2022-07-15_Friday

00:00:00.000 | It's Friday and today, back from vacation to do live Q&A.

00:00:21.360 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:24.240 | skills, insight and encouragement you need to live a rich and meaningful life now, while

00:00:28.440 | building a plan for financial freedom in 10 years or less.

00:00:31.440 | Today is Friday, July 15, 2022 and today, after an extended break for a summer vacation,

00:00:38.440 | we are back at it with live Q&A.

00:00:40.920 | Open phone lines, call in, talk about anything you want.

00:00:47.040 | If this is your first time on a Friday Q&A show, welcome.

00:00:55.120 | We're glad that you are here.

00:00:56.840 | These shows work just like traditional call-in talk radio has worked.

00:01:00.880 | You call in, you ask me about anything that you want, talk about any questions that you

00:01:04.520 | have, happy to talk about details of your personal situation, happy to opine on anything

00:01:08.920 | that you have questions on, anything you want clarifications, happy to hear any disagreements,

00:01:12.920 | anything that you want.

00:01:13.920 | I don't screen the calls.

00:01:14.920 | Well, I don't screen the subjects of the calls.

00:01:17.600 | I do screen the calls in terms of publishing the phone number.

00:01:21.040 | If you would like to join me for one of these Friday Q&A shows, you do that by becoming

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00:01:30.280 | you access to the time and the phone number to be able to call in and join me on a Friday

00:01:35.160 | Q&A show.

00:01:36.160 | By doing it that way, it simply allows me to make sure that I have positioned things

00:01:41.140 | to not be overwhelmed with too many calls.

00:01:44.200 | I try to handle anywhere from five to ten calls on one of these Q&A shows and if I didn't

00:01:48.520 | do that, I would simply have far too many.

00:01:50.880 | We begin today with John in Pittsburgh.

00:01:53.640 | John, welcome.

00:01:54.640 | How can I serve you today, sir?

00:01:55.640 | Hey Joshua, thanks for taking the call.

00:01:59.240 | Welcome back.

00:02:00.240 | I had a question about opening a Canadian bank account.

00:02:04.760 | I thought it was going to be, I mean, pretty much seems to be the simplest, one of the

00:02:09.840 | early steps I can take to getting some money out of the US.

00:02:16.760 | But in calling around to the different banks I was going to go visit in the next few weeks,

00:02:23.000 | I noticed that a couple of them mentioned the same thing, which is that it's not possible

00:02:27.240 | to do a direct, once I have the accounts open, it's not possible to do a direct bank to bank

00:02:33.000 | transfer from the US to Canada.

00:02:35.440 | Instead, you have to wire transfer the money.

00:02:40.120 | With that limitation, do you still think it's, I mean, it's probably still worth having those

00:02:44.360 | accounts established and set up, but it kind of takes away from some of the ability to

00:02:48.040 | do frequent transfers just to get them used to seeing the money going back and forth.

00:02:52.520 | Yeah.

00:02:53.520 | Or maybe I'm just talking to the wrong banks.

00:02:56.000 | It is a limitation.

00:02:57.000 | So each bank will have a different system, but you're dealing with an international bank

00:02:59.920 | and the international banking system is different than what you're accustomed to with the domestic

00:03:04.240 | banking system.

00:03:05.600 | So usually you will do a wire over the SWIFT international transfer system.

00:03:12.200 | And so you'll do a wire or a lot of times banks can take checks and you can deposit

00:03:17.080 | banks by, or you can deposit funds via a check.

00:03:21.860 | So it is possible to use a Canadian bank account for your regular banking, depending on the

00:03:26.760 | specific bank and depending on the specific features that they offer you.

00:03:31.320 | So you want to ask them, but usually it doesn't make a lot of sense to do frequent transactions

00:03:37.720 | with an international bank account because of the increased fees due to international

00:03:43.360 | transfers.

00:03:44.720 | So usually it makes sense to have just a few transactions.

00:03:48.920 | And for example, at the most frequent, you might, again, if you have an account with

00:03:53.800 | check writing privileges, then you can write some checks and those will be cash based upon

00:03:58.960 | the terms of the banks.

00:04:01.500 | You will find that because you're dealing with an international bank, if you're dealing

00:04:05.640 | with an institution that is skeptical about checks, and it just kind of feels like we're

00:04:10.080 | in the 1980s here, you do have an international, it's an international account.

00:04:14.080 | So you're going to have less acceptance with your check systems.

00:04:18.120 | Your debit card will work fine.

00:04:19.320 | And so if you have a bank that has reasonable prices on international transactions, then

00:04:25.000 | the debit card can work fine.

00:04:26.120 | But usually if you were going to keep most of your money in an international account,

00:04:30.160 | then you would do something like keep your money there and then just pay your credit

00:04:32.360 | card bill once a month from it, things like that.

00:04:35.260 | What you can do is check to see if your bank will accept paper deposits.

00:04:38.960 | Every bank will be different.

00:04:39.960 | Sometimes, for example, you might have some of your checks sent there.

00:04:43.800 | Sometimes you can just simply use the automatic bill pay function from your US based account

00:04:48.560 | and send a check that way that can minimize the fees.

00:04:51.920 | But you are right.

00:04:52.920 | And so I don't think it makes a lot of sense to use an international bank account for day-to-day

00:04:58.960 | transactions.

00:05:00.120 | I think it makes sense to use a credit card for day-to-day transactions.

00:05:02.440 | And then if you really want to use the account frequently and not just have it as a savings

00:05:06.120 | device, then go ahead and set it up with just to pay your, you know, pay your credit card

00:05:12.360 | once a month.

00:05:13.600 | So it is the information that you have is correct and the specifics will depend upon

00:05:17.800 | each specific bank that you interact with.

00:05:19.720 | Okay.

00:05:20.720 | That makes sense.

00:05:21.720 | Yeah.

00:05:22.720 | And to be clear, the only reason I'm looking to have more transactions or more frequent

00:05:28.280 | transactions both ways was just for the sole purpose of just having them accustomed to

00:05:34.640 | seeing transactions going in and out, not really for day-to-day banking or anything

00:05:39.240 | like that.

00:05:40.240 | So, yeah, for that reason, I think I'm just going to go with a pretty low-end checking

00:05:43.560 | and savings type of account that has pretty limited withdrawals and stuff before you start

00:05:50.040 | racking up fees.

00:05:51.040 | But if it's just for emergencies only, that seemed to be sufficient.

00:05:54.320 | So, and now that I can go to Canada, I figured I'd get that done.

00:05:59.320 | Exactly.

00:06:00.320 | And just, and as always, be aware in the international banking space, you will incur significantly

00:06:07.960 | higher fees than you're accustomed to in the United States.

00:06:11.600 | Yeah, seems like it.

00:06:13.560 | So it's just, you know, a monthly account maintenance fee is an extremely normal thing

00:06:19.480 | in the space of international banking.

00:06:21.160 | It's fairly abnormal in the United States, but it's an extremely normal thing in international

00:06:26.760 | banking.

00:06:28.040 | So monthly maintenance fees, various fees, the fees are simply higher in the international

00:06:33.720 | world, practically, at least in my understanding, on a global basis as compared to the United

00:06:39.080 | States.

00:06:40.080 | I still think that's a cheap price to pay for the services that you are getting.

00:06:45.600 | But if you are very fee sensitive, then it will impact you and you'll want to minimize

00:06:50.260 | those fees just through prudent planning.

00:06:52.280 | I don't think you need to do transactions on a, you know, on a multiple transactions

00:06:56.360 | per month basis.

00:06:57.360 | I think the most important thing to set up is to set up your wire transfer systems.

00:07:02.640 | If you're using a Canadian bank account as basically kind of a relief valve, a backup

00:07:07.200 | plan in case you had to get money out of the United States, then the key is just making

00:07:10.800 | sure that you know how to wire money, you know how long it takes, you have all the information

00:07:15.920 | handy, so you could call up your bank and say, wire $50,000 from my US account to my

00:07:21.120 | Canadian account, and that you know how to do it and you know how long to expect that

00:07:24.940 | settlement process to take, etc.

00:07:27.160 | So you don't need to, of course, start with 50 grand.

00:07:29.160 | The key is just go ahead and practice going back and forth so that when the time comes,

00:07:33.480 | if you ever needed to do it, that you can do it very quickly and you've practiced it.

00:07:38.840 | >>Yeah, no, that sounds good.

00:07:40.840 | I appreciate that.

00:07:41.840 | That's exactly what I was going to do.

00:07:43.840 | Just put up a minimal amount that gets me, you know, semi-free checking accounts and

00:07:50.200 | probably open up one for both me and my wife.

00:07:52.000 | So we both have some options there.

00:07:53.840 | >>Yeah, the magic number is to have enough money in the account that you don't wind up

00:07:58.320 | incurring fees based upon the account balance, but to have, if you want to minimize your

00:08:03.840 | reporting requirements in the United States, to keep less than $10,000 outside the country

00:08:08.280 | so you don't have to file the extra disclosure forms.

00:08:12.040 | It's fine to file the disclosure forms, but if you keep less than $10,000 total outside

00:08:16.220 | of the United States, then you can minimize those forms.

00:08:18.680 | We go to Lucas in New Jersey.

00:08:19.680 | Lucas, welcome.

00:08:20.680 | How can I serve you today, sir?

00:08:21.680 | >>Hey, Joshua.

00:08:22.680 | Thanks for taking the call.

