2020-12-04_Friday

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00:00:14.800 | It's Friday. Today, live Q&A.

00:00:17.840 | [Music]

00:00:34.080 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:37.040 | skills, insight, and encouragement you need to live a rich and meaningful life now,

00:00:40.640 | while building a plan for financial freedom in 10 years or less. My name is Joshua,

00:00:44.480 | and I am your host. Today is Friday, December 4, 2020. Today, we're recording a live Q&A show.

00:00:50.160 | Works just like, well, any other live Q&A show. Got one, two, three, four, five callers on the

00:00:55.280 | line here. And we go to the phones and we talk about finances or life, financial independence,

00:00:59.840 | whatever you want. [Music]

00:01:06.360 | Love to record these shows because they give you a chance to talk about anything that is on your

00:01:09.600 | mind, any questions that you have, any topics of conversation, any feedback. And I usually,

00:01:14.880 | we have a lot of diverse topics. I really enjoy doing these shows. If you would like to gain

00:01:18.320 | access to one of these shows, to be able to ask your question in the future or bring up your

00:01:22.240 | topic of conversation, you can do that by becoming a patron of the show on patreon.com. Just go to

00:01:28.960 | patreon.com, search for Radical Personal Finance, and you will find me. Sign up to support the show

00:01:33.360 | there. And that is how I distribute the codes to these. You should also go ahead and get on

00:01:37.360 | some of the other lists every now and then. I haven't done it much recently. I'll probably do

00:01:41.280 | it more, but every now and then I'll go ahead and do a special one of these to the email list. So if

00:01:45.520 | you'd like to get on the email list, go to radicalbooklist.com, sign up for my radical

00:01:49.760 | reading list. It's a pretty good list of books for you as we'll be talking in the next couple of

00:01:52.880 | weeks about things you can do at the end of the year to prepare for the next year. One of those

00:01:56.480 | good things is set out a reading list for yourself to educate yourself on some areas that you would

00:02:00.160 | like to learn and to grow into. You can do that at radicalbooklist.com. And then that'll put you

00:02:04.720 | on my email list where I'll be able to communicate with you in the future about specials, special

00:02:08.080 | shows, et cetera. So if you don't want to sign up to support the show on Patreon, consider doing

00:02:10.960 | that. Also go ahead and join the Facebook group. Sometimes I'll do a live Q&A in there as well.

00:02:16.640 | So today we're going to begin with Austin in Louisiana. Austin, welcome to Radical Personal

00:02:20.800 | Finance. How can I serve you today, sir? - Hey, Joshua. I'm doing well. First,

00:02:26.720 | I found a resource that I wanted to share with everybody based on your last episode.

00:02:33.600 | - Great. - It has been really helpful.

00:02:35.120 | And it's called Year Compass. And it's basically a free 20-page workbook for end of the year wrap

00:02:44.080 | up and future year planning. And it's been really beneficial to me. So I wanted to share that with

00:02:49.520 | everybody. - Love that. So it's called

00:02:51.280 | Year Compass and it's a website? - Yeah. So it's just yearcompass.com.

00:02:58.320 | And you can go down to their website and you can download the workbook either in a digital format

00:03:05.200 | or a printable format and it's completely free. - That looks great. So yearcompass.com,

00:03:09.600 | download the end of the year workbook and work through the year behind and the year ahead. So

00:03:13.680 | thank you for that resource. Go ahead with your next topic then. - So my next question was,

00:03:18.720 | is I've just this year started my real estate business. I've acquired my first property.

00:03:24.880 | And one of the things I'm looking at for the future is to kind of scale up, but not being

00:03:32.000 | an extremely wealthy person at this point who has hundreds of thousands of dollars of disposable

00:03:36.640 | income. I'm wondering if you have any thought exercises or kind of methods for going through

00:03:44.240 | what is a reasonable amount of money to, I guess, put into that business development

00:03:53.520 | moving forward? Any percentages of net worth or anything like that, or any thought exercises you

00:04:00.320 | have that you might go through if you were in a similar situation? - Are you building a real

00:04:04.320 | estate business as an agent or as an investor? - As an investor doing mainly buy and hold

00:04:12.240 | single family. - And when you talk about scaling up, are you saying, how do I go from one property

00:04:16.640 | to 82 as quickly as possible? - Yeah, I'm looking more in the range of 10 to 15 properties. And

00:04:24.240 | I'm trying to think of, would I be taking on too much risk to highly leverage myself in the short

00:04:32.160 | term in order to build that portfolio quickly versus more of a slow play? - Okay. Well, the

00:04:40.320 | word I would use to start with before we talk about scaling would just be to talk about leverage,

00:04:45.680 | because I think it puts a good picture in our mind that's applicable to the word scale up.

00:04:50.240 | When you think about leverage, leverage is a double-edged sword. Leverage of any kind,

00:04:57.280 | I'm not just referring to borrowing money, I mean the concept of leverage. Leverage will

00:05:02.720 | amplify your results. So when you're getting good results, leverage can amplify those good results.

00:05:08.880 | When you're getting bad results, leverage can amplify those bad results. So in any kind of

00:05:15.440 | business operation, when you're going to use leverage, when you're going to scale, you want

00:05:19.760 | to make sure that first you're getting reliable, consistent, very good results, and then scale that.

00:05:26.720 | Now, there's no perfect formula that I know of where you could say, this is how fast you can do

00:05:32.720 | it. But what I do think you need to do is you need to be very honest with yourself to identify,

00:05:39.520 | am I building something that's going to be genuinely strong and powerful, and do I have

00:05:45.440 | all of the kinks worked out? Usually that takes a little bit of time. Usually it takes some time to

00:05:50.240 | develop the processes, to prove them, to perfect them, to work through the problems. And so you

00:05:55.920 | want to make sure that you don't go too big too fast. So if I'm counseling someone like you,

00:06:01.280 | my answer is one property at a time, right? One house at a time. You just bought your first one,

00:06:05.920 | good. Get your first one, get the whole deal totally done, work out all the kinks of the

00:06:11.520 | process, then think about what went well, what could I do better, right? What went well in the

00:06:16.160 | process? How did the acquisition process go? How did the inspections go? Do I have what I need?

00:06:22.000 | Did I get good information all along the way? How was the rental process, et cetera? Optimize it,

00:06:26.560 | and then do it again. And then just do one at a time for a while. And then after you've gotten

00:06:31.680 | through a number of deals, I don't know, three, four, five, I don't know the actual number,

00:06:37.440 | then maybe you go ahead and go a little bit bigger. And you might try, "Okay, I can do two

00:06:40.880 | at a time." But what you don't want to do is you don't want to get in too deep too quickly to where

00:06:45.120 | all of a sudden you're trying to close six deals and run six different crews to rehab houses, and

00:06:49.520 | that'll sink you. And in a business like a real estate business, there's not really anything

00:06:56.320 | that's going to fundamentally change in that business that I can see in the coming years.

00:07:00.560 | There may be a market move, right? So maybe you all of a sudden find yourself in a market where

00:07:05.520 | you can get a bunch of deals. Well, if you recognize that and you honestly look and say,

00:07:09.360 | "This is a market where I should be buying, buying, buying," then go ahead and speed up,

00:07:13.360 | scale up quickly. But the business is not going to fundamentally change. So there's not a lot of

00:07:18.560 | time pressure. And so it's very much in your interest to go a little slower if necessary,

00:07:23.760 | so that you have a more stable, longer-term business than to go too quick and get in over

00:07:29.200 | your head. I started working as a financial advisor in 2008, and I wound up at a lot of

00:07:36.720 | kitchen tables with people who were losing their real estate portfolios that they'd purchased in

00:07:40.960 | the last few years. In observing what happened, and I had several close friends who built

00:07:46.240 | multi-million dollar portfolios, went bankrupt, lost it all. In observing it, I could see how

00:07:52.320 | if they had gone a little slower, they could have kept their portfolio through that time

00:07:58.160 | and been a whole lot farther ahead in 2010 and 2011 and now in 2021 than they were by going too

00:08:05.520 | fast. So I think you want to make sure that you have a good system, good processes all set in

00:08:11.760 | place before you scale it up. Now, how you actually apply that, I don't know. But I would say go slow

00:08:17.280 | in the beginning and then move. One analogy that I think would probably apply, when you're learning

00:08:23.360 | to do something like a certain athletic move or lifting weights, the most important thing in the

00:08:28.960 | beginning is your form. It's not how much weight you move. If you're coaching somebody who's

00:08:34.880 | learning how to squat for the first time, if they have perfect form, you know that in the future,

00:08:40.720 | they'll be able to squat 500 pounds. But if they have bad form, you know that they're going to be

00:08:46.080 | plagued with injuries, problems, slow advancement, etc. And so in the beginning, all you want to get

00:08:53.200 | right is their form. You don't pay attention to the amount of weight on the bar in the beginning.

00:08:56.960 | You just want to get their form right. And you want to get their form to the point where they

00:09:00.560 | can do it without thinking, where all of their body mechanics are exactly right,

00:09:04.720 | because you know that that will scale for a very long time. So that's the

00:09:08.800 | metaphor I think that I would apply or the analogy I would apply in this particular example.

00:09:13.440 | Okay. Well, as a former competitive powerlifter, I appreciate that analogy.

00:09:20.320 | There we go. So in the powerlifting space, you know that if your form is good,

00:09:26.000 | then you can go ahead and go for a heavy lift. And you can go through a cycle where you're cycling

00:09:35.280 | up, cycling back. You can adjust all that stuff down the road. And there's only modest chance

00:09:39.200 | of injury. And I would say the same thing applies to real estate. If your form and your skills are

00:09:42.960 | good and your processes are good, you can scale it up and there's only a modest chance of injury.

00:09:48.080 | So that would be my answer. Do you have any thoughts on

00:09:52.880 | like debt to income ratio and things like that? That's kind of what I'm interested in is that

00:09:59.520 | since I'm using this to kind of build and generate wealth is my long-term goal. Any thoughts on a

00:10:08.640 | ratio of the amount of debt in relation to net worth or the amount of monthly payments in relation

00:10:16.480 | to income? I've done some looking and I know that the banks have debt to income ratio calculators

00:10:21.440 | and things like that. Do you have any thoughts on those? I don't have a ratio or a number. You can

00:10:26.000 | use the numbers from the financing system and maybe somebody who's a more experienced real

00:10:29.680 | estate investor than I am would have one of those. What I would do is I would look at my situation.

00:10:34.560 | I would imagine my worst case scenario. So I don't mind using leverage to build a real estate

00:10:39.760 | business. I think that's wise. I think it'll build it quickly. And I don't mind it building

00:10:43.760 | quickly. I've often tell people, "Okay, let's say you need 10 houses or 12 houses." I think you said

00:10:48.560 | something like 12 houses or 15. "All right, so let's do one this year, one next year, maybe two

00:10:53.600 | the next year, two or three the next year. And then if you can do four a year, fine."

00:10:58.480 | So in the acquisition phase of real estate investing, I think you should not be paying down

00:11:04.400 | debt. You should be keeping as much liquid cash as possible, putting as little down on the

00:11:08.800 | properties and acquiring them. But along the way, you need to ask yourself, "What's the worst case

00:11:13.680 | scenario?" Now, I think right now in the context of COVID, the worst case scenario is you have a

00:11:18.960 | widespread unemployment rate. So I would say, "What was the unemployment rate some months ago?

00:11:22.960 | What if 30% of my renters couldn't pay their mortgage? And what if I couldn't revict them?"

00:11:28.880 | Well, that's probably about the worst case scenario you could conceive of.

00:11:32.960 | Maybe something worse would be fire, but that would be a risk you would cover for insurance.

00:11:38.000 | So I would think maybe 30% of my tenants are unemployed, and they're not paying rent,

00:11:43.360 | and I can't evict them and get another tenant. So what would I do in that situation?

00:11:47.040 | Well, I would calculate the cost of the mortgage payments. I would calculate my cash flows,

00:11:51.440 | and I would model what that would look like. Now, in a worst case scenario like that,

00:11:55.040 | I think you would have negotiating leverage with your lenders and be able to renegotiate your

00:12:00.240 | loans and still probably keep the portfolio. But I would just simply play a scenario like that out,

00:12:05.840 | and I would say, "What would I do in those circumstances? So where would I get the income

00:12:09.680 | from? How would I cover the rents? What properties would I dump? What properties would I keep?"

00:12:13.200 | And as long as you're thinking about some of those worst case scenarios and wargaming them,

00:12:17.680 | I think you'll guide yourself properly.

00:12:20.560 | Okay. Thank you. And do you have time for a second question?

00:12:25.120 | Go ahead. We'll do it fast.

00:12:26.000 | Okay. I have an ongoing discussion with a friend of mine who's about 30 years older

00:12:32.400 | about hyperinflation and potential economic collapse. And I might answer this question

00:12:38.880 | for myself since I just bought your course. But I was just wondering, he already has a pipeline

00:12:47.440 | into Canada. So we were listening to one of the previous Q&As, and his kind of question,

00:12:55.120 | what we were talking about is, "Would you have any more recommendations besides setting up a

00:12:59.680 | pipeline into Canada for bank accounts since the Canadian economy would probably be quickly affected

00:13:06.800 | if the American economy went in the tank?" Yeah, no question. That whole course is full

00:13:11.520 | of suggestions. And basically in the course, which you bought called How to Survive and Thrive

00:13:17.920 | During the Coming Economic Crisis, I cover any kind of crisis because the way of planning is

00:13:23.760 | the same whether you're planning for the loss of your job versus planning for hyperinflation of

00:13:28.480 | your local currency that you're involved in. And there are two basic strategies that I cover in

00:13:35.040 | that course. Strategy number one is basically stay in place. How do you stay in place and have what

00:13:40.640 | you need? So if you're worried about hyperinflation of the currency, and if you live in a hyperinflated

00:13:47.120 | economy, you're better off living maybe on a small homestead on the edge of a small town

00:13:53.120 | with good neighbors around that you could set up some kind of security perimeter to secure your

00:13:58.000 | neighborhood and grow some food and have some stuff stored in your food storage or whatever

00:14:02.800 | so you can get through. That's a really good system for that. But the other strategy is to flee,

00:14:07.760 | is to leave. And so if you can leave a place where there is a massive economic crisis like

00:14:13.680 | hyperinflation and go somewhere else, you can avoid most of the effects. And the example that

00:14:19.200 | I talk regularly about because it's the most current one, we can go back and talk about

00:14:23.120 | Zimbabwe, but we don't know much about Zimbabwe. Right now, the best one is Venezuela.

00:14:27.920 | Venezuela, it was the biggest, most prosperous economy in Latin America, was the jewel of Latin

00:14:35.360 | America, the jewel of South America a decade or so ago. And then they started down the path of

00:14:41.280 | hardcore left-wing socialism. They had Hugo Chavez followed by Nicolas Maduro.

00:14:47.840 | And we can see the hyperinflation that has completely devastated the country to the point

00:14:52.320 | where right now in Venezuela, Venezuela has some of the largest oil reserves. I don't know,

00:14:57.760 | some of the largest in the world. I don't know how to place it in comparison, but they have

00:15:02.080 | massive, massive levels of oil. But the whole country has experienced horrific gas. And they

00:15:08.080 | had so much cheap gas before. The gas was literally a couple pennies a gallon a few years ago.

00:15:14.720 | Well, now they have no gas in the country. And they're dependent on Iranian oil tankers to bring

00:15:20.640 | gas so that they can have some gas. And to get gas, gas is something like, depending on where

00:15:25.600 | you go, these numbers change all the time, but right now gas is something like the equivalent of

00:15:30.160 | about $20 a gallon, if you can find it. In order for somebody to get it, they have to stand in line

00:15:36.880 | for at least a day in order for them to get in line, get it. And you can't get parts to repair

00:15:43.040 | your car, et cetera. It just goes on and on. It's horrific. It's an absolutely devastating collapse.

00:15:48.720 | But when you study it, you see some lessons. So anybody who left Venezuela a number of years ago

00:15:54.640 | and went somewhere else has survived that crisis just fine. Now they may have lost some money if

00:16:00.320 | they still had money there in Venezuela. Their family may be affected if their family was still

00:16:03.680 | stuck there. But any Venezuelan who moved to Colombia 10 years ago and now lives in Bogota

00:16:08.880 | is not as deep, not very deeply affected by the crisis. Any Venezuelan who moved to Canada

00:16:13.920 | is not affected. It goes on and on. The list goes on. So you can see that you can do well

00:16:19.840 | in an economic crisis if you can relocate, if you can reposition yourself. Now Venezuela, I think,

00:16:24.880 | so far, I would have to go back and check the charts, but it's turning out to be one of the

00:16:28.640 | longest examples of hyperinflation that I've ever studied. So we'll see when it actually ends,

00:16:35.520 | when some kind of change happens. I have my own thoughts about what I think is going to happen,

00:16:40.480 | but we don't know. But most hyperinflations don't last for more than a few years,

00:16:46.000 | at kind of the maximum of a couple of years, because they can't. They're too painful.

