HSA, and then brokerage to make
sure that the whole portfoliostill meets your need for
return, your amount of riskyou're willing to take, and your
(17:57):
comfortability with ups anddowns in the market, so the
volatility.
But that's probably how I'd lookat the inheritance part of it.
SPEAKER_04 (18:04):
Okay.
SPEAKER_03 (18:05):
And so uh in terms of fixed income, like money
market, bonds, uh Yeah, no, Iwould be looking at probably,
you know, a total bond, maybeBND at Vanguard.
That's a very fine total bondfund.
So that's a that's an exchangetraded fund that holds, you
know, thousands of uh ofsecurities that are fixed.
(18:27):
They are an IOU, right?
They're they're issued bygovernments, corporations, et
cetera.
And uh Vanguard runs this in asomewhat conservative manner so
that you get some yield.
I'd just be curious, I hadn'tlooked at the BND yield in a
while, but it's still showing ayou know almost 4.5% yield,
according to uh that's whatVanguard's telling people.
(18:50):
So you're still making somemoney there, but it's the idea
for you is it's the cushion.
It's the money that uh again, ifstocks went down, you could take
the money out of that.
That's my preferred situation.
As I say, yeah, probably withthat shorter runway, put 80% of
the fixed income portion insomething like a BND and then
20% in a high yield savings ofsome kind that's still probably
(19:14):
paying, you know, four, fourplus percent, but uh it's not
gonna have any motion up ordown, right?
It's basically set.
So that's what you're lookingfor, stability there.
But yeah, BND, a total bond,something like that would be a
good place for you.
SPEAKER_04 (19:27):
Okay.
And it's okay to have bond in abrokerage account.
SPEAKER_03 (19:32):
It depends on your income.
Um, you know, really the onlytime bond interest per se
becomes a tax issue generally isif you're in a very high
bracket, you know, 30% orhigher.
Otherwise, it really is not thatmeaningful.
It's okay to collect interestfrom there and have to pay a
(19:53):
little bit of tax out of thebrokerage.
So you could, so the differencethere is you could use, you
know, municipal bonds of somekind, uh, the municipal bond
fund, you're paying, you'regetting less in interest, but
you're not paying any tax on it.
It just turns out that thedifference between the interest
between the two generally,unless you're in a pretty high
tax bracket, it just makes moresense to collect that higher
(20:14):
interest from a total bond andpay a little bit of tax you may
have to pay on it.
SPEAKER_04 (20:19):
Okay.
All right.
SPEAKER_03 (20:21):
Does that help?
SPEAKER_04 (20:22):
Well, yes, it does.
SPEAKER_03 (20:24):
Well, thank you for your kind comment, uh, which we
really do appreciate, allkidding aside.
It's uh it's nice andcongratulations on your upcoming
retirement.
It sounds like you got a prettygood plan in place.
SPEAKER_04 (20:35):
We hope so.
Thank you so much.
SPEAKER_03 (20:37):
Thanks, Pam.
You take care.
SPEAKER_02 (20:38):
All right, we're done with our behind-the-scenes
thing while we edited in that uhcall.
And now it's time for Tom toread one of his paper questions.
SPEAKER_03 (20:48):
I know.
Fun, right?
Columbus, Ohio, Thomas writesus.
You know you're moving to thetop of the pile if your name's
Thomas.
That goes without saying.
And this is lengthy, so pleaselisten carefully.
Don and Tom, I've been wantingto write to you both for a long
time.
I actually found your show rightafter your first Clark Howard
commercial, and you're both onmy Mount Rushmore of financial
advice now.
(21:10):
I'm gonna go by again and check,see if I'm there, because that
takes a lot of work.
Don, I'm putting Tom right nextto Dave Ramsey, even though I
know he's- Wait a minute, wait aminute.
What did he say?
He's putting Tom right next toDave Ramsey on Mount Rushmore.
Um, even though you know I haveyou have some strong feelings
about that.
But I completely agree with youguys.
Dave should stick to budgets andleave investing to Don and Tom.
(21:31):
So we're right there with you.
