Are All Bear Markets Like This?

00:00:00.000 | Welcome back to Portfolio Rescue, our show where we answer questions from you. We get

00:00:21.240 | questions all the time from podcast listeners and YouTube viewers and people who read our

00:00:24.760 | blogs and our email is askcompoundshow@gmail.com. Today's Portfolio Rescue is sponsored by Liftoff,

00:00:31.760 | which is our automated investing platform through Betterment. Duncan, are we going to

00:00:35.280 | do a video? Yeah, do you want to do the full one or the shorter one? You pick. Okay, we'll

00:00:41.880 | do the full one. Five, four, three, two, one, zero. Liftoff. Liftoff 30 minutes after the

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00:01:03.040 | one for my wife and I opened one for each of my kids and I've been getting a lot of

00:01:05.760 | emails this year from Liftoff about tax loss harvesting opportunities. See, so there's

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00:01:21.200 | Alright, John, throw up my first chart of the day here. This is just the S&P. This is

00:01:26.080 | a little stale now that the stocks have gone down more. I posted this about a week ago.

00:01:29.520 | This is just this year for the S&P 500. You can see we've had a ton of down, up, down,

00:01:34.000 | up, down, up, and all these different changes and a lot of volatility. I posted this and

00:01:38.600 | Andrew on Twitter responded with this following question. John, throw it up there. "Ben,

00:01:42.000 | any precedent for this? Or is this typical pain in a bear market? It's my first, can

00:01:46.240 | you tell?" So, this guy Andrew is living through his first bear market. And yes, there's plenty

00:01:52.360 | of precedent for this. Bear markets are painful. They're volatile. They test your discipline

00:01:56.280 | and your intestinal fortitude as a long-term investor. But here's the thing. If you're

00:02:00.160 | a young investor and this is your very first bear market, today's situation for you is

00:02:04.160 | far better than things were nine, twelve, eighteen months ago. The S&P 500 is now down

00:02:08.640 | a little more than 20%. Russell 2000, small cap stocks, is down almost 30%. The Nasdaq

00:02:13.600 | 100 is down more than 30%. Prices are on sale. And not only are prices lower, but you can

00:02:18.840 | find some yield on your cash for once. For years, the most asked question we got on Animal

00:02:23.640 | Spirits and some of our other platforms where we had email were, "What am I supposed to

00:02:28.200 | do with my cash savings? I'm earning zero yield. I want to save for a wedding. I want

00:02:31.640 | to save for a house. I want to just have my emergency fund, but I'm earning nothing in

00:02:35.000 | cash. There's no yield." Guess what? You can find some yield in your cash. One-and-two-year

00:02:38.400 | treasuries are yielding 4%. That means higher interest rates on your savings account, your

00:02:42.120 | CDs, short-term bond funds. Duncan, when I used to get my hair cut in high school, I

00:02:46.800 | went to a proper barber shop. Old school, four chairs, and lots of good conversation.

00:02:52.600 | But it was slow. And every time I went in, I'd have a scheduled time. My old barber Roger

00:02:59.520 | would say, "Hey, Ben, sorry. Service is down, but the quality's up." Every time, without

00:03:04.520 | fail. And I'd have to wait 20-30 minutes until he was done talking to someone. Great conversation.

00:03:08.840 | And then I'd sit in the corner and read a Sports Illustrated. This was before cell phones.

00:03:13.040 | I think it's similar today in the financial markets, especially for young people. Prices

00:03:17.000 | are down, but expected returns are up. Service is down, but the quality's up. If you're a

00:03:21.040 | young person in your 20s or 30s, you can expect to live through, I don't know, seven to eight

00:03:24.600 | brutal bear markets. Maybe two to three extreme, bone-crushing crashes. Maybe more, maybe less.

00:03:30.760 | But bear markets are great for people making regular contributions, because it means valuations

00:03:35.000 | are down, dividend yields are up. And this time, bond yields are up. Usually in a bear

00:03:39.240 | market, bond yields are down, because bonds typically go up when stocks go down. This

00:03:42.800 | time it's not happening that way. Listen, every bear market is unique in its own way.

00:03:46.160 | This one is different that way, because maybe rising rates are causing the stock bear market.

00:03:51.800 | But the emotions you feel during every bear market are the same, because human nature

00:03:54.960 | is the one constant. So, how do you survive these bear markets? I think especially for

00:03:58.720 | young people, it's just you have to automate. You put your contributions on autopilot, you

00:04:01.840 | rebalance periodically to make it automatic, and then each year you increase the amount

00:04:05.800 | you save. And for God's sake, don't worry about days and months in the market when you're

00:04:09.680 | in your 20s. Worry about decades, because that's your time horizon.

