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00:01:34.640 | Hello, and welcome to another episode of All The Hacks, a show about upgrading

00:01:41.960 | your life, money, and travel.

00:01:43.640 | I'm Chris Hutchins, and I'm excited to have you here.

00:01:46.240 | Now, it probably won't surprise you to learn that one of the reasons I started a

00:01:49.800 | podcast is that I really enjoy listening to podcasts myself.

00:01:52.920 | And while I follow a lot of them, there's only a few I listen to every week.

00:01:57.120 | One of those is a podcast called Animal Spirits, which as they say, is a show

00:02:00.720 | about markets, life, and investing.

00:02:02.360 | And today, I'm chatting with one of the hosts of that show, Ben Carlson.

00:02:06.040 | Ben is a financial advisor and the Director of Institutional Asset Management

00:02:10.000 | at Ritholtz Wealth Management.

00:02:11.560 | He's also the author of four books about saving, investing, and money, the first of

00:02:15.560 | which shares a name with the blog he's been writing since 2013, A Wealth of

00:02:19.360 | Common Sense.

00:02:20.160 | Ben's one of my go-tos for questions about investing and personal finance, and I'm

00:02:24.280 | excited to have him here to chat about markets in 2022, inflation, interest rates,

00:02:29.960 | recessions, alternative assets, stock investing, and his favorite ways to hack

00:02:34.680 | and simplify your finances and investments.

00:02:36.920 | That is a lot to cover, so let's jump in.

00:02:39.720 | Chris Hutchins works at Wealthfront.

00:02:41.720 | All opinions expressed by Chris and his guests are solely their own opinions and

00:02:45.800 | do not reflect the opinion of Wealthfront.

00:02:47.680 | This podcast is for informational purposes only and should not be relied upon for

00:02:51.880 | investment decisions.

00:02:52.840 | Ben, thanks for being here.

00:02:55.800 | Hey, Chris.

00:02:56.800 | Nice to be here.

00:02:57.800 | Yeah.

00:02:58.800 | So I'm just going to kick off.

00:02:59.800 | I listened to your podcast this morning and you said, "I'm done picking stocks."

00:03:03.440 | (laughs)

00:03:04.440 | What changed?

00:03:05.440 | (laughs)

00:03:06.440 | My returns, maybe?

00:03:07.440 | I don't know.

00:03:08.440 | (laughs)

00:03:09.440 | I've had a love-hate relationship with picking stocks.

00:03:10.440 | For some reason, I've always been a simple index fund, target fund investor, for the

00:03:15.440 | most part.

00:03:16.440 | My very first purchase in the stock market was a target date fund.

00:03:19.200 | My dad helped me set up an IRA right out of college.

00:03:22.120 | And I've just dabbled here and there.

00:03:23.760 | And I go on and off.

00:03:24.760 | I go on these streaks.

00:03:25.760 | Then in 2020, when things were just getting crushed, I thought, "Why not wade back into

00:03:28.640 | it?"

00:03:29.640 | It was really fun.

00:03:30.640 | I had a Robinhood account.

00:03:31.640 | I bought a bunch of stocks.

00:03:32.640 | Everyone's stocks were going up that year.

00:03:35.720 | And I'm buying the things most people are, right?

00:03:37.400 | I have a little crypto.

00:03:38.400 | I have some growth stocks.

00:03:40.640 | And that was really fun.

00:03:41.640 | And things are going high.

00:03:42.640 | And then I have this other part of my portfolio that's just working on automatic and it's

00:03:46.120 | a boring and all this other stuff.

00:03:47.520 | So it was a way to scratch an itch.

00:03:49.800 | And then 2021 and 2022 happened.

00:03:52.280 | And all these growth stocks that I bought because it was fun are getting killed.

00:03:56.160 | And it's just a good reminder of just how hard it is.

00:03:58.540 | Because I talked on our show today, I had this thesis.

00:04:01.240 | And I've been thinking for a while.

00:04:02.360 | I think I said in 2017, "Eventually, millennials are going to grow up like everyone else.

00:04:06.240 | And they're going to buy houses.

00:04:07.920 | And we're not building enough houses right now.

00:04:09.360 | So I think housing is going to be strong."

00:04:11.600 | And I didn't think it was going to be nearly as strong as it is.

00:04:13.640 | But I've had this thesis.

00:04:15.160 | And I see last year, Zillow is down 50%.

00:04:17.160 | And I think, "Geez, this is a company that was just on SNL.

00:04:20.760 | It's really popular.

00:04:21.760 | It's the biggest brand name in the United States as far as housing goes.

00:04:24.760 | Everyone likes to play around on Zillow.

00:04:26.360 | Why don't I pick up some shares on the cheap?"

00:04:27.860 | And then from those 50% down levels, it's fallen another 50%.

00:04:32.360 | And I guess maybe it's a good reminder to me that just how hard it is to pick stocks.

00:04:37.440 | And that's why I'm just like, "You know what?

00:04:39.240 | I know some people find a lot of joy in it and entertainment.

00:04:42.080 | And some people are very good at it."

00:04:43.920 | For me, there's just so many first, second, third, fourth level thinking that you have

00:04:48.240 | to do to get it right.

00:04:49.240 | So even if you're right on the macro stuff, you could be completely wrong about a company

00:04:52.640 | or a company can just not fulfill its promises and expectations.

00:04:56.200 | And it's just easier for me to do a lot of other stuff than pick stocks.

00:04:59.040 | I have had similar bets.

00:05:00.880 | The bet I regretted for all of 2021 was... Or maybe it was even 2020 was "Gosh, I didn't

00:05:05.760 | buy Peloton.

00:05:06.840 | I love my Peloton.

00:05:07.840 | I should have bought it.

00:05:08.840 | I watch it rise and rise and rise."

00:05:10.760 | And then it was just down and down and down.

00:05:12.800 | So fortunately, I never bought it and I didn't lose as much as I probably could have.

00:05:17.560 | But every time it was down, I thought it was another time to buy and it just kept going

00:05:20.960 | down.

00:05:21.960 | And for every one of those that you kick yourself for, "Oh, this was so obvious.

00:05:24.960 | Why didn't I see it?"

00:05:26.200 | There's 10 other examples of ones that you probably would have bought and just did terrible.

00:05:30.760 | And I think the market especially has just shown these last 4 or 5 years how difficult

00:05:35.560 | it really is to beat.

00:05:36.840 | And maybe some people don't do it with their eye on "Well, I'm going to outperform the

00:05:39.400 | market.

00:05:40.400 | I'm going to have this alpha."

00:05:41.400 | And that wasn't my thing either.

00:05:42.400 | I have this, what I call a fun portfolio.

00:05:44.960 | It's 5% or 10% of my investable assets.

00:05:47.880 | And I do it just to follow some stocks and trends that I think are interesting.

00:05:51.840 | But even that, I think there's enough ways to scratch an itch that you want to have an

00:05:56.480 | entertaining portion of your portfolio.

00:05:58.640 | There's other ways to do it these days where for me, it doesn't involve stock picking.

00:06:01.640 | And I already have these other investments in the stock market using low-cost index funds

00:06:05.560 | that can get the job done anyway.

00:06:07.360 | So what are those things?

00:06:08.520 | If you're not going to scratch the itch with stocks, I agree.

00:06:11.480 | Most of my assets are in long-term diverse portfolio of index funds and it's boring.

00:06:15.680 | The best I get is a push notification that's like, "Oh, we did some tax loss harvesting."

00:06:19.520 | I'm like, "Oh, cool."

00:06:20.520 | But that's kind of it.

00:06:21.520 | How do you scratch the itch now?

00:06:22.680 | So I'm probably going to leave my Robinhood portfolio.

00:06:25.080 | So I own some crypto.

00:06:26.560 | I've dabbled in art from a place like Masterworks.

00:06:29.460 | And Fundrise allows you to invest in real estate, direct real estate on a private basis.

00:06:34.600 | I've started getting into startups in the last 12 months, which sounds like everyone

00:06:38.360 | is doing.

00:06:39.360 | I don't think any of these things I'm getting into are unique by any means.

00:06:42.000 | So I have some of this other stuff that I'm doing.

00:06:44.700 | And I get to talk about it all the time.

00:06:45.700 | You mentioned my podcast.

00:06:46.700 | I talk about this stuff on a weekly basis.

00:06:49.760 | And for me, that's almost as fun as investing in it.

00:06:52.000 | It's just talking about it and so I just don't think I need it anymore.

00:06:56.600 | And I think there's a lot of time and effort you have to put into this stuff if you're

00:06:59.080 | really going to be good at it.

00:07:00.080 | Because it seemed like in 2020, you could just buy a stock that you knew, a company

00:07:04.480 | that you knew, or a brand that you liked, and that was easy enough.

00:07:07.600 | But you have people out there who are really putting in the work and they have a hard time

00:07:11.160 | beating the stock market.

00:07:12.160 | They have these PhDs and quants and people who went to Ivy League schools that just are

00:07:15.840 | really, really smart.

00:07:16.840 | And they have a hard time outperforming the market.

00:07:18.400 | So I think for me, I'll probably eat these words someday and come back to it, I'm sure.

00:07:22.760 | But for now, I have enough other stuff going on in my life.

00:07:25.400 | It's almost like I hear people talk about fantasy football.

00:07:27.880 | And they're always like, "Why do I do this?

00:07:29.520 | All it is is pain, and time consuming, and I never get anything out of it.

00:07:33.320 | And if I win, who cares?

00:07:34.840 | And if I lose, I just feel like a jerk and it's not that fun."

00:07:37.640 | So to me, it's kind of like that, where it's like the risk/reward is not tilted in my favor.

00:07:45.120 | And it's like, "Why even do it then?"

00:07:47.180 | It's funny.

00:07:48.180 | With fantasy football, it was one of those things where I would get so into it.

00:07:51.640 | And the prize at the end of the day for our league was like $500.

00:07:54.360 | And I was like, "Man, the hours I've spent..."

00:07:57.560 | And finally, I think I do miss that fun aspect of the banter around it.

00:08:02.680 | And I wish I could bring that back.

00:08:04.360 | But for me, it was just hard to play it casually.

00:08:06.800 | So when I started a company, I was like, "I'm out.

00:08:08.880 | I don't have the time for this.

00:08:09.960 | If I do it, it's going to occupy so much headspace."

00:08:12.680 | But one of the things you said that's interesting is about some of these alternatives.

00:08:15.400 | A thing that I take away from all of this access is that a lot of these new alternatives,

00:08:19.960 | whether it's wine or art or real estate, they're still like long-term portfolio-driven bets,

00:08:26.080 | whereas stocks often feel like a short-term single bet.

00:08:30.240 | And so you get this marriage of the excitement, but something a little more similar to a long-term

00:08:36.360 | strategy, which I think has made me more interested in that.

