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00:01:34.600 | Hello, and welcome to another episode of All The Hacks.

00:01:42.520 | I'm Chris Hutchins, and I am excited to have you on my journey to

00:01:45.360 | upgrade life, money, and travel.

00:01:47.120 | Today's conversation is with my good friend and fellow podcaster, Joe Salsihai.

00:01:51.840 | Joe's career in media started when he was the money man on Detroit's local

00:01:56.280 | TV station, WXYZ, and now he's the creator and host of the award-winning

00:02:01.040 | podcast, Stacking Benjamins, and a co-host of the Money with Friends podcast.

00:02:05.160 | He's also appeared online in more than 200 places, including CNBC

00:02:10.440 | and the Wall Street Journal.

00:02:11.520 | And in his previous life, he was a financial advisor and certified

00:02:15.520 | financial planner for over 15 years.

00:02:17.560 | Now, we're all quite fortunate for his decades of experience because he has a

00:02:21.960 | fantastic book that he coauthored with award-winning writer, Emily Guy-Burken,

00:02:26.600 | that just came out yesterday.

00:02:28.640 | It's called Stacked, Your Super Serious Guide to Modern Money Management.

00:02:32.640 | While the content is all very legit, the tone of the book, like Joe's podcast,

00:02:37.800 | is approachable and downright funny.

00:02:39.800 | I am excited to talk to him about how to pick investments, including why he thinks

00:02:45.160 | the key to becoming wealthy is to strategically undiversify when it does or

00:02:50.080 | doesn't make sense to hire a financial advisor, hacking all your insurance

00:02:53.960 | policies, and more.

00:02:55.200 | We'll also tackle a few listener questions about money and financial planning.

00:02:59.000 | But before that, you should know that I work at Wealthfront and all opinions

00:03:02.840 | expressed by me and my guests are solely our own opinions and do not reflect the

00:03:06.840 | opinion of Wealthfront.

00:03:07.760 | This podcast is for informational purposes only and should not be relied

00:03:11.240 | on for investment decisions.

00:03:12.480 | Okay, I know you'll enjoy this conversation with Joe, so let's jump in.

00:03:19.520 | Joe, it's cold in the Midwest.

00:03:21.680 | The holidays are around us.

00:03:23.840 | This book is coming out.

00:03:25.680 | How are you doing?

00:03:27.120 | Well, I'm in Northeast Texas and it's slightly cold.

00:03:32.320 | I'm a cold weather guy, dude.

00:03:34.160 | I'm not, I know you're a sit on the beach guy.

00:03:36.200 | Sometimes they say people are mountains or beach.

00:03:39.200 | I'm more mountain than beach.

00:03:40.600 | So this is good for me.

00:03:41.760 | It's a fire in the fireplace, a big book to read.

00:03:45.480 | How great is that?

00:03:46.560 | Yeah, it's awesome.

00:03:47.920 | I'm excited.

00:03:48.560 | Big book launch.

00:03:49.480 | You have published, I'm going to guess over a thousand episodes of a podcast in

00:03:54.560 | your career, all about money, but you decided that you wanted to take on

00:03:59.240 | another side project and write a book.

00:04:01.240 | What led you to do that?

00:04:03.400 | Cause I'm nuts.

00:04:05.080 | I was drunk.

00:04:05.800 | Would that be a good story, dude?

00:04:07.120 | I was so we were, we were drinking one night.

00:04:09.160 | Yeah, no, it didn't happen that way.

00:04:10.480 | What did happen was very seriously.

00:04:12.560 | And by the way, thanks for having me on.

00:04:13.880 | And I know we're going to have, we're going to have a blast, but I had written

00:04:16.920 | a book over the course of 10 years.

00:04:18.800 | Like a lot of people have, it completely sucked.

00:04:21.760 | It stopped.

00:04:22.400 | It started.

00:04:22.920 | It stopped.

00:04:23.320 | It started.

00:04:23.800 | It stopped.

00:04:24.200 | It started.

00:04:24.720 | And it was super, it was, you know, where this book says it's your super serious

00:04:28.280 | guide to modern money management.

00:04:29.360 | This book was overly serious.

00:04:30.880 | And it was like, this is the definitive book of big ideas on the internet.

00:04:35.600 | And it was just garbage.

00:04:36.920 | And so over the top.

00:04:38.800 | And it didn't really resonate with me.

00:04:41.360 | And I was frustrated.

00:04:42.520 | In fact, I handed it to my spouse.

00:04:43.920 | First person is your spouse.

00:04:45.800 | The first person that reads your stuff.

00:04:47.120 | Yeah.

00:04:47.800 | Yeah.

00:04:48.680 | I handed it to Cheryl and immediately she got three pages in.

00:04:52.680 | She's this sucks.

00:04:53.720 | This is horrible.

00:04:54.600 | And so we were on a trip out to Portland, Oregon, and I don't know if you've ever

00:04:58.840 | been to Powell's bookstore.

00:05:00.200 | Yeah.

00:05:00.640 | And yeah.

00:05:01.720 | And I don't know if this is the way it really happened, but in Joe's head, what

00:05:05.400 | happened was Powell's was this little tiny store in this block of buildings that are

00:05:10.200 | all connected.

00:05:10.920 | Right.

00:05:11.480 | And as the store next to them went out of business, they blew out the wall and then

00:05:15.320 | they made the store bigger and bigger to the point that now for people that have never

00:05:18.920 | been there, it's a whole block and the building doesn't really work.

00:05:22.800 | It's, it's, there's all kinds of weird stairs all over the place.

00:05:26.560 | And I think on one end, the third floor is in the same place.

00:05:30.080 | The second floor is on the other end.

00:05:31.960 | It's a great place though, for somebody like you or I to go get lost.

00:05:36.280 | And I get so many creative ideas there.

00:05:38.680 | And I end up in the kids section like I would, and I'm, and I see the Hardy Boys

00:05:45.080 | detective manual.

00:05:46.200 | And I don't know if you read this, but in fourth grade, my brother and I carried

00:05:51.080 | around this thing, Chris, that was just amazing to us.

00:05:54.640 | It was written with the help of a real live FBI agent.

00:05:57.120 | So this was legit.

00:05:58.280 | Second was it showed you how to do everything that a detective would do.

00:06:03.200 | I ended up buying the copy because I was so inspired.

00:06:06.520 | I remember just in, in fourth grade, my dad would be pulling out on a day that was

00:06:13.040 | muddy.

00:06:13.560 | And we go out and look at the tire tracks of his car to analyze his tire tracks.

00:06:18.360 | Or my mom would touch a doorknob and we'd go over with the tape and we'd take her

00:06:23.120 | fingerprint off the doorknob because you're not sure where mom's been.

00:06:26.080 | And so I had this idea and I thought, this is so great.

00:06:29.520 | It's so approachable.

00:06:31.120 | And even as an adult, I thought if there were a book like this, that adults carried

00:06:35.800 | around the way I carried this around in fourth grade and it was about money, like

00:06:39.720 | that's what we're all looking for.

00:06:41.200 | We're looking for kind of this guide that we can dog year.

00:06:44.320 | And I thought, okay, I've interviewed a bunch of people on the show and I haven't

00:06:48.040 | had that.

00:06:48.720 | So that was the germ.

00:06:49.600 | But we fly back to Michigan where I was living at the time and my mom dropped off

00:06:53.440 | my stuff that was in her attic.

00:06:55.800 | I'm 50 years old, man, I'm 50 years old.

00:06:58.600 | My mom's finally giving me the sixth place father, son bowling trophy, right?

00:07:04.000 | From this tournament we were in when I was like seven and my little league photos.

00:07:08.720 | But the big thing that was in there, it was the cub scout wolf guide.

00:07:11.800 | And a lot of what you talk about hacks that I think is super important and has

00:07:17.560 | always been important to me is if you gamify this, if you find ways to build

00:07:22.680 | milestones, like a lot of the time, my clients, when I was a financial planner,

00:07:25.640 | they would have these big, huge goals and they were so hard to get to.

00:07:29.280 | So we would build these milestones along the way so we could celebrate and we could

00:07:33.560 | figure out if we were ahead or behind our pace.

00:07:36.280 | If we keep track of pace, I've run 11 marathons and I keep track of my pace the

00:07:41.640 | whole time so that I come in where I want to come in.

00:07:44.520 | It's the same thing I think with a lot of these big financial goals we have.

00:07:47.520 | Tony Robbins even has said that we overestimate the things we can do in a day

00:07:52.120 | because we over plan the to-do list.

00:07:53.760 | But because we never plan a five-year plan or a one-year plan, we underestimate the

00:07:58.800 | number of things we can do in a year.

00:08:00.720 | If we chunk those down into smaller pieces, we could do it.

00:08:04.080 | So the Cub Scouts, though, in the Cub Scout Wolf Guide, these guys, Chris,

00:08:08.880 | gamified things way before all these cool FinTech apps did.

00:08:12.560 | And they did it in a very similar way, but back when I was a kid.

00:08:17.240 | And it was very simply all the tools that you're going to need.

00:08:20.800 | And then they told you how to do the task.