00:04:13.000 | Yeah, fair. That makes sense. Good advice. I recently got my hair cut, and I went to

00:04:19.280 | two places, and they were both completely full. The third one had no one in it, and

00:04:23.560 | it was a bad, bad idea. The barber was like a crazy person, but they cut my hair.

00:04:29.920 | So there's no line for a reason. Okay, that's fair. My wife finally made me, after the last

00:04:33.960 | couple of years, stop getting my hair cut at Great Clips for $9.99.

00:04:37.120 | Yeah, I mean, that's a good deal. It's a good deal.

00:04:40.560 | All right, got to save some. I'll probably double that now. All right, let's do a question

00:04:43.920 | from a viewer.

00:04:45.120 | Okay, so up first we have a question from Wes.

00:04:48.600 | In previous shows, I've heard you and Michael Batnick mention that you lease your vehicles.

00:04:53.240 | Would you be able to elaborate on when you think leasing a vehicle is most appropriate?

00:04:56.640 | Conventional financial wisdom says that cars are always viewed as liabilities, and this

00:05:01.240 | same wisdom almost frowns upon leasing a car. For context, I'm a recent college graduate

00:05:05.720 | with a great job who's moved from California to Colorado, where I'm contemplating buying

00:05:09.840 | a more expensive car that is suitable for the snow. I regularly contribute to my retirement

00:05:14.440 | accounts, but I do already have a car payment, student loans, and rent. I want to make sure

00:05:19.320 | I'm making a smart financial move if I choose to upgrade my car.

00:05:23.240 | All right, so one of the first things you need to learn as a young person, budgeting-wise,

00:05:27.240 | is fixed expenses matter way more than variable expenses. It's not your lattes and your eating

00:05:30.920 | out that matters. It's your fixed expenses. So that means, for most people, the biggest

00:05:33.760 | ones are going to be housing and transportation.

00:05:35.720 | So, John, throw up this tweet from this week from CarDealershipGuy. "New record this week.

00:05:40.760 | Percentage of consumers who finance a new car with a monthly payment over $1,000. So

00:05:44.120 | in June 2019, it was a little under 5%. Now it's fast approaching 13%. $1,000 for their

00:05:49.240 | monthly payment, which is just insane to me." And I get how it happens, because car prices

00:05:54.400 | are way up. People buy these huge SUVs and trucks.

00:05:56.560 | That's a hefty payment, yeah.

00:05:58.320 | That's huge. And that's a fixed payment. And that doesn't include things like insurance

00:06:03.360 | and gas and all these other ancillary costs that come with owning a car. And the price

00:06:08.560 | of a car, I know they've gone up in recent years, but most of the time, that's a depreciating

00:06:11.760 | asset. So, as a personal finance guy, I never thought I would've leased my automobile. But

00:06:16.520 | I did my first lease in 2015, because it was a great deal, thinking I could simply buy

00:06:20.080 | it when the contract ran up, back when there actually were good deals on cars.

00:06:24.120 | And so, I personally leased my Ford Explorer and have been leasing ever since then. And

00:06:29.680 | here's some of the reasons why I personally leased. And I think this is circumstantial.

00:06:33.080 | So my office is like four miles from my house, so I don't put a ton of mileage on the car.

00:06:37.540 | I have three kids, aged eight and under, and kids destroy the interior of a car. Peanuts

00:06:43.520 | and Cheerios and Goldfish everywhere. I would rather have the dealership take on that destruction.

00:06:51.860 | The payment is lower. Sure, I'll never go without a car payment, but it's a reasonable

00:06:54.620 | level, so I don't really mind it. I've had a lot of bad experiences with used cars over

00:07:00.060 | my lifetime. I've replaced transmissions, alternators, brake pads, brakes, tires, you

00:07:06.140 | name it, I've probably replaced it. Call me crazy, but I enjoy driving a new vehicle once

00:07:11.000 | every 36 months or so. The technology gets better. I don't think you can really beat

00:07:14.580 | the new car smell. That's kind of hard to beat. I don't know if that's worth it.

00:07:18.700 | That's worth the payment alone, right? That new car smell.

00:07:21.020 | But listen, leasing a car is certainly not for everyone. Those are my reasons. But if

00:07:23.740 | you want to run the numbers, there's this guy who emailed us in a while ago and said,

00:07:29.100 | "Hey, guy's name is Jesse Kramer. He has a blog called The Best Interest, and he wrote

00:07:33.060 | a fantastic blog post called The True Cost of Car Ownership." So he actually ran the

00:07:37.020 | numbers to figure out, if you want to figure out buy versus lease, here's the things that

00:07:41.140 | you should run the numbers on. Again, because a lot of it's circumstantial.