00:08:23.680 | I'm underway on the Mexican temporary residence process, and so I'm pretty excited about it.

00:08:33.760 | I got the temporary visa, so I found out part of that is going to Mexico to actually get

00:08:40.960 | the card.

00:08:41.960 | And from what the agent was telling me at the consulate, there's some requirements in

00:08:47.760 | there about time to renew the card within, I think it was 55 days before expiration to

00:08:55.480 | get it to the three year.

00:08:58.220 | But she also mentioned that it would be difficult to say at this point how long that process

00:09:02.160 | takes to go from the temporary residence visa to the card.

00:09:04.600 | So a little more complicated than I initially anticipated.

00:09:07.720 | And I know previously you had recommended using lawyers in the local areas where you're

00:09:13.920 | planning to do any international planning.

00:09:18.040 | And so, one, do you still recommend that, using a lawyer for immigration purposes, even

00:09:23.760 | for Mexico, which is pretty simple comparatively?

00:09:27.960 | And two, are there any resources that you've used to find international services like lawyers,

00:09:33.280 | accountants, things like that?

00:09:35.000 | I'm a little sensitive to hiring someone for a service like that who I haven't vetted,

00:09:41.560 | and I'm not sure how to do that internationally.

00:09:43.480 | Understood.

00:09:44.480 | So, the answer is, so just to clarify, at this point you have gone to the consulate

00:09:50.520 | outside of Mexico, you've received the little paper sticker into your passport saying that

00:09:56.360 | – Correct.

00:09:57.360 | And now you need to go to Mexico for the CANJE.

00:09:59.840 | Is that right?

00:10:00.840 | Correct.

00:10:01.840 | Okay.

00:10:02.840 | So, yes.

00:10:03.840 | So as I've said, in most things you can do most of the stuff yourself.

00:10:10.360 | Most countries have some kind of system that you can go on their website, you can work

00:10:15.760 | your way through, you can set the appointments, and you can do most of these things yourself.

00:10:20.360 | So you don't need to hire lawyers in the world of international immigration.

00:10:25.600 | You can do it yourself.

00:10:27.620 | My experience, having done it myself and having hired lawyers, is that immigration lawyers

00:10:33.480 | or immigration consultants are worth every penny in terms of minimizing hassle and making

00:10:39.960 | stuff easy for you.

00:10:42.040 | So when I went to Mexico, I speak Spanish, I'm perfectly fine, I could have gone and

00:10:47.760 | figured it out, but it's just so much easier to use a lawyer who says, "Show up on this

00:10:53.120 | day and you show up, all the papers are signed, you show up, they walk you up to the immigration

00:10:57.800 | official, you sit down, they walk you up to the immigration official, the appointments

00:11:06.000 | are set up, the official has all the papers, everything's taken care of, you sit there,

00:11:09.880 | you walk out ten minutes later and you're done with the whole thing."

00:11:13.200 | And that's worth so much more than trying to navigate the world of bureaucracy, especially

00:11:18.000 | in Latin America.

00:11:19.000 | There are some places where the bureaucracy is fairly streamlined.

00:11:23.240 | So can you do Canadian Express entry yourself?

00:11:26.120 | You can.

00:11:27.120 | I still think you should use a consultant, unless you're totally broke.

00:11:31.040 | I think it's worth your time just to use a consultant, but you can do a lot of it yourself.

00:11:34.960 | But if you compare the Canadian system versus the Mexican system, the Mexican system is

00:11:38.200 | so much more... the bureaucracy in Latin America is really, really intense.

00:11:42.800 | And so basically what you pay for with a lawyer or a consultant is to make your life easy

00:11:50.680 | and to make all of your planning easy.

00:11:52.920 | And my experience, again, having done it myself and having not done it myself, I have promised

00:11:58.120 | myself that going forward I'm generally just always going to use a lawyer.

00:12:01.000 | Because when I compare my experience with...

00:12:03.240 | I've done two programs with lawyers and consultants and I've done one program myself.

00:12:07.400 | When I compare my experience in those areas, it's just night and day better with a lawyer.

00:12:12.960 | So yes, I do still recommend it.

00:12:15.520 | And I can't tell you how to actually navigate the bureaucracy yourself if you want to do

00:12:19.800 | it, because it will depend upon a state by state basis, a city by city basis, and even

00:12:26.160 | an office by office basis.

00:12:28.560 | And it's very difficult to figure out what to actually do from the internet.

00:12:34.960 | You and I are generally fairly accustomed to doing everything online.

00:12:38.720 | But although there's been major modernization in many of the international immigration programs

00:12:44.560 | that you can do more things online, and in fact they'll often require you to do things

00:12:47.880 | online, right?

00:12:48.880 | I'm sure the Mexican consulate required you to establish an appointment online and all

00:12:55.080 | that stuff online.

00:12:56.660 | But when you try to do it online with systems that aren't fully self-explanatory and you're

00:13:01.240 | trying to do it in a second language, and you're trying to interpret what the second

00:13:05.400 | language means in a legal context to figure out exactly how to do it, it is complex.

00:13:11.480 | So the answer to question number one, do I recommend a lawyer?

00:13:13.760 | Yes, I do.

00:13:14.840 | If you hire a lawyer, right?

00:13:16.240 | I've had Miguel from San Miguel Legal on.

00:13:19.760 | If you work with him, Sanmiguel-legal.com, or not, sorry, not Miguel, blanking on his

00:13:27.800 | name.

00:13:28.800 | But if you hire him and his firm, basically you send him all the stuff, he arranges everything

00:13:33.880 | in advance, you tell him the day that you're going to come to Mexico, you show up in Mexico,

00:13:38.800 | you go to the office, his team meets you there, you basically need to be there for two days

00:13:43.860 | in essence, and everything is just handled.

00:13:47.640 | And that makes the process really, really simple.

00:13:54.840 | And that's why I recommend it.

00:13:55.880 | I think time is money, and the hassle is pretty intense.

00:14:00.880 | Now, if you were, and this is clearly not you, but if you were 22 years old and you

00:14:06.120 | want to live in Mexico, and you're actually in Mexico, and you can go down to the office

00:14:11.880 | and you can talk to a person and they'll give you a brochure and they'll say, "Here, here's

00:14:15.400 | how you go through the brochure yourself, step by step."

00:14:19.720 | Yeah, you can do it yourself, totally.

00:14:21.220 | So I want to be clear, it is totally possible to do it yourself, but it's just harder to

00:14:25.400 | do yourself not being physically in the country that you're trying to accomplish the immigration

00:14:31.000 | process for.

00:14:32.440 | Number two, how do you find international services?

00:14:35.880 | I'd say the two common ways, number one is through a referral.

00:14:39.960 | If you know someone who has done something, has been happy with their service provider,

00:14:45.760 | that's usually the number one way.

00:14:47.360 | So when I make a referral, sanmiguel-legal.com, I'm pointing you and saying, "Hey, this is

00:14:53.720 | a good firm, they do a good job, reach out to them, see if you can get in touch with

00:14:58.200 | them."

00:15:00.200 | That's the number one way.

00:15:01.200 | So if you have a friend of yours who's done it or you know someone who's done it, then

00:15:03.960 | that's a good way to get a referral.

00:15:05.720 | Or number two, I think it's perfectly fine to go with a firm that advertises their services

00:15:12.120 | in this way.

00:15:14.000 | There's not much of a vetting process necessary for this kind of thing, right?

00:15:17.880 | This is not like you're hiring a lawyer to defend you for a murder trial, where you've

00:15:22.720 | got, that's a much more difficult thing to do.

00:15:24.960 | This is pretty much a, what's the right word, an administrative process and it doesn't require

00:15:32.240 | a significant, it just requires experience.

00:15:34.360 | So if you find a firm that advertises, that they say, "Hey, I want to do Panama," and

00:15:39.320 | you do a web search for Panama immigration lawyer, you'll find all kinds of firms.

00:15:45.040 | And if they just feel legit and you talk to them and they sound legit, I think that's

00:15:50.440 | good enough.

00:15:51.440 | What you can simply do is you can protect, you know, search for reviews of course, but

00:15:58.120 | it's a fairly straightforward business and you'll generally make an upfront payment of

00:16:02.600 | some kind and then you'll pay the balance when the services are rendered and you'll

00:16:06.960 | be able to figure out whether the services are actually being rendered properly.

00:16:10.840 | So there's, it is harder to do due diligence, but if an outfit is advertising their services,

00:16:19.000 | they're holding themselves out as doing this work with a website and they are maybe actually

00:16:24.400 | advertising somewhere and it feels normal, I think that's good enough.

00:16:29.080 | I'm not aware of this being an area of widespread fraud.

00:16:32.440 | Now it is true that you will generally have a different service standard with kind of

00:16:39.760 | local firms, right?

00:16:41.080 | So one of the classic things is, let's say you go into a totally new country and you

00:16:45.640 | say, "I want to hire a lawyer."

00:16:47.000 | Well you'll find that you're going to get a different service standard if you just kind

00:16:57.400 | of hire a guy because his shingle out front says lawyer.

00:17:01.280 | But the amount of work someone puts into their website is a good indication of their stability

00:17:07.000 | as a firm.

00:17:08.160 | So I've hired four lawyers in the international immigration affairs on different things and

00:17:14.800 | I've just done it based upon, if I had a referral I've used that and I've done it just based

00:17:18.360 | upon personally their website, finding them with a web search, saying, "Hey, this feels

00:17:24.600 | right," and going with it and haven't had any problems.