00:16:51.600 | And so no matter what, it basically has to stop because there's no way it can go on and on and on.

00:16:57.200 | And so the collapse can go on, but the hyperinflation can't go on and on.

00:17:03.360 | And so what I talk about in that course is that if you could leave for a couple of years,

00:17:08.480 | you could do pretty well. You could survive well enough. And so that's a good kind of starting

00:17:13.760 | point to work through is how could I leave my country? The other thing that is important to

00:17:17.360 | point out about Venezuela is hyperinflation, I don't think, is contagious. So we see this very

00:17:22.320 | clearly right now in Venezuela. The Venezuelan bolivar is worthless. It's completely worthless.

00:17:29.200 | They've done several currency resets, chopped a bunch of zeros off. But even still, if you're

00:17:32.800 | trying to deal with bolivars, $10 US gives you a literal backpack full of banknotes.

00:17:39.760 | I've used to post pictures of this stuff on social media. I have stacks of Venezuelan banknotes

00:17:45.040 | in my house here. And what they do is they take the banknotes and they wrap them in clear tape,

00:17:53.360 | and they handle them as bundles. So they're still used as a medium of exchange. But instead of

00:17:59.200 | having a single bill, you hand over about a three-inch stack of the pink ones, or about a

00:18:04.960 | two-inch stack of the green ones, and they're wrapped together in bundles of tape. But what

00:18:12.480 | is used as a medium of exchange? Well, the number one most useful currency is the Colombian peso.

00:18:19.040 | And so you have a country right next door. You have Venezuelan, Colombia right on each other's

00:18:24.000 | borders. And if you were to go to the Brazilian border, you would have a similar thing with the

00:18:27.280 | Brazilian real. But you have the Colombian peso is the currency of choice. And so the hyperinflation

00:18:34.640 | from Venezuela didn't automatically spread contagiously to Colombia. It's a centralized

00:18:41.360 | thing. It's a nationalized problem. And so I think there's good evidence to believe that although

00:18:46.400 | certainly the Canadian economy would be massively affected if there were some kind of hyperinflation

00:18:52.640 | in the United States, I don't think the Canadian currency would necessarily be affected in the same

00:18:58.800 | way. If you had a hyperinflation in the US dollar, then I think the Canadian dollar would still be

00:19:07.120 | pretty strong. I think that's why I talked about that tunnel option, if you can tunnel out to

00:19:12.320 | another currency. Now, if there were actually a situation where there were hyperinflation in

00:19:16.640 | the US dollar, I would not be betting on one currency. I would not be betting on the Canadian

00:19:21.200 | dollar. I would be diversifying out into other currencies. But the point is to have the tunnel

00:19:26.560 | in place. So let me just close though with any conversation about hyperinflation. There are two

00:19:30.640 | things I want to say as I wrap up this answer. Number one, we don't know actually what would

00:19:39.600 | happen if there were a hyperinflation of the US dollar. Because although the Venezuelan Bolivar

00:19:47.520 | hyperinflated and that didn't spread to the Colombian dollar, the US dollar is not exclusively

00:19:53.200 | a national currency. The US dollar is used all over the world. I mean, all throughout Latin

00:19:58.400 | America. If you do business with a Latin American government, most of the time, prices are often

00:20:03.120 | quoted in US dollars. If you drive a car into Mexico and you're going to put your deposit down

00:20:09.520 | with the Mexican government for your car, they quote you that in US dollars. In Mexico,

00:20:16.000 | massive economy, very successful country, amazing country. But if you're going to drive down into

00:20:20.320 | Mexico and you need to go ahead and get the sticker for your car, then the quote is $300.

00:20:25.600 | And the border guard will tell you, you're probably better off to put this in dollars and

00:20:30.640 | pay us $300 versus the equivalent in Mexican dollars. Because if you give us a Mexican dollars,

00:20:37.040 | then there's a chance that at the other border, if you're driving out the bottom end or coming

00:20:40.320 | back up a few months later or whatever your travels are, there's a problem is that the border

00:20:45.280 | will charge you for any variations in exchange rate. Whereas if you just give us a flat $300

00:20:49.680 | deposit, we'll give you back $300 US dollars whenever you come back. And so the US dollar

00:20:54.080 | is truly the world's reserve currency. It truly is global and foreign governments all around the

00:20:59.760 | world quote their prices for their services in US dollars because it's more stable.

00:21:06.000 | So what would actually happen if a currency like the US dollar hyperinflated?

00:21:11.440 | There's a decent chance it would be more contagious than the Venezuelan boulevard.

00:21:15.280 | The final comment that I would say though is I do not expect a hyperinflationary scenario in the US

00:21:19.760 | dollar. Even though we have plenty of examples of hyperinflation that we can study, there has never

00:21:27.840 | been in the modern era hyperinflation of a large Western currency like the US dollar. And I cannot

00:21:36.000 | conceive of how the Federal Reserve and the monetary managers would ever – how they would or

00:21:46.560 | why they would ever allow for a hyperinflation of the US dollar. Is it possible that things could

00:21:53.040 | change 10 years from now? Yeah, I think it is. Is it possible that you could have a bunch of bat

00:21:59.280 | crazy people kind of involving? Yes. But I don't see how the interests of the Federal Reserve

00:22:04.400 | border served by hyperinflation. So I think it's a very unlikely scenario. It's plannable for it,

00:22:13.520 | but I think it's very unlikely. I don't lose any sleep over it.

00:22:16.160 | Okay. Well, thank you for your perspective. My pleasure. We go on. Let's go to

00:22:22.960 | Josh in California. Josh, welcome to the show. How can I serve you today, sir?

00:22:26.880 | I just want to give you a little update and then ask a question.

00:22:33.680 | This is about the California to Texas hobby farm transition. I called about a month or two ago.

00:22:38.720 | So that's actually in the works. We pulled into our Airbnb about a week ago, thanks to your

00:22:44.400 | suggestion. We completely overlooked that. So we've completely cut ties. We were able to actually

00:22:51.120 | triple the size of our house and our mortgage has gone up $200 a month by leaving California and

00:22:56.960 | coming out to Texas. And we weren't able to do a proper hobby farm. We're in a little subdivision,

00:23:02.720 | but it's got a large enough backyard that I can aggressively garden. And that was partly based on

00:23:08.640 | your insight in that a two-year-old and a five-year-old are functionally worthless in

00:23:14.560 | a farming situation. They're worse than worthless. They make everything way more difficult.

00:23:20.080 | It's worse than worthless. It's negative worth. Oh, so much. They are beautiful little logistics.

00:23:28.720 | So that's definitely took your advice and comments under much discretion as we went through. So I

00:23:37.840 | appreciate that very much from you. So we are moving in that direction and things are going

00:23:42.160 | very well. So I do appreciate the advice along the way. Today's question specifically was on

00:23:48.880 | our retirement. During this whole change of address thing, I realized that I have

00:23:54.160 | three outstanding 401(k), 403(b) type things from previous jobs. My wife has two others and she's

00:24:02.720 | establishing one at the new job. And for that more practical or tactical, however you want to

00:24:10.560 | approach it, what should we do with those? In the past, you had mentioned putting those into an IRA,

00:24:16.800 | but practically, how would we move from the old company retirement account into either my current

00:24:27.440 | IRA or establishing and then funding an IRA for the wife? Cool. I'll answer that. I wanted to

00:24:33.920 | point out a message and I don't have a good way of follow-up for this. So sometimes when a caller

00:24:40.560 | calls in and because I don't have comments enabled on the website, I probably should go back and

00:24:46.320 | enable comments on the website so that this conversation can happen there. But after you

00:24:51.040 | called in, Andy in the Facebook group had put in this particular input and I encourage you if you

00:24:57.120 | didn't see it to go and find it. But after that call, Andy wrote in and he said, "Speaking into

00:25:01.760 | the ether here to Josh in California from the Q&A call today or anyone else who's thinking about

00:25:06.080 | moving to the country, if I heard right, you mentioned you're on a quarter to a half an acre,

00:25:09.920 | thinking of moving to 20 acres. I'm guessing you've never owned more than that half acre,

00:25:13.600 | so just wanted to share my perspective. I've lived on half, one-tenth, five, and now 26 acres.

00:25:19.040 | There's an order of magnitude difference as you go up. If you just want to supply, say,

00:25:23.120 | double your own egg consumption, all your fresh veggies and some meat or dairy supplements,

00:25:27.120 | you absolutely do not need more than three to five acres to do that. If you want some woods

00:25:31.520 | or just to own land or whatnot, by all means go for it, but you could probably supply 80%

00:25:35.680 | of your calories and make 50 to $100,000 on 20 acres if you manage it with the intensity.

00:25:40.880 | If you're not managing it intensively and not using it, it'll just cost you more money.

00:25:44.160 | I've got about a third of an acre in gravel. That's not nightmarish to maintain, but it

00:25:48.240 | pretty much necessitates a tractor, which is more expensive than a lawnmower. Not complaining,

00:25:52.960 | of course, I'm happy with my life, just pointing out that if you just want to do homestead stuff,

00:25:58.480 | I think two to five acres would be a much more appropriate size unless you want to buy something

00:26:02.480 | with woods in the back for your kids to play in. Happy to discuss country living more. I just

00:26:06.320 | heard that and thought my experience might be helpful. Best wishes to anyone interested in

00:26:09.120 | moving to the country. There's some other good conversation there in the Facebook group

00:26:13.120 | that Andy sparked when you called in. I think you made a good decision.

00:26:16.240 | All right, back to the IRA question. Let's first talk about the reasons why you would move the

00:26:22.400 | money and the reasons why you wouldn't move the money just so we get that clear and then how you

00:26:26.400 | actually do it. The reasons to move the money are fairly simple and fairly compelling. First of all,

00:26:34.800 | a lot of times if you move the money from an old employer plan, an old 401k, an old 403b,

00:26:40.560 | to an IRA, you now have the free and total market that you can choose from. When you have money

00:26:47.040 | in an employer-provided plan, that is simply a plan that has been chosen by your employer

00:26:53.360 | from a specific number of vendors. I used to bid on these when I was a financial advisor. I'd go

00:26:59.440 | into an employer and I'd say, "Listen, let us come in and let us run your 401k." It's a business

00:27:04.640 | like anyone else, like any other business. You get paid on asset management and fees, etc.

00:27:09.440 | And so there's an incentive for companies to come in and say, "Let us bid and let us run your 401k."

00:27:14.000 | So the employer will work with a couple of different people. They may try to cobble

00:27:21.440 | something together themselves. We want to hire this TPA, this third-party administrator. We want

00:27:26.640 | to use this investment company. They might use a turnkey solution. So there's all kinds of companies

00:27:31.040 | that have turnkey solutions where, "Hey, we'll make things simple. We'll do everything for you."

00:27:36.080 | There's big names, right? There's the Fidelities, the Vanguards, and then there's little names.

00:27:39.600 | There's the little guy next door. The challenge here is you don't have any control over what's

00:27:44.480 | offered to you. And so you sometimes have rock-bottom fees. Sometimes you have very high

00:27:51.280 | fees. 403b's are famous for having higher fees, much higher than 401k's. Some 401k administrators

00:27:57.280 | have very low fees. Some have very high fees. And it all depends on what the employer has negotiated.

00:28:03.040 | And you don't know whether that employer went out and said, "We're going to find the absolute

00:28:06.480 | cheapest person on the market, and that person is cheap and junky, and they don't do a good job."

00:28:12.160 | You don't know whether that company is cheap and good. You don't know whether that company

00:28:16.320 | is expensive, but they just have an inside relationship with the owner of the company or

00:28:20.960 | with the decision maker, etc. So you don't get any choice there. In addition, you don't get any

00:28:26.640 | choice of what funds or what fund companies are available to you. Now, 401k's at this point are

00:28:32.800 | fairly standardized. And so most 401k's have a pretty good company with pretty low fees,

00:28:38.240 | and they have a pretty good selection of investment options. But the point still stands that if you go

00:28:44.960 | to the open market, you get total control over that. You can choose what provider you work with,

00:28:50.320 | what investment advisor, what fund company. You can control your fee schedule. You can choose a

00:28:56.320 | rock-bottom, absolutely cheap thing. You can choose to work with an advisor who charges you

00:29:01.280 | money, but you get some other value from them. In addition, you also get total openness of

00:29:07.120 | investment options. So you can go to a company that offers the kind of mutual funds that you

00:29:11.760 | want. You can go to a self-directed IRA, and you can start buying rental properties or investing

00:29:16.320 | in tax liens or buying gold and putting it in your 401k. You can do anything you want,

00:29:21.360 | and you don't have any of those options in your employer-provided plans.

00:29:26.880 | So that's the most important and very compelling reason for most people to move their money from

00:29:33.840 | an old employer to an IRA. The other more minor but also important conversation, I think,

00:29:39.600 | is just simplicity. If I die, do I want to leave behind four different accounts that my wife has

00:29:45.680 | to go through and individually collect from the beneficiaries, or do I want to leave one account?

00:29:51.680 | I guess you could make a counter-argument and say that there's risk and there's not a lot of

00:29:57.040 | diversification in putting all the money there, but I think that with the SIPC protection and

00:30:01.600 | whatnot, I think that's a very modest risk. I wouldn't be nervous about having all my accounts

00:30:06.000 | with one company, at least to a certain point. So you get a lot of simplification.

00:30:11.040 | Now, the most important reason not to move the money that I try to point out that I have very

00:30:17.200 | rarely heard discussed, and I'd like to get it much more popularized, has to do with asset

00:30:20.560 | protection. Some states, such as the state of Texas, protect IRAs and Roth IRAs, etc.,

00:30:28.480 | in the same way that they protect 401(k)s. So if you have an IRA in the state of Texas,

00:30:34.320 | somebody sues you or you go bankrupt, according to the law, or at least my understanding of the

00:30:38.720 | law, never having practiced in Texas, according to the law, that money in an IRA should be just

00:30:45.040 | as exempt from bankruptcy courts, should be just as exempt from the claims of creditors as it was

00:30:51.120 | in your employer-provided qualified plan. That's what the law is. And that, I would say, is probably

00:30:57.040 | in most states at this point, but not all. Now, a very important exception, because of a huge

00:31:01.680 | population, would be California. California does not, at least my understanding, never having

00:31:07.680 | practiced in California, just having an information chart in front of me that I use to track this

00:31:11.440 | stuff. California does not provide the same level of asset protection, creditor protection, for IRAs

00:31:18.640 | and Roth IRAs as they do for 401(k)s. 401(k)s and 403(b)s are what are called qualified accounts.

00:31:25.760 | They're federally qualified accounts. And by federal law, in order for it to be a qualified

00:31:29.600 | account, by federal law, any qualified plan is exempt from the claims of creditors. So if you

00:31:36.400 | were still living in California, if I were living in California, I would not move my funds to an IRA.

00:31:44.480 | I would always keep my retirement accounts in a 401(k) in order to have the creditor protection,

00:31:49.360 | the bankruptcy protection that is offered by that 401(k) account. Again, unless my information on

00:31:54.880 | California is mistaken, which I don't think it is, I would not do that. So what I would do is I would

00:32:01.040 | consolidate my accounts to whichever one was the best. So I might move the 403(b) money, which is

00:32:06.480 | probably expensively held high fees, I might move that into one of my older 401(k) employer accounts

00:32:12.640 | rather than keep it in the 403(b). But I would still make sure that it's always in a 401(k)

00:32:19.040 | or a 403(b). And this is especially important if I were going into a place where I thought I had

00:32:25.040 | some kind of elevated risk against creditors for some reason, I'm in a financially precarious

00:32:30.560 | situation, I'm starting a business, etc. I want all that money in the 401(k) because that is as

00:32:36.400 | close as we get to sacrosanct in the US creditor protection laws. The IRS will still take it.

00:32:41.600 | It can still be lost in divorce court. But with regard to bankruptcy, getting sued, etc.,

00:32:47.280 | that money is fully protected. The mechanics of this are easy. So if you decide to move it,

00:32:51.760 | you just decide where am I going to transfer the money to. You open an account, and usually you'll

00:32:58.800 | just do a custodian to custodian transfer. And that'll be spelled out by the provider that you

00:33:04.320 | use. So if you use a discount online provider, use a Vanguard or a Fidelity or something like that,

00:33:08.800 | they'll do it automatically for you. If you work with an advisor, the advisor will submit the

00:33:12.560 | paperwork. Most of the times, the firms will use a clearinghouse. And so there's a fairly simple

00:33:21.440 | and established system behind the scenes to do a custodian to custodian transfer.

00:33:25.280 | That's your safest choice to do that custodian to custodian transfer because then the money

00:33:29.680 | doesn't come into your hands and you don't risk having a tax event. If you can't or don't choose

00:33:35.360 | to do a custodian to custodian transfer, then you can have the company send the money to you.