00:07:44.380 | First of all, it's how long you plan to drive the car and how far you drive it. He said

00:07:48.100 | depreciation is by far the biggest expense. So you can assume the car drops by 10% immediately

00:07:52.760 | driving it off the lot, and then an additional 10% each year for the next five years. Now,

00:07:58.020 | most new cars are covered for 36 months under warranty and maintenance, and after that you're

00:08:01.340 | on your own. So the cost of repairing an older car is estimated to be twice the amount for

00:08:05.100 | a new car. That's part of the reason that I lease. You also have to factor in the cost

00:08:09.780 | of fuel registration insurance. He says the average cost of owning a car is something

00:08:13.780 | in the range of $0.35 to $0.65 per mile over the life of the vehicle. So per mile driven.

00:08:19.480 | So assuming a car can last 15 years and go 200,000 miles, that would bring the cost of

00:08:23.740 | a $30,000 car to like $90,000 over the life of it, if you add everything up. Repairs,

00:08:29.260 | gas, insurance, maintenance, all this stuff. So he says that the premium for leasing is

00:08:33.820 | about 5% per mile. But you take the catastrophic thing off the table, where if you wreck the

00:08:40.260 | car and something goes really wrong, they'll take care of it. So I think the biggest things

00:08:43.540 | you have to figure out is how long do you want to drive the car for? How many miles

00:08:46.620 | a year do you drive it for? So if you're putting on 15,000, 20,000 miles a year, leasing doesn't

00:08:50.620 | make sense. If you want to trade up every few years, some people do, some people don't,

00:08:54.380 | it doesn't make sense to buy if you're going to trade up. And do you care if you have a

00:08:57.580 | car payment? Because the great thing about buying is once it's paid off, if you pay off

00:09:01.260 | in cash or just pay it off after three, four, five years of your term of your loan, then

00:09:04.940 | you don't have a car payment as long as you drive it. So I say no right or wrong answers

00:09:08.620 | here. I don't think that there is like a black and white. A lot of, like most things, it's

00:09:12.060 | pretty circumstantial. Depends on how much you want to drive it.

00:09:14.700 | Also, I was just going to mention, Jesse's often in the chat here on our very videos.

00:09:20.180 | I don't see him today. But so good Twitter follow. So go check out Jesse's stuff.

00:09:25.540 | Yeah. Sharp guy. All right. And Duncan, you should do a poll. Own versus lease in the

00:09:31.180 | thing here. I don't know how to do the polls. You do it.

00:09:33.500 | Yeah. I already did one, actually.

00:09:34.980 | Oh, you did one? Okay.

00:09:35.980 | Let me see if I can find what the result was. All right. I'll look for that. I'll look for

00:09:40.860 | that while you're talking next.

00:09:41.860 | All right. Let's do another one.

00:09:42.860 | All right. So up next, we have a question from Brandon. By the way, they just did an

00:09:45.420 | announcement that they're about to start vote testing. So we'll see.

00:09:48.300 | All right. Duncan's dealing with a fire alarm drill today. So if we hear anything in the

00:09:52.540 | background, that's why. It's always something.

00:09:55.660 | Yeah. Okay. So up next, we have a question from Brandon. I'm 24, single and have no kids.

00:10:01.100 | I'm currently hellbent on trying to buy a house with cash early in my life. I have $63,000

00:10:06.380 | in my 401(k), $21,000 in my IRA, $5,000 in crypto, and $67,000 in a brokerage account.

00:10:13.460 | I also have $130,000 in cash on the sidelines. There's cash on the sidelines. Everyone's

00:10:17.940 | always talking about. My only debt is $15,000 of student debt, and payments aren't due until

00:10:22.500 | January, and the interest rate's 4.4%. Due to my income being high and living in a fairly

00:10:28.380 | inexpensive area, buying a house with cash is very realistic in four to six months. I'm

00:10:33.980 | currently paying $950 a month in rent, and my expenses are relatively low. That being

00:10:38.180 | said, I'm conflicted. Should I stay on this path, or should I put a lot more into the

00:10:42.420 | market? My 401(k) and IRA are maxed out for the year, but at current prices, it's a solid

00:10:47.540 | buying opportunity in my brokerage account with the cash I'm sitting on. At the same

00:10:51.380 | time, the psychological satisfaction of being mortgage-free would be great, and a saved

00:10:55.400 | income in the future may fuel my retirement faster. How would you handle this?

00:10:58.820 | Lewis: Alright, this is our not-to-brag of the week, for sure. 24 years old, doing really

00:11:02.820 | well.

00:11:03.420 | Lewis: Also, imagine how much that crypto was back a year and a half ago.