00:17:27.360 | >>JAMES: Okay, great.

00:17:29.880 | Thank you.

00:17:30.880 | I may reach out to San Miguel Legal and ask for referrals in certain areas that if I'm

00:17:35.080 | going to be spending a couple of days in Mexico to do this, I'd like it to be in an area that

00:17:40.280 | is particular to my interests.

00:17:41.720 | So I'll start with that as a referral process.

00:17:43.840 | I really appreciate it.

00:17:44.840 | Thank you.

00:17:45.840 | >>TREVOR: My pleasure.

00:17:46.840 | All right, we move on to Trey in Texas.

00:17:49.160 | Trey, welcome to the show.

00:17:50.160 | How can I serve you today, sir?

00:17:52.160 | >>TREY: Hey Joshua.

00:17:53.920 | So I made a pitch to my wife two nights ago about her potentially taking a couple of years

00:18:03.400 | off from work and staying home with our one-year-old and the potential new kids to come along during

00:18:10.320 | that time.

00:18:11.720 | And then the very next day you dropped a new podcast that talks about how important it

00:18:16.520 | is to protect your income.

00:18:17.520 | I thought, "Uh-oh."

00:18:18.520 | So I kind of wanted to talk through that with you, and I'm happy to share numbers if you

00:18:26.600 | want.

00:18:27.600 | But how do you kind of weigh those two things against each other?

00:18:33.320 | And just to give you a real quick picture of our scenario.

00:18:39.920 | My income is more than sufficient to cover our lifestyle, assuming that we downsize from

00:18:48.400 | two properties into one, which is a perfectly reasonable change to make.

00:18:55.240 | And then, yeah, that's basically it.

00:18:59.040 | So I'm fully remote, and I think it would make a big quality of life improvement if

00:19:03.520 | we didn't have to deal with two jobs where she's actually at a brick and mortar job.

00:19:08.240 | And we could downsize into one property for a few years, kids start going to school, then

00:19:14.320 | school district or whatever we're going to do there, based on that.

00:19:18.240 | So I think it's important to begin.

00:19:22.040 | My answer to your question is, I believe the analysis is done from a different perspective.

00:19:28.440 | Financially speaking, I can't think of a scenario where I could argue to say that you're going

00:19:34.960 | to be financially...

00:19:38.040 | There is...

00:19:39.040 | I can, so let me change what I'm saying.

00:19:41.880 | In most situations, if you have a dual income household, and you turn that dual income household

00:19:48.760 | into a single income household, there's going to be a financial cost to that decision.

00:19:56.760 | You're going to have less money coming in the door, and unless there's an offsetting

00:20:01.720 | ability to increase income, then it's simply going to result in there's less income, we

00:20:08.240 | may have a lower lifestyle, financially speaking, and we may minimize our long-term wealth accumulation.

00:20:16.320 | The only way where that doesn't work is kind of the classic high performer profile.

00:20:24.480 | So if you look at when you have a family where someone is a very high performer, I always

00:20:29.920 | think about, I don't know, for whatever reason, years ago when I worked at Northwestern Mutual,

00:20:35.480 | I think he's still the CEO as far as I know, there was a guy named John Schliske who was

00:20:39.000 | the CEO, and he had six children, and he was the CEO of this huge insurance company.

00:20:48.440 | It is not possible for a guy like John Schliske to be the CEO of a huge insurance company

00:20:57.480 | and to have six children unless his wife is a full-time mother.

00:21:03.640 | It's simply not possible.

00:21:05.600 | You cannot do it.

00:21:06.600 | You cannot maintain that much responsibility, have a C-level job, have a huge business or

00:21:12.120 | a huge job.

00:21:13.600 | You cannot do that and also be a parent unless you have a wife, or I guess it could be either

00:21:20.720 | way, unless you have a wife who is taking care of your children and who is managing

00:21:25.440 | their needs.

00:21:26.440 | Otherwise, your kids are going to be a nightmare.

00:21:28.280 | It's just a disaster.

00:21:29.280 | It's simply not possible.

00:21:30.880 | Now, does it make sense for, in that situation, again, I have no idea.

00:21:36.280 | Maybe I'm wrong.

00:21:37.280 | Maybe John Schliske's wife actually does have some high-flying career as well.

00:21:42.240 | I don't know that, but I don't know what I'm saying for a fact.

00:21:46.320 | I always thought about him in this example.

00:21:50.560 | If you try to maintain two incomes, then you can't do it if you're parents.

00:21:57.160 | You could do it as individuals without children, but you can't do it as parents because the

00:22:02.600 | stress and the constraints of children are going to mean that you cannot deliver at the

00:22:09.600 | very highest level in a job.

00:22:12.680 | If John and his wife were both trying to maintain these jobs, they would leave the house at

00:22:18.440 | six in the morning, they'd get home at six at night, seven o'clock at night, see the

00:22:21.400 | children for an hour, and they would have to hire literally everything done for their

00:22:25.640 | children and they would still get bad results because they wouldn't have any kind of relationship

00:22:29.320 | with their children.

00:22:30.480 | Now, if John can go to work and his wife is able to make sure that the children are properly

00:22:37.460 | kissed and get their teeth brushed when they're going out the door to school, and then when

00:22:41.160 | they come home from school, she can help arrange the taxi services to get them to their events,

00:22:45.440 | make sure their homework gets done, make sure she's there to listen to their successes and

00:22:49.280 | their failures, etc., that division of labor can work out really, really well for John

00:22:54.640 | and for his wife, in my example.

00:22:57.440 | You can have John make, I don't know, $15 million a year, $20 million, I don't know,

00:23:01.280 | several millions of dollars per year, and his wife can benefit from a multi-million

00:23:06.760 | dollar per year income, and her division of labor is that she provides the warm, loving

00:23:12.800 | environment for the children, and John is there a little bit at night and a little bit

00:23:16.800 | on the weekends, right?

00:23:18.040 | That's the common thing, and you see that.

00:23:20.240 | So if you go through the C-level suites of big companies and find high performers, I

00:23:25.720 | don't think you'll find high performers who are parents who are at the very highest levels

00:23:33.040 | who don't have a stay-at-home spouse who's able to take care of their children.

00:23:37.200 | Just doesn't happen.

00:23:38.600 | So if you... so this is one of the big things.

00:23:41.080 | And again, I've had friends who I've watched go through this scenario.

00:23:44.800 | They're trying to build two careers, but they build two careers poorly because both people

00:23:50.860 | are struggling and they're trying to be good parents, they're trying to not, and they can't

00:23:54.240 | really get that extra... they can't put in that extra work that's necessary to go to

00:23:59.640 | the very highest levels in the corporate world because they feel the intensity of their duties

00:24:05.120 | in their family life and in their personal life, their marriage relationship, etc.

00:24:09.760 | So if you can have the division of labor, sometimes that can free you up to really invest

00:24:17.520 | in your career at a very high level and you can make it to the top levels of management,

00:24:22.200 | to a seven and eight figure salary, you can build a business that's really big, etc.

00:24:27.600 | Even things like travel.

00:24:29.380 | Travel is simply not possible.

00:24:30.920 | The kind of travel that's necessary for most high-level jobs, it's not possible if you

00:24:36.080 | don't have a full-time mother to depend upon to provide the stability that the family needs.

00:24:42.320 | You can't have two people managing ten days of travel per month.

00:24:46.520 | It's not possible.

00:24:47.520 | So outside of that, I think we have to acknowledge that if your wife were to stop earning an

00:24:53.400 | income, that's going to be a decrease in the financial income for your family.

00:24:57.640 | Now is that something that you should do?

00:25:00.040 | I think it's very much kind of a matter of vision and lifestyle and a question of is

00:25:05.760 | there an investment into our family that can be made up for it.

00:25:10.920 | So you can minimize the financial impact in some ways.

00:25:14.560 | So I will frequently help people do an analysis of a second income.

00:25:17.980 | If you have one income, let's say that your income is higher and she's still working but

00:25:22.600 | her income is lower, if you actually look and you say how much is it costing her to

00:25:26.440 | work, you can say, well, she's working, she's paying the highest marginal tax rate on her

00:25:35.840 | income, we have all these work-related expenses, etc.

00:25:40.240 | Then you can mitigate and say maybe it's not as big of a loss as just her gross income

00:25:46.080 | number, but it is still going to be a decline.

00:25:48.400 | So you have to feel like you're getting something else out of it.

00:25:51.560 | You have to feel like you're getting a lifestyle improvement for you, a lifestyle improvement

00:25:56.280 | for her, a lifestyle improvement for your family, for your children.

00:25:59.800 | You have to feel like you're getting some benefit from it that makes it worth the money.

00:26:06.560 | And that's my conviction is I believe, and my wife would affirm this if she were here,

00:26:12.840 | is that for us it's simply a lifestyle decision.

00:26:16.320 | Part of it is that I would not be able to do the things that I can do if we had to manage

00:26:24.360 | my job and her job.

00:26:27.240 | Part of what I already said, so I'm focused on the deal I made with her is I'll take care

00:26:31.920 | of the money, I'll make sure that you're rich, I'll make sure that you have everything that

00:26:35.040 | you need for the rest of your life, you be part of my family and come along with me.

00:26:39.440 | And that for her was not a high cost because she was never, my particular wife, never had

00:26:44.340 | a strong career ambition, she didn't have a career that was important to her that she

00:26:48.280 | wanted to build, etc.

00:26:50.560 | So that she was good with that.