00:08:39.440 | So instead of picking stocks in the last 2 years, I've gone in, I've picked some art

00:08:43.520 | or I've picked some startups or stuff like that, just with a small piece of the portfolio,

00:08:48.320 | but still making portfolio bets, which I think, in my opinion, is a little bit less risk and

00:08:53.280 | more diversified, but of things that are more exciting than just the entire market.

00:08:58.280 | And I think at this stage of my life where I've been doing this for a while now, I don't

00:09:01.840 | need to see those marks every day to make me fulfilled and see the scoreboard and I'm

00:09:06.400 | winning or losing.

00:09:07.840 | Sports gambling online is legal now in Michigan.

00:09:09.840 | So I've been doing that for the last year, just very little amounts and it's just entertaining.

00:09:14.160 | And at least that's the kind of thing where you either win or lose after the outcome.

00:09:18.940 | You don't have to wait and see.

00:09:20.200 | Like in the stock market, if you pick up that stock, you can get killed every day.

00:09:23.720 | That scoreboard is just staring you in the face every day.

00:09:25.920 | So I like having this stuff that maybe is not quite as liquid, but you also don't see

00:09:32.400 | the fluctuations every day.

00:09:33.480 | And that's why owning a house is often the best financial asset for so many people, even

00:09:37.160 | though if you compare the returns of the stock market over time, maybe it's not the greatest

00:09:40.480 | investment in the world, but because it's like a forced savings vehicle and you're forced

00:09:44.280 | to hold it, and every day someone's not coming to you and saying, "This is the value now."

00:09:47.920 | No, this is the value now.

00:09:50.560 | It makes you a longer term investor.

00:09:51.960 | And that stuff has been way more helpful to me, just having a long-term mindset.

00:09:55.720 | And I think looking at individual stocks every day and how they move by 5% or 10% is not

00:10:00.200 | really helpful.

00:10:01.200 | I think Andy Ratcliffe, the founder of Wealthfront, came on the podcast and said, "Look, if having

00:10:05.440 | a small amount of money in something exciting is what lets you leave a huge amount of money

00:10:09.760 | or the vast majority of your portfolio in something tried and true, like a diverse passive

00:10:14.400 | set of index funds, then great.

00:10:16.680 | It's the price you're going to pay for the 95% of your portfolio being in the thing you

00:10:21.080 | really want."

00:10:22.080 | It's probably better.

00:10:23.080 | But at the end of the day, it's unlikely that you will consistently outperform because people

00:10:28.320 | that do this for a living are not consistently outperforming.

00:10:31.440 | And we tell this to our clients, too.

00:10:33.200 | It's good to have that behavioral resale for that part to say, "I'm actually doing something.

00:10:36.800 | I feel like my hands are on the steering wheel and this other stuff that's more automated

00:10:40.020 | and rules-based and boring and taken care of.

00:10:42.400 | This allows me to do something."

00:10:43.400 | And I also think it's a good comparison because you can say, "This really is hard."

00:10:47.480 | But doing it on a consistent basis, I can see that just having a smaller piece of my

00:10:51.360 | portfolio, I'm not going to wreck everything.

00:10:53.120 | So I think there's something to that.

00:10:54.480 | A question I have.

00:10:55.480 | So stocks used to be the fun thing, but they're actually a component of most people's long-term

00:11:00.320 | passive portfolio as well.

00:11:02.320 | A lot of these new alternatives, I'm curious, you've thought about this both from an institutional

00:11:07.240 | standpoint and with clients at the firm, how do you think about some of these alternatives

00:11:12.760 | fitting into that longer-term portfolio as well?

00:11:15.440 | Whether that's crypto or real estate or art or wine or things like that, they can be fun.

00:11:21.520 | But are they also a part of a long-term diverse strategy?

00:11:25.520 | Here's how I've dealt with it personally.

00:11:29.160 | I want the rest of my financial house in order before I ever even talk about alternatives.

00:11:33.320 | So I'm maxing out my 401k.

00:11:35.800 | I have a SEP IRA that I'm putting money into.

00:11:38.500 | My kid's 529.

00:11:39.680 | I have that emergency fund, all that stuff.

00:11:41.520 | So all of that boring stuff is taken care of.

00:11:44.140 | And then after that's taken care of, then I move on to alternatives.

00:11:46.960 | Now, obviously, maybe not everyone gets to that point where they're maxing everything

00:11:49.600 | out depending on their means or whatever, their income.

00:11:52.300 | But I think that's the idea is make sure you have everything else shored up first and then

00:11:56.120 | figure out how this stuff can fit within your portfolio.

00:11:58.480 | I know a lot of these platforms, say we're democratizing investing, we're making it easy

00:12:01.920 | and they have low minimums and all this stuff.

00:12:04.240 | And it's great to have access to this stuff.

00:12:05.440 | But I think that you have to have these other building blocks in place before you ever even

00:12:08.920 | consider some of this stuff, especially if you really don't know what you're doing and

00:12:12.200 | don't understand how some of this stuff works.

00:12:14.360 | And would you put things like crypto in that bucket as well?

00:12:16.880 | Probably.

00:12:17.880 | I know a lot of young people probably think it would be nuts to say that because they

00:12:21.120 | want to put a lot of their assets in that.

00:12:23.480 | But I do think it makes sense to have that stuff, especially since it's so speculative

00:12:27.480 | and moves around so much and so volatile.

00:12:30.040 | Having some of these things in your life that aren't going to move as much and just be like

00:12:34.240 | the building blocks that you don't have to worry as much about and then have fun.

00:12:37.760 | Again, for me, it's 5% or 10% of the portfolio for my fun brokerage account or whatever.

00:12:42.960 | But for other people, that may be a different number.

00:12:45.520 | So I think you have to figure out what you're comfortable with.

00:12:47.760 | But I think you have to have some sort of level or ceiling on these things so it doesn't

00:12:51.840 | totally get out of control.

00:12:53.520 | And either when it goes down, you're going to be in the pits of despair and try to freak

00:12:57.760 | out and "What am I going to do?"

00:12:59.600 | Or if it gets too high, then you go, "Well, now what do I do?

00:13:01.680 | It's 50% of my portfolio."

00:13:03.080 | If you don't have some sort of line in the sand or reasoning ahead of time, it's going

00:13:08.200 | to be hard to figure out what to do with it when it gets to either too low or too high.

00:13:11.440 | That's where I think software that can take care of that is helpful.

00:13:15.160 | Obviously, I work at Wealthfront.

00:13:16.160 | I love that if something goes too high, I don't have to think about it because man,

00:13:19.880 | I was in that situation with crypto.

00:13:22.480 | It's higher percentage of my portfolio than I want.

00:13:25.040 | And now I'm like, "But I don't want to sell it."

00:13:27.040 | Even though I know I should.

00:13:28.400 | It's like coming to that conviction is really hard.

00:13:31.280 | Any advice to people who have ideas of what they want to do, but struggle to actually

00:13:35.800 | put them into place?

00:13:36.800 | Unfortunately, that's why you have to have some of these things in advance.

00:13:40.040 | I use this example in my book, they actually did a study of prison inmates.

00:13:45.160 | And they found, surprisingly, even though they don't have as much access to food, and

00:13:49.440 | they get all this time probably to work out if they want to, like from the movies and

00:13:52.480 | TV shows that you think, "Oh, everyone at prison is just getting ripped and working

00:13:55.040 | out all the time."

00:13:56.040 | They actually found these 100 inmates they studied, 90% of them actually gained weight

00:14:01.080 | being in prison.

00:14:02.320 | And they tried to figure out, "Well, why is this?"

00:14:05.000 | And what they found was they were those big jumpsuits, and there's no belt or anything

00:14:10.400 | around the waist, and they had nothing to restrict them and let them know or give them

00:14:14.240 | some sort of like, "What's happening to my body?"

00:14:17.920 | They had no idea.

00:14:19.040 | So and some of these people were surprised, "I can't believe I gained 15 pounds in prison.

00:14:22.640 | I thought this is going to be a chance for me to work out and lose weight."

00:14:24.920 | And it's because they had no restrictor there to let them know that things were getting

00:14:28.740 | out of control.

00:14:29.900 | So I think you have to go into it with these investments thinking...

00:14:32.800 | So let's say you bought Bitcoin back in the day and you said, "Okay, I have two options.

00:14:37.720 | I can let this be a buy and hold forever.

00:14:40.600 | And whatever percentage of my portfolio it goes to, that's what it's going to be.

00:14:43.480 | I'm just going to let it run and it's going to be its own little bucket."

00:14:46.440 | Or you could say, "All right, I'm going to do the portfolio management thing here.

00:14:50.440 | And every time it gets to 10% of my portfolio, I'm trimming.

00:14:52.800 | And every time it gets to five, I'm adding."

00:14:55.080 | And so I think you have to go into it with that.

00:14:56.900 | Because if you try to do it after the fact, if it's grown to 15% or 20% or 30%, at that

00:15:02.300 | point you're going, "I don't know what to do.

00:15:05.060 | Because what if it keeps growing and getting bigger?

00:15:07.340 | And what if I sell now and I feel like an idiot?"

00:15:09.980 | Because the whole process of investing is this premise of regret minimization.

00:15:13.680 | What would I regret more?

00:15:15.520 | It goes to 50% but I sold early or it falls and it goes back to 5% of my portfolio and

00:15:21.000 | I never sold anything.

00:15:22.240 | Which one would be more painful to you?

00:15:23.720 | And some people...

00:15:25.000 | It's personality driven.

00:15:26.000 | But for some people, it really...

00:15:27.400 | Who knows?

00:15:28.400 | It depends what affects you more.

00:15:29.400 | So for you, what would it be?

00:15:30.400 | Would you be more worried if all your crypto crashed 90% and now it's so small and you

00:15:36.200 | go, "Oh man, I never rebalanced once."

00:15:37.720 | Or if it kept going up and you sold a little and you actually locked in some gains?

00:15:41.320 | For me, it's funny.

00:15:42.320 | Living in Silicon Valley, I think so many people are participating in this new asset

00:15:47.740 | class that if everyone...

00:15:49.560 | For me, if everyone else sees it go to the moon, as we say, and I was just on the sidelines,

00:15:55.160 | I would feel bad.

00:15:56.160 | So for me, I put a small amount of my portfolio in this.

00:15:59.360 | Yes, it's grown a lot.

00:16:00.520 | I'm holding it.

00:16:01.520 | I keep saying forever, but I'm in the buy and hold camp for what I did.

00:16:05.520 | And yes, it's a higher percentage of the portfolio.

00:16:07.920 | But when it went in, it was just almost an insignificant amount.

00:16:11.540 | To be honest, I'm with you.

00:16:13.040 | I bought a very small amount in 2017 because like you, I wasn't a true believer in crypto.

00:16:18.400 | But I said, "I can see what's coming and I've studied human nature and behavior.

00:16:22.840 | And if this thing gets so big, and all these tech people are saying this stuff, and I miss

00:16:28.200 | out, I'm going to kick myself."

00:16:30.440 | So I put some money in.