00:11:06.740 | Lewis: True. Yeah, it used to be $20,000, now it's $5,000. We get a lot of housing-related

00:11:10.860 | questions here at The Compound. Paying for a house in cash is obviously rare, but it's

00:11:14.620 | certainly a question we've gotten before. The interesting thing to me here is, my advice

00:11:17.860 | now versus 9-12 months ago is totally different, because mortgage rates. So, John, throw up

00:11:22.260 | the mortgage rates. This is Mortgage News Daily, publishes these daily. So, you can

00:11:25.500 | see, as of yesterday, 30-year fixed is approaching 6.5%. You can see, but they showed the 52-week

00:11:31.860 | range there is a low of 3. So, I think a year ago, you could have gotten a 30-year mortgage

00:11:36.180 | for like 2.9%, 3%. Man, it's just brutal when you think of that. So, I think if Brandon

00:11:42.860 | would have asked this question of mortgage rates at 3%, I would have said, "He's nuts.

00:11:46.820 | Why would you pay cash when you have a 3% mortgage that is going to be eaten away by

00:11:51.740 | inflation and that's such a low hurdle rate?" Plus, you have interest deduction you can

00:11:56.140 | take off. So, now, with mortgage rates at 7%, that's a much higher hurdle rate. I think

00:12:00.460 | it actually makes more sense. So, I guess the biggest worry here would be, am I going

00:12:04.220 | to miss out on some compounding in the stock market? Now, obviously, with the mortgage,

00:12:08.340 | you know exactly what that return is going to be. No one knows what it's going to be

00:12:10.940 | in the stock market. Houses are illiquid, but if you paid it in cash, you could always

00:12:15.120 | take a mortgage out or a home equity line of credit in the future if you need to, maybe

00:12:18.600 | if rates come back down, that makes sense. And I guess the other question is, how comfortable

00:12:22.580 | are you locking up that much cash in your home? That takes your diversification down

00:12:26.300 | significantly. One of the things we talk about here a lot is regret minimization. So, maybe

00:12:32.660 | Brandon has thought about, I don't know, pay 50% in cash for the house and invest the other

00:12:38.180 | 50% and split the difference somehow. There are some benefits to paying with cash. It

00:12:42.260 | puts you in a much better bargaining position. I talked a few months ago, Duncan, how I sold

00:12:47.380 | an investment property earlier this summer. The person who bought it from us bought in

00:12:50.720 | cash. And boy, not to pat myself on the back here, but I'm pretty sure I top ticked the

00:12:54.820 | market when I sold that. But the person who bought it bought it in cash, and it was so

00:12:58.940 | much easier. There's no banks to deal with. There's no credit agencies to deal with. There's

00:13:02.460 | no back and forth on paperwork. When you pay in cash, you don't have to deal with any of

00:13:05.980 | that stuff. So, the bargaining power goes up immediately, because the other side doesn't

00:13:09.300 | have to deal as much with the bank. So, it's not as much of a headache. Obviously, having

00:13:14.060 | a house fully paid off at 24 puts you in a unique position. Brandon says he's single.

00:13:17.780 | What happens if, down the road, Brandon gets a spouse? And that spouse says, "You bought

00:13:22.280 | this house for how much? I don't like it. I want to be in a different one." Maybe Brandon

00:13:25.340 | could rent it out, and that income could help pay for the new mortgage. Or sell it at a

00:13:29.740 | profit, maybe. So, the good news is that they're in a great financial position. I think no

00:13:34.360 | matter what you do here, you're going to be fine at 24. Especially if you continue maxing

00:13:38.120 | out that 401(k) and IRA. I did a little back of the envelope here for Brandon. So, if he's

00:13:42.260 | maxing out 401(k), that's $20,500 a year right now. IRA is $6,000. Those limits will change

00:13:48.500 | over time, but let's assume they don't. Let's assume Brandon, at 24, just continues to save

00:13:52.540 | that much every year. Nothing else. So, that's $26,500, from age 24 to age 60. Let's say

00:13:59.740 | he earns 7% a year on that. What does he end up with, Duncan?

00:14:04.900 | I've got to be honest, the firearm's going off, so I wasn't following.