00:26:51.560 | It was a good deal for her, it was a good deal for me.

00:26:54.040 | But it's also a focus on in terms of the kind of family life that we want to have.

00:26:59.160 | We don't, we never wanted to have one child.

00:27:01.520 | Well one child you could do it, five children a little different, right?

00:27:06.780 | So you want to build a certain career and also we see it as an investment into our children.

00:27:12.780 | So one major part of my goals in life and our family vision, a huge part of it has to

00:27:21.960 | do with building a dynasty.

00:27:24.080 | That's a very, very important component of my life vision is to build a dynasty and to

00:27:31.780 | impact and build the kind of family dynasty that I'll be proud of when I'm a hundred years

00:27:37.280 | old and the kind of family dynasty that will impact the world.

00:27:41.560 | And I can't get that unless I put in place a system where I can see to the needs of my

00:27:48.900 | children in a really strong way.

00:27:50.520 | And so the investment, right now as I record this, my wife is doing Fun Friday with the

00:27:57.360 | children and they've done schooling all week, they've done all kinds of things and yet she's

00:28:03.120 | still there with them and she's training them and she's working with them.

00:28:05.960 | We don't have a perfect family, we have many challenges, but she's laser focused on that

00:28:11.960 | and that's an incredible part of it.

00:28:14.100 | So if you look at the psychological problems that adults have and you trace them back,

00:28:18.360 | so much of that stuff is formed in childhood.

00:28:20.840 | And so when you look at it from an early education perspective, when you look at the values that

00:28:26.600 | are formed in children, you look at the vocabulary that is formed in children, you look at the

00:28:31.000 | academic ability that is formed in children, you look at the emotional security that is

00:28:36.020 | formed in children, those things are best formed with a close relationship with parents.

00:28:43.640 | And if you believe that, if you're convinced of that, that's part of your family decision,

00:28:48.040 | it's not a matter of a financial question, it's a matter of this is the lifestyle we

00:28:52.040 | want, this is what we want for our family.

00:28:54.120 | Now you do need to be very conscious of the cost, right?

00:28:56.320 | If your wife stopped her job, it comes with a couple of big costs that make her very vulnerable.

00:29:03.600 | Number one is if she stops earning an income, she's entirely dependent and your family is

00:29:10.140 | entirely dependent on your ability to earn an income.

00:29:12.960 | And so you need to make sure that you are a man who is worthy of that responsibility.

00:29:18.800 | You need to make sure you have a decent income and that you have a strong growth potential

00:29:23.600 | for your income.

00:29:24.760 | You need to make sure your income is properly protected for her, disability income insurance,

00:29:29.520 | life insurance, prudent financial management.

00:29:32.600 | It will come with a significant cost for her in her career, depending on what her vision

00:29:37.440 | is.

00:29:38.440 | If she's a mother and she takes six years out of a career and she comes back, she will

00:29:43.280 | from a career perspective, she'll be behind her peers who didn't take time off out of

00:29:48.240 | the workforce to raise children.

00:29:50.860 | If she is a longer term mother and say she takes 10 years out, it'll make a huge difference

00:29:57.440 | in her lifetime earnings, it'll make a huge difference in her relevance in the career

00:30:01.480 | field, etc.

00:30:03.020 | So there are substantial costs for her if she made that decision.

00:30:06.840 | You have to be convinced that those costs are worth it and that this is something that

00:30:12.360 | you want as a couple and that you are committed to and it's part of your lifestyle.

00:30:18.320 | For me, I've never imagined it any other way.

00:30:21.080 | I wouldn't do it any other way.

00:30:23.800 | I love, as I have stated publicly for it, I love the lifestyle that comes with the decisions

00:30:30.540 | that we have made.

00:30:32.120 | But it's not something that is without cost.

00:30:35.560 | It very clearly is and it needs to be something that's your conviction and her conviction

00:30:40.520 | and kind of your shared vision as a family of what you want and the kind of lifestyle

00:30:44.280 | that you want and not just, "Oh, okay, kind of a random thing."

00:30:51.880 | I think it's a pretty good deal for her if you're the kind of man who could do it.

00:30:55.280 | My wife has a great deal.

00:30:56.280 | It's funny, I posted a tweet, Alex Hormozy tweeted out, I think he said something like,

00:31:03.320 | "Marrying rich is the least discussed pathway to passive income."

00:31:07.920 | I've often thought about that.

00:31:10.760 | It's kind of funny, but we don't discuss it.

00:31:12.880 | I've often thought to myself that marrying rich or marrying someone who wants a stay-at-home

00:31:19.800 | wife is one of the fastest paths to financial independence, a financial independence lifestyle

00:31:25.520 | that it can be.

00:31:27.720 | It's hard to suggest that as an actual course of action given the various risks that are

00:31:34.040 | involved.

00:31:35.440 | But I think it's a pretty good deal.

00:31:38.360 | My wife, ever since we had our first child, she calls me money bag sheets.

00:31:43.880 | When she needs money, she comes to me and she's got enough.

00:31:46.200 | Any money she has, she has no budget.

00:31:48.240 | She can spend whatever money she wants.

00:31:50.080 | She just simply has to maintain and help pull the home together.

00:31:55.160 | We work hard to make sure she has the support that she needs.

00:32:00.240 | I don't intend for her ever to have to earn income for the rest of her life.

00:32:05.880 | It can work into a really great teamwork scenario, but it is one of those things that you've

00:32:10.520 | got to be very careful in the modern world where there's a very big difference in vision.

00:32:17.280 | You have to recognize that if your wife does that, it does expose her to some significant

00:32:21.960 | – it makes her vulnerable, more vulnerable.

00:32:24.880 | You have a responsibility to honor her and to protect her in that and to make sure that

00:32:29.840 | she's going to be better off if she does that than not.

00:32:33.000 | This is where it's especially difficult.

00:32:35.200 | Marriage, family relationships are very difficult for men and women in 2022 because she has

00:32:40.960 | to think very carefully about making herself vulnerable in that way and come to the decision.

00:32:48.000 | That was kind of a deep question.

00:32:49.680 | Let me say one more thing and then I'll let you respond.

00:32:52.560 | I would make all those things independent of the comments that I said about maintain

00:32:57.520 | your income, etc., unless there was something unique to your situation about it.

00:33:03.240 | The reason is – for example, let's say that you have a bunch of debt and right now

00:33:09.180 | you're trying to get out of debt and you're trying to figure out how to solve that and

00:33:13.640 | you're five months away from getting out of debt.

00:33:15.680 | Well, yeah, keep her income for the next five months so you can get out of debt.

00:33:19.440 | But in terms of macro conditions of the economy or what might or might not have in the next

00:33:26.080 | few years, I don't think we can plan those things with enough certainty to actually make

00:33:29.520 | personal decisions on them.

00:33:31.520 | So if I knew recession was coming, would I delay marriage?

00:33:37.040 | No, just get married, right?

00:33:38.680 | If I knew recession was coming and my wife wanted to be a stay-at-home mom or we wanted

00:33:43.640 | to have a baby, would I delay having a baby?

00:33:45.920 | I wouldn't.

00:33:46.920 | I would just have a baby.

00:33:48.080 | How do I know recession is coming?

00:33:49.240 | How do I know?

00:33:50.240 | We don't have any clue, any certainty of that.

00:33:53.280 | And these things, these lifestyle decisions are too important to rely upon what might

00:33:59.920 | happen in the future from a macroeconomic space.

00:34:02.940 | If I knew recession was coming, would I not go and change jobs or start a business?

00:34:10.000 | In the macro scale, no.

00:34:11.560 | If I knew that interest rates were going to triple, would I go and start a mortgage business?

00:34:16.800 | No, I wouldn't.

00:34:18.480 | But would I not go and pursue a job?

00:34:21.360 | No, pursue it.

00:34:22.360 | You want to live your life and focus on pressing forward.

00:34:24.720 | And as long as you're generally in a good prudent space where you've got most of what

00:34:29.560 | you need handled, then I think it just makes sense to press forward and ignore the economy.

00:34:34.720 | Great.

00:34:35.720 | I mean, I think that last little bit that you said about making the decision independent

00:34:42.040 | of any kind of forecast about what the economy is going to do, it's exactly where I was on

00:34:46.600 | it too.

00:34:48.160 | My phone shut off in the middle of it.

00:34:49.800 | I was outside in Texas and got a heat warning on the phone and it just shut off.

00:34:55.240 | But so I'll go back and listen to the entire comment that you made.

00:35:00.080 | But just to address a few of the things there at the end, from a security perspective, that

00:35:05.960 | was one of my main concerns too.

00:35:08.640 | Just going from two to one, one is a lot closer to zero income than two is.

00:35:14.040 | But I've had a really stable career for my first 10 years post-college with the same

00:35:20.680 | company that a promotion like every two years for the last 10 years.

00:35:27.400 | And the most recent one was like a month ago.

00:35:29.800 | So I doubt they're going to lay me off.

00:35:32.800 | And then we've got just a stupid amount of cash that we've just held for no real reason.

00:35:38.480 | I thought I was going to buy some kind of income property and just hasn't come up.

00:35:41.840 | And so we've got like 200 grand in the bank right now.

00:35:44.880 | But if we were to go through with this plan, we would sell one of our homes, move the other

00:35:49.800 | one, and we'd have like 400,000 in cash, which is like five years worth of cash living fat.

00:35:56.320 | So there's just really not a lot of financial risk in my mind, I don't think.