Maybe another time we can talkabout whether Rick Edelman
should be removed from themountain based on what he did at
the end, becoming a total cryptobro.
Rick's always on the next hotthing.
Yes, bye, Rick.
Yeah, Rick's gone.
Uh, but Clark he says isuntouchable.
And you know, I I I like Clark'swork.
Don, you're not only the HOApresident, but Celebration can
(21:52):
thank you for promoting theirtourism.
You're the reason I visited backin February.
It's a beautiful town.
By the way, how much candy doyou actually have to buy for
Halloween down?
There.
SPEAKER_02 (22:01):
I uh we buy we generally buy between 600 and a
thousand pieces of candy everyyear.
SPEAKER_03 (22:10):
We had three people this year at my house.
SPEAKER_02 (22:12):
We had uh about five hundred.
That's crazy.
SPEAKER_03 (22:15):
All right, here's the actual question.
And thank you, by the way,Thomas, for all of those very
kind comments.
We do really appreciate it.
The question is about AVTM.
That's the Avantas Total MarketsETF.
It's not A V G E.
Why did they launch it?
What's the actual differencebetween the two?
AVTM is a more of a market likeuh index-like product.
(22:39):
It's going to reflect the factthat the market is made up more
of large stocks than smallerones.
Um it has a similar U.S.
international split to A V GE,but it's going to own larger and
more growth-oriented stocksversus I'm answering this for
you.
SPEAKER_02 (22:56):
Oh, are you answering that?
That's not the question.
SPEAKER_03 (22:58):
That's not the question.
SPEAKER_02 (22:58):
This is just my Yeah, but you're absolutely
right.
It it it falls uh just slightlysmaller cap than the typical
large stock fund.
But when you compare it to A V GE it doesn't have the small and
value tilt.
It's way off to where he says,why did they launch it?
SPEAKER_03 (23:17):
I think that's the reasonable question.
Money?
I'm just guessing.
SPEAKER_02 (23:21):
I I think it's it's trying to be all things to all
people.
I think that I mean look atVanguard.
SPEAKER_03 (23:27):
We asked them at the time.
They said, well, becauseadvisors have asked for it.
SPEAKER_02 (23:30):
Yeah.
That's what I mean.
It's trying to be all things toall people.
Uh if you if you look at AVGE,you see that it's a dramatic
tilt towards small companies invalue.
Uh and um AVTM have you everheard us suggest it?
SPEAKER_03 (23:45):
No, we you have not.
And by the way, it's 22 basispoints.
So I think you can basically goon the same thing with V Tom, V
as in Tom Tom, or V as inVictor, V is in Tom.
VT.
unknown (23:57):
Right?
SPEAKER_02 (23:58):
Yeah, VT VT is going to match it almost exactly.
Let me just get that one for Letme look at the portfolio real
quick.
Single digits.
Uh V VT is down to six basispoints.
Six one hundreds.
SPEAKER_03 (24:10):
No offense to our friends who are not.
SPEAKER_02 (24:12):
VT is slightly larger.
SPEAKER_03 (24:14):
Okay.
SPEAKER_02 (24:15):
But that's all.
That's the only difference isthat VT skews a little larger
cap, a little, not much, just alittle.
So they are almost well, they'revery similar.
Yeah.
They're very, very similar for atiny fraction.
And by the way, AVGE is just onebasis point or one one hundredth
of a percent more expensive thanuh AVTM.
SPEAKER_03 (24:39):
So if I was picking a single stock fund, it would be
AVGE because it's global,because it has the small value
tilts.
So I'd rather have I'd ratherhave my money invested that way.
SPEAKER_02 (24:52):
And and I think the the market is also uh doing the
same thing.
I mean AVTM is is should bebigger, you would think, than
AVGE because it's moremainstream and they're both the
same size.
They have the same amount ofmoney in them.
SPEAKER_03 (25:06):
So Wow, AVTM has the same amount as AVGE?
SPEAKER_02 (25:09):
Yeah, they're both one billion dollar funds.
SPEAKER_03 (25:12):
That's it, huh?
Okay.
Little babies.