00:14:09.260 | Alright. That's not that loud. If he did that every year at a 7% annual return, he's going

00:14:16.540 | to have like $4 million by age 60. So, I'd say don't stress too much about this decision

00:14:20.300 | either way. You're going to be fine. Go with a more psychologically pleasing answer. But

00:14:24.380 | either way, if you keep saving, you're going to be fine. So, if you're worried about the

00:14:27.460 | stock market that much, you're 24 and you're still maxing out your retirement accounts

00:14:30.220 | and you want to pay for the house in cash, I think you're going to be fine as long as

00:14:33.060 | you keep saving. Do you think that's a common goal for people

00:14:37.540 | that young to want to buy a house in cash? I don't even think that had ever crossed my

00:14:41.220 | mind. Well, we talked about that person a few weeks

00:14:43.820 | ago emailed from Missouri and they were paying like $300 a month in rent. I think a lot of

00:14:47.300 | people here would be surprised to know that you could buy a house in cash for that much

00:14:51.500 | and there's still places that are relatively affordable. So, obviously, this is a very

00:14:57.620 | rare position. But I think with their finances so well in their mid-20s, they're probably

00:15:01.860 | going to be fine either way. Just keep saving. Yeah, I'd say so. That's not too loud, right?

00:15:10.100 | That's just them talking now. It sounds like you're at an airport.

00:15:12.580 | Yeah, yeah. Okay. So, up next, we have the following. "I took advantage of a large dip

00:15:18.820 | and just opened a position in a market favorite, NVIDIA, with the intention of holding for

00:15:23.140 | 10 to 20 years. I'm writing far out of the money calls and returning the premium less

00:15:29.540 | a portion for taxes to the position each week. As a first time options trader, this seems

00:15:35.020 | too easy. What am I missing? What's the catch? Thanks, and can we get a TCAF hoodie in black?"

00:15:40.460 | I have good news. Well, the bad news is I have no idea what you're talking about with

00:15:44.460 | options. The good news is we just added the black hoodie back to the shop. So, your wish

00:15:48.660 | is granted. We also have a forest green one.

00:15:50.660 | Hey, you know something about options. You know what OTM meant. That's the first abbreviation

00:15:54.740 | you've known about.

00:15:55.740 | Trust me, I've lost plenty of money in options.

00:15:58.740 | I said on Animal Spirits this week, I've actually never, I guess it's for a future show, I've

00:16:02.980 | never traded an option in my life for some reason. So, let's look at the textbook definition

00:16:07.340 | here. So, a call option gives the holder of that option the right but not the obligation

00:16:10.580 | to buy security at a predetermined price, right? That's if you buy the option. Now,

00:16:14.300 | if you're a seller of the option, like this person, or a writer, I don't know why they

00:16:17.660 | call it writing, it's finance-speak, I guess. You're giving the buyer the option to buy

00:16:22.060 | your shares at a predetermined price. That seems like a free lunch, right? Those calls

00:16:25.860 | far out of the money, especially with a stock like NVIDIA that's so volatile, you're probably

00:16:30.020 | going to earn some pretty good premiums. Earn that sweet premium, and it feels like you're

00:16:33.780 | paying yourself an extra dividend stream, basically.

00:16:35.940 | So, what's the downside? Well, the downside is you want to hold this stock for 10 to 20

00:16:39.580 | years. The downside is you could get taken out of these shares, right? You're obligated

00:16:42.620 | to sell those shares at the strike price, if it should hit. Now, option prices are based

00:16:48.380 | on a number of different variables, but one of the biggest variables is volatility. Generally

00:16:52.380 | speaking, the higher the volatility, the higher the price of the option. So, for you, that's

00:16:55.020 | good, because you're earning more income. But that could be bad, because the stock trades

00:16:58.620 | a lot. So, John, just throw up this chart of NVIDIA calendar year returns. This chart

00:17:03.580 | is just insane. Every single year for the past 12 years for NVIDIA, since 2012, has

00:17:08.500 | been a double-digit gain or loss. Six of the last eight years saw gains of 65% or more

00:17:14.740 | on a calendar year basis. Three of the last seven saw gains of 100% or more. And of course,

00:17:18.640 | this year it's down 55%. In 2018, it was down 31%. In 2012, it was down 11%. I guess that's

00:17:24.700 | what happens with a stock that's up so much. So, your risk is that you rate some call options,

00:17:28.980 | and the stock breaks through those levels, causing you to sell the shares. I guess you

00:17:32.340 | have to ask yourself, is the amount of income I'm earning on that worth the hassle? Does

00:17:38.120 | it, you know, tax-wise, making more purchases, wanting to keep your position at a specific

00:17:44.620 | size? So, that's the cost-benefit there. Is the income stream I'm getting really worth

00:17:49.380 | the hassle of having to go through this and potentially buy back more shares if you want

00:17:52.420 | to keep that position where it is if you're going to be a holder for 10 to 20 years?

00:17:58.340 | To me, it's just hilarious. Every time I buy an option, it moves against me immediately.

00:18:05.220 | I could probably harness that intuition and actually use it somehow to make money in the

00:18:09.260 | stock market.

00:18:10.260 | George Costanza, do the opposite.