00:33:39.600 | And then you have a time period. I think it's 60 days, but it's been years now since I've done any

00:33:43.120 | of these transfers. So I could have gotten that wrong. But you have a 60-day window to be able

00:33:47.200 | to put the money into the new account. So they can send you a check. You can choose to not have

00:33:51.760 | taxes withheld and they can put it in. But it's better to do a custodian to custodian transfer

00:33:55.760 | unless for some reason you need the money. There have been once or twice where I've recommended

00:34:00.320 | this as a bridge loan for somebody who was desperate for financing. Have the company send

00:34:04.560 | you the money, spend it, do what you need to for 30 days, and then figure out how to get it back

00:34:08.480 | together and get it back into the next account before that time period goes up. But your new

00:34:13.360 | custodian will give you all the instructions on how to actually do that transfer once you're getting

00:34:18.720 | the money into the IRA. Okay. Perfect. Yeah. The simplicity and the various options, I think,

00:34:29.440 | is the biggest factor for that. So I definitely will be working on that this afternoon.

00:34:33.440 | Good. It's kind of a weird spot for you to give advice, but for any of the online

00:34:38.800 | managers, we're kind of agnostic to who we use. Do you have any front runners that you would suggest?

00:34:46.720 | The big ones? General Fidelity or Vanguard?

00:34:49.200 | Yeah. I mean, I hate to ever give a specific company advice because if I'm going to advise

00:34:55.520 | one over another, I want to have some compelling reason to do it. So I would just say just pick

00:35:03.280 | with those. Between Fidelity and Vanguard is fine. They're both rock solid. They both have

00:35:09.360 | bottom price funds. If you're a diehard Boglehead or you're becoming one, Vanguard is wonderful.

00:35:16.080 | They're just absolutely awesome. If you like some of Fidelity's options, they're also good.

00:35:21.040 | And there are many, many good solutions as well. So I don't have any reason to support one over

00:35:28.160 | the other. I think they're all equally good, and I'm not aware of any reason why you would

00:35:31.280 | choose one over another. Awesome. I think that was it for me.

00:35:35.760 | Thank you so much. Have a great day.

00:35:37.360 | All right. We go now to Andrew in Georgia. Andrew, welcome to the show. How can I serve you today,

00:35:41.280 | sir? Hey, Joshua. Thanks for taking my call. I have an education question for you and two brief

00:35:49.040 | tax quotes if we have time. Let's do it.

00:35:51.040 | So my first question is I have a daughter that I'm thinking about starting kindergarten early.

00:36:00.080 | She's pretty bright. And number two, keeping up with the number one child already in the number

00:36:05.840 | one child's kindergarten work. But have you found any resources? I know you've done a lot of reading

00:36:10.320 | about education that might inform that decision. We're not in a position to do homeschooling right

00:36:18.080 | now. That may be a part of the equation in the future. It's a private school. I think they would

00:36:21.600 | be flexible on the state's rules for when kindergarten can be started. But I was curious

00:36:27.920 | if you could recommend any resources for considering the decision of whether to start a

00:36:32.800 | child in kindergarten a year early. Do you have the money to pay for a private school?

00:36:37.840 | Yes. And it is a private classical school. Okay. Well, there are a couple of different...

00:36:46.240 | So when I've looked into this, I don't have a PhD in education. I'm just an interested

00:36:51.680 | absorber. You have a couple of different perspectives that you'll hear represented

00:36:57.600 | when you start digging into it. There is a perspective of aggressive early education.

00:37:03.680 | Now, that can even go all the way down to educating babies. And so you would have,

00:37:09.520 | I guess, Glenn Doman would be the most famous kind of person who name attached to that,

00:37:15.840 | "Teach your baby to read." A very big fan of even as babies teaching children academics.

00:37:22.000 | What I think I'd point out before I go on is that it's not kindergarten though.

00:37:27.440 | Like if you look at Glenn Doman or "Teach your baby to read," it's a five-minute session while

00:37:33.120 | the child's finishing up their cut-up peaches in their high chair. It's a five-minute session

00:37:37.760 | of flashcards. It's not sitting in a classroom and doing kindergarten. There are other people

00:37:44.000 | who are advocates of early child education. So if you look at government education, you see

00:37:49.040 | a big push towards free kindergarten for everyone and enroll your children early.

00:37:54.000 | I haven't seen anything that has persuaded me that that's a good idea for me personally.

00:38:00.960 | I think that the push towards early kindergarten is much more a matter of indoctrination

00:38:08.400 | and conformity than it is what's in the best interest of the child. And so when I look at,

00:38:14.480 | "Hey, this country is rolling out free kindergarten for all three-year-olds and we want to get

00:38:19.280 | everyone into three years old," I'm very uncomfortable with those approaches.

00:38:26.160 | Now, that's kind of the starting early phase. On the other side, you'll have people who vigorously

00:38:31.520 | defend the idea that it damages children to start academics too early, that it's bad for them.

00:38:36.960 | Many of the big names will say, "Start at seven," which is of course later than is the custom.

00:38:43.520 | So my opinion on it is that there's not really any clear reason as to why one age versus another age

00:38:52.000 | would make the difference. If one of my friends comes to me and says, "Hey, look at all this stuff

00:38:57.520 | I'm doing with my three-year-old and we're teaching her all these just incredible things,

00:39:02.000 | and look, she knows 562 Chinese characters," I say, "That's awesome. Great." And if I have

00:39:08.000 | another friend that comes and says, "Ours is just not ready. He's six, but we're not worrying about

00:39:13.440 | it. We're just going to wait a little while. He's not into it yet." I'm okay with that as well.

00:39:17.840 | I'm to the point where I really am. So I want to trust the parents to look at their child and say,

00:39:22.480 | "Hey, my child is expressing these interests, and so therefore, she's ready for this certain thing."

00:39:29.440 | So that's what you're doing. So in that context though, I'm uncomfortable with pushing academics

00:39:35.280 | too early. And if you're not going to do homeschooling, what I would say if you were

00:39:40.000 | going to do homeschooling would be just read as much as possible. Grab a couple of workbooks

00:39:44.720 | that you think your daughter will think is fun. If you want to do a math workbook, great.

00:39:49.040 | If you want to do something else, some skills thing, go for it. But otherwise,

00:39:55.120 | just read as much as possible. And if your daughter wants to learn to read, teach her to

00:39:58.000 | read. There's no reason why you shouldn't teach someone to read if they're early. But don't stress

00:40:02.960 | about it. Do it. And I think that there's a big reason to say that play is really valuable and

00:40:08.400 | really important. So if I had a three-year-old that I was looking at and saying, "Hey, she's

00:40:14.080 | ready for…" Yeah, she can already basically read as a three-year-old.

00:40:18.240 | So if she can already read as a three-year-old, then what I would say is my instinct is to go in

00:40:26.000 | some kind of more play-oriented, like a Montessori school. I might put her in a Montessori school

00:40:31.360 | for a year, a couple years, something like that, and then transition to the classical school myself

00:40:35.680 | just because of my concern about it just being pushing her down. But if you look at it and say,

00:40:42.240 | "You know what? She likes to read. She's interested in it. Try a couple of workbooks.

00:40:45.440 | Is she going to like bookwork? Talk to the teacher at the classical school and put her in. And if

00:40:51.120 | she doesn't like it or it's not doing well for her, then pull her out. If it's not doing good

00:40:54.480 | for her, then pull her out." But that's my answer is I would be more inclined. I'm not a Montessori

00:41:01.600 | acolyte. I appreciate a lot of things that they say. But I think one of the things that they do

00:41:05.360 | a good job of is giving for a good environment where there's a whole lot of play, which I think

00:41:11.280 | is really important at that age especially, at every age, but especially at that age.

00:41:14.960 | Yeah, those are some great thoughts. And every kid certainly is pretty different, aren't they?

00:41:22.160 | If you will just simply trust yourself as a parent, and you and your wife are talking,

00:41:28.160 | and you're looking at your child, and you're saying, "Okay, is this good for our child?"

00:41:31.920 | Then just trust yourself. And if it's not, just commit that you're going to pull it out.

00:41:34.800 | That's something that I didn't have with the first time through.

00:41:38.080 | We didn't have that conference. Finally, it took a little while because I was like, "Okay."

00:41:41.840 | I think a lot of those times, those of us who homeschool feel this like extra pressure,

00:41:46.800 | which we shouldn't feel, but we still do, this extra pressure to say, "Wow, I'm doing this thing

00:41:51.040 | that's still uncommon and out of the ordinary. I need to get really great results. And I'm an

00:41:55.920 | overachiever." And so my wife and I, we didn't... I don't want to say we pushed our eldest,

00:42:04.080 | because I don't believe we did anything bad, but we were just... We were diligent. We were

00:42:08.480 | trying to get him focused on school. And we reached a point where we just said, "This isn't

00:42:12.000 | working. He's not ready." And we probably... With the first time around, we were probably a couple

00:42:18.400 | of months late in recognizing he's not ready. And so we stopped. We just quit, and we just let him

00:42:23.680 | play. We read to him, and that was it. We didn't do anything. Then we came back. We were moved to

00:42:27.120 | a different situation. We came back, and we started bringing more in. And it was so fast and so easy.

00:42:32.960 | And my siblings who homeschool their children, have older children, they'd all warned me that

00:42:37.360 | this was going to be the case, but I didn't really believe them. Well, now with the second time

00:42:40.960 | around, my second child is in kindergarten technically, but we just allow her to do what

00:42:47.840 | she wants to do. And we... Meaning that we have some books for her, and she's excited about them.

00:42:52.960 | And if she doesn't get something, we don't even worry about it, because I know that she will get

00:42:56.400 | it, and I'm not going to waste any time pushing her. I'm not going to get into any conflicts about

00:43:00.000 | you got to do this. She's five years old. There's no reason to push anything at this age. And so

00:43:06.320 | everything is easier when you wait for the proper age. I think that if your daughter is demonstrating

00:43:13.440 | herself to be very bright, then you should challenge her. And so just trust... I trust you

00:43:17.920 | and your wife to look and say, "Hey, here's what's working." So my only caution would be,

00:43:22.320 | don't be committed to one certain course of action. Do something. If it works and you get

00:43:27.040 | results, keep going. If it doesn't, then just quit, stop, and do something else.

00:43:30.400 | Well, very good. Sounds like the next step will just need to be,

00:43:35.920 | is it even a possibility with particular schools? But okay, if I shift gears and ask you

00:43:43.440 | two brief tax questions. Let's do it. Go.

00:43:47.440 | First is something that I find difficult to find information about online. In 2017,

00:43:54.240 | I had some charitable contribution carryovers. My income on paper is actually pretty low,

00:43:59.200 | but I've never been able to figure out exactly what I can do with that and does that expire?

00:44:06.800 | It was about $12,000 worth of charitable contribution carryovers that the tax software

00:44:12.960 | spit out. This year, I'll be doing about a third of my... I think that's when you get over 50% of

00:44:22.800 | your income in charitable donations. This year, I'm only going to be doing about 30% of my income,

00:44:30.320 | again, paper income in charitable contributions. So is that not a factor for me if I never

00:44:36.160 | hit that 50% threshold again?

00:44:39.040 | I do not remember the rules on that. I'm sorry. I don't remember the rules.

00:44:43.920 | It's pretty technical and I think it's probably even changed since 2017 with the tax law changes.

00:44:48.080 | Yeah, you'll have to consult a qualified professional on that. I don't remember.

00:44:51.120 | Fair enough. Okay. Last question would be, I'm starting a business helping people

00:44:58.960 | with home security and I've bought some items to help me with that and to create some training

00:45:08.560 | and example materials this year. I haven't really done a lot else with the business except to write

00:45:16.080 | some draft papers and training and that kind of thing. But it's only about $3,000 worth of stuff

00:45:22.640 | and as far as I can tell, it'll only be about a $300 difference in my taxes. So I didn't know

00:45:29.440 | if there's any advantage in just declaring those losses this year or just waiting till the future.

00:45:34.640 | So you're saying, "I've got the equipment. Should I wait to deduct the equipment until

00:45:49.680 | in the future when I actually have income or should I try to deduct it now?"

00:45:52.800 | I mean, I don't think I can do it in the future. I have to either declare it as losses this year.

00:46:02.800 | But is there any advantage to not starting the paperwork until later since the losses

00:46:09.920 | are so small now? No, I don't see why you wouldn't start it now.

00:46:14.080 | Okay. Yeah. So you've got the limitations on deductibility of startup expenses. So I'd read

00:46:19.920 | those rules. But with what you're talking about, it doesn't sound like that much. I think you'd be

00:46:24.560 | under the $5,000 limit on deducting startup expenses. So I wouldn't see any reason why

00:46:32.000 | you wouldn't start it now if you're actively in business. And if these are ordinary necessary

00:46:35.920 | expenses, then why not deduct them to the extent that they're possible? I see no reason why you

00:46:40.720 | would wait. And especially that you're probably – with this kind of business, you're probably

00:46:46.240 | going to be doing cash accounting. If you don't deduct them now, again, read the startup expense

00:46:51.520 | rules. But if you don't deduct them now, you're not going to be able to deduct them in the future.

00:46:55.760 | So I don't know why you wouldn't just go ahead and deduct them now.

00:47:00.800 | Well, great. Can move forward on all those things. Thanks very much.

00:47:04.400 | My pleasure. My pleasure. Thank you for calling in. All right, we go now to Jason in Washington,

00:47:09.600 | DC. Jason, welcome to the show. How can I serve you today, sir?

00:47:12.000 | Joshua, long time listener, first time caller. Thank you for taking my call. So my wife and I

00:47:20.960 | are having an inheritance and we're trying to get an idea of how to – and I know this question may

00:47:26.640 | be broad – how to integrate it and what to think through and where to put certain things. So it's

00:47:33.600 | just the top numbers would be like $300,000 from a TSP and then a home that's paid for. And we're

00:47:42.960 | trying to get an idea of how to integrate it for growth and for future wealth and what we have.

00:47:50.960 | Are there any kind of supporting details that I can give you that would help

00:47:54.400 | kind of spark a little bit of that conversation more?

00:47:57.760 | What is the value of the home if it's sold?

00:47:59.760 | $325,000. We have a family member, a grandmother, who is living in there that we anticipate

00:48:11.440 | we would allow to live there for the duration. But that still is part of what we're trying to

00:48:18.800 | do. But that still is part of what will be coming over.

00:48:22.160 | Okay. How much is your current net worth more or less, just ballpark, big picture?

00:48:28.000 | So we own a home, I would say maybe $150,000 after debt and everything is taken out.

00:48:39.040 | Other than a home mortgage, do you have any significant personal debt?

00:48:43.840 | No, we have $8,000 in debt, which is credit card and a medical bill. Everything else is free and

00:48:51.120 | clear. And in the home, I'm sorry. Household income is how much?

00:48:55.760 | $205,000.

00:48:58.320 | Okay. How old are you and how old is your wife?

00:49:02.000 | 44, 45.

00:49:04.960 | Do you have children?

00:49:05.680 | One child, but he's independent, 19.

00:49:10.880 | And do you – whose parent or whose relative died?

00:49:16.720 | My wife's aunt.

00:49:19.840 | Okay. Well, in a situation like you're describing, certainly it's a significant gift compared to

00:49:27.600 | your net worth, right? Just the TSP alone is an effective doubling of your net worth if your

00:49:34.480 | household net worth is $160,000. So that's fantastic. With the fact that it's the TSP

00:49:44.480 | and the house, now it's very significant as compared to your personal net worth.

00:49:49.040 | It's not such a significant event as compared to your income. If your household income is $205,000,

00:49:55.920 | the TSP is a little over a year's worth of income. And the paid-for house is – again,

00:50:04.320 | put all together, it's three years' worth of income. So I think the first question I would

00:50:09.360 | have is from your age and from your income, I would ask you, are you doing a good job accumulating

00:50:15.680 | wealth? For you to have a household income of $205,000 to be in your mid-40s and to have a

00:50:21.040 | net worth of $160,000 is a little bit light. Now, I don't think it's a fruitful conversation for us

00:50:27.200 | here. There could be good reasons for it. You could have recently increased your income. You

00:50:31.200 | could have – this could be a new thing. You could have dug out from underneath a million dollars of

00:50:35.280 | business debt or something like that. It doesn't matter. But it's a little bit light. That ratio

00:50:38.800 | there is a little bit off for somebody. What it indicates to me is that maybe you haven't – it's

00:50:45.120 | possible that you haven't been as good with money before in your life as it would have been nice to

00:50:49.840 | have been because it would seem like your net worth should be a little bit higher with a $205,000

00:50:56.000 | income. Now, what you need to do is not tell me about it. What you need to do is analyze and say,

00:51:00.960 | "Where am I in my wealth-building journey? Did we make a lot of mistakes or not make a lot of

00:51:05.920 | money earlier and now we're doing well?" In that situation, then I would just say you continue

00:51:11.600 | doing more of what you're doing. So if you're in a place where we're making good decisions,

00:51:16.720 | we're earning well, we're saving well, we're living within our means, we have a chance now

00:51:22.560 | to really get ahead, then I would just bring and fold the inheritance in to your overall plan if

00:51:29.360 | you have one. If you haven't been good with money – and my fear is maybe you haven't been great with

00:51:35.760 | money in the past – then you need to be very suspicious of this and you need to say, "I better

00:51:41.440 | not screw this up and so I need to move really slowly." In that situation, I would keep the

00:51:46.160 | money segregated for a time. I wouldn't rush to go ahead and start receiving income from it

00:51:51.600 | and I would do what you're doing now, which is solicit some good advice and get a very clear

00:51:55.440 | plan for it. So I guess I do need to probe a little bit. Have you been good with money in

00:51:59.280 | the past? How are you as far as accumulating wealth? Are you good at it, not so good at it?