00:16:31.440 | And I said at the time, "I'm buying and holding this forever."

00:16:34.600 | Whatever forever could change, I guess, someday.

00:16:36.880 | But I'm basically...

00:16:37.880 | I'm not going to trim it.

00:16:38.880 | I'm not going to...

00:16:39.880 | I'm going to let this thing go.

00:16:40.880 | And it's going to be its own entity.

00:16:42.160 | But then the rest of my portfolio, I have these bans around allocations and weights

00:16:45.760 | and rebalancing and all this stuff.

00:16:46.840 | But I think you have to have that discussion with yourself ahead of time.

00:16:50.400 | Because if you're doing it after the fact, your judgment is gonna be so clouded by whatever

00:16:54.120 | the price is.

00:16:55.120 | Yeah.

00:16:56.120 | I think that's the...

00:16:57.120 | My big takeaway is whatever your plan is, just come up with an idea of what you want

00:17:01.160 | to do when you put it in place.

00:17:02.520 | If you put a portfolio in and say, "I want to rebalance this," say, "Here's what I'm

00:17:06.240 | going to do it."

00:17:07.240 | Because it's way harder to make those decisions after the fact.

00:17:10.080 | I always tell people like even a bad plan is better than no plan at all.

00:17:13.400 | Because at least a bad plan has some sort of guidelines and gives you some sense of

00:17:17.840 | what to do.

00:17:18.840 | And it's like winging it, which I know a lot of people are when they first get started.

00:17:23.220 | And that makes it 10 times scarier when something goes down.

00:17:25.600 | Because if you don't have a plan for planning in advance that my stocks or my crypto or

00:17:30.160 | whatever is going to get killed, if you're just hoping it's not going to, eventually,

00:17:33.280 | you're going to be wrong.

00:17:34.280 | It's not going to work out for you.

00:17:35.280 | I know you've spent a lot of time on the institutional side.

00:17:38.140 | And institutional funds, especially things like endowments, they're the golden example

00:17:43.160 | of how to invest.

00:17:44.640 | Are there lessons that you've taken away from how institutions invest that would be

00:17:49.920 | great for people to adopt or maybe some that shouldn't even apply that would be helpful

00:17:54.960 | to hear?

00:17:55.960 | It's funny.

00:17:56.960 | I like to look at the difference between institutions and individuals from the lens of mistakes.

00:18:01.640 | And so most individual mistakes come from being naive and not understanding enough before

00:18:08.400 | they invest in something, again, and not having a plan.

00:18:10.720 | You can't say that about institutional investors like endowments and foundations I've worked

00:18:13.600 | with.

00:18:14.600 | They have boards and committees, and they have everything documented.

00:18:19.000 | And they pretty much have all that stuff in place.

00:18:20.880 | They have these plans.

00:18:22.440 | Their problem is that they're all so smart that they get overconfident in their abilities.

00:18:26.960 | And they think that they're just they're going to outthink and outsmart everyone.

00:18:29.760 | And so it's like different ends of the mistake curve or whatever, where the really smart

00:18:34.300 | people who have all this money, just assume that because they're so intelligent, they

00:18:38.420 | have so many resources that outperforming should be easy for them.

00:18:41.200 | And then the other end, you have the naive individuals who haven't thought through this

00:18:44.160 | stuff and don't know how hard it is yet because they haven't experienced it or paid the market

00:18:47.680 | gods their tuition.

00:18:49.240 | They don't understand that, "Oh, yeah, wait, this is really hard to do."

00:18:51.920 | So that's the way that I look at it.

00:18:53.880 | As far as learning for institutions, I always tell people, it's just a few more zeros that

00:18:57.800 | they have.

00:18:58.800 | I've worked with a billion dollar foundations before.

00:19:01.080 | And I don't think that you can really throw out the basic building blocks of having some

00:19:05.440 | sort of investment policy in place and having an asset allocation.

00:19:08.460 | And I know this stuff is so boring to most people.

00:19:11.560 | But that's the thing where the difference between managing a billion dollars for an

00:19:15.640 | endowment and a million dollars for a family is just a few zeros, as far as investment

00:19:21.200 | policy goes.

00:19:22.200 | They still have to pay attention to the risk profile and time horizon and understand an

00:19:25.880 | asset allocation that suits their needs and their ability to take risk and all this stuff.

00:19:29.680 | So it seems like there should be this one path for these institutions because they're

00:19:34.840 | so big and have so many resources, and then something else for the little guy.

00:19:37.860 | But I don't think it has to be that way.

00:19:39.440 | And that's honestly, one of the reasons that I was banging my head against the wall when

00:19:43.560 | I worked in that field.

00:19:45.160 | Because I wanted those big institutions to simplify the way that they invested.

00:19:50.760 | And a lot of them wanted to make it way more complex than I thought it had to be.

00:19:54.700 | So I want to ask a question on asset allocation.

00:19:56.940 | If someone's listening and that's an unfamiliar term, and they're sitting here like, "Whoa,

00:20:01.280 | what's going on?

00:20:02.280 | I bought a few stocks.

00:20:03.280 | I haven't even thought about that."

00:20:04.920 | Is there a place you'd point them to get started?

00:20:07.200 | I know we could do a whole episode just on asset allocation.

00:20:09.800 | So maybe that's in the future.

00:20:11.240 | But where would you point someone to get started thinking about their risk profile and the

00:20:15.960 | portfolio they should build?

00:20:18.340 | I think thinking through what's happened just in the last couple decades of the stock market

00:20:23.480 | is probably not a bad place to be.

00:20:25.440 | So let's say in 2008, the stock market fell 50%, maybe 55% in the US stock market.

00:20:30.440 | Some other stock markets fell more.

00:20:32.280 | If you have all your money in stocks, that's something you should plan on happening at

00:20:36.520 | least a few times throughout your lifetime, depending on your age.

00:20:39.840 | You'll probably see your portfolio get cut in half if you have all your money in stocks.

00:20:43.580 | And then think about bonds right now, basically, because yields are so low, like cash.

00:20:46.760 | If you have your money in cash, it's not going to earn much for you, but it's also not going

00:20:50.700 | to go down in value, nominally, a stock market can.

00:20:53.640 | We can talk about inflation, all that stuff that eats into cash.

00:20:56.700 | So obviously, the levers here are hold more cash or less cash, and that's going to decrease

00:21:01.500 | your volatility and losses, but potentially decrease your returns.

00:21:05.440 | And for most young people, a lot of people who think just like type A personality, everyone

00:21:10.600 | should be rational.

00:21:11.600 | You have to have all your money in stocks because you have all this time ahead of you.

00:21:14.400 | You're going to be saving more.

00:21:16.280 | You have this human capital as the wind behind your sails.

00:21:19.620 | And put all your money in stocks because you can handle it.

00:21:21.520 | But some people, because of their personality, their emotional makeup, they can't.

00:21:24.760 | They really just can't.

00:21:25.760 | They couldn't withstand a 50% crash in the stock market without selling and tapping out

00:21:29.440 | and saying, "Uncle."

00:21:30.760 | So I think a lot of it has to do with your personality.

00:21:33.160 | But that's the idea, is how much more safe, liquid stuff do you need that will allow you

00:21:38.320 | to leave the stock market investments alone?

00:21:41.080 | And so is that 10% in cash and bonds or 20%?

00:21:44.480 | Whatever it is, whatever that lever is, some people can handle the volatility and other

00:21:47.600 | people just can't.

00:21:48.600 | And the worst thing to do is make a mistake at the worst possible time and sell out of

00:21:52.840 | your stocks when they're already down.

00:21:54.560 | That's the worst thing.

00:21:56.000 | So yeah, I think a lot of it has to do with your personality.

00:21:58.760 | But yeah, that whole asset allocation thing, there's no perfect number for anyone.

00:22:02.480 | You can't just say like, "Oh, for you, it's $95,500."

00:22:07.360 | It's unfortunately, there's no such thing as a perfect portfolio.

00:22:10.960 | It's only known in hindsight.

00:22:13.200 | But people have to get something that they can be comfortable with.

00:22:15.920 | Because if you have this perfect, optimized portfolio, great, but you can't stick with

00:22:19.600 | it.

00:22:20.600 | It's effectively useless.

00:22:21.600 | Is there a book or a blog post of yours or someone else's that you'd say is a good starting

00:22:25.880 | point for thinking about this?

00:22:28.400 | So Wealth of Common Sense, my first book you mentioned.

00:22:30.240 | I have a whole chapter in there about asset allocation and diversification and rebalancing

00:22:34.200 | that goes through some examples between a 50/50 stock bond portfolio or 100/0 and all

00:22:39.240 | those things.

00:22:40.240 | So I have a whole chapter on that, I think, in that one.

00:22:41.920 | And if all of this is crazy, and you're like, "I just want something simple."

00:22:44.520 | There's 2 things.

00:22:45.520 | There's target date funds, which is like just pick a fund.

00:22:48.400 | And there's usually a year associated with it that affects the portfolio and changes

00:22:52.520 | over time.

00:22:53.800 | Or I'd be mistaken to not mention that I work for a company that offers a very simple robo

00:22:59.520 | portfolio that you could just put money in and take a risk quiz and it'll rebalance for

00:23:03.400 | you.

00:23:04.400 | So those are the simple options.

00:23:05.400 | And I know there's a lot of people who say like, who will try to find issues with taking

00:23:08.360 | those risk questions or a target date fund.

00:23:10.960 | But to that I say, what's the alternative?

00:23:13.000 | I think these robo advisors and target date funds are some of the best leaps forward we've

00:23:17.660 | had for individual investors in a long, long time.

00:23:20.480 | It started with index funds and then we get to these things now that are a whole portfolio

00:23:23.560 | in one for you, just through the click of a button, basically.

00:23:27.000 | And I think it's fantastic for the vast majority of investors, especially if you're just starting

00:23:31.960 | out and don't know what to do.

00:23:33.800 | One question.

00:23:34.800 | You work at an RIA or a firm for financial advisors.

00:23:38.520 | Is there something you would tell a friend that said, "Should I be working with a financial

00:23:41.680 | advisor?

00:23:42.680 | When does that matter?

00:23:43.680 | Who is that important for?"

00:23:44.800 | I hear a lot of people that fall into money and they're like, "Well, now that I have a

00:23:48.760 | million dollars, now it's time to work with a financial advisor."

00:23:52.080 | I'm curious what your perspective is on that.

00:23:54.360 | I think a lot of people who optimize their lives and they listen to your podcast and

00:23:59.480 | look for these hacks.

00:24:00.480 | A lot of them will probably say, "I'm a DIY person.

00:24:02.640 | I will never need an advisor.

00:24:03.880 | I can do it myself."

00:24:04.880 | And honestly, there's a lot of people who do put in the work and don't really need an

00:24:09.200 | advisor.

00:24:10.200 | They can probably find the right resources on their own if they look hard enough and

00:24:12.920 | they can handle it.

00:24:14.000 | But the people that come to us do so for a number of reasons.

