2021-11-19_Friday_QA
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00:00:32.000 | Radical Personal Finance Live Q&A
00:00:39.000 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:00:53.000 | skills, insight, and encouragement you need to live a rich and meaningful life now, while
00:00:57.000 | building a plan for financial freedom in 10 years or less. My name is Joshua Sheets, I
00:01:01.000 | am your host, and today is Friday, November 19, 2021. Each and every Friday here at Radical
00:01:07.000 | Personal Finance, when I can arrange the technology, we record a live Q&A, which is what we have
00:01:12.000 | today. One, two, three, four, five callers on the line right now. Anything you want to
00:01:16.000 | talk about. Works just like any other call-in talk radio show, where you can call in, you
00:01:25.000 | can ask any question, make any comments, and I love doing these shows because we get usually
00:01:29.000 | an incredibly diverse set of topics, things that I love talking about all across the board.
00:01:35.000 | If you would like to join me for one of these Friday live Q&A shows, you do that by becoming
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00:01:52.000 | We begin with Thomas. Thomas, welcome to the show. How can I serve you today, sir?
00:01:56.000 | Josh, sure. Well, my goal is to provide generational wealth for my family. And so because of that,
00:02:05.000 | I've been inhaling your podcast, going all the way back to 2015 from the life insurance
00:02:10.000 | one, which is what I'm primarily asking about today. I'm a young man, don't have any dependency
00:02:17.000 | yet, but I recently got approved for two life insurance policies. And I guess I want to
00:02:22.000 | run them by you and make sure they're aligned with my goals and make sure I'm not missing
00:02:26.000 | anything before I actually choose one or both of them.
00:02:30.000 | Okay, go ahead.
00:02:32.000 | Cool. So I got approved for a whole life insurance account with Northwestern Mutual with a 214K
00:02:41.000 | death benefit. The annual premium is about 2.6% of my current annual income. And I also
00:02:47.000 | got approved for 80 year term life at 450K, 450K death benefit. The whole life account
00:02:56.000 | also includes an accelerated care benefit rider, which to me sort of sounded like a
00:03:01.000 | supplements disability insurance or something similar. And I guess I'm wondering if I should
00:03:07.000 | take one or both of these or perhaps something else.
00:03:11.000 | What is your income?
00:03:14.000 | It is $91,000.
00:03:17.000 | Okay. So we'll come back to the moment to the life insurance for a moment. But you said
00:03:24.000 | that your goal is to create generational wealth. That's your goal. Is that right?
00:03:32.000 | Mm-hmm.
00:03:33.000 | Okay. What is your current net worth not owning any life insurance?
00:03:38.000 | Not owning any life insurance. I believe it is around 200K, although I would need to check
00:03:46.000 | my 401K. Those are all in very aggressive investments. 100% in stocks, mostly raw accounts.
00:03:53.000 | Okay. So what I would say is the main goal is the main goal. And just for the call, I'm
00:04:04.000 | going to tell you guys, I'm actually not sure I'm going to be able to do this. We're watching
00:04:09.000 | live as I record this at 110 PM. We're watching that the judge in the Kyle Rittenhouse trial
00:04:14.000 | has just convened the jury. And I've got it pulled up because I have spent dozens of hours
00:04:20.000 | of my life consuming the details of this case over the last week. So I'm just going to pull
00:04:24.000 | the audio in for a second. And if any of the callers need to jump off, I understand we
00:04:29.000 | may or may not retain this as a show, but hang on, Thomas, and I'll answer your question
00:04:35.000 | in a moment. But I need to find out what's going on with this jury to be able to concentrate
00:04:40.000 | and do a good job on my job.
00:04:42.000 | This audio that we're listening to is the Rakeda Law live stream. They've got about
00:04:50.000 | 10 lawyers listening and the judge is back in. So let's see what we have to say.
00:04:56.000 | In the evening, woman juror reading instructions overnight equals making sure she is comfortable.
00:05:03.000 | Corey Boatwright says they're calling the jury.
00:05:06.000 | Yeah, thank you.
00:05:08.000 | Corey Boatwright says, speaking of lives being destroyed by the process, could that be the
00:05:11.000 | motivation behind the no secrets defense approach? Seems flawed, but they can at least try to say
00:05:16.000 | there wouldn't be block evidence that would have proved the guilt after all.
00:05:19.000 | I mean, the jury come in.
00:05:21.000 | It's a strategy. It's just not a legal strategy that I've agreed with personally.
00:05:27.000 | Value Air thanks for the donation.
00:05:29.000 | Little Rock says I had no idea this many attorneys do videos. I'm a 53 year old attorney.
00:05:34.000 | I was an engineer for 17 plus years with a PhD in engineering. 2012 went back to law school.
00:05:38.000 | I've joined all of your sites. We'll have to hire someone to keep up. Thanks all.
00:05:43.000 | This is Rakeda Law speaking right now while we wait for proceedings in the courtroom.
00:05:48.000 | 120,000 watching us, by the way.
00:05:50.000 | Oh my goodness. Is there anybody even close?
00:05:54.000 | Where else would you watch?
00:05:58.000 | I like Joe's tweet, written as Verdict Coming Watching, with nine lawyers and Deaf Not Dark.
00:06:03.000 | With nine lawyers and Darth Krypton.
00:06:06.000 | Well, you know, to be honest, I'd say like 70% of the Internet actually believes I'm an attorney.
00:06:12.000 | Kyle looks, I mean, he's calm.
00:06:14.000 | I have not even imagined. I've not done this the whole the whole time, but obviously while they're while they're reading through the verdict, let's all try and stay silent.
00:06:22.000 | We might even want to mute our mics because I you know, we might be inclined to cheer or cry and you don't want to be on a live stream crying.
00:06:31.000 | All right, we'll go mute.