00:52:04.480 | How would you rate yourself? >>Jaymee So we went through the whole Ramsey

00:52:09.840 | debt paying off thing. So that 8K pretty much is the last of it. So it was basically paying off

00:52:18.640 | debt. So we are good at now obviously managing money, not spending it beyond our means. I think

00:52:24.160 | we're transitioning into how do we now that we have this amount of income that we're basically

00:52:30.160 | saving one and a half full paychecks, how do we start to build off of that now since we're out of

00:52:36.240 | the debt, out of the Dutch, you know, digging out from under. >>Tavis So you need an investment plan

00:52:41.760 | now, which is not easy. It's not easy to give you, but that's what you need. You need an investment

00:52:46.400 | plan and you need to figure out what can I invest this money into where it's going to make sense

00:52:51.360 | for us in the long run. Do you have an investment plan of some kind? >>Jaymee We don't. We have

00:52:59.280 | been talking to C-only planners and then also certain broker dealers to try to get an idea of

00:53:06.400 | what a plan should be. I was wondering if you had any suggestions on that subject as well.

00:53:12.960 | >>Tavis I would start with my friend David Stein. He runs the podcast,

00:53:19.600 | blanking on his name is embarrassing, Money for the Rest of Us. His book, his podcast is called

00:53:26.720 | Money for the Rest of Us and he wrote a book a year ago called Money for the Rest of Us,

00:53:32.320 | 10 Questions to Master Successful Investing. I would start with that book. Go ahead and read

00:53:37.600 | that book. It's a very well-written book and it talks about things very broadly. David's been on

00:53:43.280 | the show way back in the early history of Radical Personal Finance. I interviewed him and he has a

00:53:49.200 | background in money management. He used to run some large funds for some corporate clients and

00:53:55.840 | he does a lot of investing and a lot of it is stocks, which I think are wonderful solutions

00:54:00.560 | for investing, but not exclusively. I think that would be a good place to start.

00:54:04.560 | The biggest question you're going to have to face, give you just a quick little speech on investing,

00:54:11.040 | biggest question you're going to have to face is what do we want to invest in now? Because this

00:54:14.960 | money basically brings you very quickly through the end of Dave Ramsey's seven baby steps and

00:54:23.680 | brings you to the point where now you are effectively financially independent. Not saying

00:54:27.520 | you can just stop working, but you're effectively financially independent and you can make any

00:54:33.360 | choice that you want. That's the thing about this gift is you have enough cash from the TSP,

00:54:38.400 | first of all, that you can make any choice in life that you want. The first thing that I would do

00:54:44.560 | before I started digging into stocks, et cetera, is I would ask myself questions about my life and

00:54:50.160 | my lifestyle. The most important ones are, you've heard me talk about my big three. Number one is,

00:54:56.400 | who are you with? You're married, so you're with your wife, but don't change that. Do you live

00:55:05.200 | with people that you want to live? Do you live near parents? Do you want to live near parents?

00:55:09.040 | The second thing is, where do you live, which are usually related, but the geography of where

00:55:14.000 | you live is usually one of the most important things. If you just hate the Washington DC area

00:55:19.680 | and you've always wanted to live in a little mountain town in Colorado, what I would do

00:55:23.040 | is I would use the money to facilitate my move out of the little town in Washington DC or out of...

00:55:27.840 | That didn't come out quite right. I would use the money to facilitate my move out of Washington DC

00:55:38.960 | to the little mountain town, out of the big giant metropolis swamp of Washington DC to the little

00:55:44.000 | mountain town of Colorado. I would just use it to facilitate that. I'll make smart decisions along

00:55:50.880 | the way, but if you've been dreaming about living somewhere else, go for it. Now, if you decide,

00:55:55.760 | "No, we're happy here. This is where our home is. We love DC. I think DC is a great city.

00:56:00.720 | From a cultural perspective, it's hard to imagine a better place in the world to live."

00:56:04.560 | But then the third thing is, "What about my work? What about my job? What about my income?

00:56:10.160 | Am I doing work that's really a good fit for me?" I think it's useful to have inherited this money

00:56:20.640 | because I would say, "What if it were $10 million?" I would pretend it was $10 million

00:56:26.320 | myself, and I would say, "Let's say that we all of a sudden inherited $10 million.

00:56:30.560 | So now we're totally financially independent. What would we do? What would we do with our lives in

00:56:35.280 | that situation?" The way I like to do this as a journal activity is imagine that you inherited

00:56:43.680 | $10 million and then fast forward a year. Just give yourself a year to go out and do some of

00:56:49.600 | the hedonistic things that you've always thought would be fun, to buy a Harley Davidson and ride

00:56:53.440 | across the United States or go travel around the world for a year, staying in five-star hotels or

00:56:57.600 | whatever, those kinds of things that you would do. So then imagine forward a year. You've gotten

00:57:02.320 | most of that stuff out of your system. So what would you do a year later after you had inherited

00:57:07.440 | $10 million? It's Monday morning a year later. What would you do on that Monday morning?

00:57:12.080 | And I would really spend a lot of time analyzing my career and thinking about what kind of work I

00:57:17.840 | would do, what kind of business I would run, where I would live, et cetera. And then I would

00:57:22.960 | personally invest this money into facilitating those lifestyle transitions first. So if I've

00:57:29.680 | always imagined that I would love to own a little coffee shop in the mountains of Colorado, then I

00:57:34.240 | would go and I would buy the coffee shop and I would open it in the mountains of Colorado.

00:57:37.760 | If I've always imagined I would go and get a PhD in philosophy and become a philosophy professor,

00:57:43.840 | then I would go and get a PhD in philosophy and become a philosophy professor. I would

00:57:46.560 | invest in myself first and into my lifestyle before I would invest into stocks or real estate,

00:57:51.920 | et cetera. Then once you've made those big three decisions, which could be a total life

00:57:58.560 | transformation, all of a sudden you and your wife are running a little bed and breakfast on the

00:58:04.720 | beaches of Portugal, maybe that's where you are a year from now and I would use the money to pay

00:58:08.960 | for that. Or on the other hand, it could be you're doing exactly what you're doing now and you're

00:58:12.400 | living where you're living now and you're totally content. Then I would go ahead and say, "Well,

00:58:16.880 | how do I invest the money for financial growth? Do I buy stocks? What kind of portfolio do I build?

00:58:21.040 | Do I buy real estate? Do I buy a business?" et cetera. But I would think really hard about

00:58:26.480 | that lifestyle change and go ahead and get us into the lifestyle that we don't want to retire from

00:58:31.920 | before I would go ahead and start buying financial investments. So that would be my

00:58:36.800 | advice as to how you proceed. I appreciate it. I love the thought process and I'll definitely

00:58:45.440 | re-listen to this to go through that step. Outside of the book recommendation,

00:58:50.480 | do you have previous podcasts that you maybe say, "Hey, Jason, listen back to one of these that

00:58:56.560 | maybe covers an aspect of what will be coming up or a similar situation?"

00:59:03.440 | It's sprinkled all throughout where I've talked about it. I haven't done a whole series on

00:59:07.280 | investing. At some point, I can and I should. But basically, you'll get three different – when I

00:59:13.760 | talk about investing, I always divide it into three categories. The first is active business.

00:59:19.600 | Most underrepresented, but I think it shouldn't be, but the most underrepresented category is

00:59:26.320 | active business. If you want to take a sum of money, you want to take $600,000

00:59:30.960 | and you want to turn it into a lot of money, the most reliable way for you to do that is to invest

00:59:36.640 | into an active business, to buy a business or to build a business that's going to be

00:59:41.200 | productive and profitable. Your highest return on investment is generally, in almost every

00:59:47.920 | circumstance, going to come from business. So that can be something very simple. You can buy

00:59:52.480 | a Subway franchise or buy a McDonald's or buy a carpet cleaning franchise or something like that.

00:59:59.360 | I use franchises because they're simple to understand. But if you took this money and you

01:00:04.320 | started opening Papa John's franchises, it would be very productive for you in terms of the financial

01:00:11.520 | return. That even just franchises where you don't have to come up with a business idea,

01:00:16.480 | you don't have to come up with a business structure, you just buy the franchise and

01:00:19.040 | operate it. It's wonderful. Now, if you have something else like your own independent idea

01:00:23.280 | of a business that you would like to run, that's also – if it's done well, it's also going to be

01:00:28.000 | profitable. So that's always going to be your highest return on investment is with active

01:00:31.520 | business. The downside is that active business is going to require your time. So you want to make

01:00:35.920 | sure that that's something that you actually want to do. If you don't want to leave your job and run

01:00:39.520 | a business and your wife doesn't want to leave her job and run a business, then don't. So then you

01:00:43.760 | move on to the other two. So you first have active business. The second category of investing is we

01:00:50.560 | can either say real property and we can use the technical accounting definition of real property,

01:00:54.560 | which is often real estate, or we can just use what I like to do speaking big picture of tangible

01:01:01.200 | property. We can invest into stuff. We can buy stuff. So that stuff can be collectible knitting

01:01:08.240 | needles. That stuff can be antique firearms. That stuff can be gold and silver coins. That stuff

01:01:15.680 | can be giant commercial buildings. So there's a whole world of buying and selling stuff that we

01:01:21.520 | can talk about. And there's mainstream stuff like seeing like three bedroom, two bath houses in

01:01:27.280 | suburban neighborhoods like condos and downtown areas. That's all mainstream stuff where there's

01:01:33.600 | a really good market for it. It's very predictable. There's good financing for it. Or you can find

01:01:38.560 | really offbeat off the wall stuff. You can become an expert in 16th century French gold coins.

01:01:44.880 | And that's your world of stuff that you're involved in. There's no limit to the stuff

01:01:51.680 | that you can buy and invest in. And then the third category is paper assets. And so a paper asset is

01:01:57.520 | something that draws its value based upon the performance of something else. And so I'm going

01:02:01.760 | to use this very broadly. Paper assets would obviously be stocks and their derivatives.

01:02:06.720 | We could have mutual funds. You could have options. You could have all of the various

01:02:11.920 | things representing ownership or trading in the ownership of shares of companies,

01:02:16.400 | bonds, lending money to people, lending money to companies. You can do other paper investments

01:02:21.440 | though. You can invest into – you can do hard money lending. You can invest in tax lien

01:02:26.160 | certificates. You can write foreign mortgages for missionaries overseas. There's no limit to

01:02:33.760 | the kind of paper investing that you can do. So active business requires a high use of your time.

01:02:40.720 | It's very demanding on your time, generally speaking, but it's very profitable. Real property

01:02:47.760 | is demanding on your time but probably less demanding on your time than active business.

01:02:53.360 | If you have a business buying and trading antique firearms, well, that takes time, right? You're

01:02:59.440 | going to gun shows on the weekends and you're buying inventory and you're wrapping inventory

01:03:03.680 | and you're dealing with accounting. But it's not quite as time intensive as running a pizza

01:03:09.040 | franchise or running a Jimmy John's. But it is intensive in time. But it's also probably more

01:03:15.120 | profitable than some other things. It's more profitable than buying a CD at your local bank.

01:03:18.640 | Paper investments, depending on your strategy, are often going to be your least time required,

01:03:23.200 | right? You can take all the money. You could trundle it down to Vanguard and buy a total

01:03:28.000 | stock market index fund and have a very high quality, pretty decent investment with that money.

01:03:33.680 | It's not going to require any time and it's going to be pretty good. It's just not going to return

01:03:37.440 | anywhere near as what you would expect those other categories to return. So that's why I say you

01:03:42.160 | start with your lifestyle design. Start with how do we want to live, how do we want to set up our

01:03:47.040 | life? And then from that, then go on to what would be an investment that would fit what we're doing.

01:03:56.800 | I think that if you'll buy an investment, again, depending on how satisfied you and your wife are

01:04:01.120 | with your careers, etc., if you'll buy an investment that gives you the lifestyle that you want,

01:04:07.520 | you'd be much happier with that than working in a job that you would actually retire from someday,

01:04:13.360 | meaning that you wouldn't do it just for free. So I think it's better to buy an investment that

01:04:20.480 | gives you the lifestyle that you want than to keep working a job that you don't like and buy

01:04:24.240 | stocks. That's my answer. If I inherited $600,000 and I were working in a job, I would go and I

01:04:31.680 | would buy a campground, right? Or I would buy an Airbnb – I keep saying Airbnb – buy a bed and

01:04:36.000 | breakfast or I would buy a restaurant, something like that because I enjoy those kinds of social

01:04:41.360 | things. Or I would go and do any number of franchises because it'd be more productive and

01:04:47.120 | I would enjoy that lifestyle more than I would enjoy working a job and having money pile up in

01:04:53.840 | a stock market account. Okay, great. Thank you. Just one quick question based on a previous user

01:05:02.160 | caller. You mentioned Vanguard, Fidelity, and you mentioned you had no issues with those.

01:05:08.240 | Would that include a swab as well? Correct.

01:05:10.720 | Or I don't know if you… Correct.

01:05:12.640 | Okay, great. Yeah, I don't follow that market

01:05:14.640 | very quickly, but I think they're all fine. They're all competitive. It used to be that a

01:05:19.920 | company like Vanguard had a big competitive advantage. When Vanguard was first founded,

01:05:24.880 | the big competitive advantage was fees. But what's happened is the whole market in that space has

01:05:30.800 | responded. And so, the fees have dropped across the board. And so, Vanguard has put pressure on

01:05:37.360 | all of the companies – on Schwab, on Fidelity, etc. And so, all of them offer now lots of investment

01:05:43.680 | choices that are very low fees. And so, I don't know of any… I'm not committed to any particular

01:05:49.600 | competitive advantage of one versus another. I'm fine with all of them. That was the point.

01:05:53.920 | All right, we're going to move on. Let's see. Who do I go to next? One, two, three, four,

01:05:58.160 | five. I'm going to have to go fast. Let's go to Peter in New York. Peter, welcome to the show.

01:06:01.280 | How can I serve you today, sir? Hi, Joshua. My employer is going to offer a 457(b)

01:06:07.760 | plan and it looks like a no-brainer to me, but I just wondered if there were any pitfalls I'm

01:06:13.040 | missing here. No pitfalls. It's a no-brainer. I would participate up to the max that I could

01:06:17.120 | afford. I think it's a wonderful solution. All right, that was easy. Have a good weekend.

01:06:22.400 | You too, sir. I like that. Let's see if we can do it again. We go to the great city of New York.

01:06:26.560 | New York, welcome to the show. How can I serve you today? New York City, 646 area code. Go ahead,

01:06:34.000 | please. Hey, Josh. That's you. Go ahead. Go ahead. Oh, hey. No, thanks for taking the time. I'm

01:06:41.840 | really enjoying the show. I'm trying to leave my corporate job. I make about 225 plus bonus.

01:06:49.440 | I've been working on a part-time, other stream of income, basically selling options premium,

01:07:00.160 | getting about 2% a month pretty consistently, but on a relatively small account, not enough

01:07:06.000 | to leave my job. So I figure I need to grow this to probably about 400,000 to cover our monthly

01:07:13.120 | expenses. And as you know, the Northeast is still pretty expensive. We're trying to sell our

01:07:20.640 | apartment in New York City, which is tough with the pandemic. Everyone's leaving, but we're

01:07:26.000 | expecting at about 500,000 from that, that I can contribute to some of this strategy.

01:07:35.040 | So just wanted to get your thoughts on some things to think about when trying to leave

01:07:41.760 | corporate America, because I know you've done it. I mean, I have one kid, another kid on the way

01:07:48.000 | with the wife, the family of four. And so one of the things I'm thinking about is the health

01:07:52.480 | insurance costs, which I know are going to be pretty high because we're going to stay in the

01:07:57.760 | Northeast after we sell. But just curious what other things you would think about or plan to do.

01:08:03.760 | How old is your oldest child?

01:08:04.960 | Two years old.

01:08:08.000 | Okay. Well, what you will find as you trace this through is the prison of the corporate experience

01:08:21.360 | is entirely in your head. And what I mean is you have a set of constraints

01:08:31.600 | that you are choosing to operate under. Now, notice I'm being very precise in my language.