00:08:23.440 | And then there are a bunch of checkboxes at the bottom to show proficiency, right?

00:08:28.160 | And then at the bottom for you to get your badge, you get a badge and there's a

00:08:31.760 | place for your mom to sign it to verify that you did it.

00:08:34.120 | And I thought that is so cool and it's so campy.

00:08:37.240 | And so when we created Stacked, it starts off with people that know nothing.

00:08:41.760 | And at the end, as you know, we're talking about strategic underdiversification,

00:08:45.000 | about tax planning, about estate planning, about how to hire advisors that won't

00:08:49.600 | bleed you dry, about modern portfolio theory.

00:08:51.920 | Like we're in at the bottom of the book, some heavy stuff.

00:08:54.600 | But it goes piece by piece and we do it like it's achievements.

00:08:58.720 | And there's a place at the end of every chapter for your mom to sign that you did

00:09:02.080 | it. So that was the idea.

00:09:03.160 | There were a few ideas. I love gamification.

00:09:05.200 | I don't see it enough in the people I've interviewed in the books that I've

00:09:08.520 | interviewed. I think we need that.

00:09:10.040 | I think second, a guide that people can dog ear and carry around could be very

00:09:14.640 | important. And then third, and you and I have talked about this a lot.

00:09:18.440 | There's a report that I love by this group called Nonfiction.

00:09:22.360 | And it's the secret financial life of Americans.

00:09:24.720 | And this thing hit me hard.

00:09:26.320 | But a big statistic was that 150 million people in America report that they've

00:09:31.640 | cried about their money. 150 million people.

00:09:35.280 | And you'd think that those people are people that are living paycheck to

00:09:39.840 | paycheck. But almost 50 percent, a little less than 50 percent of people that make

00:09:44.040 | over $250,000 a year report that they're crying about their money.

00:09:49.080 | And it's funny when we talk about money, we often talk about, so what's hot?

00:09:52.400 | What's the new thing? What's the cool new tech?

00:09:55.000 | I don't think, Chris, people are crying about the fact that central bank digital

00:09:59.400 | currency is probably going to be a factor in our lives more and more in the next

00:10:04.320 | couple of years. And that's like the hot new thing.

00:10:06.600 | They're not crying about the fact that the mega backdoor Roth IRA might be going

00:10:11.040 | away. It's not what they're crying about.

00:10:12.720 | So there's a lot of people I think that are being missed because even though apps

00:10:16.840 | I think are doing a kick ass job of gamifying, I haven't seen as much in the

00:10:20.920 | press. So we want to have a book that kind of bridges that gap.

00:10:23.480 | I appreciate the advanced copy and I definitely checked off some boxes and I

00:10:29.440 | actually loved it because there were some chapters where I was like, I got this.

00:10:32.440 | I'm just going to move to the next one.

00:10:33.680 | And it made it really easy for at least for me to process and run through.

00:10:38.480 | You mentioned some of the advanced stuff, which is where the hacks come in.

00:10:41.680 | I know there's a lot of fundamentals and I think a lot of people listening have

00:10:44.720 | laid the fundamental groundwork.

00:10:46.720 | And if not, now there's a book.

00:10:48.160 | You can go buy it. I assume it's sold wherever books are sold.

00:10:50.960 | Right. Absolutely.

00:10:52.200 | We can we can skip to the advanced stuff is what you're saying.

00:10:55.520 | No, no, no. I'm just saying that I feel like the theme is like digging into some

00:10:59.160 | of the hacks and some of the basics of personal finance.

00:11:02.960 | Like when you're when you have debt, some of the basics are tackling it from the

00:11:06.960 | high interest first and getting down to the point that the only debt you really

00:11:10.960 | have is so low interest that the most important thing is to probably invest

00:11:15.480 | for the future instead of pay off your one or two percent loan.

00:11:18.680 | So I don't want to gloss over that because for so many people, those foundations

00:11:22.600 | are really important. But in the spirit of the hacks, I wanted to dig into a few

00:11:27.600 | of the things that I thought were a little bit contrarian that to me, I was

00:11:32.040 | like, oh, this seems like an opportunity for me to tweak and optimize.

00:11:35.760 | And it doesn't have to be at only the advanced level, but one of the things was

00:11:39.560 | around investing and how people make a decision on what to invest in.

00:11:42.920 | And we did an episode with my boss, Andy Ratcliffe, who started Wealthfront.

00:11:47.640 | And we talked kind of at a high level on some of the fundamentals of investing,

00:11:51.640 | when to buy, not to time the market and that stuff.

00:11:53.960 | But we didn't really talk too much about picking investments and how to decide

00:11:57.680 | what to do. How is your kind of conversations with people and all the

00:12:01.160 | research you did for the book led you to have your own new opinion on how people

00:12:05.120 | should invest?

00:12:06.480 | The funny thing is, for me, actually, it isn't a new opinion.

00:12:09.320 | It's been my opinion for a long time.

00:12:10.760 | Because whether I was a financial advisor, and that was a long time ago, to the

00:12:15.440 | whole Stacking Benjamins, second career, having fun, having a podcast, people

00:12:20.400 | writing me their questions, the question always, a lot of questions wrapped up in

00:12:24.920 | FOMO, wrapped up in, hey, there's this thing going on.

00:12:27.600 | Should I jump in? Or what's the hot investment?

00:12:29.960 | I go to a party. I try not to tell people what I do a lot of the time, because

00:12:34.960 | it's almost always, so what are you telling people to invest in today?

00:12:37.960 | What's the one thing that people should be getting into?

00:12:40.320 | And I think that's tip.

00:12:41.840 | Yes.

00:12:43.000 | And the frustrating thing is that I feel like that makes you walk around, that

00:12:47.560 | makes people walk around like, I'm so afraid that I'm going to miss something

00:12:51.960 | that I have this whole fear missing out.

00:12:54.360 | And I think that the better way to do this in the hack is all in your approach.

00:12:59.240 | I love, by the way, when I read this book, I didn't think it, I didn't think it

00:13:03.560 | appealed to me. Like, I read this book and I went, ah, a long time ago.

00:13:06.600 | It's this book called, little book called Stephen Covey's Seven Habits of Highly

00:13:10.520 | Affected People. And I know a lot of your audience has probably read this book.

00:13:13.800 | And if you haven't read it, you probably should, because at the time I thought it

00:13:17.480 | was okay. It was meh. And now I quote this book all the time, because if you begin

00:13:23.000 | with the end in mind and you work backward, it is so much easier, Chris, to

00:13:29.640 | choose investments because the key to choosing the right investments is in, is

00:13:33.200 | in doing enough research to make the right decision on the investment for you.

00:13:38.840 | And if we're trying to track the full field of all the investments that are out

00:13:42.760 | there, we're going to end up not building a good enough funnel with enough data

00:13:47.720 | points to make a good investment decision.

00:13:50.520 | So the first key is I want to limit my scope and the amount of time at the top of

00:13:56.640 | the funnel so that I can spend more time digging into just a few investment

00:14:00.720 | opportunities. And clearly the way to do that is think about it like a farmer

00:14:05.600 | thinks about crops in a field, right?

00:14:08.040 | If I'm planting corn, I'm from West Michigan, so everything is agriculture for

00:14:11.520 | me. If I'm planting corn, farmers over, over thousands of years have figured out

00:14:17.360 | that there's a day you plant or a week or a time you plant the corn and there's a

00:14:21.360 | time that you take it out.

00:14:22.720 | You don't plant it at different times.

00:14:25.040 | You don't take it out of the field at different times.

00:14:27.200 | And so you think about your planting time and your harvest time.

00:14:30.760 | It's the same thing with investments.

00:14:32.400 | So if I have a 15 year time frame, let's say, and I know how much money I'm going

00:14:37.280 | to need at that time, I can build a simple spreadsheet that shows me how much

00:14:42.160 | money I need to save to get there.

00:14:44.000 | Maybe, you know, per month, per year, per week, whatever you want to do, times

00:14:48.360 | whatever interest rate I need equals the goal.

00:14:51.760 | And once I have that, by the way, for all my different goals, and I like building a

00:14:55.200 | visual sheet because most people, just the way our brains work, we're visual

00:14:58.760 | people. So instead of writing this, I like having visuals on a timeline.

00:15:04.040 | Once I have that, though, and I know how my goals work against each other, I can

00:15:09.680 | then start figuring out my cash flow toward those goals better.

00:15:13.080 | And when I look at those interest rates, it takes this huge field of investments

00:15:18.040 | that are available to everybody, and it narrows the field to only the investments

00:15:23.880 | that have fit that purpose.

00:15:25.800 | And when I start there, then I limit the top of the funnel by so much.

00:15:30.640 | And then all these inputs that you and I get all the time of, "Hey, there's this

00:15:34.520 | opportunity. There's this new thing.

00:15:35.960 | There's this cool deal I can invest in." I can immediately fit it to the end and go,

00:15:41.280 | "Yeah, that doesn't fit." Which means an investment might be cool.

00:15:46.000 | It might be great.

00:15:47.080 | It might be awesome.