00:06:32.000 | The jury. Stop the camera. If I start crying, would you give your adjournment?
00:06:41.000 | 54 and has the jury reached a verdict as to each count of the information?
00:06:46.000 | Yes, we have one verdict and one verdict. Yes. Would you hand all the paperwork to the bailiff, please?
00:06:54.000 | Everything. Thanks.
00:06:57.000 | My hand. Can you guys mute logic and crypto, please?
00:07:02.000 | Yes. See that, too, please.
00:07:05.000 | Thank you.
00:07:08.000 | Thank you.
00:07:37.000 | The defendant will rise, face the jury and hearken to its verdicts.
00:07:42.000 | They were the first kind of the information.
00:07:47.000 | Joseph was a bomb.
00:07:49.000 | The jury by the defendant, Kyle H.
00:07:51.000 | Written House, not guilty.
00:07:53.000 | As to the second count of the information, Richard McGinnis, we the jury by the defendant, Kyle H.
00:07:59.000 | Written House, not guilty.
00:08:02.000 | As to the third count of the information, unknown male, we the jury by the defendant, Kyle H.
00:08:07.000 | Written House, not guilty.
00:08:10.000 | As to the fourth count of the information, Anthony Huber, we the jury by the defendant, Kyle H.
00:08:16.000 | Written House, not guilty.
00:08:18.000 | As to the fifth count of the information, Gage Rose, we the jury by the defendant, Kyle H.
00:08:25.000 | Kyle H.
00:08:25.000 | Written House, not guilty.
00:08:32.000 | Oh, my God.
00:08:35.000 | Oh, man, I was just you guys.
00:08:37.000 | Nate is going to come on here and be like, I told you guys when everybody thought about the feed.
00:08:46.000 | I'm sorry, even Kyle's in tears and I am too.
00:08:56.000 | He's shaking.
00:09:00.000 | I haven't talked about this case all week.
00:09:02.000 | I've been watching this particular case and probably watched about 25 hours of it.
00:09:12.000 | Just trying to see the testimony from everybody.
00:09:18.000 | It's an absolute tragedy.
00:09:22.000 | I don't think there's anybody who would say that the events of that night were not a tragedy.
00:09:27.000 | But it just hit me because I always saw, like in Kyle, I always saw myself at 17 years old.
00:09:35.000 | Like this idealistic young man who believes that I can go and I can help.
00:09:40.000 | I can do something.
00:09:41.000 | I can help.
00:09:43.000 | And after all, somebody's got to do something.
00:09:45.000 | You think back to the events of last summer.
00:09:50.000 | I'm going to turn it off just so I can go back and watch that later.
00:09:54.000 | Thomas, I'm coming back to you in a second.
00:09:56.000 | But I just think back to the events of the last summer.
00:10:00.000 | And it's, you know, children are simultaneous.
00:10:10.000 | I shouldn't use that word.
00:10:12.000 | I try very hard never to refer to teenagers as children.
00:10:15.000 | But I guess I'm just reaching that age myself in which you look at teenagers and you think, "Man."
00:10:25.000 | Or nothing but children.
00:10:27.000 | You think of how 17-year-olds believe, right?
00:10:36.000 | They believe that they can do something.
00:10:38.000 | And you always think, "Well, I can help.
00:10:42.000 | I can do something."
00:10:43.000 | And when I was Kyle's age, I was doing a bunch of emergency disaster.
00:10:49.000 | I don't want to make this sound more pretentious than it was.
00:10:51.000 | But I was just going out.
00:10:53.000 | And I served with the local emergency disaster relief things in my local county for hurricanes and such.
00:11:05.000 | And you believe that this is the right thing.
00:11:09.000 | You believe you can serve.
00:11:10.000 | You believe you can help.
00:11:11.000 | You believe you can do all that.
00:11:13.000 | And that's what I saw in him, this idealistic guy that says, "I can help."
00:11:17.000 | But he had no idea of the danger that he was in and the stupidity of the situation that he put himself in.
00:11:23.000 | And then you watch the tragic events unfold, the gunfights, two guys killed, just an absolutely disastrous scenario.
00:11:32.000 | And then watching the whole trial, watching it go through, looking at the evidence, considering the evidence, working your way through, it's just a nightmare.
00:11:41.000 | The only way you win in criminal court is by never being there.
00:11:45.000 | And so forgive me if there was no way I could possibly focus when that was on.
00:11:53.000 | So, Thomas, I'm sorry for doing that.
00:11:56.000 | But it's just a big deal for me to pay attention to that and see that.
00:12:03.000 | So, Kyle, not guilty. And without question, as far as I'm concerned, without question, having watched dozens of hours of the case and listened to the proceedings in court, no question in the American legal system, that's absolutely the right verdict.
00:12:18.000 | But, man, it was – I was never really sweating bullets too much.
00:12:23.000 | Anyway, that's enough.
00:12:24.000 | So, Thomas, forgive me, but we're back to you.
00:12:26.000 | Have you been watching the case at all?
00:12:28.000 | No, but I appreciate the sentiment you were expressing there.
00:12:34.000 | I had similar thoughts.
00:12:36.000 | It's just a – I mean it's a bad situation all around.
00:12:39.000 | I don't think anyone would say it's been a good situation.
00:12:42.000 | But at the very least, you're not guilty of verdicts, which that is a relief to my mind.
00:12:48.000 | All right. I can focus now and get back to work.
00:12:50.000 | So let's go back to your question.
00:12:52.000 | Your question was generational wealth, and you said that you have been approved for some life insurance policies with Northwestern Mutual.
00:13:01.000 | You've been approved for a whole life insurance policy of $214,000 of death benefit with an annual premium of 2.6% of your annual income.
00:13:12.000 | And if you'd do me a favor, Thomas, I'm getting some feedback from your line.
00:13:15.000 | So I don't know if you can take off speaker phones.