01:08:36.160 | I'm not saying you've adopted them, right? They may have been imposed on you by the society around

01:08:40.000 | and you unconsciously adopted them, or you may have chosen these constraints, but they are

01:08:44.880 | constraints that you are choosing to operate under. And what I want to do is I want to make

01:08:50.000 | them clear to you so that you can make a conscious choice as to whether you want to accept them

01:08:55.600 | or not. You have a certain lifestyle that you live and a certain set of things that you do,

01:09:04.560 | a certain set of expenses that you have that you're concerned about and planning for,

01:09:09.600 | and I applaud you for that. That's not a bad thing. But every single one of these expenses,

01:09:14.960 | every single one of these things is entirely negotiable, completely negotiable. So, you need

01:09:21.760 | to face that and then make the choice intentionally. So, living in the Northeast,

01:09:26.480 | you choose to live in the Northeast for reasons that are important to you, but personal reasons.

01:09:30.720 | You could choose to live in the Northeast or you could choose to live somewhere else.

01:09:35.600 | Now, if you choose to live in the Northeast, because, again, most likely this is where my

01:09:42.160 | family is, where our friends are, like this is where our community is, that's obviously an

01:09:46.080 | entirely valid constraint, then you choose to live there and that brings with it certain

01:09:53.280 | baked-in costs to life, certain lifestyle benefits, certain costs associated with those benefits.

01:09:59.120 | I hope that you're hearing my tone. I'm not saying those are wrong choices. I'm saying

01:10:04.080 | they're choices. You could choose to move somewhere else, right? You could choose to

01:10:08.640 | move to Mississippi and for the cost of your small, you know, the apartment in New York,

01:10:15.280 | you could buy a mansion in Mississippi. So, you may or may not want to do that. Some people

01:10:20.080 | couldn't imagine living in Mississippi. Some people would do it in an instant.

01:10:22.720 | You could choose to do, if you're trading, if you're selling option premiums, you could do

01:10:27.600 | that anywhere in the world. As I like to famously, not famously, but I like to say, you know, you

01:10:32.720 | could load up your family, you could get on an airplane and you could fly to Chiang Mai, Thailand,

01:10:37.200 | and where you can live like a king on the beach in Chiang Mai, Thailand for a thousand dollars a

01:10:42.160 | month and pile up all of the extra money if you wanted to make a radical lifestyle change.

01:10:51.040 | Now, let's assume that you don't want to make a physical move, which I think you should consider.

01:10:56.720 | You know, if I were a trader, if I were trying to make a change from a corporate job to working as

01:11:01.200 | a trader, I would very seriously think about things like Puerto Rico with the Act 22 individual,

01:11:08.560 | the tax benefits for investors, the potential to massively adjust my taxes would be a major

01:11:15.760 | incentive to me if I'm moving into trading, the lifestyle. Some people would love it. Some people

01:11:20.240 | hate it, right? You have to think that through. So I would very seriously think about it. Myself,

01:11:24.720 | I would rather move quickly and not live under a $200,000 a year requirement until I had gotten

01:11:34.080 | my piggy bank very full. So if I talked to my wife and I said, "Honey, why don't we live on

01:11:39.520 | the beach for a few years?" And she said, "Okay, I could do it." I'd move to Thailand. I'd live

01:11:43.680 | there for a couple of years while I'm getting this thing going so that I never have any concerns

01:11:48.240 | about the actual trading strategy that I'm totally good. And then I would go ahead and move back to

01:11:53.600 | New York if I wanted to at that point in time. Now, there may be a cost. Maybe you want to be

01:11:56.960 | close to parents and you need the help in your family. Again, totally reasonable things. I'm

01:12:01.120 | just analyzing from a financial perspective. Now, if you say, "I want to stay," the other

01:12:07.040 | aspects that you're choosing, most of the costs that we choose are costs that we've adopted,

01:12:12.000 | the kind of apartment that you live in, the size of the house that you have, the kind of

01:12:17.520 | ways that you spend your time and the things that you go, where you go. And so all of those things

01:12:22.560 | are chosen. You could live in an apartment that was half the cost of what your current one is.

01:12:27.200 | You could spend half the money that you currently spend. And then that might change your lifestyle

01:12:31.760 | in some way. It might change your operations. So I don't want to go on. I want to point out that

01:12:38.720 | all of these things are entirely of your choosing. And so for you to believe that you have to make

01:12:45.440 | $400,000 from trading in order for things to work, that's nonsense, right? That's a choice.

01:12:50.640 | You might say, "I want to make $400,000 in order for us to live the lifestyle we want to live in,"

01:12:54.960 | but you don't have to do any of that. So once you break those prisons in your mind and you realize

01:13:00.880 | that these are all intentional choices that I make, then you can use the appropriate language,

01:13:05.360 | which is, "I'm choosing to continue in my corporate job," or, "I'm choosing to do my

01:13:10.560 | trading strategy until I reach this certain point because that's the way that I want to live."

01:13:15.040 | Totally fine. Now, as far as strategy, I personally think that when you're making a

01:13:21.280 | move like that, the more conservative your move can be, the better you'll feel.

01:13:26.480 | I don't think it's necessary to be fully conservative. There's lots of people who

01:13:30.800 | have started a business and who have done it with big personal expenses and been totally fine. I

01:13:37.600 | think you can do that. Me personally, I always feel better when I am more conservative, when

01:13:43.200 | I have lots of wiggle room. And so what I would do is I would run a couple of expense scenarios,

01:13:49.760 | and I would say, "Let's say I spend $200 a year. Let's say I spend $100 a year, and let's say I

01:13:54.480 | spend $50." And then I would model the size of my portfolio, my expected gains, and I would ask

01:13:59.920 | myself, "What would be the benefit 5, 10, 15, and 20 years from now if I live at these different

01:14:05.680 | lifestyles?" And if my wife and I could look at one of those outcomes and say, "Hey, look at where

01:14:11.200 | we'd be 10 years from now if we could get these returns that I've been getting and proving,

01:14:15.840 | and we could have this much extra money and this extra capital to smooth out some of the risks,"

01:14:21.120 | I've always found it easier to change expenses. And I think it's important to recognize that

01:14:27.120 | you'll never be as free as you are right now in the future. Your two-year-old doesn't care

01:14:31.600 | where he or she sleeps, and your baby's not going to care where he or she sleeps.

01:14:35.120 | Your wife will care, but you can work with her and find a solution that works for the two of you.

01:14:40.720 | But that's very different than if you have a 15-year-old. Because if you have a 15-year-old,

01:14:44.160 | now you've got a whole other set where you're like, "Well, my child has friends,

01:14:47.440 | and is it right for me to take my child out of her school and go somewhere else?" But right now,

01:14:52.720 | you have total freedom of choice. You're totally unencumbered. So I think that's a special time

01:14:58.720 | in life, and that if you're going to make this move, I think that, again, if your wife is open

01:15:04.160 | to it, I think that you should do something that allows you to make it quickly and just cut your

01:15:09.680 | expenses through some useful strategic system in your personal expenses so that you can make

01:15:17.200 | the move quicker. That's what I would do. That's really helpful. I appreciate it.

01:15:22.800 | Lots to think about. Yeah. In general, if you can find something that's exciting

01:15:31.440 | versus something that's a trade-down. So in trying to help people break these prisons of their mind,

01:15:38.480 | what I have come to do is I've realized that you have to give a good story.

01:15:45.120 | And so years ago, I remember I had a client of mine. He was a highly paid sales executive,

01:15:51.120 | and he got fired. I don't remember why he got fired, but he was living the lifestyle. And I

01:15:55.440 | remember just the sense of panic that he had about the idea of downgrading his lifestyle.

01:16:01.600 | And he eventually didn't have the money to pay for the kids' private school, and he had to pull

01:16:06.640 | the kids out of private school. And he felt like such a failure as a father because he had to tell

01:16:13.440 | his children, "I can't pay the school tuition. I got to pull you out of school." And he really

01:16:18.800 | struggled with his self-esteem with regard to his friends because he'd always done well. He'd

01:16:23.680 | always made a lot of money, and he'd always had – he'd always done well. He'd always made a lot

01:16:28.800 | of money. He'd always had the ability to be perceived as someone who was a winner, which he

01:16:34.960 | was, right? He just didn't save a lot of money. And so when he got fired, he was left with a short

01:16:39.200 | with a difficult – in a difficult financial place, and he couldn't find a job quickly for

01:16:43.840 | some reason. So what I learned is that the most important thing to cover in this kind of planning

01:16:52.880 | is the story that you tell mom and dad, the story that you tell your children, and the story that

01:16:58.480 | you tell your friends. And I've learned that if you can make up some story that is true,

01:17:04.800 | but that is the kind of story that's socially acceptable, but also has the side benefits that

01:17:13.440 | you want, it's a lot better. So I've often counseled people who are leaving a job, right?

01:17:17.280 | Like, "Listen, is mom sick? Why don't you just say – instead of saying, 'I'm leaving the job

01:17:21.200 | because I don't like you,' just, 'I need to take care of mom. I need to go spend more time with my

01:17:25.600 | mom,' or, 'I have personal family things that I need to attend to.'" It's much more socially

01:17:30.160 | acceptable to say things like that. If you're going to – if you need to – if you ran out of money

01:17:35.120 | and you've got to quit your job, or you're running out of money and you can't afford your house

01:17:39.920 | anymore, can you make some, like, crazy move? Like, "We're going to move into a tiny home because

01:17:44.560 | we're becoming green minimalists, and we're going to buy everything in reusable containers and stop

01:17:49.040 | using plastic because we're wacky, like, green minimalists, not we're broke." That's a much more

01:17:53.920 | socially acceptable thing to say than we're broke, and it can solve kind of this problem.

01:17:59.360 | So, if you decide that you're going to do something extreme so that you can make your

01:18:04.640 | business jump faster, if you need it, you've got to create some kind of story that you and your

01:18:10.240 | wife are really going to buy into and that you can tell your friends so that it's a matter of,

01:18:14.960 | "Hey, here's the exciting new thing that we're doing. We're moving to Thailand, right? This is

01:18:18.240 | exciting." Not, "We're moving from living on $200,000 a year to living on $15,000 a year

01:18:24.000 | just for two years so that I can build up my portfolio to a million five, and then I'll be

01:18:28.560 | totally, you know, then I'm set for the rest of my life." So, think about the story and craft some

01:18:34.320 | story that is true, or at least true enough that you can say it and not feel like you're lying to

01:18:38.880 | somebody, but that is socially acceptable so it keeps your options open. >>Yeah, that's great.

01:18:45.840 | Yeah, the other piece is my wife's dad is in a facility, and we were going to move him into our

01:18:50.320 | house. But I do like the idea of, say, the Puerto Rico potential, just kind of leave it all and

01:18:57.600 | head down there for the tax advantages and the nice weather. >>If I were a trader and if I liked,

01:19:02.640 | I mean, you got to like Puerto Rico. You got to find some place that you like because you got to

01:19:06.400 | be on the island, you know, at least six months a year. But if I were a trader and I knew it was

01:19:11.520 | unlikely for me to give up my US citizenship, I can't see why I wouldn't take advantage of those

01:19:17.200 | tax considerations. It just smooths. Once you start getting some tax efficiency in your life,

01:19:22.560 | which you haven't had in a very long time living in New York City, right? But once you

01:19:27.120 | start getting some tax efficiency in your life, you realize that often one of your biggest enemies

01:19:31.200 | in this stuff is tax. And it gives you such an advantage where you can pursue different strategies.

01:19:35.920 | It's compelling. So, you got to build a lifestyle that you like. And so, I would not live in Puerto

01:19:44.320 | Rico if I didn't like it. And if my wife didn't like it and we weren't happy, it's just not worth

01:19:48.480 | it. Saving on tax is not worth being unhappy. But if you could build something where everyone was

01:19:53.360 | happy and you enjoyed the sunshine and you visited New York in the winter, sorry, in the summer,

01:19:58.320 | things like that, then it's really compelling. And the cut of the lower costs of living

01:20:03.920 | from the cost of living, the lifestyle changes and the tax benefits is really compelling,

01:20:11.280 | in my opinion. >> Yeah, thank you so much.

01:20:15.120 | >> My pleasure. Good luck to you on things. I hope that it continues to be a winning strategy

01:20:19.280 | for you. That's awesome news. And tell you what, talk about the dream of being able to make a

01:20:24.320 | living from around the world. Being an independent options trader is awesome. All right, we go now

01:20:29.920 | to Naperville, Illinois. Welcome to the show. How can I serve you today?

01:20:32.320 | Illinois, 630 phone number. >> Hi, Joshua. This is Silpa.

01:20:41.600 | >> Welcome. Tell me your name again, please. >> My name is Silpa.

01:20:46.080 | >> Silpa. Okay, go ahead. >> Yes. I'm a big fan. I have listened to a lot of your

01:20:51.840 | beginning podcast. First time caller, thanks for taking our call. And actually, we are from

01:21:00.800 | Cincinnati. And this question is regarding a house that we are living in right now.

01:21:11.200 | So this is a four bedroom size house. We need bigger house. And we already liked one. We already

01:21:21.840 | have signed a contract for one. All that is going good. The question is, should we keep this house,

01:21:29.520 | because we can afford it, put it on rent, and keep living in the new house? That's option one.

01:21:39.280 | And option two is, of course, sell this house and move on. So we bought this house four years back,

01:21:49.280 | and whatever details you need, I think I'm ready with those.

01:21:55.440 | >> Is the house a good house for renting? Would it rent at a high market rent? Is it a good rental

01:22:02.240 | house? >> Yeah, in any case, this house is sort of good house in the sense the location is really

01:22:10.720 | good. The school district is one of the top most in just in country or at least in Cincinnati for

01:22:17.040 | sure. So it's very much this location and there are not many houses on market, of course, anywhere,

01:22:24.560 | but at least in this area, in this right bucket that we are looking at. We bought this house four

01:22:31.920 | years back, we are getting decent equity out of it. So in either case, renting or selling,

01:22:38.000 | in either case, we will, so if we rent, right, the estimate is that, conservative estimate is that

01:22:46.320 | we'll get $2,500 a month. And with that, we can say this house, the mortgage on this house will

01:22:57.120 | get paid off from that rent and then we'll save some money, which we can use for the newer house,

01:23:04.000 | like for the mortgage of the newer house. >> If you sold this house and took the equity

01:23:10.560 | that you have, what would you do with that money? >> Yeah, so that's the case. So we can, I mean,

01:23:18.080 | first thing is we will pay some amount of mortgage on the new house, right, we'll at least do 20%

01:23:28.800 | or maybe a little more than that. Right now we are making 10% down payment. So we can definitely

01:23:36.560 | pay back some more mortgage. And then we are planning that, I mean, our initial calculation

01:23:41.600 | shows that we'll still have 100K left over. So right now the rough plan is that over the span

01:23:52.000 | of next one year, we'll keep investing in market, just because we don't know what else to do.

01:23:58.960 | >> Well, let me talk through this and tell you the factors that you can consider

01:24:05.920 | as you make this decision. There's not a right or a wrong decision, and it sounds like either

01:24:11.840 | one of these decisions would be fine. So you're not going to have a clear, yes, I should do this

01:24:19.280 | or no, I shouldn't do this. Because from what you're describing, it sounds like either decision

01:24:23.280 | will be fine for you. But what you can think about is as I go through some of these factors,

01:24:29.760 | does one of these speak to me, does one of these feel better than another? The first thing that

01:24:35.680 | you want to think about is, do I actually want to be a landlord? Do I want to own a rental house?

01:24:41.600 | For some people, the answer is yes. For many people, the answer is no. For many people,

01:24:47.200 | they say, I want to just live in a house. I want to do my investing in my 401k and buy mutual funds.

01:24:53.280 | My mutual funds don't call me at night. My mutual funds don't disappear in the middle of the night

01:24:58.480 | when I have to go and find new renters. My mutual funds are simple, and that way we have a house we

01:25:04.240 | live in. We have 401ks with mutual funds in them. It's enough money for us. And we like to have our

01:25:10.400 | hobbies and hang out with our friends on the weekends. I don't want to be in real estate.

01:25:14.160 | If you don't want to be in real estate, then you should sell this house and then feel free to put

01:25:21.520 | the money into your next house or do something else with it. That's the first thing. The second

01:25:25.760 | thing has to do with, would I spend the money in some way? So for example, you could sell this

01:25:33.040 | house and take the money and invest it into something else, invest it into your new house

01:25:37.760 | or invest it into another business or another investment or buy more stocks or whatever you

01:25:42.880 | want to invest the money in. Or you could say, I want to spend it. So if you want to spend it,

01:25:46.720 | then of course you sell the house and spend the money. But let's assume we're not going to spend

01:25:50.960 | the money. And so we're trying to figure out what should we do while investing the money.

01:25:55.120 | In general, I would like you to own more investment assets. So I like the idea of you're

01:26:02.080 | keeping this house if it's a good rental house. There are many houses that we might choose to

01:26:08.080 | live on that are simply not good rental houses, or at least they're not good rental houses compared

01:26:14.800 | to the alternative. You might live on a beautiful rural property with a big barn and all these

01:26:25.760 | wonderful facilities. It's perfect for you to live in. But if you go and try to rent it, you can't

01:26:32.160 | rent it for very much because the number of people who are interested in renting that house from you

01:26:36.480 | is very small and they don't have much money. And so there are some properties that are simply

01:26:41.680 | not good rental properties. They're better for owners. And so you ask yourself, is this the kind

01:26:47.920 | of property that's a good rental property? From what you said, it probably is. The other thing

01:26:52.160 | you want to ask yourself is, is this a good time to own a rental property? You want to do an analysis

01:26:59.600 | of the values that houses are selling for versus the cost of the rents. And try to ask yourself,

01:27:06.880 | is this a renter's market? Is this a buyer's market? Is this a seller's market? For example,

01:27:13.120 | I'm renting the house that I live in right now. I'm renting it from somebody. It's a beautiful

01:27:19.120 | house. It's a large house. I have a large property. I have a beautiful garden. It's a beautiful house.