00:15:48.280 | And it still just isn't for you because it doesn't fit.

00:15:52.080 | And it's being able to say no to some opportunities that might be a great

00:15:56.640 | opportunity, but good for somebody else, is a lot of times the best thing you can

00:16:00.440 | do for yourself.

00:16:01.280 | How do you find that kind of world of investments and narrow it down?

00:16:05.800 | You know, everyone's always looking for the next hot investment, but let's shelve

00:16:09.680 | that because I feel like finding the next hot investment is almost always a losing

00:16:14.480 | proposition. People who professionally try to pick the next hot investment over

00:16:18.720 | time seem to always underperform.

00:16:20.760 | But what about just sourcing alternative investments?

00:16:24.040 | Do you have an opinion on things outside of just the stock market fitting into

00:16:28.880 | people's portfolios, whether they're real estate, agriculture, crypto, all that

00:16:33.600 | kind of stuff?

00:16:34.200 | Yeah, yeah.

00:16:35.720 | I love all of those.

00:16:36.920 | Yes.

00:16:38.000 | The answer is yes.

00:16:39.440 | When it comes to alternative investments, I don't think you start with the field,

00:16:43.240 | Chris, because if you start with the whole field, once again, you're going to get

00:16:46.840 | this FOMO and you're going to waste a bunch of time investing stuff that doesn't

00:16:51.640 | fit what you want.

00:16:52.600 | And a key, I think, with alternative investments is, I hate the word passion,

00:16:57.480 | but I think you have to be into it enough.

00:17:00.560 | You have to like it enough that you can do the research it's going to take for you

00:17:05.000 | to get in there.

00:17:06.320 | So I'll give you an example.

00:17:07.400 | Recent crowdfunding rules have really opened things up for people, which is super

00:17:11.840 | exciting.

00:17:12.680 | It used to be that very few people could invest.

00:17:14.960 | And I'll give you an example that I like in the world of art, right?

00:17:18.920 | Art used to be something that has been a high potential return place.

00:17:24.000 | You can also get your butt kicked in art.

00:17:26.120 | But art is super interesting, mostly because of the fact that over long periods of

00:17:31.640 | time, it consistently art has beat the pants off of inflation, has just smoked

00:17:36.920 | inflation.

00:17:38.000 | But art was something when I was a financial planner, I couldn't recommend because

00:17:42.720 | back then before these crowdfunding rules, I couldn't tell my client to go find a

00:17:46.800 | Van Gogh, right?

00:17:48.040 | If I'm working with somebody that maybe has a million and a half dollars or $500,000

00:17:53.720 | or whatever the amount is, the Van Gogh is going to suck up a huge portion of that.

00:17:58.880 | And to have that in one painting is just a ridiculous risk that I would never

00:18:03.120 | recommend that anybody takes.

00:18:04.800 | And I know we're going to talk about strategic underdiversification, but I still

00:18:08.600 | wouldn't take that risk.

00:18:09.600 | But now when I can put my money in a fund that buys art, or I can put my money toward

00:18:15.560 | a painting, but only own a fractional share of that painting.

00:18:18.520 | Now, all of a sudden, I'm really interested in this asset class.

00:18:23.760 | But then I also look at, so when I look at that asset class, I also have to think

00:18:29.080 | about historically, how has it bumped around and how has it bumped around versus

00:18:34.520 | other things that I've invested in now?

00:18:36.200 | And for that, and if we really want to deep dive, I think we get in a modern

00:18:39.840 | portfolio theory and Dr.

00:18:42.200 | Harry Markowitz and the Efficient Frontier.

00:18:44.880 | And if you look at the line on the Efficient Frontier, if I'm buying art, I also want

00:18:49.480 | to buy other things along with art that can also not just smooth out my ride, but

00:18:54.680 | make it so that, because that art's probably going to be, is going to have some

00:18:58.960 | characteristics like illiquidity that might get ugly.

00:19:02.840 | Art during downturns tends to hold its value.

00:19:05.800 | However, during downturns also, it holds its value because there are fewer sales,

00:19:09.840 | like people, which increases the illiquidity.

00:19:12.960 | So look at the way that I just looked at it.

00:19:14.560 | Instead of starting off with, what are all the different things out there?

00:19:18.640 | I look at, okay, I'm really interested in art.

00:19:21.520 | Is there a way for me to buy into the art community?

00:19:23.520 | What are the different ways to buy?

00:19:24.920 | I can buy fractional shares of a painting.

00:19:26.680 | I can buy an individual painting.

00:19:28.320 | I can buy into a fund that buys a lot of different paintings.

00:19:31.360 | Then I look at how those different things work.

00:19:35.800 | I look at how art works over time.

00:19:38.200 | I place it with the rest of my portfolio and see where it will

00:19:42.000 | fit with the rest of my portfolio.

00:19:43.840 | And then I start thinking about making a decision and that decision then later

00:19:49.240 | on down the funnel will include what's the cost, right?

00:19:52.840 | Cause the people that run these funds, these crowdfunding funds,

00:19:55.000 | they ain't doing it for free.

00:19:56.080 | So what's my cost benefit analysis.

00:19:58.520 | Also with crowdfunding is the world changing and how is that changing?

00:20:01.840 | And I don't have answers, Chris, to any of those questions,

00:20:04.080 | but look at what I just did.

00:20:05.120 | Like I created this whole funnel of interesting conversations that are going

00:20:09.800 | to lead me to a much better decision point.

00:20:12.280 | And at anything, I went to Catholic school and I remember brother Jim in my

00:20:16.920 | religion class telling me that at some point you either believe or you don't.

00:20:21.160 | Right.

00:20:21.520 | And I think it's the same with investing.

00:20:23.560 | You get as much data as you can.

00:20:25.880 | And my goal has always been to drive as much data as I can to put the odds in my

00:20:31.400 | favor.

00:20:32.240 | And it's only after I have a bunch of data that I actually decide whether I'm

00:20:36.640 | going to pull the trigger.

00:20:37.400 | And at that point, do I believe or do I not believe?

00:20:39.800 | And then I push the button to buy or I go looking for the next opportunity.

00:20:44.040 | So two things.

00:20:45.160 | One, if we lost anyone talking about modern portfolio theory or the efficient

00:20:48.920 | frontier, I'll just put some links in the show notes to some stuff to read,

00:20:52.280 | including the book.

00:20:53.320 | So that's one.

00:20:54.200 | Two, we didn't get into any specifics.

00:20:56.280 | Are there any platforms out there that you talk to a lot of fintech companies

00:21:00.440 | that are interesting or exciting to you that if someone wants to think about

00:21:04.120 | things that are worth checking out?

00:21:05.560 | Let me tell you this.

00:21:07.040 | I'm going to tell you what to avoid because there's garbage out there, Chris.

00:21:10.840 | What I get more worried about than what's the hot thing.

00:21:13.640 | And I'll give you a couple of things that I like to since you asked.

00:21:17.240 | So I'm not going to completely avoid the question, but I'll tell you there is a

00:21:21.400 | real estate syndication company and I'm not going to say the name,

00:21:24.400 | but there's a real estate syndication company that for a long time,

00:21:28.120 | and people ask about it.

00:21:28.960 | I saw somebody ask about it in a Facebook group yesterday and this company drives

00:21:33.000 | me crazy because on there on the front page of their website,

00:21:37.800 | they had a forward looking graph of about how this is expected to perform.

00:21:42.800 | And it said name of the company engineered for superior real estate results.

00:21:49.040 | Who the hell do you and I know in real estate that isn't hoping to engineer for

00:21:52.840 | superior results? Like really?

00:21:54.800 | Real estate's like the oldest asset class on earth.

00:21:58.040 | These whiz bang people finally figured out a method that nobody's figured out

00:22:02.800 | before them to engineer for superior results.

00:22:05.560 | And then they show a forward looking graph, which by the way,

00:22:08.080 | if the sec was paying attention,

00:22:09.960 | you and I know a mutual fund can't do that and exchange traded fund can't do

00:22:13.320 | that. I don't know how these guys were getting away with it.

00:22:15.400 | So beware charts and graphs. Number one,

00:22:17.440 | beware somebody that tells you that they have picked the lock on something that

00:22:21.640 | nobody else has ever done. Really? Yeah.

00:22:26.080 | I just don't think so.

00:22:26.920 | Yeah. Yeah. And when it comes to any alternative, one thing I always ask is the

00:22:31.480 | value proposition, the way the company makes money,

00:22:34.000 | is it by providing a value that was new to people, right?

00:22:37.680 | So take the case of fractional art. We're going to take a fee.

00:22:40.720 | We're not telling you art is going to 10 X because of our company.

00:22:45.160 | We're just saying we can give you access to it.

00:22:47.320 | And we take a fee to manage that access. And I'm like, Oh, right.

00:22:49.800 | I will pay someone to do something that allows me to do something I couldn't

00:22:53.320 | otherwise do. That makes sense. Absolutely.

00:22:54.880 | And so look at what they're trying to present themselves as that's an important

00:22:58.920 | one, but you, I'm going to hold you to it.