00:13:17.000 | I know it would be helpful.
00:13:18.000 | And then you also have been approved for $450,000 of term insurance to age 80.
00:13:24.000 | Your annual income is $91,000, current net worth of $200,000.
00:13:28.000 | And what I was focusing on is I was focusing on the fact that you were saying that your goal is to create generational wealth.
00:13:36.000 | And the first point that I was going to make was simply that it's important that you differentiate the goal of generational wealth from the vehicle.
00:13:49.000 | Because I'm not opposed to your buying these life insurance policies, but I do not think that life insurance, especially whole life insurance, is the tool that creates generational wealth.
00:14:02.000 | And what happens is a lot of times people get so excited about buying life insurance that they realize that this is just one tool that eventually makes it happen.
00:14:14.000 | But it's not the best tool.
00:14:16.000 | The best tool to create generational wealth is to become really, really wealthy.
00:14:20.000 | And life insurance never gives you the multiples that you need, at least whole life insurance.
00:14:25.000 | Term insurance does, which is why it's cheap.
00:14:28.000 | But term insurance is the foundation, but you're going to need to focus on a big wealth engine.
00:14:34.000 | So I'm going to mute you again, Thomas, and just tell me if you know what do you think is going to be your engine that will help you build generational wealth?
00:14:42.000 | Well, I believe my engine would be my career based on my abilities and my predispositions.
00:14:51.000 | I'm not sure I would be successful as an entrepreneur.
00:14:55.000 | However, my skills are in an in-demand industry that compensates well, and so I'm certainly focusing on that.
00:15:02.000 | And how old are you right now?
00:15:04.000 | I'm 25.
00:15:06.000 | Perfect.
00:15:07.000 | To be earning $91,000 per year as a 25-year-old is fantastic.
00:15:11.000 | So kudos to you.
00:15:12.000 | I think you've got a great plan as far as starting.
00:15:15.000 | What do you think, in your current career, what do you think is your maximum earning potential available to you?
00:15:21.000 | Probably $200,000 to $300,000.
00:15:27.000 | Okay.
00:15:28.000 | And how long do you think it would take you to get from $91,000 to $200,000 to $300,000?
00:15:32.000 | Unsure.
00:15:36.000 | Between five and ten years.
00:15:38.000 | Okay.
00:15:40.000 | So kudos to you for recognizing that your career is the thing that will create the income for you.
00:15:47.000 | And you can become genuinely wealthy with a high-earning career.
00:15:52.000 | And if your career has a potential of $200,000 to $300,000, that is a great first step.
00:15:57.000 | If you can put yourself in a position where from the age of 25 to 35, you increase your income from $90,000 per year to $300,000 per year, then that will put you on a phenomenal track for long-term growth.
00:16:13.000 | It will put you on a -- for long-term wealth accumulation.
00:16:16.000 | And you will be able to build quite a lot of wealth over time.
00:16:21.000 | So -- and then if you'll invest that wealth, that income wisely to build long-term generational wealth, you'll be able to accomplish your goal.
00:16:31.000 | So the point -- because I know you're thinking about taking these life insurance policies.
00:16:36.000 | The point that I'm trying to make very clear is the life insurance doesn't create the wealth.
00:16:42.000 | The life insurance simply insures the legacy while you create the wealth.
00:16:51.000 | Now, we need to talk about whether or not you need life insurance or not.
00:16:55.000 | Very few people would ever look at a 25-year-old, presumably healthy man making good money who doesn't have any dependents and tell him that he needs life insurance.
00:17:09.000 | I bought life insurance when I was in that situation.
00:17:13.000 | I bought it primarily because I was a life insurance agent.
00:17:17.000 | But what I learned was that I actually started to feel differently about it after buying it.
00:17:23.000 | I can't prove to you or to me, and I can't even know for myself, how much of my feelings were influenced by the fact that I was a life insurance agent versus not.
00:17:38.000 | But what I did come to find is that I felt very, very good about having life insurance, even for my parents.
00:17:44.000 | For me, that was the obligation that was the clearest, that I knew that as my parents aged, if they needed my financial help, I wanted to be there for them.
00:17:53.000 | And it made me feel really good knowing that, hey, if I die as a 25-year-old single man, at least my parents will receive some significant amount of money, which will help me to fulfill my obligation towards them.
00:18:06.000 | That was my first reason for buying it.
00:18:08.000 | Now, in my case, I've been fairly quickly married soon after, and then I just changed the dependents.
00:18:13.000 | But I've never regretted buying any of the life insurance that I bought, even though it didn't follow the traditional models that, hey, you buy insurance for your dependents.
00:18:24.000 | So when you're doing that, your best bet is to go with term insurance because it allows you to buy huge amounts of death benefit and do it at relatively low costs.
00:18:36.000 | I would love to see you have more term life insurance than even what you're purchasing here.
00:18:41.000 | There is no formula that can answer this question of how much you need.
00:18:47.000 | We've acknowledged that you don't have any dependents.
00:18:49.000 | We can't do a personal needs analysis, and we can't do a – excuse me, maybe one of the rougher Q&A shows, but I could barely speak the last couple of days, but we're coughing today.
00:19:02.000 | So there's no formula that could give you the exact number that you need.
00:19:07.000 | But if I'm earning $91,000 a year and I can pick up 10 times my income of life insurance, of term life insurance, it's pretty cheap.
00:19:16.000 | So Thomas, how much is your $450,000 quoted term policy going to cost you?
00:19:22.000 | I can pull those numbers up in a sec, but there's one more relevance detail.
00:19:26.000 | We're of similar minds that I also value my parents being the beneficiary in case that occurs before I have other dependents.
00:19:35.000 | However, within a year, I'm going to be supporting a family member's mortgage, possibly taking it out in my name.