01:27:25.120 | I would never buy this house. Why? Well, because in my local market, the house would sell. If I

01:27:34.160 | bought this house, it would sell for something like $250,000. My rental cost on it pre-COVID

01:27:41.520 | were $1,000 a month. Right now, my rental costs are $600 a month because my landlord cut my rents

01:27:47.520 | during COVID. So I have this large, beautiful house and a big property that I'm renting for

01:27:52.880 | $600 per month. It would be crazy for me to buy this house considering the fact that I can rent

01:28:00.160 | it for $600 per month. So you do a market analysis in your local area and say, is it good for us to

01:28:06.160 | buy houses, to sell houses, or to rent houses in the current market? And that's just a practical

01:28:11.760 | example of what I mean when I talk about analyzing your market. Is this a good time to own a rental

01:28:20.320 | house? It's entirely fine to be an investor and to look down at your portfolio and say,

01:28:25.920 | "You know what? If I look down at my portfolio and I see that somebody is willing to offer me

01:28:34.240 | a crazy high sum of money because houses are selling like crazy, then you sell." You sell

01:28:39.760 | when someone wants to give you a lot of money. You put the money in the bank and you wait for

01:28:42.560 | a few years. And then when the market changes, you go ahead and buy. Now, it doesn't feel like

01:28:46.880 | that's going to happen. It always feels like, "Well, I can't sell now because I'm not going

01:28:50.400 | to be able to buy again." Eventually, things will change unless there's some underlying current or

01:28:55.680 | trend where things eventually change. And so I wouldn't be scared to sell the house and then

01:29:02.320 | just simply sit on the money and wait to buy if the house prices are overvalued at the moment in

01:29:07.920 | my current analysis. So you need to look at that. The next thing that you want to look at

01:29:11.680 | is you want to consider the costs of selling now versus the costs of selling later.

01:29:17.600 | You should be aware of the fact that if you bought this house six years ago and you have a good bit

01:29:22.880 | of appreciation in the house, you can sell it and get that appreciation tax-free, up to $500,000

01:29:29.280 | for a couple married filing jointly. That's powerful. And I like the idea of taking tax-free

01:29:35.760 | money. So if you have $150,000 of appreciation and you can sell with modest selling expenses,

01:29:42.880 | minimal realtor costs, minimal selling expenses, etc., and take that money in appreciation, then

01:29:49.200 | that would be really great to have that money tax-free because now you have a gain that you'll

01:29:54.240 | never pay tax on. And then I would go back to the real estate strategy and I would say,

01:30:01.440 | "What would I be willing to do? Would I be willing to buy more properties with this money?"

01:30:05.840 | So let me tell you what I think would be kind of okay, a good decision, a good decision,

01:30:12.080 | and a great decision depending on what you wanted to do. I think an okay decision would

01:30:16.800 | be to simply sell the house because you want to sell this house and take the money and put

01:30:24.800 | the house, put the money down into your next house. That would be okay, especially if you

01:30:28.640 | didn't want to be involved in real estate. Totally fine. That would be a totally okay decision.

01:30:34.240 | A good decision would be to keep this house and buy the next house and keep this house as a rental

01:30:40.960 | because everything's already squared away with it. You know the house, the house has financing

01:30:45.280 | already done. It's a good decision. And now you own more real estate and now you have a rental

01:30:49.600 | income that can pay the mortgage and pay and give you some extra money. That's a very good decision

01:30:54.000 | if you're willing to deal with the hassles of renting the house out or having it rented for you.

01:30:58.880 | I think a great decision would be to try that and then say, "Okay, we want to do real estate." And

01:31:06.480 | then I would say, "How can I leverage this house to expand my real estate investment portfolio?"

01:31:14.160 | So one option might be to sell this house, take the money tax-free, and put the money in the bank,

01:31:21.680 | and then next year buy one or two or three other houses that are rental houses.

01:31:26.720 | Because if I could take $150,000 tax-free and then use that $150,000 to buy three other rental

01:31:35.840 | properties, put $50,000 down on each of them, and I could leverage my gain in this first house

01:31:41.600 | to now own four houses, the three rentals plus the one that I'm living in, that's a better solution

01:31:48.480 | than owning only two houses. And with those other houses, being able to do that with my tax-free

01:31:54.400 | money would be a really good way to invest it. If you thought that this house, however, is a perfect

01:31:59.120 | rental house and you don't want to have the selling expenses, you don't have realtor fees,

01:32:05.920 | etc., of selling it, then you could also just take it and maybe increase the mortgage on it and use

01:32:11.680 | that mortgage to go ahead and buy another property. So in summary, any of these are fine decisions,

01:32:18.880 | and what you choose will probably depend on whether you see yourself as being a real estate

01:32:24.240 | investor or not. If you do, you could use this house to launch you in that direction. If you

01:32:29.520 | don't see yourself as being a real estate investor, then it's better for you to simply go ahead and

01:32:37.040 | just sell this one and move into the next one. Shruti Gupta

01:32:40.960 | Okay. Yeah, that's a great way to look at it. But if we, and as a person, I don't want to be in real

01:32:49.440 | estate, and I'm sure my husband, he also, I mean, we like our jobs. We are very comfortable and we

01:32:57.200 | like what we do. So considering that we don't want to be landlords, the bigger question is,

01:33:05.120 | then what do we do with that extra money? Because the thing is, I believe in diversification

01:33:12.640 | and diversification of assets. We already have so much in the stock market and some in cash.

01:33:21.920 | So I mean, is there any other better asset that we can own? Am I missing something?

01:33:30.800 | Dave: You'll have to think through those three asset classes that I discussed previously

01:33:36.080 | in today's show and ask yourself, am I excited about owning any of those asset classes?

01:33:42.320 | Is there something else that I'm excited about owning? If the answer is yes, then you should

01:33:47.520 | invest in that. There may be many things that you could, you can invest in all kinds of things.

01:33:54.400 | But if none of those are exciting, there's nothing wrong with just simply investing in the stock

01:34:00.160 | market and paying off your house. So what I would say is if you don't want to be landlords, sell the

01:34:04.720 | house now so that you can get the tax-free gain on it and have that tax-free appreciation. And

01:34:11.440 | then just go ahead and if you don't have anything to invest the money in, just go ahead and pay off

01:34:15.440 | your mortgage on the new house or pay down the mortgage on the new house. That way it's still

01:34:19.840 | in real estate. It's still diversified. You'll have protection from the asset protection due to

01:34:26.240 | it being your personal residence. And then when your mortgage is paid off, you will still have

01:34:30.400 | to decide what to invest the money in later, but at least you'll enjoy having a paid off mortgage.

01:34:35.120 | I think that's fine. Okay. Okay. Thank you. My pleasure. That's a great topic.

01:34:42.160 | Thank you. Congratulations on all your success and thank you for calling in. All right. Two

01:34:47.920 | callers left. We go to John in Pennsylvania. John, welcome to the Chalk and I serve you today, sir.

01:34:54.960 | Hi, Joshua. Thanks for taking my call. You may think you're famous for telling people to move

01:35:01.920 | to Chiang Mai, Thailand, but in this house, since your show two days ago, you're famous for the 10

01:35:07.120 | minute bath of four children. I think that's more impressive than anything else I've ever heard you

01:35:12.960 | say. I could give you my whole checklist if you want. It's challenging. I continually find a stray.

01:35:19.040 | There's always a stray that's just wandering downstairs to go find a stuffed animal or

01:35:23.920 | lingering over dinner. My biggest problem right now is my eldest has developed the habit of

01:35:27.440 | lingering over dinner. I've got the other three in and out and I'm like, "Where's number four?"

01:35:31.520 | I keep doing it. I keep working on it. That's the most impressive credential. I think

01:35:38.400 | companies should be studying your efficiency and optimization. That's very kind.

01:35:41.840 | My mouth hit the floor when I heard that one. Anyways, sorry. On to my question. It's a fairly

01:35:49.920 | boring one this time. Last year, I had to roll back Roth contributions because I wasn't planning

01:36:03.120 | correctly for the income limits we were hitting, which was a fine thing. We had to roll it back and

01:36:09.520 | we got it all sorted out. Recently, my company... After that, I looked into, I think they're just

01:36:17.520 | called Back to Roth and found that that wasn't going to be a good solution for me because

01:36:22.320 | it required you to not have any other assets in a traditional IRA, which I did.

01:36:27.520 | It looked like it was going to be very complicated or cause a big taxable event

01:36:31.440 | to move those things out, which I didn't want to do. I shelved it and said, "Okay, that's not for

01:36:37.120 | me or it's too complicated or just not worth it." Then my company recently has announced that

01:36:43.280 | they're allowing additional after-tax contributions to a Roth and they're enabling this through a

01:36:48.240 | program at work. They're going to take all the hardship out of it to do this mega Back to Roth,

01:36:54.640 | where we can contribute these additional after-tax dollars. Then there's a mechanism

01:37:01.600 | set in for into the program where it'll automatically roll it into a Roth and makes

01:37:08.800 | it pain-free to do this mega Back to Roth. Seems like a no-brainer. I'm probably going to do it.

01:37:13.280 | There seemed to be something in there, though. There was a hitch about a five-year,

01:37:18.640 | I don't know what you call it, a maturing period of five years where the gains are not tax-free.

01:37:27.520 | I'm wondering how that works and if that's the same mechanism that's talked about in

01:37:35.840 | Roth conversion ladders. It seems like it's the other side of the same thing,

01:37:41.360 | but I'm not really sure what's going on internally there and how it could be problematic.

01:37:47.600 | And really, the last question about that or related to that is, I read a show a long time

01:37:54.240 | ago saying basically contributing to a Roth or basically qualified plans in large part can be

01:38:00.800 | good even if you think you're going to be withdrawing it early and have to take the

01:38:07.760 | penalty or something like that. I think you had done some math from a caller that said it's really

01:38:12.320 | advantageous even in the worst case. So that's kind of why I was going to jump on doing this

01:38:19.360 | mega Back to Roth. And I'm not sure if there's anything about the mega Back to Roth that

01:38:22.800 | does not apply to what you had said about go ahead and contribute even if you think you have

01:38:27.680 | to take that later. In order for you to make your mega Back to Roth contributions, will you be

01:38:32.960 | reducing your traditional contributions or are you maxing your traditional contributions and

01:38:39.440 | this will be in addition to those contributions? In addition with the caveat that I guess just

01:38:47.680 | since I'm disqualified this particular year, I won't be giving to a normal Roth IRA for me and

01:38:55.120 | I'm sorry, yeah, Roth IRA for me and my wife because I'm disqualified from those.

01:39:01.680 | So understood. Yeah.

01:39:03.520 | This will be an addition to the other. We don't have 401k matching, but we have a 401k,

01:39:08.160 | so I'll be matching that up.

01:39:09.600 | Right. So your answer to this question is important for your allusion to my show where I

01:39:17.840 | talked about how it's better to put money into a traditional 401k and then withdraw it when you're

01:39:23.920 | not working for early retirement and pay the 10% penalty than it is to put money into a taxable

01:39:29.440 | account at which you could then use to pay for early retirement and not without any penalty.

01:39:36.560 | So specifically, my opinions are that number one, any employee, anybody who has a fairly normal

01:39:45.520 | expected wealth distribution coming from a job should contribute to a traditional 401k

01:39:53.120 | and not contribute to a Roth 401k. So that's for a 401k only. I'm not talking about traditional IRA

01:39:58.880 | versus Roth IRA. I'm saying any employee who has a normal expected financial picture, which is

01:40:06.720 | I'm going to work my job, I'm going to take some percentage of my income, put the money into the

01:40:12.560 | investment account. At some point in time, I'm going to stop working, I'm going to retire,

01:40:17.360 | and I'm going to live on that portfolio. My answer is anybody who's in that situation

01:40:22.640 | should not fund a Roth 401k. Rather, they should fund a traditional 401k from a tax perspective.

01:40:30.880 | It's better. Now, I'm still okay with Roth IRA contributions. And so who should contribute to

01:40:37.120 | a Roth IRA? Well, anybody who is qualified for a Roth IRA should contribute to a Roth IRA

01:40:46.080 | because a Roth IRA, notice I'm not saying Roth 401k, I'm saying a Roth IRA has some things that

01:40:54.880 | are different than just tax savings, most specifically the ability to withdraw the

01:41:00.320 | contributions with no penalties, and that's helpful and valuable. So if I'm coaching an 18-year-old,

01:41:06.800 | my 18-year-old son who has an earned income of $15,000, well, first of all, of course,

01:41:14.080 | my 18-year-old son has no income tax on $15,000, but I'm still going to say put the money in the

01:41:20.080 | Roth IRA, even if that's just simply his emergency fund. I'm going to say put your emergency fund in

01:41:24.960 | a Roth IRA because you can always take the money out for emergencies, and now you get creditor

01:41:30.160 | protection and you get tax benefits with that account. If my 18-year-old is earning $100,000,

01:41:37.600 | I'm going to say max out your 401k, if available, and put money in the Roth IRA. If my 18-year-old

01:41:44.720 | is making $200,000, let's say I'm doing a good job as a parent, right? My 18-year-old is making

01:41:51.840 | $200,000. I'm going to say max out your 401k, but now you don't qualify for a Roth IRA.

01:41:58.080 | So now the question is, in addition to the 401k, is there something else that we can do? Well,

01:42:04.000 | now we could do a backdoor Roth or we could do a mega backdoor Roth, which is what you're talking

01:42:08.640 | about. So the mega backdoor Roth is an employer-sponsored plan that allows you to make

01:42:14.640 | after-tax contributions which become a Roth contribution. So now your question is about

01:42:20.320 | the five-year rule for those contributions. Agreed so far? So the question on the five-year rule,

01:42:30.320 | first of all, for the five-year rule for Roth IRA withdrawals is to determine if the earnings

01:42:37.520 | from those withdrawals are tax-free. And so in order for them to be tax-free, it has to be on

01:42:43.120 | or after the date that you turn 59 and a half, and then it has to be at least five tax years

01:42:48.400 | after the first contribution to any Roth IRA you own. That's the rule there. On the mega backdoor

01:42:55.920 | Roth, just hold on, just went all cloudy in my head. I think I know what you're... So I have

01:43:05.120 | a statement in front of me. Yeah, go ahead. It says five years from each in-plan Roth conversion

01:43:10.720 | is rather than the first. Right, right, right. Which is five years from the first Roth, yeah.

01:43:15.920 | Right. So I guess the technical detail just went cloudy right as I was talking about it. So let me

01:43:22.640 | just say this. I see no reason not to participate in the mega backdoor Roth, even with the five-year

01:43:29.440 | rule. The five-year rule is not going to change. It's the same no matter what. So even with the

01:43:33.600 | five-year rule, I see no reason for you not to contribute to the mega backdoor Roth as long as

01:43:39.440 | you are separately maxing out your traditional contributions. And then that situation, I think

01:43:45.120 | it's an awesome plan and it would be great if everybody offered it. I'm not sure that this is

01:43:50.880 | going to hang around very much. I think that the backdoor Roth and the mega backdoor Roth,

01:43:56.640 | I think that this goes against the political ethos of our time. People say it smells of things that

01:44:05.120 | only the rich can do. And I think that the Roth IRA rules are so nice in terms of tax freedom

01:44:13.520 | forever. And I think that there's so many big Roth IRAs being created now that I think that this is

01:44:18.160 | a tax exclusion that's probably going to be tightened up in the future. So I would participate

01:44:23.360 | now and do it. I don't expect this to last around for very long myself. Yeah, thank you. I agree

01:44:30.800 | with all that. I was just trying to figure out if there was some hook as to what I wasn't thinking

01:44:36.480 | of. And I know these can be rolled back if they don't meet the qualifications or some kind of,

01:44:42.480 | I can't remember what they call it. There's something for highly compensated individuals

01:44:46.000 | if they don't get enough of us rank and file people to contribute, then they get disqualified

01:44:51.760 | and all have to get rolled back if only the executives do it. But yeah, that sounds like

01:44:56.400 | a good plan. I appreciate the context and to solidify my decision here. So I appreciate it.

01:45:02.960 | My pleasure. All right. For our last call of the day, we go to David in the location of none.

01:45:09.920 | Well done, David. My screen has you completely geographically anonymous. So welcome to the show.