00:36:01.520 | Yeah, I don't think you have any financial risk from this.

00:36:04.760 | The biggest risk would be for her.

00:36:08.320 | In terms of, and that's what I spent some time talking about, is her career something

00:36:11.840 | that's very important to her?

00:36:14.040 | Is it a sacrifice for her to leave her career?

00:36:16.880 | Or is it just a job?

00:36:18.520 | Because if it's a career that she says, I've got this 30-year vision of where I want to

00:36:22.560 | be in this career 30 years from now, the biggest cost to her if she were to leave her job is

00:36:29.480 | not the income.

00:36:30.480 | The biggest cost to her is five years of lost advancement and experience in the career.

00:36:34.920 | And so you want to weigh those costs because those are big costs for her.

00:36:39.840 | And they need to be carefully considered and make sure that, yeah, this is something that

00:36:44.720 | she wants and that she has a vision of.

00:36:46.960 | And it's definitely not something you, it needs, I think it's as a husband, it's your

00:36:53.040 | job to share a vision and to share what you see as a family, right?

00:36:57.280 | And say, hey, here's my proposal, here's why I think it would be a good idea.

00:37:01.120 | But especially in today's world, based upon the situation that she's in, the advice that

00:37:08.040 | she'll hear, what her girlfriends will say, et cetera, this is something where she needs

00:37:12.040 | to be clear on the benefits and the costs and be sure that this is something that she

00:37:14.960 | wants and it's definitely not something that you would force her to do.

00:37:19.120 | That would be a major mistake.

00:37:20.840 | >>Trevor: Sure.

00:37:22.360 | Totally appreciate that.

00:37:23.560 | And that would change everything if she had a career that she was pursuing and had some

00:37:27.840 | kind of 30 year vision of becoming something, but she loves her job.

00:37:32.080 | She's a professional, she's a pharmacist, she loves what she does.

00:37:34.920 | She's stated many times that she does not want to be in management.

00:37:38.680 | She wants to be as sort of a staff type pharmacist, which I think you can go back and get at the

00:37:44.040 | end of being a stay at home mom whenever you decide to.

00:37:47.080 | >>Dave: Yeah.

00:37:48.080 | And in that case, I've worked with a lot of pharmacists.

00:37:49.640 | Y'all just want to look and see, is there a way that, is there something where she does,

00:37:54.120 | you know, one or two shifts every two weeks where she can keep her connections alive,

00:37:59.560 | keep her head in the game, keep all of her licensing current and make a little bit of

00:38:04.880 | money and just have a little chance to be out of the house, a chance to do something

00:38:09.080 | different.

00:38:10.080 | I think that's one of the things that is often challenging is simply because, so on, like

00:38:18.840 | I'm a stay at home dad, so I'm super in touch and in tune with this stuff because of how

00:38:22.800 | involved I am with my children by design.

00:38:27.600 | Having a job to go to is a wonderful relief from family pressures.

00:38:32.280 | It feels so easy once you have been, it feels so easy to go to work once you've been a full-time

00:38:39.240 | father or a full-time mother because it's just an easy thing.

00:38:42.720 | You go to work, you come into your job, eight hours, 10 hours shift, whatever, you're done

00:38:46.520 | and you go.

00:38:47.720 | And so having a little break from your home life is I think very important.

00:38:52.480 | And traditionally, this has generally been provided with community.

00:38:57.120 | You have a community where you send your children to school, you have mom can come over and

00:39:03.480 | help, you have neighbors, children can go play outside, etc.

00:39:07.160 | One of the things that I think has happened in 2022, meaning just in our current day,

00:39:12.600 | is that it's actually become more difficult for you to be a full-time parent because the

00:39:19.920 | pressure is much more intense.

00:39:21.760 | And here's what I mean by pressure.

00:39:24.360 | Number one, parents find themselves, at least in my observation, with far less community

00:39:31.600 | than was once available.

00:39:34.840 | And the community that is available is a very structured community.

00:39:40.040 | So if you went back 100 years and you were a new mother and you had a baby at home, it

00:39:45.600 | was common that in your block where you lived or in your apartment building or you had neighbors

00:39:52.080 | around that also had children.

00:39:54.560 | But for various reasons, number one, one of which, meaning that we have many fewer children

00:39:59.400 | in today's day than we've ever had, is just you don't have that many people in your local

00:40:04.120 | area that have children.

00:40:05.800 | You can go to the suburb somewhere and yeah, there are some children, but there's not,

00:40:09.960 | in a row of 15 houses, there aren't five other mothers with babies.

00:40:13.500 | There might be one other mother and she might have a three-year-old and not a baby.

00:40:17.180 | So there are just far fewer families, far fewer children.

00:40:20.320 | And then the places that you meet the children, we don't socialize much on a neighborhood

00:40:24.640 | basis or on a close geographic location basis.

00:40:28.380 | So maybe she goes to a mom's group at her church, but now that's drawing moms from all

00:40:34.200 | around a 20-square-mile area.

00:40:36.000 | So if she's going to go and take the children and someone's going to babysit for her so

00:40:39.440 | that she can have a little break, she's got to make it a whole affair and a whole event,

00:40:43.400 | right?

00:40:44.400 | Got to load up the child, make sure we have the bag all packed with everything the baby

00:40:47.040 | needs, and then go over to Suzy's house and drop the baby off, and then I got my one hour

00:40:51.160 | and go back.

00:40:52.160 | It's just not the same kind of thing of a break as when there was more of a neighborhood

00:40:55.600 | structure where you had other parents with children and they're physically close.

00:41:00.140 | In addition, we have in the modern age adopted very different standards for what is quality

00:41:07.720 | parenting and what is appropriate parenting versus our forebears.

00:41:13.200 | So today, my wife and I very rarely are our children out of our sight.

00:41:19.560 | Very rarely are we ever physically apart from them, because we have all kinds of worries,

00:41:26.680 | right?

00:41:27.680 | We worry about molesters, we worry about them getting hit by a car, we worry about all this

00:41:32.200 | stuff, and we're constantly viewing everyone around us with suspicion.

00:41:35.840 | "Well, is that person a closet pedophile?

00:41:38.440 | Is that person a..."

00:41:41.200 | You have all these fears and concerns that previous generations just didn't worry too

00:41:46.920 | much about.

00:41:47.920 | Now, should they have or should they not have?

00:41:49.640 | Obviously, they should have worried more in some cases.

00:41:51.720 | In some cases, we're a little bit overprotective.

00:41:54.620 | But even though I'm into the concept of free-range kids and having your children have opportunities

00:42:02.000 | and be tested, but you still are super careful.

00:42:06.440 | Where let's say you went back a hundred years, a mother may have said, "Kids, get out of

00:42:10.920 | here.

00:42:11.920 | It's two o'clock.

00:42:12.920 | I don't want to see you until dinner time."

00:42:13.920 | And the children go out and they're gone for three hours.

00:42:15.640 | That today is considered a form of neglect or abuse.

00:42:18.760 | And so parenting is in some ways a lot more intensive than it once was.

00:42:23.640 | I don't want to paint a one-sided picture.

00:42:26.160 | There are many ways in which parenting is much easier than it has been in the past.

00:42:30.200 | But I do want to acknowledge that these things contribute to make it difficult.

00:42:34.200 | And these things contribute to making the life of a full-time mother or a full-time

00:42:38.120 | father pretty intense.

00:42:40.280 | And so having a break, having a day or two every two weeks where you go and do some shifts

00:42:46.400 | at the pharmacy, if you guys can figure that out with appropriate childcare, with the two

00:42:50.560 | of you working together, I think that can actually be something that is a big lifestyle

00:42:54.080 | improvement for her where she maintains her sense of professional capacity.

00:42:58.480 | She maintains her ability to say to others, "Yeah, I'm a pharmacist."

00:43:01.000 | She maintains her connections.

00:43:03.320 | And then if she decides she wants to go back to being a full-time pharmacist in the future,

00:43:06.600 | it's easier because she's still visible and she's not coming in out of the cold.

00:43:10.200 | Dr. Tom Hanks Yeah, totally agree.

00:43:12.880 | I made the same recommendation when we were discussing it the other night.

00:43:18.000 | You could go on to get a PRN job at a hospital or whatever you want to do just to keep your

00:43:22.440 | foot in that world if you want to, but you wouldn't have to.

00:43:24.720 | It's kind of up to her.

00:43:25.960 | Dr. Justin Marchegiani Yeah.

00:43:26.960 | And the good thing about this is that none of this stuff is—especially with her being

00:43:30.720 | a pharmacist, she's highly employable, I would think, and so none of this stuff is

00:43:35.240 | permanent, right?

00:43:36.520 | If you guys try it out as a family and realize this isn't working for us, you can always

00:43:41.040 | make a change.

00:43:42.040 | It's not hard to get—it's not hard to move it back.

00:43:43.600 | You don't have to—you don't have to have the next 20 years planned out today.

00:43:46.960 | Just next year or two and certainly you can afford it.

00:43:50.120 | If anything, it could be a nice sabbatical for her and an extended maternity break, which

00:43:54.760 | I think is a really welcome—really welcome thing.

00:43:57.240 | Dr. Joshua Seifried No doubt.

00:43:59.240 | Yeah.

00:44:00.240 | Appreciate it.

00:44:01.240 | Thanks, Josh.

00:44:02.240 | Dr. Justin Marchegiani Yep.

00:44:03.240 | My pleasure.

00:44:04.240 | Alright.