00:23:00.440 | You said you were going to share some of the ones you're interested in.

00:23:02.440 | Yeah, I get, I do get interested in farmland.

00:23:05.520 | I think that farmland,

00:23:07.040 | even though the past few years have been really a lot of investors going that

00:23:10.680 | way, I think farmland is still super exciting.

00:23:13.760 | I think it's exciting for a guy like me because it's so boring.

00:23:17.560 | The things that I like about investments aren't the new, sexy, wild things.

00:23:22.080 | And don't be wrong. Those are fine. But if an investment,

00:23:24.720 | if I can easily understand how somebody makes money,

00:23:27.200 | I can easily understand my downside.

00:23:29.680 | I get why I would make money.

00:23:32.800 | And I think there's a reasonable expectation that I will make money.

00:23:36.080 | And my downside is not that high. I think that's why I like farmland.

00:23:39.080 | It's just, it's easy. It's straightforward. It's simple.

00:23:41.920 | It's one that even though so many investors have gone to the last few years,

00:23:45.240 | I still don't see the rush there like I have in residential real estate.

00:23:48.800 | And it's completely the opposite of what's going to happen in commercial real

00:23:51.120 | estate. Commercial real estate is, it has to have a transformation now.

00:23:55.000 | And I don't think, I don't think a lot of people,

00:23:57.680 | definitely people above my pay grade are figuring that out today as we speak.

00:24:02.000 | It seems like with every business you get to a certain size and the cracks start

00:24:08.160 | to emerge. Things that you used to do in a day are taking a week.

00:24:11.800 | And you have too many manual processes and there's no one source of truth.

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00:27:08.400 | So when you talk to most people about investments, they'll say,

00:27:12.240 | you got to diversify as much as possible.

00:27:14.120 | And one of the contrarian opinions in the book is that the key to becoming

00:27:18.200 | wealthy is to strategically undiversify. Can you unpack that?

00:27:21.960 | And the reason I write about this is because it's what everybody wants their

00:27:25.440 | advisor to do. And being a guy that was an advisor for a long time,

00:27:29.400 | they want advisors to make them rich. Let's be clear.

00:27:32.000 | A fiduciary financial advisor will never tell you how to get rich with money.

00:27:35.640 | They won't. They'll show you how to diversify your money for two reasons.

00:27:39.840 | Number one,

00:27:40.680 | they know that your number one way of becoming wealthy is actually keeping an

00:27:45.840 | income stream that adds to investments that beat inflation.

00:27:50.160 | So if they can help you figure out the behaviors to continue to put more money

00:27:54.720 | in, and then they can diversify usually into something that mimics the indexes,

00:27:59.640 | right? And keep you close to the efficient frontier. What I'm saying, Chris,

00:28:03.360 | is that what a certified financial planner is going to tell you is boring is

00:28:06.520 | good, but sexy is not where you want to be. Boring is good.

00:28:10.360 | And doing the other thing is great, but I'm not a financial planner anymore.

00:28:15.720 | So I get it. And by the way,

00:28:17.240 | the other thing is think about what can go wrong with strategic under

00:28:20.120 | diversification. If you are wrong,

00:28:23.440 | what we're going to do here is do something called increased standard deviation.

00:28:26.920 | So let's take standard deviation.

00:28:28.400 | Standard deviation is the wiggle in your portfolio.

00:28:30.560 | And when people used to come into my office and we would build a portfolio

00:28:34.960 | together and we determine what indexes we're going to mimic and how we're going

00:28:38.920 | to put the portfolio together,

00:28:40.160 | I would then run the software to show you the standard deviation on that

00:28:44.200 | portfolio. And if you look at one standard deviation, either way,

00:28:47.800 | I'll tell you, Chris, for you and your family, this historically,

00:28:52.120 | we're aiming for 8.5% after tax.

00:28:55.600 | We're in for an 8.5% rate of return. That's what we're getting. Now,

00:28:58.680 | here's the good news is one standard deviation.

00:29:01.400 | And we're not going to go into all that, but in most years,

00:29:04.160 | we can have 14% above that. And it's still a normal year.

00:29:08.960 | That's fantastic.

00:29:10.400 | We could also have 10% below that and it's still going to be in the

00:29:15.520 | range of expected results. And we're going to be okay. If we get that wiggle,

00:29:19.960 | that which is what we expect with this portfolio, we're going to be okay.

00:29:23.680 | And it's like a weather report,

00:29:25.200 | or it's the pilot of the plane who tells you you put in the fasten seatbelt sign

00:29:28.880 | on, because it's going to be a bumpy ride. Like looking ahead.

00:29:31.760 | I love standard deviation because it's a look ahead on what I can expect from

00:29:36.240 | this investment. And I'll give you an example.

00:29:38.400 | When you saw the last couple of years, the market dropped 14%.

00:29:43.760 | 14% for the S&P 500 is within that first standard

00:29:48.840 | deviation. Meaning that's a normal day.

00:29:52.520 | That's actually a normal time. It's not a bear market.

00:29:55.600 | And what's going on CNBC and Fox visit. They're freaking out.

00:29:58.920 | They're freaking out. We're going to, but things are tail spinning. No,

00:30:01.960 | they're not. This is just pretty bumpy day on the ride.

00:30:05.920 | So what we do to strategically under diversify is we

00:30:10.600 | increase standard deviation, which means our upside potential gets higher,

00:30:15.840 | but you also have to remember, Chris, then what does that do to the downside?

00:30:18.800 | We're also taking on a lot more risk.

00:30:20.840 | And to give you an example of how this is work for people, Dave Ramsey,

00:30:24.920 | my buddy Dave in Tennessee tells his followers to

00:30:29.600 | invest in actively managed mutual funds,

00:30:33.120 | usually through a company called American funds. And that's what he advocates.

00:30:37.080 | Dave is a hugely wealthy person, just monster, wealthy, wealthy,

00:30:41.400 | build a huge company lives in this monster house has a gigantic net

00:30:46.280 | worth. Dave did not get wealthy following Dave's advice.

00:30:49.920 | Dave didn't diversify a bunch of mutual funds.

00:30:53.000 | Dave tried twice the first time he bought some real

00:30:57.960 | estate properties and he went bankrupt.

00:30:59.800 | So he increased standard deviation through real estate and he went bankrupt

00:31:03.440 | doing it, owed people a bunch of money. Then he came back, right?

00:31:07.320 | This is Dave story.

00:31:08.120 | Dave comes back and he builds a company telling people not to do that.

00:31:11.720 | And he made money, not owning a diversified collection of stuff,

00:31:15.560 | but by owning one company, one thing, that's how Dave got rich.

00:31:19.600 | So if you're really interested in being wealthy, find something that's good,

00:31:24.640 | make sure it doesn't stink. Make sure that you're,

00:31:27.880 | that it's going to actually do what you hope it does.

00:31:31.240 | And you're going to get wealthy a lot faster.

00:31:34.280 | The bad news is you're going to get poor a lot faster if it doesn't go the way

00:31:37.880 | that you want.

00:31:38.720 | Yeah. And like you said earlier, focus on something you know about,

00:31:42.000 | you care about, you can pour your heart and soul into some random thing that

00:31:46.720 | someone told you at a party.

00:31:47.760 | Jason Zweig in the,

00:31:49.400 | who's a phenomenal writer in the wall street journal a couple of weeks ago,

00:31:52.240 | was talking about a gentleman who has been managing money since

00:31:57.240 | the mid 1970s. And he's only given five interviews during his career.

00:32:02.080 | He's stepping down from managing money.

00:32:04.120 | And Jason talks about the key to his success. He owns very few companies.

00:32:08.240 | He doesn't waste a lot of time on the top of the funnel.

00:32:10.880 | Like we talked about earlier dealing with FOMO and all these different ideas.

00:32:14.760 | He owns just a few companies and he spends 90% of his time understanding the

00:32:20.040 | heartbeat of those companies explicitly.

00:32:23.320 | He knows everything about these companies.

00:32:26.160 | Yeah. It sounds like you got to make good decisions and stick to them,

00:32:29.320 | which you said the value of hiring an advisor is about helping you make good

00:32:34.040 | decisions.

00:32:34.880 | A question I've gotten a few times from listeners is how do you make the

00:32:38.320 | decision to hire an advisor? When does it make sense?

00:32:40.480 | How do you interview them? You've been one for over a decade.

00:32:43.920 | Now you're not one and you can give whatever advice you want.

00:32:46.560 | How would you answer that question to people?

00:32:48.800 | Yeah. And I want to,

00:32:49.680 | and I would be careful here because I've been told by people that because I was

00:32:53.120 | a financial advisor,

00:32:54.160 | people all of a sudden think that I'm going to have a bias toward them.

00:32:57.800 | And so when I talk about advisors,

00:32:59.880 | I want to just warn everybody ahead of time that I think differently about

00:33:04.000 | advisors I think than most people do. And when people fire their advisors,

00:33:08.680 | I generally think that is a good thing to fire your advisors.

00:33:12.720 | And it's mostly Chris because they have the wrong relationship with their

00:33:15.920 | advisor. I think so with that preamble,

00:33:19.520 | let me lay this out. I think we all need advisors. Everybody need advisors.