00:24:17.360 | One of them is just that they are busy and they have other stuff going on in their lives

00:24:21.400 | and they don't care about this stuff as much as you and I do.

00:24:23.360 | You and I obsess over this stuff and we read about it and we follow it and listen to podcasts

00:24:27.560 | and we do our own podcasts.

00:24:29.640 | And that's great.

00:24:30.640 | But some people just don't have the time or the inclination to do all the stuff that all

00:24:33.960 | the work that we've put into this because we actually like this.

00:24:36.360 | Other people would say like, "What is wrong with you dorks?

00:24:38.040 | Why do you care about this stuff so much?"

00:24:39.880 | But we love it.

00:24:41.000 | Some people don't.

00:24:42.000 | They just want to outsource.

00:24:43.000 | And they do this with other areas of their lives too where they're outsourced to tax

00:24:45.520 | providers or lawyers or whatever.

00:24:47.680 | And so that's probably a big one.

00:24:49.320 | The other one is just when you have a big life event.

00:24:51.360 | So for a lot of people, recently, that's retirement, right?

00:24:54.000 | We've got a lot of people come to us and say, "I've been doing this myself for 30 years.

00:24:56.800 | I've saved.

00:24:57.800 | I've got this whole retirement nut here.

00:25:00.000 | But I'm nervous I'm going to mess it up.

00:25:02.160 | And I don't want that to happen.

00:25:03.160 | And I want someone else to take the steering wheel and help me make better decisions."

00:25:06.120 | A lot of people are worried about, "Hey, I've been managing money myself forever.

00:25:10.800 | What about my kids or my spouse that doesn't pay attention as much as me?

00:25:14.000 | I want someone else there to help make decisions if I get hit by a bus or something."

00:25:17.960 | So I think those are a few.

00:25:19.120 | I think a lot of times when your financial life does get complex, for me, a simple one,

00:25:23.960 | from the time I had my first job at 15, my dad, who is a financial nerd himself, taught

00:25:30.280 | me to do my own taxes.

00:25:31.280 | And he thought that I could learn something by doing that and I thought it was great.

00:25:34.240 | And I've done my own taxes for 20 plus years until about 2 years ago, when my life got

00:25:39.820 | more complex.

00:25:41.160 | And we have a tax team on staff.

00:25:43.840 | And I handed it over to them because my life got more complex because I became a shareholder

00:25:46.920 | in the firm and I had all these weird K1 things going on and it became way too complex for

00:25:52.240 | me to handle.

00:25:53.240 | And even though my dad wanted to help me through it, I'm like, "Dad, all right.

00:25:55.800 | It's enough.

00:25:56.800 | I'm handing it over."

00:25:57.800 | And so some people just have that happen where they have an inheritance or an estate planning

00:26:01.620 | issue or something in their tax life.

00:26:03.760 | I know a lot of times people think you hand over your money to an advisor because they're

00:26:07.640 | going to help you manage your portfolio.

00:26:09.600 | Portfolio management is one piece of it.

00:26:10.880 | But there's so much else that goes into it from taxes and estate planning to passing

00:26:14.760 | your money along and making good decisions.

00:26:16.640 | So I think that's a big one too.

00:26:17.640 | It's just your life has become a little too complex, your financial life, that you need

00:26:20.720 | someone else to just take over for you.

00:26:22.740 | And I'll point out that for anyone listening, there are financial planners out there that

00:26:28.280 | help people go through a lot of these decisions that aren't investment managers.

00:26:31.940 | It's not all or nothing.

00:26:33.000 | There are people...

00:26:34.000 | I'll link to a couple places where you can find them in the show notes.

00:26:36.560 | But there are people that you can say, "Hey, I'm going to pay a fee."

00:26:38.680 | Kind of like you pay a tax advisor each year and say, "I want to run through everything.

00:26:42.760 | I want to figure out what I'm doing wrong.

00:26:44.200 | What am I doing right?

00:26:45.200 | Where should I be thinking?"

00:26:46.620 | Exactly.

00:26:47.620 | And then you can keep managing your investments.

00:26:49.040 | So I think there are multiple options here and it's not all or nothing.

00:26:53.100 | It's not, "I have to give up every piece of control."

00:26:56.120 | And that's great is that because of the internet, it's wide open.

00:26:59.200 | In the past, you would have had to go to your local person down the street.

00:27:02.760 | And that was the only option.

00:27:03.840 | There's so many options for people to get help.

00:27:05.720 | And even at some of the big financial institutions now, they'll have a call center of financial

00:27:09.880 | planners there that you can call and talk to.

00:27:12.360 | And like you said, an hourly planner.

00:27:14.680 | Pretty much anything you want now you can get if you look hard enough.

00:27:18.600 | It seems like with every business, you get to a certain size and the cracks start to

00:27:23.000 | emerge.

00:27:24.000 | Things that you used to do in a day are taking a week and you have too many manual processes

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00:30:24.220 | I want to come back to a few things that you mentioned, because there's a lot that can

00:30:28.260 | come from that.

00:30:29.260 | One is, you talked about retirement accounts, and it's important to put money in retirement

00:30:33.300 | accounts first before you think about alternatives.

00:30:35.660 | And I just want to tap on...

00:30:37.540 | There's a different perspective I've heard recently, which is as you're young, liquidity

00:30:41.260 | is really important.

00:30:42.260 | When you put money in retirement accounts, you can't use it for a down payment.

00:30:45.100 | You can't use it to do anything other than save for retirement without paying fees.

00:30:50.220 | Do you still think that the right guidance is always max out all retirement accounts?

00:30:54.460 | Or is there a perspective that might be different for younger people where liquidity is more

00:30:59.900 | important and things like a down payment cost a lot of money and a lot more than it did

00:31:04.780 | years ago?

00:31:05.780 | Yeah, I've heard some of this too.

00:31:07.020 | My colleague, Nick Majulia, writes this blog of dollars and data.

00:31:09.860 | And he said, "Maxing your 401(k) is ridiculous when you're young."

00:31:12.820 | Because he compared, "What if you did an index fund portfolio in your brokerage account compared

00:31:16.820 | to the 401(k) and that tax deferral benefit?"

00:31:19.460 | And he ran the numbers and it's not as much as you would think.

00:31:22.980 | That tax deferral, how much it really helps, especially if you're someone who is not making

00:31:26.220 | a lot of moves in your portfolio.

00:31:28.820 | I do think that there's something to the constraint of having it in a retirement account and knowing

00:31:32.820 | that you have to pay a penalty if you take it out, in most cases, that it helps you think

00:31:37.180 | and act long term.

00:31:38.180 | When I put money in my 401(k), it's just totally out of sight, out of mind to me.

00:31:42.700 | And I know I'm not going to touch it for decades.

00:31:45.180 | And that helps me plan around my other stuff.

00:31:47.820 | So if I need liquidity, I plan around it.

00:31:49.500 | I do think that a Roth IRA is probably your best option for this kind of stuff because

00:31:53.700 | you can take out your contributions, tax and penalty-free.

00:31:57.140 | You can't take out any investment gains you make.

00:31:58.980 | But those contributions make sense.

00:32:00.540 | I really wish that they would just increase the limit on that to your 401(k) for people

00:32:05.500 | who don't have a 401(k) or a 401(k) at their job.

00:32:08.260 | That makes sense to me.

00:32:09.260 | But I can get behind that.

00:32:10.900 | And I've had a lot of people in recent years ask, "Do you think it makes sense to cut back

00:32:14.380 | on my 401(k) to save for these other things, a wedding, a down payment, I have kids on

00:32:17.980 | the way?"

00:32:18.980 | And yeah, if you're...

00:32:19.980 | You have the foresight to save for those things and you're cutting back on your 401(k) a little

00:32:22.380 | bit.

00:32:23.380 | The simplest advice is always get the match because you're turning down free money that

00:32:27.740 | way.

00:32:28.740 | But then if you have other things you're saving for, sure, especially with housing prices

00:32:31.860 | so much higher than they were, and the down payment may be having to be so much higher.

00:32:35.380 | Yeah, sure.

00:32:36.380 | I think it does make sense.

00:32:37.380 | Especially if that's a much bigger priority than retiring in 4 decades or whatever.

00:32:42.220 | I think the 2 big things.

00:32:43.220 | If there's a match, I'm always an advocate of putting in whatever you need to get the

00:32:46.940 | match.

00:32:47.940 | But also, take a look.

00:32:49.340 | I've looked at some 401(k)s that are just really expensive.

00:32:52.660 | The funds that they force you to go in...

00:32:54.780 | I'll link in the show notes.

00:32:56.060 | Maybe you know the site.

00:32:57.060 | There's a site where you can put in your employer and they'll tell you how bad the fees are

00:32:59.740 | in your 401(k).

00:33:01.380 | And there are some places where it might actually be a worse decision financially.

00:33:05.100 | If your 401(k) is at Vanguard, it's probably not that bad.

00:33:07.620 | But there are a handful of companies where it's expensive.

00:33:09.560 | So that's the only other big thing that I think about.

00:33:12.260 | But I love it as a forced savings vehicle.

00:33:14.320 | If you have the discipline to force yourself to save and not touch your money, then let

00:33:18.360 | yourself decide.

00:33:19.480 | But definitely get the free match and look out for fees.

00:33:22.240 | Yeah.

00:33:23.240 | I do think that one of the things that's the greatest about having a 401(k) if you have

00:33:26.320 | it is just that that money comes out before you even see your paycheck at your bank account.

00:33:31.240 | And you don't even think about the lost money that you have saving there.

00:33:34.320 | I know it's only one extra step if you got paid and then you transferred it somewhere.

00:33:37.820 | But just taking that step away for people, putting that barrier in place, I think is

00:33:41.600 | really helpful to a lot of people.

00:33:42.880 | They don't even think of that loss aversion of "Oh no, that $500 is gone forever now

00:33:47.880 | because I had to save it."

00:33:49.820 | It's out of sight, out of mind.

00:33:51.320 | One thing...

00:33:52.320 | It's kind of a hack, I guess.

00:33:53.320 | If people don't know this, a lot of payroll providers will let you split your direct deposit.

00:33:58.800 | And so let's say you're saving for a down payment and you want that same benefit.

00:34:02.620 | You can go in, open up a savings account somewhere else, and take the routing number and the

00:34:07.080 | account number and go to log into ADP's website or whatever your payroll provider is.

00:34:11.160 | And you can usually go add it.

00:34:12.840 | And you can say, "I'm going to add this to my account and sweep $100 each paycheck so

00:34:17.720 | I don't have to see it."

00:34:19.040 | So there is the ability to automate that with most payroll providers, if you want that same

00:34:23.560 | feeling.

00:34:24.560 | My wife did this.

00:34:25.960 | Our twins are 4 years old now.

00:34:28.360 | When they were 1 year old, she's like, "Alright, when they turn 4 or 5, I want to bring them

00:34:32.580 | to Disney."