00:19:43.000 | Additionally, because I am planning on having a family, I figure I may as well begin these policies now while I'm young and healthy in the instance where I lose some aspect of my health by the time I have other dependents.
00:19:57.000 | Good. So good, clear thinking. I'm happy with your having it.
00:20:01.000 | Look up the number on that 450 term. Let's see what they're charging you for it.
00:20:05.000 | But absolutely, go ahead. Your thinking is clear on that number for the reasons that you said.
00:20:15.000 | So we agree that –
00:20:18.000 | $213 annual premium.
00:20:20.000 | $215 annual premium. Is that right?
00:20:25.000 | Yep.
00:20:26.000 | Okay. So if you doubled that from $450,000 to $900,000, then you would have a $430 annual premium.
00:20:35.000 | So when you think about the cost of an extra $215 per year, given your income situation, it would not be in any way a burden for you to have an extra – it wouldn't be a burden for you to pay an extra $215 per year.
00:20:52.000 | Again, I can't argue that you need it. I can't argue that because I can't do a needs analysis that would prove that you need it.
00:21:00.000 | But when I was in your shoes and I looked down and I said, "You're telling me that for $215 extra per year, I could get another $450,000 of term life insurance?"
00:21:11.000 | Knowing that if I die, instead of my parents getting half a million dollars, my parents would get a million dollars.
00:21:16.000 | Knowing that if I get married two years from now, that instead of – and I get – say I'm getting diagnosed with cancer unexpectedly at a young age, that I've got a million dollars of coverage instead of $500,000 of coverage.
00:21:30.000 | That always was pretty compelling to me.
00:21:32.000 | I have never once in years of paying life insurance premiums for a whole lot of term life insurance, for millions of dollars of term life insurance, I've never once even thought about canceling or lowering those term insurance amounts at any time during my 20s and my 30s.
00:21:50.000 | Especially with the type of term insurance that you're shopping for, which is what I used to sell when I worked for Northwestern Mutual, it's a great option.
00:22:00.000 | It's a great deal.
00:22:01.000 | So I don't have any problem with it.
00:22:03.000 | I think that it's fair.
00:22:04.000 | I think that if you are putting 2.5% of your income into a whole life insurance policy, I think that's entirely good.
00:22:11.000 | I'm willing to go up as high as 5%.
00:22:14.000 | There's no real – I can't prove any of that to you.
00:22:19.000 | But basically what I want is I want your attention to be focused on your wealth building tool, which is your income.
00:22:26.000 | Then with regard to your investments, I want a massive percentage of your investment dollars going into the very best investment options that you can find.
00:22:37.000 | And that is going to be any inside investments that you come across, any kind of close businesses that you come across where somebody wants to invest in that.
00:22:49.000 | It's going to be any kind of real estate that you live in, purchasing a house that you buy or that you share out with roommates.
00:22:58.000 | It's going to be anything that can grow like a business.
00:23:02.000 | And then it's going to be stuffing your retirement accounts, your 401(k) with every dollar you can, your Roth IRA with every dollar you can, and then repeating that process again and again.
00:23:16.000 | And then as long as those things are being done, totally cool with the whole life insurance for your longer term safer dollars.
00:23:22.000 | So that's how I approach it, Thomas, in my thinking.
00:23:26.000 | Got it. Got it. No, that all makes sense.
00:23:29.000 | The reason I bring up the whole life, it's an unconventional tool.
00:23:33.000 | I read a study by Ernst and Young that showed that including those as part of a retirement portfolio increases both your retirement income as well as your legacy.
00:23:47.000 | As long as the percent contributed is, forgive me if the numbers are incorrect, but somewhere between three and eight percent of your income is that sweet spot where you maximize both the income and the legacy.
00:23:59.000 | Now, again, I'm not involved in this world. My career is unrelated.
00:24:03.000 | And so I don't know if I should consider this type of information trustworthy.
00:24:07.000 | So the answer is yes and no.
00:24:09.000 | And this is one of the most hotly debated topics in any kind of modern financial planning.
00:24:16.000 | Ask anybody what their opinions are about whole life insurance and you get all kinds of different answers.
00:24:21.000 | And I try to be careful in how I talk about it and be non-prescriptive because what I believe is that all financial advice must be personalized to the situation of an individual to be accurate.
00:24:34.000 | And so when you look at models, you see various things.
00:24:37.000 | And what I try to focus on is what is the nature of any particular investment product and what do you get from it.
00:24:44.000 | And so what do you get from a whole life insurance policy?
00:24:47.000 | You get stability.
00:24:48.000 | You get stability and you get some tax benefits.
00:24:52.000 | The stability means that you have money that's going up in value that is very, very low – excuse me – that is very, very stable but relatively low.
00:25:03.000 | So the cash value buildup in a whole life insurance policy – and here I'm speaking about a policy that is invested in the general account of the company as certainly the policy that you are being sold is.
00:25:21.000 | It's not a – meaning it's not a variable insurance policy that operates upon some kind of subaccount of a mutual fund.
00:25:29.000 | Rather, it's just invested in the general account of the company.
00:25:33.000 | That's what Northwestern Mutual does.
00:25:35.000 | That's what you have.
00:25:36.000 | They do technically have a few variable policies but it's just not a popular product to that company.
00:25:42.000 | So that kind of portfolio performs very much like any other fixed income portfolio.
00:25:52.000 | So the fixed income portfolio is going to over time necessarily underperform stocks.
00:26:00.000 | You always are going to have a portfolio underperform stocks when that portfolio is invested into bonds because owners make more money than lenders.
00:26:11.000 | But what you get in that portfolio that you don't get with stocks is tremendous stability.
00:26:17.000 | In a big insurance company's general account, because they have a stability of cash flows, they can run a pretty decently performing portfolio of fixed income investments with a few augmented benefits that are often difficult for an individual to access.