00:33:24.240 | I need somebody who's not me,

00:33:26.840 | who's not emotional about my stuff, who I know has my back,

00:33:32.160 | and who is going to give me some good ideas and tell me where

00:33:37.720 | I'm stepping in it.

00:33:38.600 | What's cool is that Walt Disney back when he was creating Disneyland,

00:33:42.400 | and this was, think about Disneyland at the time.

00:33:44.840 | The thing that he was competing against were these fairs that went,

00:33:48.040 | these garbage fairs that went from place to place and carnivals were known as

00:33:51.720 | dirty and dirty people that work there and

00:33:56.200 | sketchy environment. In a lot of cases,

00:33:58.280 | he's trying to create this clean family,

00:34:00.800 | something that's differentiating from that,

00:34:02.960 | but he still was a pioneer going in this new direction.

00:34:06.960 | So a great story about Walt Disney was he would often wear a disguise where he's

00:34:11.200 | wearing a hat or a hat and a wig or some sunglasses.

00:34:13.840 | And he'd walk around the park and he'd stand in lines and he'd fire up a

00:34:17.960 | conversation with people in line with him and go, Hey,

00:34:20.600 | what do you think about this ride? What do you think?

00:34:22.400 | What have you heard about it? Is it, do you think it's as good? Man,

00:34:26.120 | I've been thinking about some things that this park could have that it doesn't

00:34:28.720 | have. What could this park have that he's looking for advice all over the place.

00:34:33.600 | And for him, it was hard to give Walt Disney advice.

00:34:36.080 | I've read a lot about Walt and it was,

00:34:38.120 | he was very opinionated and it was hard to look him in the eye and say,

00:34:43.040 | I think you're messing up. But he craved that.

00:34:44.840 | And I think we should all crave that.

00:34:46.160 | I think too often we get defensive and instead we should be asking ourself,

00:34:50.680 | where am I messing this up? If I ask more often, I have that growth mindset.

00:34:54.840 | Where am I messing this up? I think I'm going to do a better job.

00:34:56.920 | So even if I'm just starting out, Chris,

00:34:58.640 | I want to take wealthy people that are going,

00:35:01.720 | that have already been where I want to go. I want to take them to lunch.

00:35:05.560 | I want to pick their brain. I want to put them on my board of directors.

00:35:08.760 | And the reason I like people firing advisors is because if you've an advisory

00:35:14.200 | relationship where you have abdicated the throne

00:35:18.640 | and they're doing it for you,

00:35:21.000 | instead of advising you and how you won't step in it and how to do a better job,

00:35:26.200 | you have the wrong relationship. And to give you an idea,

00:35:29.400 | everybody talks about Tesla. I'm actually, as a Detroit guy,

00:35:34.240 | I'm a fan and I groan sometimes, but I am a fan of General Motors.

00:35:38.520 | I'm a fan of Mary Barra and the job that she's done,

00:35:40.920 | taking this legacy organization and trying to make them competitive.

00:35:43.880 | And I watched that because that's a huge struggle for the whole city.

00:35:48.440 | But Mary doesn't not show up at work, Chris.

00:35:52.480 | She doesn't not show up at work. She doesn't go, Hey, okay,

00:35:55.600 | I'm going to meet with you twice a year about these cars we're making.

00:35:58.160 | And I'm going to go do something else,

00:36:00.040 | which is what people do with their financial advisors. No,

00:36:03.400 | Mary goes to all the meetings. She knows everything about a car.

00:36:06.600 | I just went to this thing, Camp Phi, which was awesome.

00:36:09.480 | She goes to the camp outs and meets with other people that are car enthusiasts.

00:36:13.440 | She goes to the engineering meetings.

00:36:15.360 | She talks the talk about unions and pay scale and economics and what's selling

00:36:20.360 | and what's hot, what's new, what's the, she goes to everything.

00:36:23.480 | But then what does she do?

00:36:24.600 | She surrounds herself with these phenomenal engineers and vice presidents who

00:36:29.520 | are smarter than she is about every aspect of the car.

00:36:32.640 | And that I think is what we want in our life.

00:36:36.000 | So my standpoint in the most long way possible,

00:36:39.680 | I think we should all have advisors. I really,

00:36:42.800 | it is less dangerous to hire a CFP,

00:36:46.360 | but as you can tell by my explanation of what an advisor is and what advisor

00:36:49.960 | isn't, I actually don't really care. Hire people that, you know,

00:36:53.320 | have your back. We say hire a CFP and hire a fiduciary. Why is that?

00:36:57.840 | Number one, a CFP is somebody who I know has this depth of knowledge about the

00:37:02.840 | things that go on in creating a financial plan. That's good. I want that.

00:37:08.480 | The second thing I know about some CFPs is they are this thing called a

00:37:12.840 | fiduciary,

00:37:13.360 | which means they are required to do what they think is in my best interest.

00:37:17.360 | I want all my advisors to be fiduciaries.

00:37:19.720 | So those two things, if you're checking boxes, yes, ask those,

00:37:25.080 | but more important, I'm really just looking, what is my fit?

00:37:29.200 | What is your expertise? How do you make me go faster?

00:37:32.160 | How do you make me smarter?

00:37:33.560 | How do you involve me in the process so that I can still do other things and

00:37:37.680 | still be involved in what we're trying to create together?

00:37:40.520 | That's who I'm looking for as advisors.

00:37:43.800 | And what about on the execution side?

00:37:47.400 | Do you think it makes sense to hire someone to rebalance your accounts and tax

00:37:51.960 | loss harvest and that kind of stuff?

00:37:53.440 | That's not really advice as much as execution.

00:37:56.720 | Doesn't matter at that point, right? That's not advice. That's delegation.

00:38:00.600 | Do you want to hire a team to do that?

00:38:02.240 | Do you want to hire asset managers to manage the asset for you to hold them?

00:38:05.160 | Maybe. It depends on what you're,

00:38:07.400 | if you start with your end and where you're trying to go and work backward,

00:38:11.320 | you'll make some great decisions on whether what you delegate and what you keep.

00:38:15.040 | Just realize this, that I had a family member die recently.

00:38:19.200 | And the thing that we always try to optimize is our money.

00:38:23.680 | And the thing I don't think we optimize enough is our time.

00:38:27.040 | And it made me realize yesterday that you don't know when the story's going to

00:38:30.960 | end and don't waste your time doing tasks that are below your

00:38:35.760 | pay grade. And by pay grade, I don't mean a money amount,

00:38:39.360 | meaning stuff that you really don't value that aren't going to give you that

00:38:43.280 | richness that we're all looking for. Delegate that crap,

00:38:47.040 | delegate as much of it as you can.

00:38:48.520 | But be involved to know how the decisions get made.

00:38:51.480 | Absolutely. Don't abdicate. And I love it when I hear Chris,

00:38:54.840 | people fire their advisors. They're like, I just fired my financial advisor.

00:38:58.000 | And generally,

00:38:59.280 | I think that's a good thing if you're trying to reinsert yourself in the process

00:39:03.840 | because you made this mistake of being in a relationship where you just handed

00:39:07.680 | over the keys to the kingdom. You don't want to do that.

00:39:09.920 | Okay. This is going to be a bit of a hard turn,

00:39:12.320 | but it's something that I thought was really interesting in the book.

00:39:15.800 | You know, maybe we should have started here because it's a far more first step

00:39:18.720 | thing. We talk, you talk about emergency funds.

00:39:20.720 | And the reason I want to bring this up is I have always looked at the emergency

00:39:25.600 | fund and thought, okay, I could leave a couple months of cash somewhere.

00:39:29.080 | And the argument was always, you might lose your job. You might, you know,

00:39:32.680 | need to pay for a expensive medical bill. And you know,

00:39:36.640 | those are all fine. And those are good reasons to hold emergency funds.

00:39:40.000 | There were a few things you put on there that kind of made it seem like an

00:39:43.840 | emergency fund could be a hack to save you money.

00:39:46.320 | And I would love to talk about them because I've always

00:39:51.240 | seen the emergency fund as this boring thing that costs you, right?

00:39:54.600 | It's cash that's sitting somewhere and not earning.

00:39:56.720 | But you pointed out things like raising the deductibles on your policies,

00:40:01.560 | because you have this emergency fund, which saves you money each month.

00:40:04.960 | Can you talk a bit about some of the things that you think make emergency funds

00:40:08.760 | financially beneficial beyond just paying for emergencies that might arise?

00:40:13.800 | Yeah. Insurance companies want to talk about buying insurance,

00:40:16.680 | and you don't want to have that discussion.

00:40:18.080 | The discussion you and I want to have as owners of our, you know,

00:40:22.640 | personal business, which is our life is our business.

00:40:25.200 | We want to think about risk management.

00:40:27.200 | And even we talked about portfolio building. We talked about risk management,

00:40:30.200 | right? What can go wrong?

00:40:31.240 | So the first thing I want to ask is not what insurances should I buy?