00:34:33.580 | And so she turned it on.

00:34:34.580 | She did $50 a month from her paycheck.

00:34:37.080 | And this is going to be my Disney fund.

00:34:38.240 | She's like, "I'm going to save for 3 years and we're actually going to Disney next week."

00:34:42.040 | And she saved for 3 years for this.

00:34:44.080 | And 3 years later, $50 a month is paying for the majority of the trip.

00:34:47.880 | And just because she did it in little drips and grabs and thought of it ahead of time.

00:34:51.240 | But yeah, that just went to a straight online savings account.

00:34:54.840 | Nothing fancy.

00:34:56.120 | So we talked about investing in the long term and we've been dabbling a little bit in, "Okay,

00:35:01.080 | well, if it's for 3 years, online savings account.

00:35:03.680 | If it's a down payment."

00:35:04.680 | I know a question that you get on the podcast all the time.

00:35:08.440 | And a question I get is, "What do you do with that short term money?"

00:35:10.800 | It used to be 2-3 years ago, it was like, "Well, high yield savings accounts are paying

00:35:15.880 | 2+%."

00:35:17.320 | There's a lot of good options.

00:35:18.960 | With interest rates so low, the average savings account right now is probably paying point

00:35:23.920 | something percent.

00:35:24.920 | It's probably low single digits percent depending on where it is.

00:35:28.140 | Is there a good option that isn't as risky as the stock market?

00:35:31.360 | Is it really like a 2080 portfolio of stocks and bonds?

00:35:35.280 | Is it high yield crypto accounts?

00:35:37.520 | What do you think is a good place to put money that you don't need for 4 or 5 years?

00:35:41.480 | I wish I had a good answer for this.

00:35:43.760 | In the low interest rate world, it's possible we might be in a low interest rate world for

00:35:47.720 | a long, long time too.

00:35:49.600 | So I think this is something people might have to get used to.

00:35:51.840 | I think my Marcus online savings account pays 50 basis points, right?

00:35:55.480 | Half a percent.

00:35:56.480 | I think the first question you have to ask yourself is, "If I'm going to stretch for

00:35:59.540 | yield in some way, whether that's investing in stocks, investing in a diversified portfolio..."

00:36:03.960 | By the way, I got an email from someone last week saying, "I put the entire down payment

00:36:08.040 | of my house into growth stocks."

00:36:10.880 | Not just like Apple and Amazon, but hyper growth stocks.

00:36:14.720 | And they were like, "In 2020, I was a genius.

00:36:17.400 | And now I don't know what I'm going to do."

00:36:19.640 | And so that's the downside here.

00:36:23.760 | And I think especially...

00:36:24.880 | That's the extreme, of course.

00:36:26.440 | But think about...

00:36:27.440 | Let's say you have $10,000.

00:36:28.440 | And for every $10,000 you have, every extra 1% is $100 a year.

00:36:32.520 | Now, $100 can be a lot of money for some people.

00:36:34.320 | But I think you have to think through, "How much do I have in savings and how much is

00:36:38.840 | reaching for yield and putting that extra risk on going to actually matter?

00:36:42.680 | Is it going to make a difference in the down payment two or three years down the line?

00:36:46.480 | Or should I just play it safe and not worry about it?"

00:36:49.120 | I'm a play it safe kind of guy.

00:36:50.280 | I know that there are people who have especially the stablecoin stuff at places like BlockFi

00:36:56.400 | and Gemini.

00:36:57.440 | And we've had the BlockFi CEO, Zach Prince, on our podcast a number of times.

00:37:02.440 | And the way he says it is, "Listen, if I'm having this emergency fund that's actually

00:37:06.040 | for emergencies, I'm probably not going to put it in this stuff.

00:37:08.680 | Because it is...

00:37:09.840 | You're not earning 7% or 8% for nothing.

00:37:12.240 | There is some risk involved there.

00:37:14.160 | And this is still a really new product.

00:37:15.840 | Right?

00:37:16.840 | Now, I personally have some money in there.

00:37:18.200 | But again, that's not an emergency fund."

00:37:19.760 | And he said, "Listen, if you're saving for a boat, sure, I'd feel pretty comfortable

00:37:23.880 | putting in there because it's not going to be the end of the world if something happens

00:37:26.880 | to it.

00:37:27.880 | But if it is an emergency or your down payment that you're going to need in 18 months, I

00:37:31.080 | think you'd...

00:37:32.080 | The regret...

00:37:33.080 | Again, the regret stuff, you'd much more regret not having enough for your down payment than

00:37:36.680 | you would making a little bit more and having a bigger down payment than you expected.

00:37:39.760 | So I always err on the side of caution with that stuff.

00:37:44.080 | Because I think the downside is way bigger than the upside."

00:37:47.040 | And I would say, if you are thinking about where to put this stuff, it's not all or nothing.

00:37:51.040 | You don't have to say, "I'm going to put all of it in a crypto savings account like BlockFi

00:37:55.800 | or all of it in Markus and get half a percent."

00:37:59.000 | You could say, "Well, I'm going to put 20% here and treat it as a blended rate.

00:38:01.920 | You're going to get 88% on half of it and almost zero on the other.

00:38:05.720 | It's more like a 4% return, but you're spreading the risk out."

00:38:08.520 | And that's effectively what I've done.

00:38:09.960 | I would have kept all my money in the online savings account in the past.

00:38:12.880 | That was for my liquid savings.

00:38:14.960 | And now I've spread it out to 2 or 3 different places.

00:38:16.960 | And again, so I don't have that concentration risk if something should go wrong.

00:38:20.920 | And then I think you spread your bets that way.

00:38:22.880 | That makes sense.

00:38:24.000 | For me, I think the cash that I hold for the short term doesn't necessarily have a purpose.

00:38:29.200 | It's kind of like, I just want some there.

00:38:31.440 | If the economy takes a downturn in 2020, I was glad I had a little cash on the sidelines

00:38:36.240 | when the market was down 20% or 30%.

00:38:38.400 | So I don't have a specific purpose.

00:38:39.800 | So I'm probably a little bit more comfortable with risk.

00:38:42.440 | So I think I have the majority of it earning 8% or 9%.

00:38:45.920 | But for something like emergencies, I keep a healthy cash buffer that earns nothing in

00:38:50.880 | a checking or a savings account that I just want to make sure is always there no matter

00:38:54.240 | what that has the liquidity of I can wire it out somewhere tomorrow or withdraw it at

00:38:59.440 | an ATM today.

00:39:00.440 | And I don't have to wait a day or two to transfer it from something.

00:39:04.000 | And that decision probably depends as much on your investor risk profile as on your circumstances

00:39:09.600 | in life.

00:39:10.600 | I think I have kids now.

00:39:12.040 | I have 3 kids.

00:39:13.040 | And so if I was single, I'd probably think about this and come at it a different way

00:39:16.760 | than if I had kids because it changes the way that you view risk.

00:39:20.880 | So I think that is part of it too.

00:39:23.320 | What else do you have to potentially prepare for in terms of those downsides?

00:39:26.320 | I'm like you.

00:39:27.320 | I have liquid cash savings.

00:39:28.680 | I don't have it earmarked for anything.

00:39:30.560 | I have buckets where I...

00:39:32.120 | This is our vacation fund and this is for...

00:39:33.920 | I have some of those things, but then I have this cash that's just there just in case.

00:39:38.120 | Like break if necessary.

00:39:39.720 | Or if you find a opportunity, my old co-founder called it his elephant hunting fund.

00:39:44.800 | And it was like, "I have this money sitting here in case some big opportunity comes across

00:39:49.400 | my way and I don't want to miss out on it."

00:39:51.560 | And he was like, "That could be a unique investment.

00:39:53.920 | That could be a down payment on a house.

00:39:56.000 | It could be something...

00:39:57.400 | The market crashes."

00:39:58.400 | And he's like, "I'm willing to give up the return on this because it's for an opportunity

00:40:02.920 | in the future that I hope will outperform the 2% or 3%."

00:40:06.720 | I have a home equity line of credit for the same reason.

00:40:10.320 | We took out a home equity line of credit because we bought our house in 2017 and housing prices

00:40:14.480 | are up, I don't know, 40% or 50% where we live.

00:40:17.680 | And I have all this equity sitting there and we paid down the house a little bit and mortgage

00:40:20.560 | rates are low.

00:40:21.560 | And so we've opened up a decent-sized home equity line of credit for as much as they

00:40:24.560 | would give us.

00:40:25.800 | And that is my other fallback for this kind of thing, where if I really need to write

00:40:29.240 | a big check for some reason, and I don't have to shuffle around all my other finances, this

00:40:33.360 | is another financial backstop for me that I can use.

00:40:36.560 | And especially since rates are so low, it's also not a bad way of using debt when you're

00:40:40.680 | borrowing at your house.

00:40:41.840 | And you could do the same thing with your portfolio at pretty low interest rates.

00:40:45.600 | I've written in my newsletter in the past about some of the risks that borrowing comes

00:40:50.640 | with.

00:40:51.640 | Things like getting a margin call if the market crashes.

00:40:53.320 | So I try to keep that to a percent that won't end up in any of those circumstances.

00:40:58.240 | At Wealthfront, we cap the portfolio borrowing at 30%.

00:41:02.480 | And I don't think we've ever had to make a margin call because we've set it up in a way

00:41:05.920 | that it can withhold the kind of market drops that we expect in the worst-case scenarios

00:41:10.600 | or at least the almost worst-case scenario.

00:41:13.220 | That's the other side of this low rates thing.

00:41:15.160 | People are earning really low rates on their savings.

00:41:18.480 | But the other side of that is low rates on your debt.

00:41:20.680 | So right, you talk about using margin in a reasonable way.

00:41:24.440 | That's something that in the past would have seen, "No.

00:41:26.320 | Why would you ever do that?

00:41:27.320 | That sounds stupid."

00:41:28.320 | But if you're using it just for a portion of your portfolio, you set up 20% or 30% maybe

00:41:32.160 | 10%.

00:41:33.160 | With rates so low, that equation kind of changes.

00:41:36.320 | And in the past, I would have been one who probably would have said, "I'm going to pay

00:41:40.440 | my house off."

00:41:41.440 | And in fact, the first house that my wife and I bought, we refinanced like three times

00:41:44.400 | because our initial rate was like 6.5%.

00:41:46.680 | And then we're down to in the threes.

00:41:49.320 | And we were making the same payment and it was effectively a double payment.

00:41:52.600 | And now that rates are so much lower, I think, "Why did I pay that off so much faster?

00:41:55.840 | I'm in no hurry to pay off my debt."

00:41:57.280 | And I know some people just they have this burning desire inside them like, "I have to

00:42:00.480 | pay off all debts."

00:42:01.480 | But for me, where the rates are, that's the other side of the...

00:42:05.040 | I'm not earning a lot of my savings, but my debt is not costing me much either.

00:42:08.360 | So I'm actually more comfortable using it a little bit in a reasonable manner.