00:26:36.000 | So I don't know how big the Northwestern Mutual general account is right now but it's probably – I mean it's a couple hundred billion dollars.
00:26:43.000 | And so they have a significant majority of that invested in traditional fixed income, government bonds, corporate bonds, et cetera.
00:26:52.000 | But then they also run a real estate portfolio in that.
00:26:55.000 | They also run some private placements.
00:26:57.000 | And they use those investments to improve the performance of the portfolio more than what you as an individual could get with say $10,000 in a fixed income investment.
00:27:11.000 | The second benefit you get from it is you get life insurance.
00:27:14.000 | So you have this permanent life insurance product that gets paid up over time that lasts forever that can be part of your overall estate planning.
00:27:23.000 | And I think that everybody needs some whole life insurance even if it's just for final expenses.
00:27:28.000 | I didn't used to think that but then I was an insurance agent and I realized how useful it was just to have a life insurance policy that can always be tapped for final expenses, transition, et cetera.
00:27:40.000 | It doesn't necessitate selling investments, cashing anything out.
00:27:44.000 | There's no tax consequence.
00:27:45.000 | You just have money.
00:27:47.000 | In addition, you get benefits like creditor protection on the account.
00:27:53.000 | So if you just went and had a fixed income portfolio that wasn't protected some other way like 401(k), et cetera, then you wouldn't have those creditor protections.
00:28:02.000 | But probably depending on the laws of your state, you have some creditor protections.
00:28:05.000 | And then you get some tax benefits.
00:28:07.000 | In your situation, the tax benefits are irrelevant.
00:28:09.000 | You don't make enough money and you don't have a big enough tax benefit – tax burden to gain in any way from the tax benefits of a whole life insurance policy.
00:28:17.000 | But that can change over time.
00:28:18.000 | That's why you have the term life insurance.
00:28:20.000 | So as long as you're maxing out your 401(k), as long as you're maxing out your Roth IRA, and this is on top of that, then I'm totally cool with it.
00:28:27.000 | Awesome, Joshua.
00:28:32.000 | Thank you for this context.
00:28:33.000 | I think this is what I was looking for.
00:28:34.000 | My pleasure.
00:28:35.000 | All right, I will do my best to get to all the callers, but we're at about three coughing fits so far, so we will see what happens.
00:28:42.000 | 256-ARIA-CODE, welcome to the show.
00:28:43.000 | How can I serve you today?
00:28:44.000 | Hey, Joshua.
00:28:47.000 | Can you hear me?
00:28:48.000 | I can hear you well.
00:28:49.000 | All right, so my question concerns my parents.
00:28:53.000 | They recently sold their house, downsizing, and I don't know the exact numbers, but ballpark, maybe around $200,000 that they'll net.
00:29:05.000 | And they've kind of asked me, "Hey, what do we do with this lump sum of money?
00:29:10.000 | Do you have any good ideas?"
00:29:14.000 | And so I have a few ideas, but I guess I'd like to just kind of bounce it off you and get your framework for thinking about it.
00:29:20.000 | What is their living situation after the sale of the property?
00:29:24.000 | So they have bought a home outright, paid cash for it with the proceeds, and so then probably around $200,000 to $250,000 remaining.
00:29:36.000 | And how old are they?
00:29:38.000 | 65.
00:29:41.000 | After this sale, other than the house that they live in, do they own any other real estate?
00:29:46.000 | No.
00:29:49.000 | Do they have other investments like retirement accounts, etc.?
00:29:53.000 | Minimal amounts.
00:29:58.000 | Well, just to give my answer quickly because I don't know if my voice can hold out for a full kind of 30-minute discussion, I would say the first thing I would be inclined to think would be for them to purchase a piece of rental real estate.
00:30:14.000 | I think that that's the natural thing that they can do.
00:30:18.000 | Real estate has been good to them.
00:30:20.000 | That's why they have these proceeds.
00:30:22.000 | Of course, it was the proceeds from their personal house.
00:30:25.000 | They're buying another house to move into, which is great, and they can own that house debt-free.
00:30:32.000 | But I would rather that they also have some form of income.
00:30:36.000 | Now, if they had a lot of other assets in a retirement account and in stocks, I would say, "Great, let's buy something that you can point to when those other assets are down," and you can say, "Look over here.
00:30:48.000 | Look, you got this piece of real estate, so don't sell your stocks.
00:30:50.000 | Don't freak out because someone on the radio is saying the stock market is going to collapse, and just let those things run."
00:30:56.000 | So you get some good kind of natural diversification from real estate for people that have other assets in mutual funds.
00:31:03.000 | In your case, you said they don't have it.
00:31:05.000 | So when someone doesn't have it, I ask, "Why not?"
00:31:08.000 | And sometimes that means, not always, but sometimes that means they're scared of something like stocks.
00:31:13.000 | And so I would say, "Well, why not go ahead and get a rental house?"
00:31:17.000 | And I don't know what rental houses go for in your area, but let's say they buy a $200,000 or $250,000 rental house in my area.
00:31:23.000 | If you could get a house for that, that would rent out for, let's call it $1,800 a month.
00:31:29.000 | So that income minus expenses, depending on the area, let's say it nets $1,500 a month.
00:31:36.000 | That's a $1,500 a month income.
00:31:38.000 | That's purely the dividends from a portfolio.
00:31:42.000 | They're not spending down principal.
00:31:43.000 | And so that can help them to then have income to budget on that, "Hey, we spend the rents."
00:31:48.000 | If the rents dry up, they don't have that money to spend, and they go back and get the property rented out again real quick.
00:31:54.000 | But they have the income that comes in, and then they always have the principal if they ever needed it.
00:31:59.000 | So they have the property.
00:32:01.000 | And so if they continue to live forward and one of them dies, you can sell the property, give the money to the other.