00:44:05.240 | We go to the great state of Utah.

00:44:06.240 | Welcome to the show.

00:44:07.240 | How can I serve you today?

00:44:08.240 | Dr. Joshua Seifried Hey, Joshua.

00:44:09.240 | I have a pretty simple question compared to the last couple ones.

00:44:12.960 | A few weeks ago—well, I guess probably a month and a half ago, we had talked about

00:44:17.080 | a Vanguard Lifecycle Fund and some people that were holding it in a non-taxable account

00:44:22.360 | and they got stuck with a big tax bill.

00:44:24.840 | And that episode you had mentioned, you thought there were better ways to invest money than

00:44:33.000 | a life cycle fund that could provide a little bit more return.

00:44:37.560 | And I'm just curious to see if you'd maybe elaborate on that, on some options other than

00:44:43.880 | a life cycle fund for a non-taxable account.

00:44:46.320 | Dr. Justin Marchegiani Sure.

00:44:47.840 | So, at its core, my opinion is simply people overestimate the value of bonds in their portfolio

00:44:57.080 | and underestimate the value of stocks.

00:45:01.080 | And life cycle funds generally operate on a principle of significant increases in the

00:45:09.040 | percentage of bonds in the portfolio as compared to the percentage of stocks.

00:45:14.840 | So let's begin—keep it very simple, but let's talk a little bit about modern portfolio

00:45:19.240 | theory.

00:45:20.480 | So in modern portfolio theory, the idea is how can we design a portfolio that gives us

00:45:26.600 | the maximum return based upon certain levels of acceptable volatility.

00:45:32.880 | Notice I'm using the word volatility.

00:45:35.240 | Usually we'll use the word risk, but by risk we mean volatility, ups and downs in the market

00:45:41.320 | and ups and downs in the portfolio.

00:45:44.360 | From a retirement planning perspective, as we get closer to retirement and as we are

00:45:49.640 | in retirement, generally speaking, because we need more money from our portfolio, we're

00:45:57.160 | increasingly less willing to accept volatility.

00:46:01.640 | People get nervous.

00:46:02.640 | If they've got $2 million to retire on and they got a 25% market drop and all of a sudden

00:46:06.480 | they wake up with a million and a half dollars in their portfolio, they get super nervous

00:46:09.520 | about that as they should.

00:46:12.160 | And so modern portfolio theory purports to create the most efficient portfolios for every

00:46:20.120 | level of accepted volatility.

00:46:22.780 | And so the highest returning portfolio will generally be an all-stock portfolio.

00:46:30.920 | But the remarkable thing about modern portfolio theory is that they've proven that if you

00:46:35.600 | just have a little bit of bonds, yeah, maybe, maybe you give up a little bit of total risk—excuse

00:46:41.640 | me, a little bit of total return, but you gain a big dampening effect with less volatility.

00:46:50.040 | So a portfolio of 20% bonds and 80% stocks doesn't return that much less than a portfolio

00:46:57.400 | of 100% stocks and you get a good dampening effect.

00:47:00.800 | And then there's the curve, right?

00:47:02.200 | The efficient frontier of how much volatility are we willing to accept.

00:47:07.360 | And you go back to the 60% bonds and a 40% stock portfolio.

00:47:12.720 | So this is modern portfolio theory and this is what portfolios are built on.

00:47:17.280 | And that's what a lifecycle fund generally does.

00:47:19.640 | It says, "Okay, we're going to start you right now with an 80/20 stock to bond ratio

00:47:24.120 | and we're going to move you steadily towards a 20/80 bond to stock ratio.

00:47:28.780 | That way if you're 80 years old, we think that 80% of your money should be in bonds

00:47:32.160 | and 20% in stocks."

00:47:34.140 | So my complaint about that personally is simply this.

00:47:38.720 | I don't buy that that's the right move for most people.

00:47:42.440 | And my arguments are simply these.

00:47:44.360 | Number one, volatility is not generally a problem unless you've done poor financial

00:47:51.600 | planning.

00:47:52.840 | And so retirement planners are usually facing a constraint that the client says, "How do

00:48:00.200 | I get the most return out of my portfolio possible because I've just saved barely enough

00:48:05.960 | for retirement?

00:48:07.600 | And also that income has to be totally stable."

00:48:13.920 | That's a hard thing to answer, right?

00:48:15.880 | If you say, "Here's $2 million.

00:48:17.760 | I want the maximum income and I'm not willing to accept any ups and downs in my income."

00:48:23.280 | You put a planner in a tight spot and the planner is generally going to take a fairly

00:48:26.600 | conservative approach, develop a conservative portfolio that has the highest probability

00:48:31.320 | of returning that stable income.

00:48:34.080 | But what if you went to the planner and you said, "Yeah, I'm totally willing to change

00:48:38.380 | my spending from time to time if I had to.

00:48:41.360 | I just want to have a portfolio that gets as big as possible."

00:48:44.120 | Well, you wind up with a different portfolio.

00:48:46.440 | So all of traditional financial planning that creates these portfolios along the efficient

00:48:53.080 | frontier is built upon the mathematical proposition that you have to have stability of income

00:49:01.920 | and thus you want to maximize the return from the portfolio measured by stability of income.

00:49:08.320 | That's the underlying assumption.

00:49:10.040 | If you take that assumption out, you could make something different happen.

00:49:18.280 | And so it's kind of like this, right?

00:49:20.880 | Let me use an example.

00:49:22.920 | If you came to me at 60 years old and you said, "Here's $2 million and I need as much

00:49:29.760 | income from that money as I can get every single month and I have to have a stable income,"

00:49:34.680 | you would get a different portfolio than if you came to me at 60 years old and said, "I'm

00:49:38.520 | 60 years old.

00:49:39.520 | I'm never going to spend a dime from this portfolio.

00:49:41.160 | I want to leave as much money behind to my children and grandchildren as possible."

00:49:44.920 | Does that make sense that you would get two different portfolios based on those constraints?

00:49:49.760 | Yeah, it does.

00:49:52.320 | Okay.

00:49:53.320 | So which of them would create the higher return?

00:49:56.000 | Well, almost certainly, again, I have to say almost because we don't know what the future

00:49:59.960 | and past performance doesn't necessarily indicate future performance, but almost certainly any

00:50:05.240 | analyst who looked at that would say you would have far more money in portfolio B because

00:50:10.040 | you just said, "I want as much money as possible when I'm 90 years old."

00:50:13.400 | And you would generally in that scenario put the money all in stocks because you don't

00:50:16.880 | need the stability.

00:50:18.640 | You don't need the volatility.

00:50:19.920 | You need the total return.

00:50:21.560 | So this brings me to point number two.

00:50:23.040 | So point number one is the model is constrained by a presupposition.

00:50:27.760 | The presupposition is I need stable income to last and I need to maximize the income

00:50:33.280 | from my portfolio and need it to last for the rest of my life.

00:50:36.220 | So point number two is this.

00:50:38.520 | I believe that the reason stocks outperform bonds is quite simply that owners get richer

00:50:45.960 | than lenders.

00:50:48.760 | Owners of companies get richer than people who lend money to companies.

00:50:54.400 | And at its core, that's the difference between stocks and bonds.

00:50:58.920 | Stocks represent ownership in a company and bonds represent lending money to a company.

00:51:04.200 | Owners get richer than lenders.

00:51:06.000 | And so while I certainly wouldn't make a forward-looking statement such as stocks always outperform

00:51:11.320 | bonds because it's not true, meaning we don't know the time period, but on the whole, I

00:51:18.160 | don't see how in a long period of time it would ever be possible for a bond portfolio

00:51:23.280 | to ever outperform a stock portfolio.

00:51:26.800 | That's why bonds have lower returns because they're lending money to companies.

00:51:31.800 | And those are good and useful terms.

00:51:34.800 | Bonds are wonderful, right?

00:51:35.800 | If you're running an insurance company and you have to mathematically be certain that

00:51:41.200 | you can pay the claims of your insureds, then you're going to have a portfolio with a lot

00:51:45.400 | of bonds in it because you can get a good return with good stability.

00:51:49.760 | But I don't want just a good return.

00:51:51.960 | I want a great return so I can maximize my lifestyle, which leads me to point number

00:51:55.880 | three.

00:51:56.880 | I believe that it's better and easier to train an investor to be comfortable with volatility

00:52:03.760 | than it is to kind of create...

00:52:09.280 | What metaphor to use?

00:52:11.280 | I want to train an investor to be comfortable with volatility and then make sure that the

00:52:15.120 | financial plan reflects that rather than indulging the ignorance of the investor.

00:52:21.720 | Think of it like this.

00:52:23.160 | Use an airplane example.

00:52:25.760 | If you...

00:52:26.760 | Is it better, is it easier for you to build an airplane that will never bounce up and

00:52:33.000 | down in the air and the wings will never waggle on it?

00:52:37.040 | Or is it easier to simply train somebody to say, "An airplane bouncing up and down in

00:52:40.960 | the air is not a big deal and the wings are wagging and wiggling because that's how metal

00:52:50.000 | works and that's just fundamentally how the physics of metal work."

00:52:54.560 | I remember one of the first airplane flights I was on with my dad and I looked out the

00:52:59.400 | window and I saw the wings wagging up and down.

00:53:02.840 | I said, "Dad, isn't that a bad thing that the wings are wagging up and down?"

00:53:06.000 | I said, "Joshua, if the wings didn't wag up and down, the whole plane would fall apart

00:53:09.080 | because you can't create rigidity, perfect rigidity, and have something strong."