00:42:13.200 | Yeah.

00:42:14.200 | So here's a question.

00:42:15.200 | I get a lot from listeners and you probably have too.

00:42:18.000 | If I'm out there and I want to buy a million-dollar house, it is totally reasonable for me to

00:42:22.560 | put down $250,000 and buy a million-dollar house.

00:42:27.720 | But it seems so unreasonable for me to use leverage in investing in the market.

00:42:34.720 | And I know there are some reasons like margin calls and variable interest rates.

00:42:39.160 | But used responsibly, what opinion do you have on leverage in investing?

00:42:45.240 | Taking 30% or taking your home equity line and investing in the market, which in the

00:42:50.320 | long run has returned greater than the 1% or 2% that you're probably paying to borrow?

00:42:56.040 | I'll tell you what.

00:42:57.120 | When the market was down 35% in March 2020, I was trying to get my home equity line of

00:43:02.320 | credit through so fast, so I could take out of it and put it in the market.

00:43:05.280 | Now, that was during a crash situation, not now.

00:43:08.040 | But I do think if you're doing it in a reasonable manner and you understand the potential downsides...

00:43:12.720 | And the great thing is, if you're borrowing at your home, again, not everyone has this

00:43:15.440 | opportunity if they don't own a home or they don't have enough equity.

00:43:18.480 | But you have like a 10-year period to use a home equity line of credit in most instances.

00:43:21.840 | Then you have 15 years to pay it off.

00:43:23.360 | So it's not like you're going to get a margin call on that home equity line of credit, right?

00:43:26.280 | If you used it, it's not like it's going to become right for you.

00:43:29.880 | If you borrow against your portfolio, that could be different.

00:43:31.720 | But yeah, if you're doing it...

00:43:33.560 | If you have some sort of cap in mind, like, "I'm borrowing at $3 and I'm going to get

00:43:38.080 | $8."

00:43:39.080 | As long as you don't need that money for something else, and you understand any potential...

00:43:43.680 | The biggest downside, obviously, is, "Well, the stock market falls 70% like a Great Depression

00:43:48.000 | and then I'm screwed."

00:43:49.280 | I guess if that happens, we have bigger problems on our hands.

00:43:51.720 | But I do think if you thought through it all, it's not the worst idea in the world if you

00:43:56.640 | can do it in a reasonable manner.

00:43:58.080 | I would just say, make sure you have the horizons in mind, right?

00:44:01.400 | The stock market, historically, has returned much greater than the 1% or 2% or 3% interest

00:44:07.560 | rates you're paying right now.

00:44:09.360 | However, the stock market has not performed greater than 1%, 2%, or 3% every single year.

00:44:14.360 | And so, it's probably not a safe bet to make it for a one-year bet, but it could be a safer

00:44:20.360 | long-term bet.

00:44:21.600 | Or at least, as a long-term bet, it might be safer than a short-term bet, I guess.

00:44:26.000 | It's never safe because we never know what's going to happen.

00:44:28.640 | But I will say one hack in here is that when you borrow money to invest, the interest you

00:44:34.000 | pay on that money is often deductible against the gains you have as investment interest

00:44:39.360 | expense.

00:44:40.360 | Depending on your tax rate, depending on a lot of circumstances, you might be paying

00:44:43.920 | 2.5% to borrow money.

00:44:46.480 | But if you invest that money and you have enough gains, dividends, interest to use it

00:44:51.080 | to deduct, that interest rate could cut as high as half off depending on your tax bracket

00:44:55.480 | and what state you live in.

00:44:56.480 | And again, I think where we are in the interest rate cycle has so much more to it.

00:45:00.440 | This would seem antithetical to personal finance people to say 10 years ago, "You'd be nuts

00:45:04.000 | to...

00:45:05.000 | Why would you borrow against your portfolio or invest more from borrowed money?"

00:45:07.600 | But where rates are today, I think it's something that makes more sense than it did in the past.

00:45:13.000 | And another piece of rates that I think is similar that you mentioned earlier is inflation.

00:45:17.240 | All I hear about from everyone right now is, "What's going on?"

00:45:21.120 | You guys have talked a lot about it on the show and have greater opinions than I do.

00:45:24.920 | Obviously, no one can predict what's happening.

00:45:27.000 | But what's your thought on what's happening with inflation and rates outlook for 2022?

00:45:32.080 | I think the craziest thing is that just...

00:45:34.440 | We've never gone through anything like this.

00:45:35.720 | It's been 4 decades.

00:45:37.040 | I was born in 1981.

00:45:38.660 | That's basically the last time we had inflation this high.

00:45:41.000 | So you have...

00:45:42.000 | I know people always say, "Oh, if you just started investing in 2020, you've never experienced

00:45:46.280 | A, B, or C."

00:45:47.280 | But unless you've been in this game for 3 or 4 decades, you really haven't experienced

00:45:51.400 | any inflation this high.

00:45:52.920 | I think from 2008 to 2020, inflation was like 1.6% per year.

00:45:58.240 | Now it's 7%.

00:45:59.480 | And we've had higher economic growth because of that and all this other stuff going on.

00:46:03.980 | But I think that trying to come up with a short-term hedge to beat it in your investment

00:46:08.760 | portfolio is really difficult.

00:46:10.600 | I'm going to own gold or gold miners or commodities or whatever it is.

00:46:14.240 | And not thinking through how much of that is priced in and how much inflation needs

00:46:17.640 | to hire for some of those things.

00:46:18.920 | I still think that the stock market is probably your best bet for long-term inflation.

00:46:23.440 | So in that same period from 2008 to 2020, the S&P 500 was up well over 10% per year,

00:46:29.520 | even with 2008 getting crushed and inflation was much lower.

00:46:32.120 | So that's why holding stocks over the long run is a good inflation hedges because you

00:46:37.200 | make up for it in those years when inflation isn't high.

00:46:39.680 | So your real returns there were way above average.

00:46:42.440 | So I think that's why holding stocks over the long run makes so much sense is because

00:46:45.840 | your real returns when inflation is low, help make up for that what happens when inflation

00:46:50.520 | is higher and your real returns are lower.

00:46:53.240 | So the stat I always give is that over the last 100 years, the dividend payout on the

00:46:58.400 | S&P 500, the US stock market, has gone up at 2% above the rate of inflation.

00:47:03.480 | So you think, "Oh, I'm earning 1.7% in dividends on the S&P 500."

00:47:07.520 | That's nothing.

00:47:08.520 | It sounds paltry.

00:47:09.520 | But that dividend is growing every single year and it's because corporations are earning

00:47:14.480 | more and growing and innovating, they're paying out above the rate of inflation over the long

00:47:19.960 | term as well.

00:47:20.960 | And so that income is a growing stream of income.

00:47:22.680 | That's why I still think that the stock market over the long run is by far your best hedge

00:47:27.400 | against inflation.

00:47:29.280 | And for cash, it's kind of tips beat a savings account these days.

00:47:33.480 | And for anyone not listening, the Treasury Inflation Protected Securities are government-issued

00:47:38.360 | bonds or securities that you can invest in that beat inflation or that's the goal?

00:47:43.260 | It's actually almost an alternative investment.

00:47:45.400 | It's only been around in the US since the mid-90s.

00:47:48.080 | And effectively, what it does is it builds in the expected inflation.

00:47:52.180 | So it gives you a yield that is the Treasury bond minus what the market thinks inflation

00:47:59.020 | is going to be.

00:48:00.220 | So your yield when you buy it is effectively negative.

00:48:02.980 | And then you add on inflation to it.

00:48:04.940 | And so what it does is it gives you a one-for-one inflation, which is why the returns there

00:48:08.360 | were so high last year.

00:48:09.480 | You earned like 5% in tips last year, where if you invested in a total bond market fund,

00:48:13.800 | you were down like 2% because that's a 7% difference in inflation.

00:48:17.120 | So you get a one-for-one inflation kicker.

00:48:19.680 | And where you really get the returns from there is if you get unexpectedly high inflation.

00:48:23.680 | Because again, the expected inflation is built in.

00:48:25.780 | So I think that is actually one of the...

00:48:27.760 | Yeah, maybe that's something we should have mentioned for a short-term vehicle is investing

00:48:31.780 | in inflation-protected securities.

00:48:33.640 | Because that is in the short term, a big problem is that cash is earning nothing and it's getting

00:48:38.960 | eaten away from inflation on a real basis.

00:48:41.840 | So yeah, those tips actually make a lot of sense in the short run, because that's the

00:48:46.480 | one thing you can invest in.

00:48:48.160 | You could say, "I want to invest in gold and all these other things."

00:48:50.840 | And even people said, "Well, Bitcoin is an inflation hedge."

00:48:52.720 | But these things don't move one-to-one with the inflation rate, because people are putting

00:48:56.060 | their expectations in on them and telling stories.

00:48:58.400 | Whereas tips give you that one-to-one hedge, where you're going to get exactly what the

00:49:03.240 | inflation is as your return, basically.

00:49:06.360 | And they're not things where you have to go buy a bond from the government.

00:49:09.520 | They're ETFs.

00:49:10.520 | I think it's just tips as the ticker.

00:49:12.480 | You could just buy ETFs.

00:49:13.480 | Low-cost ETF.

00:49:14.480 | Yeah.

00:49:15.480 | So if you're thinking about how do you do this, for anyone who's ever bought a government

00:49:18.480 | bond from...

00:49:19.480 | I can't remember the site and it feels old school and complicated.

00:49:21.760 | This is easier.

00:49:22.760 | There's just an ETF for it.

00:49:23.760 | But my one thing about inflation is that it's really, really difficult to hedge.

00:49:27.160 | So last year, you had the greatest setup for gold ever.

00:49:30.600 | You had...

00:49:31.600 | The government was printing tons of money.

00:49:33.320 | We finally had inflation.

00:49:34.320 | It was 7%.

00:49:35.920 | But gold was down like 5% or 6% on the year.

00:49:38.480 | And for years, people are saying, "Buy gold because the Fed's printing money.

00:49:41.120 | The government's spending too much.

00:49:42.920 | Debt is at an all-time high."

00:49:44.640 | And gold drops in the year that all this stuff finally comes to a crescendo.

00:49:48.400 | And that's why the markets are so difficult to manage and try to get.

00:49:53.080 | So that's why I think you can get too cute with these things and try to outthink things.

00:49:56.320 | Or you could invest in tips and understand, "I have a one-for-one.

00:49:59.600 | I'm not going to worry about it.

00:50:00.800 | That's the hedge."

00:50:01.800 | Yep.

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00:51:14.960 | Do you all remember episode 122 when I spoke to Chef David Chang about leveling up your

00:51:19.820 | cooking at home?

00:51:21.200 | If not, definitely go back and give it a listen.

00:51:23.540 | But one of his top hacks was using the microwave more.

00:51:26.840 | I'll admit, I was a skeptic at first, but after getting a full set of microwave cookware

00:51:31.820 | from AnyDay, I'm a total convert and I'm excited to partner with them for this episode.