SPEAKER_02 (25:15):
Uh well they are actually in the grand scheme of
funds.
Yeah, they're tiny.
I mean what's what's VT sittingwith right now?
Um ninety-five billion.
SPEAKER_03 (25:25):
And what's DRAM have?
SPEAKER_02 (25:29):
Uh that's only been around for a while.
A little bit of scotch, just adram.
SPEAKER_03 (25:32):
Just a dram get through this program.
What's DRAM?
Roundhill memory?
Somebody wrote me about that.
It's only been around for ashort term.
It's already like the tenthlargest ETF in the world, or
some ridiculous number.
Oh,$20 billion.
Yeah, it just has come out ofnowhere because everybody's
invested in these semiconductorsthis year.
SPEAKER_02 (25:51):
It's wait a minute.
Wait, the darn thing onlystarted in what?
When did in like March?
SPEAKER_03 (25:59):
Yeah, it's just popped up on the screen and gone
straight up.
The the fundraising has beenbecause it's been the hot place
to be the last couple months,right?
So guess what?
Money's slowed in.
SPEAKER_02 (26:09):
What is that portfolio?
I've got to look at that.
It has 18 stocks in theportfolio.
Yeah.
It's a semi-board.
No, I take that back.
12 stocks, the other stuff'sbonds.
SPEAKER_03 (26:20):
This is nuts.
Yeah.
And it I think it's like the10th largest ETF already.
Some ridiculous lower.
SPEAKER_02 (26:27):
Well, you guys deserve the insanity you're
gonna get.
I mean, it is mega cap growth.
Yep.
Mega cap growth.
Nuts.
This is crazy.
This is nuts.
SPEAKER_03 (26:40):
You want to squeeze one more in, or do you want to
call it?
Yeah, yeah, yeah.
Do another question.
Come on.
We're having fun now.
California is a little bit more.
SPEAKER_02 (26:46):
It's keeping me inside where it's cool.
Let's go.
There you go.
SPEAKER_03 (26:48):
Don and Tom, thank you for all the good work.
What do you think about aportfolio of 80% VT?
Yeah.
That's a Vanguard Total World.
Plus 20% AVGV to achieve a valuetilt similar to AVGE.
SPEAKER_02 (27:04):
Not really.
SPEAKER_03 (27:05):
It helps cost the portfolio.
Is it worth it?
Looking forward to hearing yourtake on this.
SPEAKER_02 (27:10):
Okay, if you're trying to get a portfolio
similar to A V G V.
Why don't you just buy AVGV?
Why don't you just buy AVG?
SPEAKER_03 (27:16):
I don't know.
It's a lot of work.
SPEAKER_02 (27:18):
No, A VGV does not tilt that much farther towards
small value to pull over that80%.
SPEAKER_03 (27:27):
That you're thinking basically large cap, even though
you got an international.
SPEAKER_02 (27:32):
It's not going to do it for you.
50-50 might get you a littlecloser.
SPEAKER_03 (27:35):
But V20 isn't going to do it.
SPEAKER_02 (27:38):
And if you want to just nail the same allocation as
AVGE, I have an idea for you.
Move everything into A V G E.
SPEAKER_03 (27:45):
If you're trying to accommodate that'll be a good
one.
Okay.
SPEAKER_02 (27:54):
So we're we're quibbling over, yeah, okay.
Yeah.
Uh again, we our expectation.
Expectation based on pastperformance.
We don't have a long-term trackrecord for AVGE, but we do for
some of the dimensional funds.
And what we do see over the longhaul is that you you have
(28:15):
received a more than the expenseratio difference in return, a
much higher return,substantially higher in these
small value tilt funds.
Again, ABGE doesn't have enoughhistory for us to say with any
confidence that they're beatingthe market, but over the past
(28:37):
several years, they've actuallyshown a tendency to do that.
But we don't like short-termdata.
SPEAKER_03 (28:43):
No.
SPEAKER_02 (28:44):
As we mentioned.