00:18:11.260 | Yeah, exactly. Every time. Every time.

00:18:13.960 | I think for most people, trading options is kind of like gambling on sports. The great

00:18:19.800 | thing about it is, you know exactly what you're going to get. It's like a parlay, basically.

00:18:24.640 | You could put a little bit of money up, and if it's right, you earn a bunch of money.

00:18:27.700 | If it's wrong, you just lose what you put up. I think that's the way most people these

00:18:31.500 | days in retail probably look at options, whereas professionals are looking at them more as

00:18:34.960 | a risk management tool and hedging and all these sorts of things. It sounds like this

00:18:39.440 | person is actually looking at them for income.

00:18:41.260 | Yeah. No, it sounds like whatever they're doing is working so far. Hopefully, it continues

00:18:46.020 | to work for them.

00:18:48.920 | Maybe that income is helping for Nvidia shares continuing to fall and get slotted this year.

00:18:53.900 | Right, yeah.

00:18:55.280 | Next question.

00:18:56.280 | Okay, up next, we have a question from Christy. "My husband and I are 34 and 40 years old,

00:19:03.360 | healthy and planning on starting our family. We don't own a home yet, but hope to buy in

00:19:07.500 | two to three years. We have about $100,000 in assets between vehicles, retirement, and

00:19:12.380 | savings. As we start our family, should we set up a last will or a living trust estate

00:19:16.580 | plan? What do you think is better for this particular point in our lives, and why?"

00:19:21.340 | Hopefully, Christy and her husband will have a chance to buy houses at much lower prices

00:19:24.740 | if the Fed keeps raising rates. Let's bring in an estate planning expert here, Taylor

00:19:29.260 | Hollis from Red Bulls Wealth. She's been on the show before. Taylor's worked in estates.

00:19:33.900 | All right. Christy and her husband do not have a family yet, but they're looking to

00:19:38.020 | start one soon. They're getting ahead of the game here, I think. What are they thinking

00:19:42.620 | about in terms of estate planning? When do you need to start thinking about this as a

00:19:45.740 | young person?

00:19:46.740 | Yeah. I think the sooner, the better. Typically, even if you're not married, if you have any

00:19:53.360 | assets at all to your name, I think it always makes sense to have some sort of basic will

00:19:57.700 | in place just to give you control over what happens to those assets if you pass away.

00:20:04.520 | Their question in particular is asking about the difference between setting up a living

00:20:10.060 | trust or just a basic will. I think that a living trust, which is also known as a revocable

00:20:17.180 | trust, is typically, in most cases, set up for two reasons. One, if there's a privacy

00:20:23.920 | concern, and two, to avoid probate in the estate settlement court, and specifically

00:20:30.060 | if you have property in multiple states.

00:20:32.180 | Are those concerns mostly for people who have a lot of money and a lot of assets then?

00:20:37.140 | Typically, yeah. Just more complex. It's just a more complex situation. Typically, a living

00:20:43.140 | trust would make more sense. In their case, it sounds like a will can definitely accomplish

00:20:48.020 | what they need it to. The good news, a lot of people think they don't need to set up

00:20:52.820 | a will until they have kids, or until they own a home, or whatever it might be. Typically,

00:20:58.500 | attorneys can write the will in a way that covers all those future plans. It'll cover

00:21:02.900 | your future children. You can go ahead and factor all those things in now so that you're

00:21:06.940 | not having to redo it.

00:21:09.300 | What's the simplest way for people to do this if they don't have a lawyer on call or something?

00:21:12.820 | How do people even go about this these days?

00:21:17.260 | I always defer to hiring an attorney for this. You can find attorneys these days that specialize

00:21:24.420 | in these simpler cases. Most people think they don't need an attorney if they do have

00:21:29.980 | a fairly simple situation, and they're like, "Can I just go on LegalZoom and do this?"

00:21:34.900 | Technically, yes, probably you could, but just as a professional, I always prefer people

00:21:41.500 | to actually work with an attorney on it. I think it's going to be less expensive than

00:21:45.660 | people may think if they find the right person.

00:21:48.180 | Okay, that makes sense. All right, Duncan, one more question.

00:21:51.100 | Yeah, last but not least. I think the firearm's done. I think we did it. We made it. We made

00:21:55.980 | it.

00:21:56.980 | Way to go.

00:21:57.980 | The loudest part of it, I think I was on mute for, so yeah. Okay, so last but not least,

00:22:01.900 | we have a question from Jason. "I'm a 37-year-old single male with $385,000 in my retirement

00:22:09.940 | accounts, $277,000 in my current company, 401(k), and $117,000 in my rollover IRA. I

00:22:17.220 | hope to be with my current company for many years to come. They have a 401(k) match of

00:22:21.180 | 100% up to 10%." That's really good, right? Up to 10%, yeah.

