Bob Brinker MoneyTalk Commentary 1/12-1/13

The MoneyTalk On Demand sound output has been really low recently which means I can only listen in quiet places. Anyone else have this problem? Once again Bill Flanagan was hosting. Does Bob work anymore?

Again they were talking about return on rental properties. The caller was contemplating the value of only getting a 5% return on rent. He wasn't considering the appreciation. Rent is analogous to stock dividends, and appreciation, capital gains. You need to consider both portions. Bill Flanagan didn't really give the best advice saying "Real estate doesn't always go up, may you'd be better off investing in the stock market". He was really pushing him out of the rental property. However, the stock market doesn't always go up either, as we are frequently reminded. To compare both equally, you need to look at the expected return and volatility of both and see what makes sense for you.

Every week there are so many calls on Roth vs. Tradition IRA or Roth 401(k) vs. regular 401(k). As, Bill said, it is the choice of pay now or pay later. There is no real perfect answer to this question. If you are in a low tax bracket now, like 15%, it probably makes sense to invest in the Roth. But that still assumes that one, the rules won't change in the future, and two the tax brackets don't significantly change. It is entirely possible that in the distant future, taxes rules will change. Highly unlikely, but say we moved away from income taxes and created a national sales tax. Or say the tax brackets shifted lower. Then the Roth IRA was not the best choice. Financial planners are now advising that because of the uncertainty, you invest half of your retirement savings in Roth and half in the traditional IRA or 401(k). I still prefer to put everything in the regular 401(k). For one, I am not in the lowest bracket, and I would rather save now on taxes. Those savings translate into me having more to invest outside of the 401(k).

There was a caller who said he had $200,000 he could not lose. He wanted no risk. Bill correctly said he only had a few options, GNMA, Treasuries, and CDs. However, Bill missed an opportunity to really probe why he wanted "no risk" and what the money was need for. The caller went on to reveal he needs this when he retired in 15 years. With a 15 year time horizon, he really is missing out on a opportunity for much greater returns with relatively low risk of loss of principle. There are also risks of under investing, mainly that you will not keep up with inflation.