00:40:34.640 | It is what could go wrong and then how do I meet that? And for most of us,

00:40:39.680 | once you build an emergency fund, it can save you to your point, Chris,

00:40:44.440 | so much money and not just insurances. I'll tell you in another way,

00:40:47.280 | the when you build that fund,

00:40:50.160 | you can then self-insure that you can meet it because you have cash in the bank.

00:40:54.920 | Why would I hire an insurance company to do something that may also be a low

00:40:59.000 | risk? So I look at the risk of,

00:41:01.040 | of it happening versus the amount of money that I'm paying for it.

00:41:05.400 | And I'll give you an example here.

00:41:06.960 | When we look at our homeowners and our car insurance,

00:41:09.960 | which of those insurances cost more for most of us,

00:41:14.120 | it's your car insurance costs more,

00:41:16.120 | but which asset for most of us costs more, if you're maybe for some of us,

00:41:20.320 | our car costs more than our house. But I think for most of us,

00:41:23.080 | if we own a house, our house costs more than our car,

00:41:26.280 | but insuring it's all a lot less. Why is that?

00:41:29.360 | A house has a bigger magnitude. The magnitude of the loss will be bigger.

00:41:34.120 | The chance of the loss is much, much smaller.

00:41:36.680 | I believe the numbers are for car insurance. I think it's one in 300.

00:41:40.360 | And for homeowner's insurance, it's about one in 1200.

00:41:43.840 | And those are stats off the top of my head.

00:41:46.400 | But whenever you look at what the insurance company is offering,

00:41:50.440 | I always look at what's the pricing on these different policies.

00:41:55.320 | And this is a mind shift for most people. I want to focus not on insurance,

00:42:00.040 | but I want to focus on those issues that actuaries have told me are expensive

00:42:04.960 | by jacking up the price on insurances.

00:42:06.960 | And I want to have a great strategy in those areas.

00:42:09.720 | And if it's something that they're valuing very cheap,

00:42:12.360 | I know that the risk of that happening is not as big and I don't need to focus

00:42:17.000 | on it. So is it, so for car insurance and for homeowners, I can know,

00:42:20.920 | I have this opportunity to have a low deductible or a high deductible.

00:42:23.680 | That's the amount you're going to pay first before you have a claim.

00:42:26.680 | So make sure your experience is good before you do this.

00:42:31.440 | But if you have an emergency fund,

00:42:33.640 | you can jack up the deductible and you save yourself a bunch of money because

00:42:36.520 | you're going to self-insure.

00:42:37.360 | And you're not saying self-insure the entire loss.

00:42:40.320 | You're just saying self-insure against needing a low deductible.

00:42:44.320 | Exactly.

00:42:45.560 | Self-insure the first thousand dollars or the first 10% or whatever that might

00:42:49.800 | be. Self-insure that minimal thing and insure the catastrophic stuff, right?

00:42:54.600 | The stuff that's going to sink your financial plan, insure all that.

00:42:57.880 | Disability is another one. Keep long-term disability insurance in place,

00:43:02.720 | but short-term disability insurance,

00:43:04.480 | which is super expensive because you're going to use that first,

00:43:07.280 | the first maybe six months.

00:43:08.520 | If you get to the point that you have six months of expenses in an emergency

00:43:13.280 | fund, I don't have to, I don't have to buy short-term disability.

00:43:17.080 | I can use that emergency fund now to do it. And I've avoided a huge expense.

00:43:21.560 | And by the way,

00:43:22.440 | something that statistically happens to a lot of people at the same time.

00:43:25.920 | There's another thing that I said that, that where you also save money,

00:43:30.320 | I see people freak out about their investment strategy,

00:43:34.360 | especially people that tell me that they have a high risk tolerance,

00:43:38.160 | but they've never seen a downturn. And there are, as you know, Chris,

00:43:41.320 | a lot of people listening to the show who started investing in 2008,

00:43:46.160 | 2009, right? And all they've seen is this roaring up market.

00:43:50.320 | They haven't been through 2007 in the early days of 2008.

00:43:54.920 | They haven't been through 2000 to 2002, which is when I lost all my hair.

00:43:59.800 | Those times you act a hell of a lot differently than you

00:44:04.200 | think that you will. And I'll give you an example. People say, Oh,

00:44:07.920 | I can deal with a 25% loss. That sounds fine.

00:44:10.680 | Let's say your portfolio is a million dollars. Let's put that in dollar numbers.

00:44:15.160 | If you and I are sitting across the table from each other and I say,

00:44:18.320 | you lost a quarter of a million dollars in the last three weeks,

00:44:22.400 | you're going to act differently. You're not going to act like 25% doesn't mean

00:44:27.720 | anything to my brain. A quarter of a million dollars sounds absolutely horrible.

00:44:32.720 | So when you take these and you put real numbers on them,

00:44:36.640 | I saw people as an advisor do all kinds of bad stuff,

00:44:39.600 | but this is where an emergency fund comes through.

00:44:42.000 | Yeah. A lot of people say your emergency fund is not earning anything.

00:44:44.960 | But then I thought about pet insurance and I thought, Oh,

00:44:48.320 | I've set aside enough money in my emergency fund to cover if anything goes

00:44:51.840 | wrong. And pet insurance, you know, it could be 50, 60, 70 bucks a month.

00:44:55.840 | I don't actually remember the exact amount,

00:44:57.560 | but what my emergency fund is earning is not paying that pet insurance each

00:45:02.760 | month. So in a way, if you think about it from that perspective,

00:45:06.520 | it actually is earning interest,

00:45:08.240 | but it's earning interest in the form of not forcing you to pay for these

00:45:11.760 | things that you otherwise would have maybe paid because you don't want to have

00:45:16.720 | to sell your portfolio to pay for your pet surgery or something like that.

00:45:20.320 | Yeah. Yeah. In emergencies,

00:45:22.600 | you don't have to meet and also bad decisions that you can avoid.

00:45:26.760 | Yeah. And now part of that, you talked about insurance.

00:45:29.520 | And I think you've talked to me about in the past,

00:45:32.440 | different ways to hack insurance and some tips and tricks.

00:45:35.160 | Disability is where you started.

00:45:36.920 | I know very few people I know have ever talked about disability insurance.

00:45:40.960 | Lots of people talk about life insurance. I know some employers cover it.

00:45:44.640 | I don't actually know if employers usually cover enough,

00:45:46.880 | but in the book you kind of talked about disability insurance as this thing that

00:45:50.000 | a lot of people overlook. Is it something more people need to be looking at?

00:45:53.200 | Is it only for people who aren't employed or how do you advise people to think

00:45:56.800 | about it?

00:45:57.640 | No, it's the number one insurance that, that I think more that we need.

00:46:02.480 | And it's the number one thing we don't want to talk about.

00:46:04.760 | We think we're pretty safe people. We're safe skiers and it's not about you.

00:46:08.280 | And if you look at how expensive it is,

00:46:11.840 | actuaries have figured out that the chance of it happening to you is better than

00:46:16.400 | you think, by the way,

00:46:17.080 | the number one reason people default on their home loan and most people don't

00:46:21.520 | know this.

00:46:22.000 | It's not that somebody is a deadbeat and they just stopped paying their mortgage.

00:46:25.160 | It's actually a disability. A disability happens.

00:46:28.200 | All of a sudden they can't make the mortgage payment default on the loan and

00:46:30.960 | they're out of their house. So disability insurance is huge.

00:46:34.320 | If you have it through work, look at that policy first.

00:46:37.720 | The problem with workplace policies is that they often have a cap.

00:46:42.200 | So in other words, they'll say, we will, Chris,

00:46:45.040 | give you 65% of what you earn,

00:46:48.160 | but we're going to cap it at $3,000 a month,

00:46:51.240 | which for many people listening to this show isn't 65% of what they

00:46:56.600 | earn. They may earn North of that.

00:46:58.680 | And so it really is a $3,000 a month policy on top of that

00:47:04.040 | amount, that money. Also, if it's taken out as a pre-tax deduction,

00:47:08.480 | it's also going to be taxed. Now we're really getting in the weeds.

00:47:10.880 | So you're not actually getting all that money either.

00:47:13.520 | If you buy a policy on your own,

00:47:15.040 | it's generally going to be used with after tax dollars,

00:47:17.280 | which means that the benefit will be tax free when you receive it.

00:47:20.760 | So it's an expensive insurance. People should get it,

00:47:24.080 | but start off with what do I need, right? What's my need?

00:47:27.680 | And then work backward. What do I have through work?

00:47:30.760 | Watch out for the cap and then go buy extra.

00:47:34.080 | So when I see that Aflac duck commercial, the emergency insurance,

00:47:37.520 | I'm the guy going, yeah, yeah. Directionally that's,

00:47:40.680 | and that's not an Aflac commercial.

00:47:42.120 | I'm just saying that's what the Aflac people are talking about.

00:47:44.880 | And people should start investigating that. And it's the same, by the way,

00:47:47.760 | it is the, it's the same when people are retired.

00:47:51.520 | The number one threat to your long retirement is long-term care,

00:47:54.720 | that we're going to have this catastrophic illness there.