00:22:25.140 | 10% is a really good match, yes.

00:22:27.160 | Really good.

00:22:28.160 | "I maxed out my 401(k) in 2021, and I'm currently doing a mega backdoor Roth conversion. I call

00:22:34.260 | it an extra $35,000 over the max over a two-year span. After some due diligence," is that

00:22:41.180 | DD?

00:22:42.180 | I think that's what it'll concern, yep.

00:22:43.180 | "After some due diligence on my rollover IRA, it has underperformed by roughly 7% compared

00:22:49.620 | to the S&P, and I'm paying professional fees of about $1,000 a year to Fidelity. I'm thinking

00:22:55.020 | I should take control and throw it all in a low-cost S&P fund and call it a day, or

00:22:59.460 | considering I can only contribute $6,000 a year into this and will be contributing much

00:23:03.580 | more in my 401(k), I could be more aggressive. Perhaps a mixture of S&P and also mid- and

00:23:08.660 | small-cap exposure. Would love your insights."

00:23:10.860 | A lot going on here. Now, sometimes we have to shorten these questions. This person also

00:23:14.020 | did ask, just generally, "How am I doing for retirement here?" Because they gave us a lot

00:23:18.980 | of information. And I think, "How am I doing?" is pretty much the only question that matters

00:23:22.740 | for the majority of people who are saving, if you're not uber-wealthy, if you don't have

00:23:25.820 | a ton of money, just FU money. I think a lot of people want to know just how they're doing.

00:23:30.220 | I think Jason is doing pretty good for the amount of money they saved, and they're by

00:23:34.040 | themselves, and they're getting this huge max. So, the question is, it sounds like they're

00:23:39.740 | on the right path, but they're just unsure. I think that happens to a lot of people, Taylor.

00:23:44.060 | Because there's so many options out there, I could be using Advisor, I could be having

00:23:47.580 | a different asset allocation, I could be using different funds. I think for a lot of people

00:23:51.180 | it's tempting to always think, "There's got to be more out there. What am I not doing?

00:23:55.100 | What could I be doing differently?" So, how do you help someone sort through all this

00:23:57.500 | stuff when they have six figures saved, it sounds like a pretty good plan, they're a

00:24:02.540 | pretty good saver, but then they need to take that extra step to make sure, "Is everything

00:24:06.300 | I'm doing, am I going to be okay?"

00:24:08.340 | Right, right. Yep. Very common question. A lot of FOMO, I think, baked into that for

00:24:13.140 | sure. He might not like this answer, but my first response to his question is, "What are

00:24:20.620 | your goals? You're young, you're an aggressive saver, you have a good pool of assets built

00:24:25.060 | up. Are you trying to retire early? Are you trying to be able to start your own business?

00:24:30.580 | What's the end goal?" And then let's work backwards from there, both in terms of your

00:24:35.380 | saving, which obviously you're doing a great job of, but especially your asset allocation

00:24:39.860 | in the investment plan. And I think that taking a holistic approach obviously makes a lot

00:24:45.660 | of sense. I think there's some mental accounting happening here. He mentioned, "Should my

00:24:50.140 | rollover IRA be more aggressive because it's smaller and I'm putting less into it?" To

00:24:56.740 | me, that doesn't necessarily matter and it should be viewed altogether. I think if anything,

00:25:02.620 | your Roth component that you're building up through these mega backdoor contributions

00:25:06.860 | should be your most aggressive because you're theoretically never have to take money out

00:25:11.600 | of that. So in just a basic sense, we typically like to see the Roth as the more aggressive

00:25:16.700 | bucket. And then my next question in terms of his concerns on performance would be, "Well,

00:25:21.860 | what was it invested in that caused it to underperform?" But again, I think coming back

00:25:25.900 | to what your end goal is, what you're trying to accomplish is going to help you set an

00:25:30.660 | appropriate benchmark for yourself instead of just the market.

00:25:35.400 | I feel like mega backdoor Roth is kind of like the sizes at Starbucks. Can we just call

00:25:40.320 | it a large Roth conversion? It's like a Venti. This is like a Venti Roth IRA. I don't know.

00:25:47.200 | Someone did some good branding on that strategy.

00:25:49.500 | Yes. It sounds like you're doing a lot with your money.

00:25:52.420 | Sounds like Transformers.