00:51:36.640 | AnyDay is glass cookware specifically designed to make delicious food from scratch in the

00:51:41.440 | microwave and honestly, using it feels like a kitchen cheat code because it speeds up

00:51:46.800 | and simplifies the process so much.

00:51:49.400 | The cookware is 100% plastic free and you can cook, serve, store, and reheat all in

00:51:54.920 | the same dish that happens to be dishwasher, freezer, and oven safe too.

00:51:59.680 | And if you need a recipe suggestion to kick off your AnyDay adventure, I highly recommend

00:52:04.200 | David Chang's Salmon Rice.

00:52:05.840 | It is so good.

00:52:08.040 | And if you haven't checked out the Matte Black Ayo Collection they launched last year,

00:52:12.520 | you have to check it out.

00:52:14.260 | So to get 15% off our new favorite cookware, go to allthehacks.com/anyday.

00:52:18.800 | Again, that's allthehacks.com/anyday for 15% off.

00:52:27.720 | I just want to thank you quick for listening to and supporting the show.

00:52:31.520 | Your support is what keeps this show going.

00:52:34.280 | To get all of the URLs, codes, deals, and discounts from our partners, you can go to

00:52:39.320 | allthehacks.com/deals.

00:52:42.360 | So please consider supporting those who support us.

00:52:45.800 | So I'm sure we left off a lot of stuff.

00:52:47.920 | I'm sure there are people with questions.

00:52:49.960 | Definitely send them in, chris@allthehacks.com if you have them.

00:52:53.720 | Maybe we'll do this again.

00:52:54.880 | I want to jump outside of investing a little bit and talk about a few things.

00:52:58.680 | One is just ways to simplify your finances.

00:53:02.080 | And investing is a part of that.

00:53:03.480 | But I know you've had a lot of thoughts there.

00:53:05.800 | You have your own hacks to make things easier.

00:53:08.360 | I'd love to hear what you've got.

00:53:10.120 | My simplest hack, honestly, is just being optimistic about the future when it comes

00:53:13.840 | to finances.

00:53:14.840 | I think if you're one of these people that is always just down on the economy, the markets,

00:53:19.280 | what's the point of investing in the first place?

00:53:20.640 | So that's one thing.

00:53:21.640 | I think if you're going to invest, the whole point of investing is that the future is going

00:53:24.880 | to be better than today.

00:53:26.040 | Otherwise, why invest your money?

00:53:27.240 | So that's where I start.

00:53:28.480 | I think the rules-based thing applies to a lot of things.

00:53:30.680 | So obviously, automated saving, automated investing, rebalancing.

00:53:34.160 | I also think bill pay, all these things that a lot of people have mentioned before.

00:53:37.520 | One of the things I've done in recent years that I don't know why I didn't do before,

00:53:40.320 | but automated giving to charities.

00:53:42.080 | So on a monthly basis, anytime I find this good...

00:53:44.160 | In the past, around the holidays, or there was something going on, there was some catastrophic

00:53:48.800 | event, then I'd give some money and I'd do it in dribs and drabs.

00:53:51.680 | Now I automate that.

00:53:53.100 | And I've actually gotten letters from these charities saying, "Thank you.

00:53:55.960 | We appreciate that.

00:53:56.960 | Because we know we're getting your monthly amount each month.

00:53:59.920 | That actually helps us plan out our finances for you.

00:54:02.080 | Obviously, it's not just me, but it's everyone."

00:54:04.200 | And so actually, giving to these charities on a monthly basis, like you do with your

00:54:07.080 | savings automatically, and they almost all have an option for that now.

00:54:10.480 | You check a box saying, "I'm going to give $25, $50, $100 a month to this charity."

00:54:15.080 | And that's actually a really good thing for them for their planning purposes.

00:54:17.440 | I'll just chime in for a sec.

00:54:18.800 | There's a company I've mentioned in the past, or at least in my newsletter called Daffy,

00:54:22.440 | which is a donor-advised fund.

00:54:23.940 | It's a new app.

00:54:25.440 | And it's interesting because it disintermediates...

00:54:28.240 | So donor-advised funds have historically been this thing, "Oh, here's an opportunity for

00:54:32.200 | people who are in really high tax years to donate a lot in one year, and then be able

00:54:37.240 | to give over a series of years."

00:54:38.960 | So it's been a great thing for people who are, "Oh man, my company got acquired.

00:54:43.160 | I got some inheritance in that high tax year."

00:54:46.060 | You can actually donate money to a fund that you manage.

00:54:48.780 | And then anytime in the future, you can donate money from that fund to a charity and you

00:54:53.060 | get the entire tax write-off at the beginning.

00:54:55.660 | And if you donate appreciated stock, you can often get it even multiplies the tax benefit.

00:55:01.760 | But the cool thing they've added is the ability to set up recurring donations.

00:55:04.820 | And so I like that there's a disintermediation from, "I want to give and I know where I want

00:55:11.040 | to give."

00:55:12.040 | And so every now and then there's a thing where, "Oh, I want to give to this cause."

00:55:16.400 | I don't always, like it sounds like you do, have the same cause every time.

00:55:20.040 | It might change on the circumstance, what's happening in the world.

00:55:23.200 | And so you can actually set up automated giving and say, "I'm going to give $100 a month and

00:55:27.580 | not know where it's going to go."

00:55:29.380 | And then while that money is sitting there, you can actually invest it.

00:55:32.200 | So they even have a portfolio with a little bit of crypto.

00:55:34.580 | So I was like, "Oh, let's take a little bit of risk here."

00:55:36.260 | And so that's something I've started doing.

00:55:37.780 | All the donations I make, I make them to Daffy.

00:55:40.900 | I keep it all managed there.

00:55:42.100 | I let it grow with the market.

00:55:43.100 | And then when I'm ready to donate it, I could do that whenever I want.

00:55:45.980 | And my wife and I both log into the app and she's like, "Oh, I'm going to send money to

00:55:48.740 | this thing right away."

00:55:49.980 | And Daffy didn't pay me to say any of this.

00:55:51.820 | But if you do want to check them out, I'd definitely love you to use my referral code.

00:55:56.000 | It gets you $25 for free.

00:55:58.260 | It's at allthehacks.com/daffy.

00:56:01.540 | And the only downside is, I wish there was a way to use something like that with some

00:56:06.240 | of the online fundraisers.

00:56:07.720 | Because I always feel like the worst person saying, "Oh, you're raising money for this

00:56:10.580 | cause for your birthday."

00:56:12.020 | I was like, "I just sent a check to the cause on your behalf."

00:56:14.980 | And then they're like, "Yeah, but the meter didn't go up."

00:56:17.460 | And I was like, "I know.

00:56:18.460 | I did send it."

00:56:19.460 | I was like, "No.

00:56:20.460 | That the money's there.

00:56:21.460 | I'm really sorry.

00:56:22.460 | The meter didn't go up."

00:56:23.460 | I think that that's something I've changed my tune on.

00:56:25.700 | So I mentioned asset allocation and how important that is for investing.

00:56:28.980 | I like the idea of having a savings allocation too.

00:56:31.620 | So let's say you get a bonus at work, or I don't know if you had an inheritance or a

00:56:35.980 | check for Christmas or something.

00:56:37.500 | I don't know.

00:56:38.500 | Whatever it is.

00:56:39.500 | You get a chunk of money that you didn't expect you were going to get, or it's just outside

00:56:42.620 | of your regular income.

00:56:43.980 | I like having an idea percentage-wise of how I'm going to save that money.

00:56:47.700 | So you don't just blow it on something.

00:56:48.900 | So I have a percentage that's going to go into retirement funds.

00:56:51.540 | I have a percentage that's going to go to brokerage, savings, maybe vacation.

00:56:54.620 | And then I always leave 20% to 30% where I'm just going to blow it on something.

00:56:58.940 | And I think it's important to have that in Scratch that is because I talk about all this

00:57:02.180 | stuff about saving and investing and being rules-based.

00:57:05.140 | But I think this is, again, since I've had my kids, something I've really come on, changed

00:57:10.340 | my mind on is like, it's okay to spend money and have fun and do things for yourself and

00:57:15.700 | not just save everything.

00:57:17.300 | So I think it's important to have that piece of your budget or your whatever it is, your

00:57:21.900 | money that is going to just be there to have fun and blow in a guilt-free way where you

00:57:27.300 | don't have to worry about it.

00:57:29.180 | And you don't have to think every single decision you're making, let's just have a little fun

00:57:32.560 | with this money, whatever it is.

00:57:34.180 | And it depends on the person what it's going to be.

00:57:36.420 | But I have that piece too, where it's just, I'm just going to spend this, I'm going to

00:57:39.340 | blow it, and I'm not going to obsess over it.

00:57:42.140 | Are there some things you've spent that money on that you'll share that are like, just God

00:57:45.220 | made you feel so good?

00:57:46.340 | I think any sort of thing with my kids, like I'm never going...

00:57:50.580 | Here's a little one that my daughter is seven and she's getting into reading.

00:57:53.720 | So this is kind of a dumb one.

00:57:54.860 | But I told her, "Anytime you want to buy a book from Amazon, I'm never going to say no.

00:57:58.580 | If you're going to read this..."

00:57:59.580 | She reads every night.

00:58:00.580 | I don't know how she got into this habit.

00:58:02.540 | And I told her, "Other stuff we're going to have discussions on.

00:58:04.940 | But if you want to buy a book, and I'm going to see that you're reading them, I will buy

00:58:08.660 | you a book anytime you want.

00:58:09.980 | That's like, I'm not going to think about it."

00:58:11.700 | So just little, I think little things like that help.

00:58:14.860 | And then other things, like I said, like family vacations and things like that stuff.

00:58:18.860 | I think those creating those memories and experiences are always going to be useful.

00:58:23.280 | Even though my wife is much more of a Disney person than me, like my kids are so excited

00:58:26.780 | to do this.

00:58:27.780 | And my wife wanted to stay at like the nice hotel right by that's really close to the

00:58:31.220 | parks.

00:58:32.220 | And in the past, I would have felt, "Well, why don't we stay at the cheaper one further

00:58:34.820 | away?"

00:58:35.820 | But I know this is going to be fun for the kids because there's a pool and stuff there

00:58:37.960 | and all this stuff.

00:58:38.960 | And that's the kind of thing where I'm not going to lose sleep over the fact that we're

00:58:42.520 | spending a little more on this vacation because like the memories and experience is going

00:58:45.660 | to be...

00:58:46.660 | That's going to stay with us for a long time.

00:58:47.660 | Awesome.

00:58:48.660 | I'm excited.

00:58:49.660 | My daughter's too young to really appreciate Disney, but I know that's in our future.

00:58:53.180 | It's honestly not cheap.

00:58:54.180 | And everyone says once you get there, they put this wristband on you that's attached

00:58:57.220 | to your credit card.