00:53:13.880 | The fact that the wings wag, that's just how it works.

00:53:15.880 | For the rest of my life, it's always been normal.

00:53:18.560 | I explained to my children what airplane turbulence is.

00:53:20.760 | It's like we're just hitting waves.

00:53:22.000 | It's no difference.

00:53:23.000 | Then when you're on an airplane and the plane is bouncing up and down, it's generally not

00:53:28.120 | that big a deal.

00:53:29.120 | There can be, of course, indications where you drop a thousand feet in an air pocket

00:53:33.000 | or something, but it just doesn't matter.

00:53:34.520 | It's just turbulence.

00:53:35.520 | The plane is built for it.

00:53:36.520 | This is how flying works.

00:53:38.160 | It's easier to educate someone about how flying works than it is for you to try to create

00:53:45.880 | some totally new technology where they can have a silky smooth flight and not see the

00:53:50.520 | wings bouncing up and down.

00:53:53.200 | In investing, our job is to educate investors to be comfortable with volatility, an appropriate

00:53:58.080 | amount of volatility based upon their goals, but not to indulge the investor's ignorance

00:54:03.240 | and the investor's irrational fears of volatility.

00:54:07.800 | I would rather spend time educating—it's this classic thing with risk profile questionnaires.

00:54:14.400 | As a financial advisor, the way that you protect yourself from liability and the way the company

00:54:19.840 | protects itself from liability is to do risk profile questionnaires.

00:54:24.360 | These risk profile questionnaires create a written record that the investor has considered

00:54:32.480 | the effects of market conditions on his investments.

00:54:36.280 | He's telling you, "Here's the kind of portfolio that's suitable for me."

00:54:40.000 | While you can push somebody a little bit, generally speaking, at least when I used to

00:54:44.160 | give risk profile questionnaires, I just gave them.

00:54:47.320 | I didn't try to educate someone.

00:54:50.400 | I need to know what they say.

00:54:52.760 | But now here you face as a financial planner, let's say the person gives it back and they

00:54:56.720 | say, "Yeah, I'm not comfortable with swings in the value of my portfolio."

00:55:00.320 | There can be multiple reasons why an investor may not be comfortable with it.

00:55:03.200 | One reason might be that the investor's budget doesn't allow for swings in a portfolio.

00:55:08.680 | "I've got $3,000 a month and I've got $3,000 a month of bills, and if I don't

00:55:13.080 | have $3,000 a month, I'm going to get kicked out of my house."

00:55:15.800 | You can't afford any volatility.

00:55:17.920 | But then the other thing is just the emotions of the investor.

00:55:20.800 | It might be the kind of person who's just not comfortable with volatility.

00:55:23.960 | So let's say that somebody fills out an investor profile questionnaire.

00:55:27.840 | They hand it back to you as the investment advisor, and you see that they're not comfortable

00:55:32.320 | with the swings in the portfolio.

00:55:34.400 | What do you do?

00:55:35.400 | What's the right thing to do?

00:55:36.400 | Do you just take them and say, "Yeah, you're not comfortable with turbulence on an airplane,

00:55:41.600 | so let's just make sure you don't ever fly."

00:55:44.200 | Or do you say, "Should I try to educate you to be comfortable with volatility?"

00:55:50.240 | And that's a really hard thing because I think it's generally the duty of a financial

00:55:55.800 | advisor to seek to educate that person to be comfortable with volatility, but that can

00:56:00.520 | come back to bite you because now you might educate the person into accepting a more volatile

00:56:05.720 | portfolio, then things go down, they freak out, they sell, and now you screwed up the

00:56:11.520 | whole thing.

00:56:12.520 | So a lot of times you just kind of quietly accept it, and you let the client steer you

00:56:16.880 | instead of you steering the client because it just feels easier, and it feels like, "Well,

00:56:20.440 | I'm listening, and I'm respecting their wishes."

00:56:22.800 | Well, my goal is I want to educate the investor to be comfortable with volatility, and then

00:56:27.200 | I want to build a financial plan that accounts for it.

00:56:29.760 | And so if there's no way in the world where you can have somebody with a 50-year investment

00:56:34.840 | time horizon, which we'll get to that in a moment, and them not be better off 50 years

00:56:39.560 | from now with owning a bunch of stocks versus owning a bunch of bonds.

00:56:44.200 | Next point, I've got to move faster.

00:56:46.160 | People dramatically underestimate the risk of inflation versus the risk of volatility.

00:56:54.000 | They underestimate it.

00:56:56.540 | Inflation is a huge enemy with regard to investing.

00:57:00.880 | A normal 3% inflation rate is devastating to someone on a fixed income, let alone a

00:57:07.360 | 9% inflation rate.

00:57:09.700 | So the only way you can outstrip inflation is to have investments that are significantly

00:57:13.920 | outperforming it.

00:57:15.340 | And so I believe that it's more important for an investor to maintain their lifestyle

00:57:21.680 | than it is to maintain their portfolio balance.

00:57:26.360 | You need the lifestyle.

00:57:27.400 | And so over the long time horizon, it's really important that we have a portfolio that's

00:57:32.520 | very tilted towards stocks and very non-tilted towards bonds.

00:57:36.560 | Next point, people underestimate their actual time horizon.

00:57:40.720 | So if you're 50 years old and you're planning a retirement plan, I think you need to plan

00:57:45.060 | for a 50-year retirement.

00:57:46.960 | Certainly there's some people who will die at 70, but it's very probable that a significant

00:57:53.440 | portion of people at 50 today will wind up with a 50-year income.

00:57:57.520 | And so you need the power of stocks.

00:57:59.240 | And so I'm continually trying to push people more into stocks and less into bonds for these

00:58:04.200 | reasons.

00:58:05.200 | So a retirement plan in a static retirement age-date fund that is systematically pushing

00:58:13.600 | people more and more into bonds is just antithetical to what I think matters.

00:58:19.480 | And then the final point is this.

00:58:21.400 | Let's say that you're successful as a financial advisor in getting someone to invest heavily

00:58:25.480 | in stocks.

00:58:26.680 | And let's say that you have enough time for those stocks to do their work.

00:58:31.120 | Let's say that you get someone into a heavy stock portfolio, say at 55 years old, and

00:58:36.720 | then at 75, they're still in a heavy stock portfolio.

00:58:39.200 | And let's assume that we've had good performance in the stock market.

00:58:42.880 | Well now, the person has far more money than they otherwise would have had if they had

00:58:48.040 | gone heavy into bonds to protect the volatility.

00:58:51.440 | And so now that they're richer, now they can actually afford to take more risk with stocks

00:58:56.000 | because they have a much bigger portfolio.

00:58:58.920 | And as long as they don't need to maximize the income from the portfolio, the money can

00:59:02.960 | grow more.

00:59:04.040 | And so now we look at it and say, "Hey, you're 75 years old."

00:59:08.240 | But I would have no fear at all.

00:59:09.960 | Let's say somebody comes and says, "I've got $10 million in a portfolio.

00:59:13.720 | I spend $100,000 a year."

00:59:15.760 | I would keep a 75-year-old, or I would at least want to keep, if it were my dad and

00:59:20.160 | he was 75 years old in that example, I would tell dad, "Dad, be all in stocks, 100% in

00:59:26.800 | stocks."

00:59:27.800 | Because now I'm thinking about what can the portfolio be worth when you croak at 100 versus

00:59:33.280 | what would happen if you went heavily into bonds.

00:59:35.000 | There's no reason for you to go heavily into bonds.

00:59:36.480 | If you've got $10 million, you need to spend $100,000 a year.

00:59:39.400 | The stocks are fine.

00:59:40.840 | And so now you're richer because you took a stock portfolio instead of a bond portfolio.

00:59:46.360 | You're now richer.

00:59:47.520 | So now you can afford to deal with more volatility even though you're older and your whole family

00:59:51.800 | can benefit from the increasing growth.

00:59:54.680 | So with the exception of somebody who needs a totally stable portfolio so they can maximize

01:00:01.200 | their income because they don't have enough money for retirement, I try to get people

01:00:05.280 | to move a portfolio more in favor of stocks versus bonds and ignore ever getting to the

01:00:11.880 | position where you've got a 60% portfolio in bonds and a 40% portfolio in stocks.

01:00:16.600 | And then I try to solve with just good, what I call financial planning, meaning make sure

01:00:21.400 | you're flexible with your expenses and make sure you have cash on hand and solve the volatility

01:00:26.760 | problem with that and then educate the person to be willing to stick through during the

01:00:30.560 | difficult times versus the bailing on the portfolio because the market went down 30%.

01:00:36.920 | So you said you were going to give me an easy question and it's not an easy question for

01:00:40.720 | those reasons, but that's why I say there's nothing wrong with a target date retirement

01:00:45.520 | fund but I don't like it.

01:00:47.960 | That's perfect.

01:00:49.800 | The airplane example is a good example.

01:00:54.840 | It's easy to understand.

01:00:56.880 | So for someone who has been investing in life cycle funds, how's the best way to go about

01:01:05.840 | transitioning out of that to get away from a large percentage in bonds?

01:01:17.960 | Well, don't do anything because a random guy on the internet tells you to do it.

01:01:21.680 | That's first of all.

01:01:23.060 | Make sure that you understand and it's for yourself because it's your money and you care

01:01:27.880 | about it more than anyone else's so you need to be more educated on it than anyone else's.