00:47:57.000 | The long-term care insurance is a bloodbath.

00:48:00.320 | It is so ugly that frankly we're at this spot where,

00:48:05.280 | where, Oh gee, it was a working CFP still on our show. He and I commiserate,

00:48:09.600 | Chris, we don't know what to do.

00:48:10.760 | We know you need a plan because it's the a number one threat,

00:48:15.280 | but buying long-term care insurance is just the cost benefit is so

00:48:20.480 | tough and you have to dedicate so many assets to it that it really drives me

00:48:25.000 | crazy. It's a conundrum. You see a lot of CFPs talking about right now.

00:48:28.200 | What do we do in the case of long-term care? And really,

00:48:31.720 | I don't have a great answer. How about that? None of the hacks.

00:48:35.760 | We should not call that part of the show. None of the hacks.

00:48:39.480 | Well, you had a good one for homeowners insurance, which I loved,

00:48:42.320 | which I've never had a homeowner's claim and, and I believe you have.

00:48:46.440 | Can you talk about what happens when you get that claim and how you can make it

00:48:50.360 | go a lot better?

00:48:51.200 | Yeah, it's wild. Some of this stuff, unfortunately I play tested.

00:48:54.560 | I like there was a time when I was,

00:48:56.640 | was a nomad in the middle of my life and I play tested what we told people for a

00:49:00.840 | long time, which is try your financial independence dream ahead of time.

00:49:04.720 | But unfortunately I also tried out my homeowner's coverage and I've been telling

00:49:08.800 | people for a long time to take pictures of your house, take a video,

00:49:13.040 | just go around your house with your phone, take a video, go open drawers.

00:49:16.840 | You can cruise through rooms at a fairly quick rate and just look at everything

00:49:21.680 | because my experience and most people's experience,

00:49:24.600 | if you're working with a good insurance company and most of them are fine,

00:49:29.160 | they will ask you, they, they gave me Chris,

00:49:32.720 | they gave me a blank sheet and they said, what's in your house?

00:49:36.760 | What did you have? Our house got robbed. Okay. House got robbed. Yeah. Yeah.

00:49:40.400 | Thank you. Sorry. I missed that key point. Our house got robbed.

00:49:43.600 | We were in Chicago on vacation.

00:49:46.200 | Our house was here in Texarkana, Texas and,

00:49:48.920 | and we had a neighbor called that said they came over to, you know,

00:49:52.160 | check on our cat and my front door was open and it clearly been,

00:49:56.080 | somebody had taken some tools to my front door and it had ripped it open.

00:50:00.880 | And for who knows what reason they were able to disable my not that great,

00:50:05.000 | apparently security system at the time. And, and they took stuff.

00:50:08.800 | And luckily we had taken video of our house.

00:50:13.360 | There was a second thing there too, though, that was wild,

00:50:16.280 | which is for some of the electronics that we had, they said,

00:50:20.280 | do you have the serial number of your televisions?

00:50:22.840 | Cause if you have your serial number, here's, what's usually going to happen.

00:50:25.320 | They're going to take it to a pawn shop and they're going to try to get some

00:50:27.880 | money for it. But if you have the serial number, when they turn that in,

00:50:31.520 | we've got them like we've, I still, I took the video.

00:50:34.240 | I didn't have my serial numbers. When you buy high priced electronics,

00:50:37.600 | just have a place where you put down all the security,

00:50:40.840 | all the serial numbers of your things.

00:50:43.680 | And would they not reimburse you if you didn't have the serial number?

00:50:46.600 | They did. They actually still did. When I, mine did, I,

00:50:50.600 | I had a great insurance company that I was working with and they reimbursed me

00:50:55.320 | for my, I had two computers stolen. I had an Xbox stolen.

00:50:59.920 | I had two televisions stolen.

00:51:01.960 | We had some jewelry that was worth nothing to anybody except

00:51:06.880 | my spouse. And that was really sad. Cause some of it was heirloom stuff.

00:51:10.280 | We had some art stolen that was expensive. That stuff,

00:51:14.000 | I had not had appraised and because I hadn't had it appraised and had it added

00:51:18.240 | to the policy, we had had some other things added to the policy. Luckily,

00:51:23.040 | Cher was wearing an expensive ring that she had. She'd taken it with her.

00:51:26.560 | So that one we had separate as, as itemized on the policy.

00:51:31.120 | But, but yeah,

00:51:32.640 | make a quick video because for a lot of stuff they sold, they reimbursed me.

00:51:36.240 | I just had to know what I had and think about that.

00:51:38.840 | If your house burns down, it's going to be the same thing.

00:51:41.240 | But if your house burnt down today and they gave you a blank sheet of paper and

00:51:44.520 | they said, Chris, what's all the stuff you owned?

00:51:46.280 | I don't even know where to start.

00:51:49.080 | Yeah. I get a quarter of it, man. I wouldn't even get a quarter of it.

00:51:53.080 | And I don't think I own that much, but I still wouldn't get that.

00:51:55.920 | Wouldn't get that much. So yeah, that's a great hack.

00:51:58.440 | Yeah. If there's one thing you do after listening to this,

00:52:01.640 | walk through your house, make your own, as you said in the book,

00:52:04.480 | like your own MTV cribs, treat it like a fun thing and save,

00:52:07.840 | save a record of everything you own.

00:52:09.360 | And I guess if you have serial numbers do that also, but yeah, I wouldn't even,

00:52:13.440 | I don't even know if I would get a quarter of the stuff. It's just,

00:52:16.680 | there's jackets that you'd forget and it would be so easy to just take a video.

00:52:21.240 | And the quality of most videos now is so good. If we did this 20, 30 years ago,

00:52:25.880 | it's like, well, there's some clothes in the closet,

00:52:28.120 | but in most cases we just need something to spur our memory. You'll go, oh yeah.

00:52:33.080 | Oh yeah. And that corner, there was that thing and this other thing. And yeah.

00:52:36.360 | Yep. Love it.

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00:53:51.000 | Do you all remember episode 122 when I spoke to chef David Chang about leveling

00:53:55.760 | up your cooking at home? If not, definitely go back and give it a listen.

00:53:59.400 | But one of his top hacks was using the microwave more. I'll admit,

00:54:03.640 | I was a skeptic at first,

00:54:05.160 | but after getting a full set of microwave cookware from Anyday,

00:54:08.840 | I'm a total convert and I'm excited to partner with them for this episode.

00:54:12.560 | Anyday is glass cookware specifically designed to make delicious food from

00:54:16.920 | scratch in the microwave and honestly using it feels like a kitchen cheat code

00:54:21.600 | because it speeds up and simplifies the process so much.

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00:54:48.120 | year, you have to check it out. So to get 15% off our new favorite cookware,

00:54:53.120 | go to allthehacks.com/anyday. Again,

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00:55:02.080 | I just want to thank you quick for listening to and supporting the show.

00:55:07.200 | Your support is what keeps this show going. To get all of the URLs, codes,

00:55:12.520 | deals, and discounts from our partners,

00:55:14.720 | you can go to allthehacks.com/deals so please consider supporting those who

00:55:19.760 | support us. Before we go, we've hit a lot.

00:55:23.240 | I do want to tackle a few questions that I've gotten from listeners that I feel

00:55:27.280 | like who better than a former CFP and snarky podcast host to help answer these

00:55:32.280 | questions. We answered one about financial advisors and how to think about it.

00:55:36.480 | One that I wanted to know if you had any tips for someone said, you know,

00:55:40.720 | I'm kind of new to investing. I started investing.

00:55:42.720 | Taxes are a little bit more,

00:55:45.040 | it's not an employer thing as easy where it's just so obvious they withhold.

00:55:48.520 | What does someone investing need to know about taxes and are there any tricks?

00:55:52.520 | You do need to know a bunch about taxes, but really knowing the basics.

00:55:56.760 | If you start off with the basics, taxes are way more easier than you think.

00:56:00.640 | What I would recommend that everybody does,

00:56:03.400 | and I actually had a tax expert. We talked about advisors.

00:56:07.040 | One of my best advisors was a CPA who sat me down and told me about how taxes

00:56:12.040 | work. You know what they did first, Chris,

00:56:13.880 | they had me read with them just the 1040 form and the itemized deduction form.

00:56:19.280 | And the itemized deduction form does not apply to as many people as it used to

00:56:24.240 | because of some tax reform a couple of years ago.

00:56:26.120 | But still once you understand how the 1040 is laid out, believe it or not,

00:56:31.200 | you're going to find opportunities much more quickly.

00:56:34.600 | And it's like riding a bike once you read it once and you understand it once

00:56:38.040 | you'll understand why a credit beats a deduction.

00:56:41.720 | You'll also understand where any write-offs you can do work,

00:56:45.920 | how tax loss harvesting works.

00:56:48.160 | You'll also understand why using an HSA is kick ass and an FSA.

00:56:53.360 | If you can use an FSA and you have a good budget can also work for you.

00:56:58.840 | FSA is a little different than an HSA. You use it or lose it.

00:57:03.440 | There's some exceptions around COVID right now,

00:57:05.320 | but in an average year with an FSA, you're going to use it or lose it.