00:32:06.000 | If they need access to it, you can put a loan against it.
00:32:11.000 | I guess just my instinct is for a lot of people like that, having a rental house is a really good situation, unless they're deadly opposed to it,
00:32:21.000 | meaning that, "We've had rental houses, and we don't want to deal with toilets and tenants and turnover."
00:32:25.000 | Okay, well, then consider another option.
00:32:28.000 | But it's just such a great way to have a stable asset that people understand intuitively, that creates current cash flow,
00:32:36.000 | that cash flow can change and be adjusted with inflation, and you're not spending down principal.
00:32:42.000 | Thus, it can last for a long time.
00:32:44.000 | And as long as there's some other assets, some Social Security income, maybe some other savings,
00:32:48.000 | that's kind of my first thought.
00:32:51.000 | That's where I start.
00:32:54.000 | Okay. Yeah, that makes sense.
00:32:59.000 | There's no reason why they couldn't go and just put all the money into a mutual fund.
00:33:05.000 | Mutual fund could be wonderful, and you should consider it.
00:33:09.000 | But people don't understand mutual funds as intuitively as they understand real estate, and real estate is often not financeable.
00:33:18.000 | If you're in--sorry, mutual funds are not financeable safely.
00:33:22.000 | If you are involved, I guess the second thing I would consider is I would say,
00:33:28.000 | "What if instead of having their primary residence paid for, what if they put a mortgage on the primary residence,
00:33:34.000 | and they had a goal of buying two rental properties with the money instead?"
00:33:38.000 | And I would sit down with a spreadsheet.
00:33:41.000 | Are they receiving Social Security now, or will they be receiving it soon?
00:33:48.000 | Yes, they are.
00:33:50.000 | Okay. So what I would do is I would say this.
00:33:52.000 | "Mom and Dad, look, you're retiring, and you got Social Security.
00:33:56.000 | Social Security is a guaranteed income stream that you can't outlive.
00:34:02.000 | So let's put a mortgage on your primary property, and let's buy two rental houses with the money.
00:34:09.000 | Your Social Security payment--and buy two rental houses debt-free.
00:34:12.000 | Social Security payment, pay the mortgage on your house,
00:34:15.000 | and then you will use the income from the rental properties to live on.
00:34:21.000 | So if you lose a tenant, you're not going to lose your house, you're not going to get kicked out on the street,
00:34:25.000 | you got your Social Security income.
00:34:27.000 | If you lose a tenant, then you're going to be in a situation where you just have to pool in your spending a little bit
00:34:32.000 | until you get the house, rent it out, and hopefully you're going to still keep some savings,
00:34:35.000 | keep some cash on hand.
00:34:37.000 | But you're going to live on the income from your two rental properties.
00:34:40.000 | And that income, you can adjust it over time with inflation, and you still have the assets.
00:34:44.000 | So instead of them getting poorer over time, they're getting richer over time
00:34:48.000 | because they'll have three houses subject to the real estate market
00:34:52.000 | and the gains, the potential gains in the real estate market.
00:34:55.000 | They have one mortgage with a declining balance, and so their assets are growing over time
00:35:00.000 | and their income is growing over time.
00:35:02.000 | That's a really, really good plan, in my opinion, for retirees.
00:35:10.000 | Yeah, that does make sense.
00:35:13.000 | I think I was thinking also possibly purchasing an annuity.
00:35:18.000 | I know it would not throw off a lot of income, but it would be safe and stable
00:35:24.000 | for monthly income for as long as they live.
00:35:27.000 | So I'm not opposed to an annuity, but I think the rates stink,
00:35:31.000 | and why would they commit themselves to kissing this money goodbye and having no income?
00:35:38.000 | For a fixed-rate annuity, the rates stink, and it's just not going to change their life.
00:35:45.000 | So run the math.
00:35:47.000 | And the other thing I'll just say is they've got time.
00:35:49.000 | Why shouldn't they be working? Why shouldn't they be handling a property?
00:35:51.000 | As long as they've got somebody to help.
00:35:53.000 | If they're not capable of it, then tell me and recognize they're not capable,
00:35:57.000 | in which case you ask yourself, "Should we hire a manager or we say goodbye to real estate?"
00:36:01.000 | But assuming that they're capable, I think that you'll get a better return from real estate.
00:36:05.000 | They can do the work to find tenants, screen tenants, et cetera.
00:36:08.000 | They can do the work to coordinate, handyman to go over and fix things.
00:36:12.000 | And it's going to give you better returns than an annuity and not burn up your principal.
00:36:17.000 | So I would do that.
00:36:20.000 | I'm going to boogie on and see if we can do at least one more before my voice gives out.
00:36:24.000 | Welcome to the show. How can I serve you today?
00:36:27.000 | How are you doing, Josh? Is this me?
00:36:29.000 | It's you. Go ahead.
00:36:31.000 | All right. Thank you. Thank you.
00:36:33.000 | So my question, this might be a quick no, but I know a couple of years ago they just passed the Jolke regulations,
00:36:39.000 | which made it more difficult to defer, you know, offer taxes.
00:36:43.000 | Is that still feasible to do that?
00:36:46.000 | I have a friend, you know, he was in the U.S. He's a citizen resident.
00:36:51.000 | He's got passive income from overseas, which he keeps overseas.
00:36:54.000 | Is it still possible to defer paying taxes on that income?
00:36:58.000 | Let me ask a clarifying question. You said that he lives in the United States. Is that right?
00:37:05.000 | Yes.
00:37:06.000 | OK. The answer is no. But he lives in the United States.
00:37:10.000 | He can't defer that. He never could.
00:37:12.000 | If he doesn't live in the United States, then he can keep the income or you have or he has a completely separate company.
00:37:18.000 | Can he used to be able to keep the income abroad?