01:45:16.320 | How can I serve you today, sir? Hi Joshua. I was calling to get a recommendation

01:45:22.720 | on what I should do with a pretty large brokerage account is over a million from an asset privacy

01:45:31.520 | and an asset protection point of view. Now, I don't own a business or really do risky things

01:45:38.640 | and just a regular employee, so I don't expect any type of litigation. And I do like to keep my

01:45:44.800 | finances pretty simple, but it is a large amount that's not protected. So I just wanted to see

01:45:50.320 | what you thought about the pros and cons and does it make sense to do some type of offshore trust or

01:45:58.480 | any other structure? Do you have other assets in addition to this brokerage account?

01:46:07.040 | Yes, but in retirement accounts. Okay. Do you have any significant litigation risk or

01:46:14.960 | credit risk in some way due to your day-to-day business dealings?

01:46:18.720 | No. I don't know whether I should ask it. You're living in the United States under US law or

01:46:26.640 | are you living in the United States? Yes.

01:46:30.000 | Okay. So your choices are a few. So first of all, you should ask yourself,

01:46:37.040 | is there an asset or a series of assets that are excluded from the claims of creditors

01:46:45.280 | that I'm interested in owning? So can I max out my 401(k) this year? That would be really great.

01:46:51.520 | Is there a state that I can live in? So for example, you don't need a trust if you live

01:46:57.280 | in Florida and you buy a million dollar house to live in. You live in Florida, you have a million

01:47:02.320 | dollar house, that million dollar house is protected from the claims of creditors.

01:47:05.440 | Maybe in Florida you could take advantage of the annuity laws and life insurance laws.

01:47:13.120 | You could buy a million dollar annuity and if you are a Florida resident, then that annuity will be

01:47:19.840 | exempt from the claims of creditors. It's an exempt asset. And so you should look at are there

01:47:26.080 | any exemptions that I can take advantage of? If there are exemptions, that's going to be your

01:47:31.520 | simplest way that you can invest the money that's going to provide you with the asset and creditor

01:47:40.160 | protection that you're looking for. So it's very important to always focus on exemptions because

01:47:46.640 | those are the cheapest options. When you start establishing asset protection trusts, those asset

01:47:53.520 | protection trusts come with a set of fees and costs. And so you need to be aware of whether

01:48:00.560 | it's worth it based upon your overall profile. If you don't have a high profile or you're not

01:48:06.080 | engaged in a litigious business, my guess is it's probably not worth worrying too much about asset

01:48:16.000 | protection. Insure properly, have an umbrella liability policy on your primary house.

01:48:21.200 | But if you're just a normal person, I'm imagining you're a computer programmer, you write a little

01:48:27.200 | bit of software, you don't have a big public facing business, there's just not that much risk.

01:48:34.720 | So if you get in a car accident, could somebody sue you for that? Yes. But it's easier to go ahead

01:48:39.200 | and just buy ample liability protection on your car insurance policy and to purchase, again,

01:48:46.960 | an umbrella liability policy on your home than it is for you to establish an offshore asset

01:48:51.760 | protection trust. So think about exempt assets. Number two, ask yourself how it would work for you

01:49:00.320 | with a strategy of privacy versus a strategy of protection. So remember that when planning

01:49:07.520 | for asset protection, privacy is a valid strategy. It's not ultimately a legally winning strategy,

01:49:14.960 | but it is a winning strategy for a long time. If you take the million dollars and take it and buy

01:49:21.280 | gold coins or a gold brick and you put it in an offshore gold depository somewhere,

01:49:27.600 | and it's not a bank account, that's not reportable to the IRS, not reportable to the government,

01:49:33.120 | just sits there, just sits in an offshore vault. So you're engaging in a privacy strategy here.

01:49:38.400 | That asset is not going to appear as something that's available to a creditor.

01:49:43.600 | So if a plaintiff's attorney is doing an asset search on you to try to figure out if you're

01:49:49.360 | worth suing or not, they're not going to find the gold bar sitting in an offshore vault.

01:49:53.680 | It just doesn't exist. And so they're more likely to turn down the case because you're not a big

01:50:00.080 | fish. Now, if they sue you and if they win, and if you're now subject to a judgment creditor's

01:50:08.400 | legal deposition of how much money do you have, that would be the point in time which,

01:50:13.360 | of course, you have to decide, "Am I going to tell the truth?" But there's very

01:50:16.240 | compelling persuasive reasons to tell the truth. And in that situation, you would tell the truth,

01:50:22.720 | you say, "I have the million dollars." They would force you to deliver it up if they have control

01:50:26.160 | over your person. And then you now lose the money if they won the lawsuit. But remember,

01:50:32.960 | that's at the very end of a long set of lawsuits. So any kind of private asset or privacy-focused

01:50:39.040 | asset has a significant level of creditor protection. It's just not legal protection.

01:50:45.520 | So if you put the million dollars into a cryptocurrency that was a privacy-oriented

01:50:49.440 | cryptocurrency, if you put the million dollars into buying a beautiful villa offshore,

01:50:54.880 | for US persons, the rules are that you need for it to be totally private and to be outside

01:51:02.960 | of the country offshore, it needs to be a physical asset, a physical asset that doesn't generate

01:51:09.280 | income because the income, you legally have to report the income. So physical asset that doesn't

01:51:13.120 | generate income would be physical property, real property, works really well, a house that you live

01:51:18.480 | in, a couple of houses around the world can work really well, maybe some land, a ranch somewhere,

01:51:24.160 | a couple of ranches, things like that, where they're oriented towards long-term capital gains

01:51:29.280 | appreciation rather than generating current rents. Also, any kind of physical property such as gold

01:51:35.200 | coins, silver coins, gold bricks, diamonds, Stradivarius violins, physical currency held

01:51:43.200 | offshore has no reporting requirements, etc. So that gives you asset protection. And then,

01:51:48.000 | of course, you can move into the—sorry, that gives you privacy. Then, of course,

01:51:51.360 | you can move into the world of cryptocurrency, especially some privacy-oriented coin.

01:51:58.640 | So those are some good options for privacy. Now, the next thing is, do I need the trust?

01:52:04.880 | And so will the trust start to give you some form of actual legal protection? Yes. But what I would

01:52:12.160 | say is for either a privacy-oriented strategy or a strategy that involves a trust, you should be

01:52:21.360 | prepared yourself to move offshore as well. So the ultimate thing to remember is that even if you

01:52:29.600 | have a trust and you could—if your state has authorized the domestic asset protection trust

01:52:34.320 | legislation, that's a fruitful area of research. You could set up an offshore asset protection

01:52:39.920 | trust, talk to an attorney, talk about the custodian fees, what assets, what are we going

01:52:43.440 | to invest the money in, etc. You can put in place a springing strategy. That's a personal favorite

01:52:50.000 | of mine is go ahead and have a domestic-oriented trust, which is cheaper to own, but then have some

01:52:56.400 | clauses in there where if you come into danger and if you can't file a report with the trustee that

01:53:03.200 | you're free of any legal danger, that that trust springs offshore, that's a good solution.

01:53:09.520 | I just think a million dollars is a little light. I don't think it's enough money for it to be worth

01:53:13.920 | it here. Your mileage may vary. I think it's not worth it with a million dollars. So I would

01:53:22.320 | pursue a privacy-related strategy and probably skip some of the legal protection, and then I

01:53:29.920 | would just be ready to move myself offshore if it were an extreme circumstance and I needed to do

01:53:35.680 | that. So always remember that even if you do go with some kind of offshore asset protection trust,

01:53:41.440 | you still need to be ready to move offshore yourself because what happens, the game of

01:53:46.560 | asset protection is a continual tug between a judge trying to rule in the interest of creditors,

01:53:52.240 | which judges don't like creditors getting not happening. Judges do not like if somebody sues

01:54:00.400 | you because you've wronged them and the court issues a judgment saying you owe this person

01:54:10.160 | money because you've wronged them. You lost the lawsuit. You've wronged them. You owe them money.

01:54:14.960 | The judges don't look kindly upon someone saying, "Well, I'm sorry, judge. This money's just sitting

01:54:20.800 | offshore in an offshore asset protection trust, and I can't touch it." What does the judge do?

01:54:25.520 | Judge grabs you, tells the bailiff, "Take this guy to prison," says you're going to sit in prison

01:54:30.080 | until you cough up the money, and you have no choice because they have control over your person.

01:54:35.760 | So if you recognize that that's the case with an offshore trust, even with the highest paid

01:54:41.440 | attorneys, with the best things, with a million dollars, I think you're in the direction of just

01:54:48.240 | simply pursue a privacy strategy with some of the investments, and then just simply position

01:54:53.600 | yourself that if you needed to disappear, disappear, and it's better to be free living

01:54:58.160 | offshore to let your attorney set a legal problems than for you to be stuck in some prison cell

01:55:02.480 | rotting where you can't do anything, can't make any money, et cetera, while you're working out

01:55:06.560 | the solution to settle the case. Did I answer your question, or did I just ramble on for 10 minutes?

01:55:11.680 | No, no. That's really helpful. That's really helpful. Yeah, my opinion, it didn't quite make

01:55:20.320 | sense to go with the hassle, not only from the cost, but also maintaining it for a million dollars

01:55:27.760 | itself. So that makes sense. I did want to ask you, do you think that doing consulting work,

01:55:33.040 | does that increase the risk or is having some type of errors and omissions insurance be enough

01:55:42.640 | to protect from that liability? It depends on how thoughtful you are about the advice that you give.

01:55:49.280 | So I was formerly a licensed financial advisor. I had errors and omissions insurance, right? So

01:55:56.800 | what could somebody sue me over successfully? Because there's, in my opinion,

01:56:00.640 | I'm very concerned about the litigious society in the United States. I think it's a challenge,

01:56:06.880 | it's a problem, it's difficult. But I often think that the risk is overblown by people who profit

01:56:16.480 | from manufacturing this culture of concern, right? Earlier in this show, I answered a question on

01:56:20.800 | hyperinflation. I think that hyperinflation is a legitimate risk of any currency, but I think

01:56:29.120 | the hyperinflation of the dollar, is it a legitimate risk? I think it's a very legitimate

01:56:32.800 | risk. I think it's wildly overblown in terms of its likeliness and its severity by those who

01:56:40.160 | profit from hyping it extensively. And I'm not accusing people of doing it in bad faith. They

01:56:45.760 | might be, many people believe in what they're saying. I just think they're wrong based upon

01:56:51.280 | my analysis. I could be the one who's wrong, they could be the one who's wrong. So when we go to

01:56:55.280 | things like litigation risk, I think that a lot of it is overblown. Again, I read all the asset

01:57:01.680 | protection planning books, I study them, and I observe that the authors always point to specific

01:57:07.920 | cases that it did go the way they said. But it seems a little bit excessive to say, is it risk

01:57:16.400 | really that high? So let's go to errors and omissions, right? So I formerly was, I'm no

01:57:21.120 | longer, I don't have any licenses, but I used to be a licensed financial advisor. I used to give

01:57:26.720 | professional advice in that context. So let's say that I gave somebody bad advice. Well, if I gave

01:57:35.200 | sincere bad advice, if I gave sincere advice that just happened to be wrong because I couldn't

01:57:42.960 | foresee the future, I have no legal liability for that. If I said to you that I think that

01:57:49.840 | this stock is going to go up, and I'm a stockbroker, and I say that XYZ Corporation,

01:57:55.280 | I think there's a good reason that XYZ Corporation is going to go up. They're doing really well,

01:57:58.880 | they're in a business that's good. I think they're going to go up. And I recommend that you buy it.

01:58:03.200 | And I sell you a thousand shares of XYZ Corporation, and I make a commission on those

01:58:07.680 | shares. And then all of a sudden tomorrow, the news comes out that XYZ Corporation is going

01:58:13.040 | bankrupt and you lose all your money. You can't sue me, and I'm not liable to you for that advice

01:58:20.320 | as long as there's no fraud or there's no evidence of my somehow dealing in it, right? There's the

01:58:26.960 | prudent man rule. The question is, would an independent prudent man who is observing this

01:58:34.480 | data and this situation, would that man have made that recommendation? And if so, I'm safe, right?

01:58:40.560 | I don't owe you. My errors and omissions are not a... I'm not liable for being sincerely wrong.

01:58:49.440 | I'm liable for fraud. Absolutely. So if I had an inside deal and I knew it was going down,

01:58:53.760 | and I was just trying to do some pump and run, pump and dump scheme, and I told you it was going

01:59:00.560 | to go up, I sold it to you, and then it crashed, and then I turned around and I participated and

01:59:04.880 | colluded with others to buy it out at the bottom of the market, totally, I'm wrong.

01:59:08.560 | But even there, errors and omission insurance doesn't insure me against that. It doesn't

01:59:12.160 | insure me against fraud. It just insures me against errors and omissions. And so it's a

01:59:16.480 | very narrow... If you read your insurance contract, it's a very narrow definition.

01:59:20.240 | So I'm not liable to be... I don't have a legal duty to be right in everything that I say.

01:59:26.720 | What I have a legal duty to do is to be prudent in everything that I say. And so the advice that

01:59:33.600 | I've just given over the last two hours on this Q&A show is exactly the kind of advice that I

01:59:39.360 | would give you if you were a private consulting client. And as far as I can tell, I've been careful

01:59:44.160 | in what I've said, I've been thoughtful in what I've said, and I've not given any advice that

01:59:48.960 | is imprudent. And I've done a good job, or I try to always do a good job of disclosing if I think,

01:59:54.960 | "Well, here's where I think the errors might be." So in the financial space, the biggest concerns

02:00:00.720 | come down to representing insurance policies, right? So I don't tell people what to do with

02:00:05.280 | insurance. I don't sell insurance. I don't tell people to cancel insurance. I explain

02:00:09.440 | how insurance policies can work. I analyze them. I can do that work. And I have no...

02:00:14.720 | There's no liability there as long as I'm being prudent. When it comes to investments,

02:00:19.680 | the biggest thing comes down to forward-looking statements. So the statements that you make,

02:00:23.840 | do these statements... Are they prudent and are they acceptable? Which is why investment advisors

02:00:32.560 | operate under constraints that some people don't, to use accurate numbers, etc. So I guess in

02:00:38.400 | summary, I think that consulting is a relatively low-risk business as long as you're not committing

02:00:46.880 | fraud, as long as you're not participating in the marketplace in a crazy way, and as long as you're

02:00:52.800 | being actually prudent in your words. And errors and omission insurance specifically doesn't protect

02:00:59.120 | you against fraud, right? There's been lots of get-rich-quick gurus who have gone to prison,

02:01:04.320 | put there by the FTC because of their content. And were all of them right? I don't know. I haven't

02:01:10.400 | reviewed all the cases. But what I'd say is that if you're a prudent person, being a consultant

02:01:17.040 | doesn't raise a significant level of personal risk. You can't sue me because of anything that

02:01:23.760 | I've said here today in the last two hours. I've been thoughtful. I've been careful. I've been

02:01:28.480 | prudent in what I've said. There's no danger zone, no gray zone in anything that I've

02:01:34.240 | said in the last two hours. - Thanks. That was very helpful. Can I do one very quick follow-up?

02:01:39.840 | If I were to move, or would it be a good idea to move that brokerage account at least to

02:01:46.320 | like an international jurisdiction if I wanted to keep it in equities as opposed to getting what

02:01:52.400 | you were mentioning about real estate offshore? Would that help at all in terms of the privacy

02:01:58.000 | aspect? - By move, you mean move outside of the United States or move to a different state within

02:02:02.080 | the United States? - No, move the actual brokerage account to like a company or a bank that's in

02:02:09.840 | another country like a Swiss bank or something like that. - Yes, it does give you some benefits,

02:02:17.600 | but it does give you some drawbacks. So the first thing is, if you're moving the brokerage account

02:02:23.920 | and you're keeping it in either a brokerage account of some kind, a stock account, a trading account,

02:02:30.320 | or you are keeping it in a cash account of some kind of bank account, then you cannot own that

02:02:37.040 | privately under US tax law. You have to report that to the government. So it's entirely legal

02:02:42.720 | for you to take a million dollars and move it to a Swiss bank account, if they'll take you as a US

02:02:48.960 | person. It's entirely legal for you to take the money, move it to a Swiss, you know, actively

02:02:54.480 | invested account and have them invest the money and trade it for you. What you cannot do is not

02:03:00.800 | report that to the US government. You will have to file your annual disclosure forms for having

02:03:05.920 | offshore accounts and so the US government will know about that. Now here's the question,

02:03:11.520 | is that still a net gain? I don't know, right? In theory, and in practice actually,

02:03:18.880 | the United States is actually a tremendously private market, financial marketplace. So the

02:03:25.760 | United States of America is the world's biggest tax haven and one of the best tax havens in the

02:03:31.280 | world, largely due to privacy rules and privacy laws that are actually enforced to a higher degree

02:03:37.280 | than in some other places. I get very frustrated about the lack of financial privacy in the United

02:03:42.400 | States, but I have to concede that there's more privacy in the United States than in many other

02:03:47.360 | places in the world and that the privacy in the United States is more actively enforced than many

02:03:51.840 | places in the world. There are other jurisdictions that have higher laws, but those laws often aren't

02:03:56.880 | enforced. And so from a privacy perspective, I'm inclined to believe that the United States is

02:04:02.640 | actually not a bad place for you to have the money. Now does the US, so you have to ask who

02:04:07.600 | am I trying to have the privacy from? Who am I trying to have, who do I want to have privacy of

02:04:13.200 | the money? Am I concerned about a plaintiff's attorney having privacy of the money or am I

02:04:18.800 | concerned about the US government having privacy of the money? Those are two very different

02:04:22.320 | scenarios. I don't believe you're going to successfully hide your money from the US government

02:04:26.880 | unless you're doing a physical, and you're not, let me say this precisely, I don't believe you're

02:04:34.160 | going to be successful hiding your money from the US government. The US government, if you're a high

02:04:40.480 | priority target, the US government has almost unlimited power. If you're on the top 10 most

02:04:48.640 | wanted terrorists in the list in the world, the US government is filtering and reading every email

02:04:54.080 | that's sent around. They've got wiretaps all around the world. It's stunning, the level of

02:04:59.680 | spying that the US government engages in. And so if you're a high profile target, I don't believe

02:05:05.680 | that you are going to successfully in the long term successfully hide from the US government.