00:25:53.900 | So he said that he's paying an advisor to help him and he's underperforming. And I think

00:25:57.940 | maybe the question for that advisor is not, "Why am I underperforming?" It could just

00:26:02.460 | be because maybe they're invested in international funds and international funds are doing worse

00:26:05.900 | than the S&P. It's, "Can you help me put together an asset allocation that I can live with,

00:26:12.660 | that I won't question all the time?" So maybe that's the question. If that advisor can't

00:26:16.380 | do it for you, maybe you have to find a new one or come up with something on your own.

00:26:19.100 | But that's the thing for most people. There is no such thing as a perfect asset allocation.

00:26:23.340 | It's, "What's the asset allocation that I can stick with that I'm not going to tinker

00:26:27.020 | with, I'm not going to leave it alone?" I think the old saying, William Bernstein said

00:26:30.740 | it, "Asset allocation is like a piece of soap. The more you use it and fondle it and

00:26:35.340 | touch it, the smaller it's going to get." That's the same thing with your portfolio.

00:26:38.300 | Sorry, I didn't mean to use the word "fondle." But I think we talked last week, too, for

00:26:47.100 | younger people in their 30s, if this person doesn't have a really complicated situation,

00:26:51.500 | maybe they don't even need an advisor, as long as they can figure out an allocation.

00:26:54.620 | And the other thing is, maybe you go backwards and go to a target date fund and let someone

00:26:58.460 | else handle that for you, and you don't have to think about it anymore.

00:27:01.100 | Right. I think it sounds like he's doing all the right things. He's doing the things

00:27:04.940 | he's in control of, and that's saving a lot of money. Again, determine what the purpose

00:27:10.860 | is, what the goal is. Because with all of his savings, it sounds to me like maybe he

00:27:14.700 | wants to retire early.

00:27:15.740 | Yeah, and that's the question in terms of, "How am I doing?" You're right. Focusing

00:27:20.300 | on what you can control in saving, for most people, that's the biggest piece. Right

00:27:24.220 | now, we can't control the Fed, we can't control interest rates, we can't control

00:27:27.420 | the stock market, and all that stuff is completely out of our control. Tax rates, none of that.

00:27:31.740 | But if you can actually increase your savings in a time like this, that's pretty good.

00:27:36.220 | So I think, as far as I'm concerned, they're doing pretty good.

00:27:39.020 | I was laughing because Toby in the chat said, "I hope this guy finds a way to make ends

00:27:43.180 | meet."

00:27:44.180 | (laughs)

00:27:45.180 | Everyone has their cross to bear here. Listen, we get a wide range of questions from people,

00:27:52.860 | and I know it is easy to judge people, but listen, we have people who have --

00:27:58.580 | Jason will laugh at that. He'll find that funny.

00:28:00.860 | Yes. But we have people who have 10 figures in assets, and they constantly check their

00:28:06.220 | portfolio and they're worried about it. And one of the things that I say is, if you're

00:28:09.420 | still worried about your money, you're probably not wealthy in that sense. So I think for

00:28:14.540 | a lot of people, it's not the numbers so much that make sense, it's how they feel

00:28:18.260 | relative to their circumstances and all these things, and it's tough. So anyway. I think

00:28:23.540 | everyone on the questions today is doing a good job, right?

00:28:26.100 | Yes. No, we had some great ones. Keep them coming. And now that we're not doing viewer

00:28:29.860 | topics on what are your thoughts, we've made Portfolio Rescue that much more valuable.

00:28:34.360 | This is the place you come to have your questions answered.

00:28:36.780 | It's a premium show, Duncan.

00:28:38.420 | Yes. We're a premium show now.

00:28:40.140 | All right. I want to thank Taylor Hollis again for joining us.

00:28:42.660 | Thanks, Taylor.

00:28:43.660 | From Nashville, Tennessee. We appreciate that. Thanks to everyone who was watching live in

00:28:47.460 | the chat. We appreciate you all. If you have a podcast for him, leave us a review. If you're

00:28:51.180 | on YouTube, leave us a comment, a question in the comment section. If you want some compound

00:28:55.940 | work, Duncan just said, breaking news, a new Compound & Friends sweatshirt, black sweatshirt,

00:29:01.380 | now available.

00:29:02.380 | It's yeah, it's the same sweatshirt design. But yeah, we now have it. We had it in white

00:29:05.980 | for the summer. Now it's black and we have a forest green one. Very cool.

00:29:09.180 | All right. And we'll have a new Compound & Friends tomorrow. Is that right?

00:29:13.260 | Right. We're doing it live from Market Watch's festival today. And so it's going to be basically

00:29:16.940 | the program feed from that.

00:29:19.340 | Lots of live shows lately. Remember, if you have a question, email us askthecompoundshow@gmail.com

00:29:23.780 | and we will see you next week.

00:29:24.780 | See everyone.

00:29:25.780 | [Music]

00:29:45.780 | you

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