00:37:21.000 | It's just pretty complicated. Everything depends on whether he lives in the United States or not.
00:37:25.000 | Let me give you let me give an example just to make this make sense without going to the rules.
00:37:28.000 | OK. Does it make sense that I could live in the United States and I can just simply work in the United States
00:37:39.000 | and I could start a business in the Bahamas tax free jurisdiction that business could generate one hundred million dollars a year and I not pay tax on it?
00:37:50.000 | Does that make sense to anybody?
00:37:58.000 | What do you think?
00:37:59.000 | Yeah, that was that was the question.
00:38:01.000 | So the answer is no.
00:38:02.000 | Like I said, I know companies do that.
00:38:05.000 | I was just wondering if that's possible.
00:38:09.000 | Yes. Companies sort of kind of can do it.
00:38:13.000 | But it's very, very complex and it's not free and you can't do it as an individual.
00:38:20.000 | So if he is living in the United States, then he cannot keep the money offshore and it not be taxed.
00:38:27.000 | The law is that if he is a U.S. person subject to U.S. income taxation, because he is a U.S. person subject to U.S. income taxation, he owes tax on all of his worldwide income.
00:38:45.000 | Now, sometimes that tax can be deferred.
00:38:49.000 | For example, he could have a piece of real estate that he owns offshore.
00:38:53.000 | That real estate can sit there and it has unrealized capital gains.
00:38:56.000 | You can defer it in that way.
00:38:58.000 | Sometimes you might have growth in the value of stock that's held offshore, just like you might have growth in the value of your own company.
00:39:06.000 | Let's say that you build a local company in your town where you live and you have a that company is building value, but you're not taxed on the value until you sell the company.
00:39:18.000 | But you are definitely taxed on the income and he is definitely owes tax on the income because he's living in the United States.
00:39:25.000 | Now, let me clarify. It used to be the case prior to the 2017 tax cut and jobs act.
00:39:31.000 | It used to be the case that a U.S. person could physically go offshore and that U.S. person could go offshore, could own or operate or open an offshore company.
00:39:47.000 | And that that company could retain earnings. And as long as those earnings were not paid to the individual, there would be no taxes due currently.
00:40:00.000 | But that changed with the 2017 tax cut and jobs act, the Trump tax reform, worst thing to hit the offshore planning world in a very long time with the so-called guilty tax that you're referring to.
00:40:11.000 | So that path is no longer available.
00:40:14.000 | Now, if I live offshore and I have an offshore company, I can reduce the taxes subject to the guilty tax rules, but I cannot eliminate them.
00:40:24.000 | So the answer is no, he can't do that. And he can't just start an offshore company and keep his money tax free.
00:40:32.000 | Thank you, Josh. Yes, that was kind of the conclusion we were coming to based on our research.
00:40:37.000 | So just want to make sure you have time for a quick follow up. Go ahead. All right.
00:40:42.000 | This is just about your opinion. No questions specific. I've been I've been listening to your podcast from last year when COVID hit.
00:40:50.000 | You're talking about your COVID operating strategy and such. What's your current outtake on on stacking cash versus going ahead and investing in real estate,
00:41:00.000 | in particular in the Florida real estate market or just just overall, you know, as your strategy changed over the past year?
00:41:08.000 | Yes, it's changed. Yeah, absolutely. So short version is simply that I think it's more dangerous to hold cash right now and that if you hold cash right now as we're moving into an increasingly inflationary period,
00:41:21.000 | seemingly, then you should have a strategy for quickly divesting yourself of it and quickly transferring it either to a foreign currency that may not have the same inflationary effect or into assets that may better survive the potential inflationary period.
00:41:41.000 | I don't personally expect I don't personally expect significant amounts of hyperinflation in the US dollar, but I think we're very much there's a decent chance that we are heading into a period of mass inflation in the coming years.
00:41:58.000 | We'll see. Time will tell. Florida real estate is very market specific, but I think that the increases in value in Florida real estate are very much driven by demand.
00:42:09.000 | They're not fake. They're driven by demand. So time will tell what the actual values wind up being. And we wrap up with 509. Welcome to the show. How can I serve you today?
00:42:20.000 | Hi, Joshua. My question is essentially how to turn my hobby into a business monetizing my hobby, which is economic theory.
00:42:34.000 | So I'm currently in grad school studying economics, and my long term goals are go beyond learning economics and political science and theology into teaching.
00:42:50.000 | And I don't I don't see the job prospect as a professor being something necessarily I'm going for as far as both in terms of impact and and money feel like content creator path is is superior for both of those.
00:43:09.000 | But I'm not sure how in this relatively specific area to go about creating content. How would how would you if you were if you were thinking about this as your as your main goal, go about it?
00:43:24.000 | I would focus on two things. So let me just get my notes in my head, right? Three things. I would focus on three things. Number one, will you be professionally qualified for an academic job in the field of economics once you finish your studies?
00:43:46.000 | That is the goal. Okay. So when that is done, then I think you have kind of the first path, which is the path of being a teacher. Are your economic opinions and perspectives acceptable in mainstream academia?
00:44:06.000 | No. Okay. So if that's the case, then it becomes more challenging. If you can tow the party line and hold to academic theories that are acceptable in mainstream academia, then it's possible that you can move yourself into the position of being a professor or something like that.
00:44:25.000 | If you don't, then it's actually you probably have an opportunity. So the first thing I would do is I would study some of the economists who have made their mark and made their fortune, but who have not followed the path. I would think the best one right now would be Thomas Woods. Would he be one of the more prominent independent economists who built an empire?
00:44:49.000 | Yeah. Thomas Woods comes to mind. Bob Murphy comes to mind. Gary North comes to mind.
00:44:54.000 | Right. So if you study what these men have done, they have never abandoned their goal of being a teacher, but they have not tried to teach in the mainstream setting, which is in many ways kind of a good thing. It gives you a sense of freedom.