If you you look back at thethree-year average annual
return, that's all we have tocompare for AVGE, you'll see
that the index with with whichthey're being compared returned
about 19.7 over that three-yearperiod on average per year,
(29:04):
whereas AVGE returned abouttwenty point seven for that
additional less than twentybasis points or two-tenths of a
percent.
Yeah.
Put your money ahead.
SPEAKER_03 (29:20):
In the long haul, we would expect you to do better,
but can't guarantee that.
Yeah.
By the by the way, when doesthis air?
I hate to do this publicly, butum I don't care.
SPEAKER_02 (29:31):
I don't care if we tell them that these are
recorded.
You were on vacation.
So we had to we had to frontload the funds.
I mean the funds.
We had to front load.
It sounds like a mutual fund.
We had to front load the show.
There's my brokerage.
There's a compliance comingback.
They're gonna love that one.
No, no, no.
They'll they won't care aboutthat.
Uh this is when are we recordingthis?
(29:52):
Uh let's see, 17.
This is gonna air on I think the16th of July.
SPEAKER_03 (29:59):
Okay.
So I'll just that this is agreat lead-in.
I've had enough pasta.
I've had enough uzo.
Oh, because you're back fromhome and I'm I'm ready for your
calls again.
So dial them up.
I've I'm home for the summernow.
So um and did you spend thesummer in Sparta?
Do you like me the way I look inmy little Yeah, you're all
(30:19):
buffing your little skirt?
Wouldn't that be nice?
Uh so if if you'd like somehelp, yeah.
SPEAKER_02 (30:25):
Because of the pasta and the uzo.
SPEAKER_03 (30:28):
Won't help.
I'll have my one thimble of oozoand then that'll be that.
Uh already have, I guess.
So if you'd like some help, I'mback.
I'm ready to go.
Tan rested and ready, as we liketo say.
So uh go totalkingrealmoney.com, click on
meet an advisor, and then say Iwant to meet with Tom.
SPEAKER_02 (30:46):
Burned with white t-shirt lines.
SPEAKER_03 (30:49):
It won't be pretty.
It can be sure it's so pretty.
SPEAKER_02 (30:52):
Yeah, go to talkingrealmoney.com, click on
meet an advisor if you want oneof those meetings.
Uh, otherwise, just ask yourquestions at
talkingrealmoney.com.
And if you want to know where tosend people, well, send them to
your favorite podcast service tolisten, or just send them to the
website, talkingrealmoney.com,because all over the place, all
these various places, almostevery day of the week, we are
doing this most important thingof all.
(31:14):
You know what it is.
Talking Real Money.
SPEAKER_01 (31:18):
The opinions of views expressed on this podcast
were current on the daterecorded.
Opinions, estimates, forecasts,and statements of financial
market trends that are based oncurrent market conditions
constitute our judgment and oursubjects change without notice,
including any forward-lookingestimates or statements which
are based on certainexpectations and assumptions.
Although information andopinions given have been
obtained from or based onsources believed to be reliable,
no warranty or representation ismade as to their correctness,
(31:39):
completeness, or accuracy.
Information presented on thepodcast is not personalized
investment advice from Apellow.
The views and strategiesdescribed may not be suitable
for everyone.
This podcast does not identifyall the risks, direct or
indirect, or otherconsiderations which might be
material to you when enteringany financial transaction.
We hope you realize that theinformation provided on
(32:01):
TalkingRail Money is forinformational, educational, and
hopefully enjoyable purposesonly.
The podcast is not trying to getyou to buy or sell any financial
products or securities.
Instead, the program is providedas a public service by Apello
Wealth, a fee-only registeredinvestment advisor.
A public capital L O C D B AAppello Wealth is an investment
(32:22):
advisory firm registered withthe Securities and Exchange
Commission.
The firm only transacts businessin the states where it is
properly registered or excludedor exempt from registration
requirement.
Registration with the FCC or anystate securities authority does
not imply a certain level ofskill or training.
Apello does not provide tax orlegal advice, and nothing either
stated or implied here should beinferred as providing such
advice.
Thanks for listening, and pleasevisit talkingrealmoney.com for
(32:44):
more information and importantdisclosure related to
performance of any specificindex or fund quoted in this
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