02:05:11.200 | Now, if you're not a high profile target, can you successfully hide? Of course you can. There's

02:05:17.040 | people who do it all the time. But I think the risk is not worth it because it's hard to sleep

02:05:22.800 | well at night if you have that floating over your shoulders. I'm convinced for those who want to

02:05:28.240 | hide from the US government, the simplest thing is just get the US government out of your life.

02:05:32.560 | Go get another citizenship, move to another place and renounce your US citizenship. Do it legally,

02:05:37.840 | get rid of them, and then you can be done with them. And it's much, much simpler to do it that

02:05:42.160 | way and much less risky in my opinion than trying to hide money. The US government has the whole

02:05:48.720 | world basically hooked around its fingers with FATCA. When FATCA passed, it changed everything.

02:05:55.440 | And everyone's, you know, most of the banks still want to do business in the United States. It's

02:06:00.400 | such an important financial hub that, you know, the old days of the 1980s, that stuff doesn't

02:06:06.080 | exist anymore, at least that I can find. Maybe I'm not rich enough to access it and it's still

02:06:09.680 | out there, but it doesn't exist anymore. So, if you're hiding money from the US government,

02:06:15.200 | I don't think it's possible and I don't think it's a worthy use of time. I think it's better

02:06:20.400 | if you're at that level, it's better to get rid of the US government,

02:06:23.040 | eliminate your obligation to the US government by formally renouncing citizenship,

02:06:28.400 | and then go on and live as a free person instead of being under the thumb of the US government.

02:06:32.960 | Now, in terms of hiding from a plaintiff's attorney, that can absolutely be done,

02:06:38.160 | but I think it could be done in many different ways. So, what's unclear to me, because I've

02:06:43.120 | never worked in it, is I've always tried to figure out what mechanism is there for a plaintiff's

02:06:48.960 | attorney to actually disclose the asset, to actually find the asset. And there's a lot.

02:06:54.240 | I have a book on how to do asset searches that I read, which is specifically related to...

02:07:00.080 | It's written for fraud examiners, and it's specifically, "Here's how you do an asset

02:07:07.600 | investigation, how to do financial asset investigations." You're welcome to read it

02:07:11.040 | if you want. And so, I went through it and I thought, "Man, this stuff is really good.

02:07:15.920 | So, how do I avoid it?" And what I was amazed at is it all comes down to the...

02:07:23.040 | If you're a high enough target, it's eventually hard to do, and especially if the person can get

02:07:30.400 | the courts on their side. But you can still keep money in accounts in the United States,

02:07:34.960 | and just diversifying into different states, keeping your money in different banks in

02:07:38.400 | different states, smaller banks in different places, smaller investment firms. You get a

02:07:42.400 | lot of privacy there, and the privacy laws are enforced and increasingly enforced.

02:07:46.560 | If you were to go back five years ago, it was very possible for an investigator to...

02:07:51.280 | Not fish. What's the thing where you basically impersonate someone? To just basically push

02:07:56.880 | against a bank representative and call in real quick to check the transactions and check their

02:08:00.800 | balances. And there were lower safeguards where impersonation was a very viable technique.

02:08:05.840 | With most large banks today, it's very hard for me to see how you can do it, right? With

02:08:09.440 | two-factor authentication, with multiple back and forths, with very strict separation. A lot

02:08:15.280 | of those techniques have died. And so you've got a lot of privacy in the United States.

02:08:19.280 | You don't have privacy from the US government, but you do have a significant amount of privacy.

02:08:23.040 | Now, does going abroad help that? Yes, it can, because the world is a very big place. If you

02:08:31.680 | have a bank account in the Cayman Islands, unless somebody knows to look in the Cayman Islands,

02:08:36.480 | are they really going to find your bank account? Not really. But when you actually get into this

02:08:42.320 | level of investigation, there are a lot of things that can be done where literally you have an

02:08:48.000 | investigator that is hired to chase you, who will follow you to the airport and see that you're

02:08:53.040 | going to the Cayman Islands. There's the old strategies. I read a bunch of old private

02:08:58.480 | investigator stuff where they talked about how to... You get people to file certain checks and

02:09:02.400 | you send people all this stuff. And so those are the things that expose you with those offshore

02:09:08.720 | accounts. So I'm not willing to take the risk of going offshore and not reporting that to the

02:09:15.920 | government. And so if you say, "Well, if I'm going to do that, then is there a benefit of going

02:09:19.760 | offshore?" I apologize that I've gone around in circles. And in summary, yes, I believe that there

02:09:25.920 | are additional benefits to be gained in going offshore. I believe that if you go offshore,

02:09:31.520 | you need to make sure that you file every single form properly with the US government to disclose

02:09:37.600 | that. And I'm not sure about the security of that information. I'm not sure where that goes. I'm not

02:09:43.600 | sure whether there's about security of that information. And so that's a difficult road

02:09:50.000 | to navigate. If you are offshore, I think you do get some additional protection from local

02:09:56.160 | investigators. But you need to make sure that you actually need it, want it, and are willing to

02:10:02.800 | incur the costs for it. I'm a fan of it, but it's not easy and it takes some time to set up the

02:10:08.400 | appropriate infrastructure. And I'm still doing it. I'm still testing all the stuff, trying to

02:10:14.400 | work it through so I can give better advice on it from personal experience. I guess it's just

02:10:18.880 | not the panacea that a lot of people have made it out to be. I think the biggest detriment

02:10:25.280 | comes down to dealing with the United States. If you could just not deal with the United States,

02:10:31.840 | all of this stuff is simpler. And so when I look at it, I think that unless you, you know,

02:10:37.680 | if you're living and working in the United States and that's where you are, of course.

02:10:40.480 | But I think it's a lot of times better off to keep your infrastructure in the United States then.

02:10:45.440 | If your concern is the United States government, I think the best solution is just follow the legal

02:10:52.960 | path, renounce citizenship, and cut off the U.S. government. And then the world is much, much

02:10:57.840 | freer for you. The last thing I would say is I do think that international diversification,

02:11:02.960 | going the other way, is actually a very compelling tool. So you can keep your

02:11:10.000 | infrastructure in the United States, and this is actually one of the things that I recommend for

02:11:15.600 | non-U.S. citizens especially, you can set up an infrastructure, financial infrastructure,

02:11:21.120 | in the United States. Once you set that up, because of the very high privacy laws in the

02:11:27.760 | United States, you can now go elsewhere in the world and through international credit cards,

02:11:34.000 | etc., you can have a very high degree of privacy. So if you decided to leave the United States,

02:11:38.880 | you have all your money in the United States, but you just do something as simple as having

02:11:43.040 | a U.S.-based credit card, and you go and you move to London, England, but you just always

02:11:48.400 | swipe your credit card from the United States when you're in London, England, you now have a

02:11:53.360 | significantly higher level of privacy than anybody who's based in England has. Because in order for

02:11:58.960 | the English government to serve you with some kind of investigation, they have to go to some

02:12:03.920 | intergovernmental thing, they have to prove that it's worth it, etc. So internationalization of

02:12:08.880 | finances is a very compelling strategy for those of us who care about privacy,

02:12:17.360 | but the laws have changed so drastically in the last decade with the U.S. government of tightening

02:12:24.240 | up across the board that to me it doesn't seem worth it to try to build privacy from the United

02:12:30.000 | States. That's my summary. Okay, thank you. That was really, really helpful. Appreciate it.

02:12:36.160 | My pleasure. Anything else? No, that's it. Thanks.

02:12:38.880 | Cool. We'll keep it up. David from nowhere, and I enjoyed the question. These things are

02:12:42.720 | fun to talk about. I don't like to dog on the United States. My goal is not to dog on the

02:12:48.240 | United States. It's just frustrating to me as a U.S. citizen, currently speaking anyway,

02:12:52.320 | as a U.S. citizen, being somebody who cares about privacy and being somebody who cares about

02:12:59.840 | privacy, being somebody who cares about freedom, it's quite humiliating for me to care about

02:13:08.880 | freedom, care about the mythology of the United States, now land of the free, home of the brave,

02:13:13.120 | and all that stuff, and then have to say what I've just said based upon honest analysis,

02:13:19.920 | right, that you have the largest spy empire in the world and the world's worst. You have

02:13:26.960 | simultaneously the world's largest, most effective tax haven for everyone who's non-U.S. citizens,

02:13:32.960 | and you have simultaneously some of the most strict, egregious, privacy-limiting

02:13:40.160 | actions of any government in the world. That's really humiliating to me. Now, the critic would

02:13:48.480 | quickly say and would rejoin with simply this, "Well, Joshua, if you're just following all the

02:13:53.120 | laws, then everything's fine, right? Just report everything. Report everything." And to me,

02:14:01.360 | I find that infuriating, right? I am very, very, very careful to follow every law that I'm possibly

02:14:06.640 | capable of. I don't intentionally break laws. I follow every law. The problem is that even with

02:14:13.760 | that, number one, you know where things can go, and yet there's just such a complete and total

02:14:26.400 | lack of coherence to the theories. Think about the right of privacy, right? This is a very

02:14:34.160 | contentious topic. Do you have a right of privacy? And in the U.S. Constitution, you have certain

02:14:38.960 | rights of privacy, right? Fourth Amendment, Fifth Amendment, rights of privacy. I care about those,

02:14:43.440 | defend those very, very deeply. You've got the right of privacy that was famously expanded to

02:14:48.800 | sexual privacy, abortion privacy, things like this. But then you have the Patriot Act. Then

02:14:55.200 | you have FATCA. Then you have this global empire that basically ignores people's privacy and it

02:15:00.240 | never gets reined in. And so, even if you follow the laws today, when you recognize how quickly

02:15:06.160 | things can change, you don't give somebody that kind of power. You don't give it that. And when

02:15:12.080 | I look forward at the United States, you have an empire that's increasing, you know, fine for right

02:15:18.080 | now, but an increasingly bankrupt empire. You know, tax and spend crowd all over the place.

02:15:24.400 | It's just a difficult relationship to want to be in. And yet, it's such a deep relationship where

02:15:31.280 | for most of us, this is your country, this is your home, this is where you live, this is where

02:15:36.400 | the people that you love are. And I find it really maddening to try to go through it and

02:15:44.800 | very humiliating to do the analysis as I have done. I guess I just wish for,

02:15:51.600 | I wish for, I don't know, governments like Singapore, Hong Kong, especially before the

02:15:57.280 | Chinese, where you have governments that say, "Listen, we honor those who are productive and

02:16:03.040 | we want to provide services to you. Instead of, we're going to use our military might,

02:16:07.360 | we're going to use our spying infrastructure, we're going to use our law enforcement infrastructure

02:16:13.200 | to build this oppressive place." So, I'm sorry. I don't mean to be

02:16:19.920 | anti-United States. There are many wonderful things about it. If I had to be stuck in one

02:16:25.280 | country for the rest of my life, I would still choose the United States. I'm going back to the

02:16:30.480 | United States next week. And yet, it's just really humiliating to me to try to match the rhetoric,

02:16:41.280 | the brand up with the reality. And you feel cheated. You feel cheated when you actually do

02:16:50.720 | the analysis. So, your mileage may vary. But I go through significant swings in my own thinking

02:17:00.160 | where some days I'm like, "Oh, it's not that bad, Josh. You're being an extreme. It's just not that

02:17:04.320 | bad." And then there are the days where I'm like, "Oh, it's not that bad. I'm just being

02:17:08.560 | an extreme. It's just not that bad." And then there are the days where I just say, "I want out.

02:17:12.960 | I don't want to be a citizen of the United States. What benefit do I get? All I get is this giant

02:17:18.240 | spy apparatus. I'm always worried about, am I breaking some law that I don't know about in the

02:17:23.920 | millions of pages of laws? Am I doing something wrong?" I remember just the sense of peace and

02:17:30.640 | freedom that came when I finally got rid of all of my investment licenses and my insurance licenses.

02:17:37.200 | And again, you know me, right? I try to be so careful. Even when I was talking earlier about

02:17:43.200 | liability, I try to be so careful. I try to be scrupulous. I try to be really

02:17:48.160 | knowledgeable and careful. The problem is this. When you know what you know, you also know what

02:17:56.160 | you don't know. And so, you always realize where your danger zones could be. And I remember,

02:18:02.560 | I would always think, "Okay, have I said something? Have I done something? Are my notes good enough?

02:18:08.160 | I'm going to get audited by the SEC and they're going to come in here and they're going to say

02:18:11.760 | this thing." And I remember when I got out of and I got rid of them and I could officially come to

02:18:18.640 | the microphone and just be a person again, instead of a regulated individual. I forget the language

02:18:24.640 | now. It's been so long. Instead of a... I think it's a regulated person, something like that.

02:18:30.720 | And I could get free of them. And I look at it and I say, "I do so much better now. I give better

02:18:36.000 | advice. I do more good than when the SEC was looking over my shoulder. And I'm worried about

02:18:41.200 | a FINRA audit." And I feel like the same thing applies with regard to this governmental stuff.

02:18:49.680 | Problem is, it's a whole lot easier to get rid of a license and to get another one. If I wanted to

02:18:56.400 | go back and get another license, three months, I could have them all back again. There's no big

02:18:59.120 | deal. It's not the same way when you're dealing with a country. You're dealing with a citizenship,

02:19:04.720 | and especially in the United States. Any other country in the world, you can leave.

02:19:08.160 | You can go elsewhere. And for the most part, generally speaking, some exceptions. China's

02:19:15.360 | changing what they're doing. The last couple of years, major changes. Some of the Five-I countries,

02:19:22.640 | major, still some changes. But it just seems unfair. It's frustrating. So I share that.

02:19:32.000 | That's not a very hopeful tone to share that. Well, let me close on a hopeful tone. I hate to

02:19:36.560 | close a show on an unhopeful tone. I'll say this. For all of my black thinking and all of my

02:19:43.280 | frustrations and all of that stuff, here's the reality we have to acknowledge. And I think this

02:19:48.480 | is honest. We have to be honest with the actual facts. You and I today can live more freely than

02:19:56.240 | almost anybody throughout human history. We have more freedom than almost any time in human history.

02:20:01.840 | Even with all the erosions, even with all the things that are easy to look at and feel bad about,

02:20:06.960 | as individuals, there are more opportunities for any individual person to just simply make free

02:20:13.920 | choices. And there are many good reasons for that. But let's focus on those positive sides.

02:20:21.520 | And let's try to keep a good, firm grasp on reality, not get locked into tunnel vision.

02:20:26.240 | Let's appreciate the benefits of the things that we do have. And let's make decisions that what I

02:20:31.040 | try to do is always try to keep myself anchored in a firm, big-time grasp of life, not just say,

02:20:38.240 | "This is the thing that I don't like, and I'm going to leave because of this," but to say,

02:20:42.240 | "Let me look at all the factors." Because we truly do, as individuals, there have never been

02:20:47.920 | more opportunities. We're living, and I really mean this, we are living in a golden age of

02:20:54.640 | mankind. We're living in a golden age of mankind, and it's just going to get better from here.

02:21:01.520 | We're living in a time of more prosperity. We're living in a time of more peace. We're living in

02:21:09.600 | a time of more opportunities, of more freedom, more competition among countries. We're living

02:21:17.280 | in a golden age. And I want to be one who focuses on the opportunities and the practical solutions

02:21:23.200 | to those things, not one who just sits around and cries. So I hope that's a good, positive way to

02:21:27.040 | end it up. Happy Friday to you. Looking forward to be back with you next week. A series of shows

02:21:32.720 | coming next week, and then I'll be on vacation for the rest of the year, and I hope that you will

02:21:37.760 | as well. So I wish you very well. If you'd like to join me on next week's show, make sure you go to

02:21:42.560 | patreon.com/radicalpersonalfinance. Just search Patreon for Radical Personal Finance, and I'd

02:21:47.200 | love to have you on next week's show. God bless. Talk to you soon.

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2020-12-04_Friday_QA