00:45:11.000 | And there is currently more demand for good teachers, especially in the field of economics, than ever before. And so a good teacher, somebody who is able to articulate things in a way that makes sense, a good teacher is always in demand.
00:45:31.000 | So focus on being a teacher. And right now as a teacher, the ability to teach courses from a distance means that your potential audience is bigger than ever. If your economic ideas and theories are true, then you'll be able to take those ideas and theories and show in the real world how they are actually applicable.
00:45:52.000 | And that will attract even more students. So I would look, if you need income in the short term, I would look for some of the online teaching jobs where you can just simply sign up and teach a course. And part of it is attracting students and part of it is creating is the students that are already on that platform.
00:46:10.000 | I think that there is always an opportunity for good economic teaching. If you look at the success of things like the Tuttle Twins books and publications, those have been an unbelievable success. There is tremendous demand for it. And so I would take my teaching and start formatting it into things that will be more appealing to the marketplace.
00:46:31.000 | I would teach a course, I would market a course to students, to homeschool students, I would market courses to adult learners who want to understand economics, and I would try to argue, "Here is why my personal understanding of economic theory is true." And then use current events to show, "Look, all this stuff is falling apart. Here is how you actually understand what is happening."
00:46:54.000 | So the world of teaching has always been filled. You've got Murray Rothbard and all of the Austrian people, which sounds like you might be aligned with. Those guys have always been able to make a living, but it was never based upon academia. It was based upon interested students.
00:47:08.000 | The second thing that I would focus on is advice. If you understand economics, then you should be able to give good advice. Many firms have a professional economist on staff. And so your economic outlook should give you the ability to give good advice to other people.
00:47:25.000 | So is there a mutual fund or a hedge fund that you could advise or consult on? Could you establish yourself in the public space as a thoughtful intellectual that does work for people who are willing to pay you just for your advice?
00:47:43.000 | And then the third thing is, as a content creator, the tools of becoming a content creator are now so simple. I think your first starting point is clearly a newsletter. If you don't already have your own Substack account, I think that would be a simple place to start.
00:48:06.000 | Just simply work on developing a simple newsletter on a platform like Substack and developing that into something that at least provides you with sustainable income. In general, all the rules of content creation apply. Being an economist isn't a good enough approach.
00:48:28.000 | Are you an Austrian? Do you subscribe to the Austrian theory?
00:48:34.000 | Yeah, generally.
00:48:36.000 | So being an Austrian economist who understands the Austrian line of thought, who also writes about the cryptocurrency markets, that's interesting. That's very interesting to me. I don't understand why, in my limited understanding of Austrian economic theories, I don't understand why more of the Austrian economists haven't jumped over the opportunity for there to be independent competing currencies in the modern cryptocurrency market.
00:49:05.000 | North doesn't think at all that Bitcoin is a currency and is asked multiple times, "Why not?" And it's like nothing has changed in the last 10 years. But if you would actually talk about those things from an Austrian perspective, from an academically accomplished Austrian perspective, then I would love to read that.
00:49:30.000 | And so finding some kind of niche or any niche that you think is relevant, finding some kind of niche, you'll be able to find clients.
00:49:37.000 | If you wrote about economics as it relates to Florida real estate, there are hundreds and hundreds and hundreds of Florida real estate investors who, if they came across your newsletter, would sign up all day long for a $9.99 per month subscription to your newsletter where you're analyzing the Florida real estate markets as an Austrian economist, looking at the macro trends and the micro trends.
00:50:04.000 | Do the math, right? $10 a month times 200 subscribers, $10 a month times 500 subscribers. Then having that marketplace of other people that you can start to add additional products and services to starts to become really, really powerful.
00:50:20.000 | So I worry that I'm not doing the best job based upon how my brain is working today and my voice as well, but I would look at it in terms of those areas. Number one would be teaching. How can I teach in the traditional model but to the students who are interested in it?
00:50:37.000 | Number two, advice. How can I sell my advice? And then number three, the content creation space. And how can I create ideas and sell my ideas in the public space? And there's tremendous draw for those ideas.
00:50:51.000 | But the key is you have to niche yourself down until you automatically stand out because most people, when they subscribe to something, they subscribe to it because the person resonates with them. And so you need to niche down and then later go ahead and amplify your perspectives.
00:51:08.000 | I have to get you started?
00:51:15.000 | Okay. Thank you.
00:51:18.000 | If you call back next week, I'm going to wrap up here just because I can't talk anymore. But feel free to call back next week and we can start breaking those down and I can give you more ideas that are more actionable and practical.
00:51:30.000 | But just know this as kind of a closing charge. There has never been a better time in the history of the universe to be a teacher, to be a writer, or to be an analyst. And what is an economist? Or a researcher as well. I had to add to that. An economist is a researcher, an analyst, and a teacher, and a writer.
00:51:53.000 | And so there's never been a better time to do what you're doing. And so a lot of it is just a matter of saying, "Okay, I have finished or am finishing my academic studies. Let me start practicing the craft and then try some different tools until I figure out what niche is most hungry for my content and how I can serve them most effectively."
00:52:14.000 | That's how I would go about it. I'm going to wrap up today's Friday Q&A show with that. Thank you for your patience. Not my best performance. A little bit wacky in the beginning with watching the Rittenhouse trial and I've tried my best to keep the coughing fits and the sounds and everything out of the show.
00:52:32.000 | I've missed a few of them, but I'm going to wrap it up there. Not my best. So hopefully – hey, if today was no good, just try next time. Come back next week. Join the show on Patreon and I would love to be able to talk with you next week when I am operating better.
00:52:47.000 | Until then, have a tremendous weekend. I'll talk with you next week. Go to patreon.com/radicalpersonalfinance and you'll find the show there. Thank you.