00:58:58.220 | And every time you want to spend money, all they do is have to swipe your wristband and

00:59:03.220 | it charges to your room.

00:59:04.620 | And I know it's a lot of money, but yeah, I think for the experience, it's totally worth

00:59:08.060 | it.

00:59:09.060 | Yeah.

00:59:10.060 | Any other hacks?

00:59:11.060 | I think the simplest one that I always tell people, especially young people, and I wrote

00:59:13.440 | this in my book for people who, let's say you're 40 or 50 years old and you're behind

00:59:18.160 | on retirement savings and you think, "All right, I'm going to become the next Warren

00:59:21.520 | Buffett and I'm going to shoot the moon and my stock picks or my investment prowess is

00:59:25.440 | going to propel my portfolio and I'm going to be fine in retirement."

00:59:28.680 | This is in my retirement book.

00:59:30.140 | And I said, "Let's say I use a simple round number like $100,000 household income.

00:59:35.720 | You save 10% of it and you could earn 6% a year in the market.

00:59:39.680 | What happens after 10 and 20 years?"

00:59:41.500 | And then I said, "Okay, what happens if instead of earning 6%, you're able to earn 12%?"

00:59:45.380 | You double it up, right?

00:59:46.380 | You're this great investor, same savings rate, you double it up, obviously your money is

00:59:50.440 | going to be much higher.

00:59:51.440 | But now let's go the other way and say instead of saving 10%, you double your savings rate

00:59:55.760 | and save 20, but your return stays at 6, right?

00:59:58.400 | You're not Warren Buffett.

00:59:59.400 | You can't double up the market.

01:00:00.400 | You only return 6%.

01:00:02.520 | Your return is actually higher from doubling your savings rate over 10 and 20 years than

01:00:06.020 | it is from doubling your investment return.

01:00:08.520 | And doubling your investment return is way harder for most people than it is to double

01:00:12.840 | your savings rate.

01:00:13.840 | Because as we talked about, beating the market and picking stocks and these things is very,

01:00:17.120 | very difficult.

01:00:18.120 | And that's promised to no one.

01:00:19.640 | But most people can probably figure out ways to save more money.

01:00:22.840 | So I always tell people, especially when you're young, that saving is way, way more important

01:00:26.400 | than investing, even though investing is way sexier.

01:00:28.960 | And it's funny, when you go from 10 to 20, it's a huge leap.

01:00:32.000 | But I always tell people, you could probably go from 10 to 11.

01:00:35.080 | You could probably go from 10 to 10 and a half.

01:00:38.120 | And if you make those adjustments over time, most people end up...

01:00:41.840 | Their budget just fills the gap.

01:00:44.260 | And obviously, if you try to take out 10%, it might be a little bit rocky.

01:00:48.080 | But if you try to take out 1% or 2% and just slowly add on to that, you become comfortable

01:00:52.760 | with it.

01:00:53.760 | And also, anytime you get a raise, maybe just sweep the raise into that process.

01:00:57.440 | If you want to get to 20 and you get a 3% raise, just take 3% right away.

01:01:01.680 | You already know you can live without the raise.

01:01:03.760 | Maybe take... To your advice, maybe take 2% and then put 1% in a fun fund so that you

01:01:08.760 | can go and spend some money and enjoy the fact that you worked hard.

01:01:11.960 | You got a raise.

01:01:12.960 | Yeah.

01:01:13.960 | The stair-step approach.

01:01:14.960 | When I first started out of college, I was making nothing.

01:01:17.460 | I think the most I could save in my boring target day fund was like $50 a month.

01:01:21.460 | But then every year, I would bump it up a little bit more and maybe save half or three

01:01:25.220 | quarters of my raise and slowly got to that place where I wanted to get...

01:01:29.200 | But like you said, if you're ripping the bandaid off and going from 10% to 20%, most people

01:01:33.140 | can't realistically do that.

01:01:35.060 | But you can do a slow stair-step approach where you increase the percentage of the amount

01:01:38.260 | a little bit every year and get to that goal.

01:01:41.380 | Okay.

01:01:42.380 | Last thing before we head out, I would love to hear... You read a lot, you follow a lot

01:01:46.780 | of sub stacks, you follow a lot of people on Twitter.

01:01:49.500 | You stay on top of the market better than me.

01:01:51.780 | Are there a few people that you enjoy reading from or following that people listening might

01:01:56.420 | want to check out if they want to stay on top of things?

01:01:59.340 | Other than you, of course.

01:02:00.340 | I came up before the whole podcast, YouTube blog thing, I was actually talking to a college

01:02:05.540 | class recently.

01:02:06.540 | And I was asking them because they all seemed way smarter about the markets than I ever

01:02:09.880 | was at that age.

01:02:10.880 | I knew absolutely nothing.

01:02:12.160 | When I graduated in 2004 or whatever it is, I came out with very little knowledge.

01:02:16.300 | And the resources today are so much more easily accessible to people, especially young people.

01:02:21.700 | They're watching the YouTube videos and following the podcast and stuff.

01:02:24.900 | Learned a lot of my stuff that I...

01:02:26.460 | My way to catch up on my lack of knowledge was just reading books.

01:02:29.320 | I think anything written by William Bernstein is my favorite investment writer of all time.

01:02:33.540 | So probably his best well known is the Four Pillars of Investing, which is from the early

01:02:38.180 | 2000s.

01:02:39.180 | But he wrote one after the 2008 crash called The Investor's Manifesto.

01:02:42.180 | He was a former brain surgeon who turned investment advisor, and it's probably one of the smartest

01:02:46.540 | people I know.

01:02:47.540 | So anything by William Bernstein is very good.

01:02:49.900 | There's also this book called, and I'm looking for some underrated ones here, not the ones

01:02:53.060 | that you can just Google and say, "What are the best investing books?"

01:02:55.420 | But I learned losing a million dollars by the story about this guy, Jim Paul.

01:02:59.200 | Have you heard of this one before?

01:03:00.840 | No.

01:03:01.840 | He was a commodities trader in the 1980s.

01:03:03.400 | And he talked about being this young hot shot commodities trader who made a ton of money,

01:03:08.360 | had no idea what he was doing.

01:03:09.480 | He made all this money and he talked about how it messed with his head.

01:03:12.960 | And he thought all the profits he was making were because he was so smart and successful.

01:03:17.960 | And then when he lost it all, he realized, "Oh, wait.

01:03:20.660 | I was actually just an idiot.

01:03:21.660 | I didn't know anything.

01:03:22.660 | I got lucky."

01:03:23.660 | So it's his emotional journey of going from this young guy who became this hot shot commodities

01:03:28.560 | trader and then losing all the money and what happened and his journey of figuring out what

01:03:33.460 | that all meant and how you shouldn't personalize successes and how much luck is involved.

01:03:38.700 | And how just because you make money doesn't mean you made a right decision.

01:03:41.460 | And just because you lose money didn't mean you make the wrong decision.

01:03:44.100 | Sometimes it's just the fate of the market.

01:03:45.900 | So that's actually one of my favorite investing books that I've ever read about the psychology

01:03:49.380 | behind it.

01:03:50.500 | I love that.

01:03:51.500 | And I love benchmarking yourself.

01:03:52.780 | I think in 2020, so many people were like, "Oh, I made so much money in the market."

01:03:56.060 | Or 2021 also.

01:03:57.060 | And I'm like, "Okay, but how did that compare to the market?"

01:04:01.060 | Because you can look like you got a 20% return but if the market went up 20%, then you just

01:04:05.380 | got the market return.

01:04:06.700 | And so I think that's a lesson that takes more than a couple minutes to process.

01:04:12.060 | But sounds like he learned that also.

01:04:14.020 | So I'll check that out.

01:04:15.500 | Anything that you use day-to-day, week-to-week?

01:04:18.400 | What's your go-to source of market news?

01:04:20.820 | Honestly, for me, I've curated a list of people to follow on Twitter.

01:04:25.980 | And I know like social media, there's a lot of bad things about it.

01:04:28.500 | But I think if you have the right filters in place, and can figure out to follow the

01:04:32.300 | right people to pay attention to this stuff, and just filter out the people who are just

01:04:36.620 | going to waste your time.

01:04:37.620 | I think there's actually a lot of signal there as opposed to noise if you follow the right

01:04:41.180 | people.

01:04:42.180 | So I guess if you're listening, just check out who Ben follows.

01:04:45.460 | And that's a good list.

01:04:46.460 | There you go.

01:04:47.460 | Look at my follower list.

01:04:48.460 | Awesome.

01:04:49.460 | And perfect time.

01:04:50.460 | What's the easiest thing you're doing?

01:04:51.460 | Podcast, book, writing, everything.

01:04:52.460 | Yeah, it's probably easiest just to check out my website, A Wealth of Common Sense.

01:04:57.060 | I've been doing that for going on 9 or 10 years now.

01:05:00.100 | I write everything there and put all the podcasts up there so that you can find me.

01:05:03.220 | Awesome.

01:05:04.220 | I'll link to all that in the show notes.

01:05:05.860 | Thank you so much for being here.

01:05:07.140 | Awesome.

01:05:08.140 | This was fun.

01:05:09.140 | I really hope you enjoyed this episode.

01:05:11.900 | Thank you so much for listening.

01:05:13.140 | If you haven't already left a rating and a review for the show in Apple Podcasts or Spotify,

01:05:18.380 | I would really appreciate it, especially Spotify since they just added podcast ratings.

01:05:24.260 | And if you have any feedback on the show, questions for me, or just want to say hi,

01:05:27.980 | I'm chris@allthehacks.com or @hutchins on Twitter.

01:05:32.480 | That's it for this week.

01:05:33.480 | I'll see you next week.

01:05:43.380 | I want to tell you about another podcast I love that goes deep on all things money.

01:05:47.960 | That means everything from money hacks to wealth building to early retirement.

01:05:51.780 | It's called the Personal Finance Podcast, and it's much more about building generational

01:05:56.100 | wealth and spending your money on the things you value than it is about clipping coupons

01:06:00.440 | to save a dollar.

01:06:01.980 | It's hosted by my good friend, Andrew, who truly believes that everyone in this world

01:06:05.920 | can build wealth and his passion and excitement are what make this show so entertaining.

01:06:11.100 | I know because I was a guest on the show in December, 2022, but recently I listened to

01:06:16.300 | an episode where Andrew shared 16 money stats that will blow your mind, and it was so crazy

01:06:21.660 | to learn things like 35% of millennials are not participating in their employer's retirement

01:06:26.620 | plan.

01:06:27.620 | And that's just one of the many fascinating stats he shared.

01:06:31.040 | The Personal Finance Podcast has something for everyone.

01:06:33.780 | It's filled with so many tips and tactics and hacks to help you get better with your

01:06:37.440 | money and grow your wealth.

01:06:39.300 | So I highly recommend you check it out.

01:06:41.420 | Just search for the Personal Finance Podcast on Apple Podcasts, Spotify, or wherever you

01:06:45.860 | listen to podcasts and enjoy.