01:01:32.520 | So take what I've said and then do, you know, read a dozen books on investing and see if

01:01:39.680 | you still believe what I've said is true after you read a dozen books on investing and portfolio

01:01:44.480 | management at whatever level you wish to engage in that.

01:01:48.920 | Then if you are sure about that, what you do is you sit down and you say, "What is my

01:01:54.020 | desired portfolio at this stage in my life?"

01:01:57.600 | And you always need to build a portfolio based upon your goals.

01:02:01.080 | What are my goals for the money?

01:02:02.780 | So if this is my 20-year money, you'll have a different portfolio than my three-year money.

01:02:07.300 | So back to my example.

01:02:09.940 | If you're using a target life cycle fund as a college savings account for your 16-year

01:02:15.060 | old, that's not a wrong move.

01:02:18.300 | They do have funds for that but basically the idea is that having volatility with money

01:02:24.140 | that you definitely need to pay for your 18-year old's college, that's a good time to have

01:02:28.780 | money out of stocks.

01:02:30.340 | So there's a reason why we say don't invest money in stocks that you're going to need

01:02:33.300 | in the next five years because we can't predict the volatility in the next five years and

01:02:37.700 | if we have a 30% market drop or a 50% market drop on the college money that you need for

01:02:42.860 | your 18-year old, that doesn't work.

01:02:45.340 | So you need to apply your personal financial planning to your portfolio and put names and

01:02:51.140 | goals on your different funds.

01:02:53.780 | Then if you wind up with a portfolio and you say, "Hey, here's a million dollars over here,"

01:02:57.860 | it's currently invested in a target date retirement fund that currently has a 37% exposure to

01:03:03.700 | bonds and I think what I'd like to do is actually move to say a 90/10 portfolio.

01:03:10.300 | Then you simply sell the funds and you move it into new funds that will allow you to have

01:03:14.900 | your 90/10 portfolio split.

01:03:17.460 | Then you need to consider the tax consequences because some of these are in tax advantaged

01:03:21.340 | accounts and not.

01:03:22.940 | So you consider the tax consequences and figure out what those costs are and make sure it's

01:03:29.180 | still a smart move for you to do.

01:03:31.540 | Then usually you'll locate your bonds inside of your retirement accounts and you'll locate

01:03:35.260 | your stocks outside of your retirement accounts to the extent that you have to locate those

01:03:39.100 | assets differently.

01:03:40.700 | Excellent.

01:03:44.700 | That's great.

01:03:45.700 | That's perfect.

01:03:46.700 | Good.

01:03:47.700 | Anything else?

01:03:48.700 | Yeah.

01:03:49.700 | So my wife and I kind of have accounts spread across a handful of things.

01:03:56.900 | My 401k, my wife's 401k and then IRAs.

01:04:04.060 | Is there a good way to kind of keep track of those all together in terms of allocating

01:04:10.420 | a portfolio?

01:04:11.420 | Would you use one account for one specific part of the portfolio and another account

01:04:17.820 | for another part or would you do an even distribution of parts of the portfolio in each of those

01:04:25.140 | accounts?

01:04:26.700 | If you will put the numbers down on a piece of paper of what accounts you have, how much

01:04:32.140 | is in them and then you put your goals down of what you want to own, why you want to own

01:04:37.300 | it, and then look at them, there's probably a fairly obvious way to set it up.

01:04:42.940 | So that kind of question I can't and I'm not willing to answer in specificity here, but

01:04:48.020 | it'll probably be apparent to you once you sit down and actually just look at it.

01:04:54.740 | Having two 401ks and two Roth IRAs and two taxable accounts is probably not that big

01:05:01.900 | of a deal, especially when you're primarily owning mutual funds as you probably are in

01:05:08.860 | most of those accounts.

01:05:10.460 | So the key is if you put them down, I am slightly sidestepping your question, but if you just

01:05:17.320 | write down your goals it'll probably be obvious.

01:05:19.540 | Let me just give you one example.

01:05:21.700 | If you said, "You know what, I want to have a portfolio that is, I want to put 80% of

01:05:27.140 | my money into index stock mutual funds, I want to put 10% of my money into bond index

01:05:36.140 | funds and I want to put 10% of my money into speculative accounts where I'm going to speculate

01:05:42.060 | on single stocks and I'm going to speculate on things that I'm interested in."

01:05:48.820 | Then you look at your portfolio and you've got $300,000 at your primary 401k, you've

01:05:56.380 | got $200,000 at your secondary 401k, you've got $50,000 in a Roth IRA and you've got another

01:06:05.980 | $100,000 in a Roth IRA.

01:06:08.460 | Well the natural answer would be, and I didn't do my numbers right, I'm making this up on

01:06:13.620 | the spot, but you would say, "Okay, this $50,000 Roth IRA, this is going to be my speculative

01:06:19.220 | account.

01:06:20.220 | So I'm going to take this to a brokerage company where I can easily speculate, I can play whatever

01:06:24.060 | trades I want to play from this account and this is my play money account.

01:06:28.880 | Then we'll go ahead and put our 10% of bond allocation into our secondary 401k because

01:06:35.620 | they've got a good bond fund available to us and then the balance we'll put in stock

01:06:39.060 | mutual funds across the other three accounts."

01:06:41.560 | So if you lay out your goals of what accounts you want and why and what your goal is for

01:06:46.900 | that account and then you look at what the options are that are available to you, it

01:06:51.980 | should be obvious.

01:06:52.980 | It's obvious that you're not going to speculate in your 401k because generally you're not

01:06:59.140 | going to have access to single stocks.

01:07:01.420 | You're going to want that just to be one of your mutual fund accounts where they have

01:07:05.380 | a good fund, "Hey, here's a good index mutual fund."

01:07:08.380 | Whereas you put your speculation inside of your individual brokerage account or your

01:07:11.740 | Roth IRA with the brokerage where you can do the kinds of trades that you want.

01:07:15.780 | So just put it on paper, write out your goals, put out your macro allocation and then meaning

01:07:23.880 | I want 5% of my money in gold, I want 5% of my money in Bitcoin, I want 10% of my money

01:07:28.320 | in bonds and I want 80% of my money in stocks.

01:07:31.500 | Whatever your macro allocation is, then look at your more detailed allocation.

01:07:36.020 | If I want to do stocks, do I need to follow a more diversified plan?

01:07:40.420 | Do I want to put a total stock market index fund?

01:07:43.600 | Do I want to have a certain portion in the United States versus other countries?

01:07:47.980 | And then follow whatever goal you lay out and look at the accounts through the lens

01:07:53.340 | of your goals.

01:07:54.340 | >>Joshua: Excellent.

01:07:55.340 | That's great advice.

01:07:56.340 | Thanks, Joshua.

01:07:57.340 | I appreciate your time.

01:07:58.340 | >>Trevor: My pleasure.

01:07:59.340 | Have a wonderful day and I believe that brings us to the last phone call of today.

01:08:06.300 | I'll just give you kind of my closing discussion here.

01:08:09.820 | Obviously that same advice applies to any of us, meaning that the definition for what

01:08:18.020 | you should do with your money always is going to come down to your goals.

01:08:22.260 | Those goals need to be personal.

01:08:24.260 | So a goal of beating the market is irrelevant.

01:08:28.200 | A goal of having a certain amount of money to retire is relevant.

01:08:32.580 | And I should have said this when I was answering the question, but there are reasons to minimize

01:08:38.220 | volatility.

01:08:40.680 | So there are good reasons where someone might say, "I don't want to take any volatility

01:08:44.940 | because maybe I don't need it."

01:08:46.180 | The same person with the $10 million and the $100,000 income, that person might not have

01:08:50.960 | any desire for the money, in which case minimizing the volatility might be a useful thing.

01:08:57.020 | I don't think that a bond portfolio is by definition safer than a stock portfolio, at

01:09:01.580 | least a well-diversified stock portfolio, which is why I'm avoiding using the words

01:09:05.820 | risk and safe.

01:09:08.140 | I think it's just simply less volatile.

01:09:10.780 | And bonds have their own sets of safety risks, and so you have to be more precise and defined.

01:09:18.140 | But the key is always going to be your goals.

01:09:20.980 | And if you're wondering what to do with your money, the answer is usually, in my experience,

01:09:26.220 | clarify your goals.

01:09:27.980 | And if you'll make your goals clear, say, "This is my goal," and then put those goals

01:09:33.320 | on a piece of paper in front of you, and then look at your balance sheet, then, or your

01:09:37.820 | income statement, or whatever it is that your financial document you're looking at, then

01:09:41.660 | if you compare your goals to your money, the answer to your money question will usually

01:09:47.140 | be obvious.

01:09:48.540 | If somebody doesn't know what to do with their money, I don't spend a lot of time talking

01:09:52.380 | about what they could do.

01:09:54.060 | I try to focus on what their goals are.

01:09:56.220 | And if your goals are clear, then generally the next steps are fairly obvious.

01:10:01.420 | And that applies on the macro level, and it also applies on the specific account location

01:10:06.940 | level or type of particular assets that I want to invest in.

01:10:11.340 | So if you're wondering about something, get clear on your goals, and then go back and

01:10:15.980 | tackle your financial question.

01:10:16.980 | Thank you for listening.

01:10:17.980 | If you'd like to join me on next week's Q&A call, go to Patreon, search Radical Personal

01:10:21.060 | Finance.

01:10:22.060 | I would love to have you with me next week.

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2022-07-15_Friday_QA