00:57:08.920 | Yeah, totally agree on the FSA.

00:57:10.720 | If you're listening and you don't subscribe to the All The Hacks newsletter,

00:57:14.080 | we actually did a whole thing maybe a week or two ago about FSAs and a whole

00:57:19.160 | bunch of other year-end tax tips, tax loss harvesting,

00:57:22.440 | what to do there and all that good stuff. So if you're not a subscriber to that,

00:57:25.760 | go check it out.

00:57:26.600 | And I'm sure Chris, you went over this in the newsletter,

00:57:29.120 | but I will say one thing. There was a headline we did this year.

00:57:31.880 | We have a headline segment in our show and there was a guy who is actually a

00:57:35.720 | professional who was trading GME like a lot of people were and he kept getting

00:57:40.720 | in and out and in and out and in and out. And he,

00:57:45.160 | he didn't realize wash sale rules mean that if it's not in an IRA,

00:57:50.120 | when you sell something,

00:57:51.440 | you got to stay out for 30 days to be able to claim it on your taxes.

00:57:54.520 | Wash sale rule is an easy thing once you know it,

00:57:57.680 | but it's also this speed bump that a lot of people get wrong.

00:58:01.640 | Yeah. So the main takeaways and Cody, thanks for sending this question in.

00:58:05.640 | We didn't even hit the basics. It's just,

00:58:07.760 | if you're investing and you hold something for a year,

00:58:09.920 | you get preferential tax treatment. But like Joe said,

00:58:12.960 | anytime you sell or buy something, if you do the same thing within 30 days,

00:58:16.600 | it can really mess you up. So keep an eye on that.

00:58:19.640 | And you do have to hold the money for taxes.

00:58:22.800 | So if you have a big gain in early in the year,

00:58:25.400 | that money that you're going to owe in April the following year,

00:58:29.360 | you can't go spend it.

00:58:30.440 | I have a horrible story from someone I worked with who played the crypto game.

00:58:34.480 | And in, I want to say it was like 2017,

00:58:37.960 | they made like $800,000 on crypto and they took all their

00:58:42.720 | earnings. And in 2018, the following year,

00:58:46.160 | they went and invested in some other crazy crypto thing and lost it all.

00:58:49.760 | And when it came time to file their 2017 taxes,

00:58:54.040 | they didn't have the money to pay the bill and you can't use a future year.

00:58:58.400 | You can't say, well, no, no, no, I lost the money later. So they, I don't,

00:59:02.080 | I never heard the resolution, but that was either a, you know,

00:59:05.920 | negotiate with the IRS or file for bankruptcy kind of thing.

00:59:09.960 | So if you sell anything and have a gain,

00:59:12.360 | take the money you're going to owe the IRS,

00:59:14.600 | put it in a separate account and ignore it because you need that money next year.

00:59:19.520 | And there's not a lot of options if you don't have it.

00:59:21.640 | Oh, that's just, yeah. And I'm betting what that,

00:59:24.840 | where they ended up was a payment plan.

00:59:26.800 | I'm sure they probably ended up on it,

00:59:28.080 | but I would do a payment plan way before bankruptcy there. But Chris,

00:59:30.920 | I thought of one more that people are still listening to this in the last couple

00:59:34.280 | of days of this year. That is super important.

00:59:37.120 | We think that the backdoor Roth IRA might go away.

00:59:40.760 | I would make sure if you have,

00:59:43.600 | if you're doing a conversion and talk to your team that you've set up,

00:59:47.720 | that we talked about earlier about whether you're doing conversions or not, man,

00:59:50.880 | if you're doing backdoor Roth IRAs, I would,

00:59:53.840 | I'd make sure you do it this year because it might be bye-bye.

00:59:57.160 | Yep. Yeah. One of the items on the list is a backdoor Roth.

01:00:01.160 | So check that out. And the same goes for Roth conversions.

01:00:04.880 | If you have a lot of traditional IRA assets, I mean, you're in a low tax year.

01:00:08.720 | It could make sense to roll them all over to a Roth.

01:00:11.440 | You'll take a little bit of a tax hit this year, but you know,

01:00:14.600 | you won't pay taxes in the future. So get it done. Amen. One more.

01:00:19.120 | Jeff asks what to do and how to hack and how to optimize for aging parents.

01:00:23.600 | A lot of us are going to be in a circumstance where our parents,

01:00:26.520 | if they're still around, you know, might not have everything they need.

01:00:29.720 | We might need to take care of them. We might even,

01:00:31.520 | they might have everything they need, but we might need to help them with money.

01:00:34.200 | It's not as easy as our friends where we're like, Oh,

01:00:36.440 | just go get a robo advisor and think about it in 40 years.

01:00:38.960 | And any advice for someone whose parents are aging and don't have their finances

01:00:43.440 | in order?

01:00:44.280 | Yeah.

01:00:44.680 | The first thing that I would worry about Chris is I would worry about talking to

01:00:49.080 | your parents the right way. Cause your parents knew you way back when,

01:00:53.000 | and I remember I've been a financial planner for 10 years. I,

01:00:56.000 | my practice was very successful. And I remember my dad 10 years in saying,

01:01:00.280 | so this financial planning thing, you think you're still going to do it?

01:01:02.720 | Like you think you're going to stick with us? Like, yeah, yeah, dad,

01:01:05.880 | I think it's, I think it's going to go. Okay. It's feeding my family.

01:01:09.000 | I think we're doing fine.

01:01:09.840 | But so your parents have a different outlook about you and they're going to take

01:01:14.040 | your advice differently.

01:01:15.440 | And they may also feel like you're pressuring them and you don't want to do

01:01:18.280 | that. They may also wonder what your agenda is,

01:01:21.560 | depending on your family dynamic.

01:01:23.240 | I will point people to another book which is written by a

01:01:28.520 | woman named Cameron Huddleston. You know, Cameron, Chris?

01:01:31.160 | No.

01:01:32.040 | Yeah.

01:01:32.400 | Cameron Huddleston wrote a great book about talking to elders about their

01:01:37.280 | money, talking to your parents about their money.

01:01:39.360 | And I believe the book is called mom and dad, we need to talk.

01:01:42.240 | And it is a fantastic book about all the things that can go wrong in those

01:01:46.880 | discussions. But,

01:01:48.320 | but to begin that discussion in the right way is really important.

01:01:51.640 | And one hack that she shared with me is that often your parents

01:01:56.080 | don't want you button into their money,

01:01:58.400 | especially parents of a certain generation. They might be very private.

01:02:01.680 | If they are private.

01:02:03.480 | If you start off with a little oversharing on your part about what you're doing,

01:02:08.000 | they may then reciprocate. I used to read these great books,

01:02:13.600 | these detective books that were written about the Navajo nation,

01:02:17.640 | which were fantastic.

01:02:18.800 | And this detective in the book was a guy named Joe Leaphorn.

01:02:22.040 | And when I was a financial planner,

01:02:24.040 | I would use the Joe Leaphorn rule of getting more out of people

01:02:28.720 | than I probably deserved.

01:02:30.240 | And what I would do that Joe Leaphorn did was I'd share a little bit about me

01:02:35.640 | that was maybe a little oversharing. And in almost every case, Chris,

01:02:40.320 | the person across the table from me would also then share something on their end

01:02:45.120 | that they weren't supposed to share. That might be a little extra with parents,

01:02:48.320 | especially just say, Hey, you know what?

01:02:50.320 | I've really been thinking about like how I manage my money the next 10 years.

01:02:54.240 | And here's what I was thinking for the next 10, 15 years that this would go,

01:02:57.560 | you know, that I do this, I do this, I do this. And then they'll share, well,

01:03:02.400 | I was thinking about I'm doing this and this thing.

01:03:04.800 | And now we have an in to start talking about their money.

01:03:08.760 | And you still preserve the parent child relationship where in the big scope of

01:03:13.560 | things, they're also giving you advice. One more thing,

01:03:16.560 | still with older people solve for when they're going to spend the money.

01:03:21.080 | A big mistake that I find Chris is that people go,

01:03:24.320 | and I'm going to just throw this out there. They're going to say,

01:03:26.640 | let's say that you think that crypto is a great idea and you go not with

01:03:31.520 | grandma's money, right?

01:03:32.800 | I'll tell you that if grandma is never going to spend that money and it's going

01:03:37.880 | to go in a glad bag with all the other estate stuff and go to the

01:03:43.520 | child, you think about when that money's going to be spent.

01:03:47.080 | If the money's never going to be spent and the money is an asset that's meant

01:03:51.560 | for a child to maybe spend grandma taking risks is not always a bad

01:03:56.480 | thing. If you start with the end in mind,

01:03:58.840 | I have seen lawsuits, which I always wonder about.

01:04:04.000 | I wonder about some third party family member coming into a situation going,

01:04:07.320 | Oh my God, my grandma owns a growth stock. Grandma doesn't buy green bananas.

01:04:13.320 | Like why are we buying something that's as volatile as a growth stock?

01:04:16.040 | It might be because grandma has a team of people she's working with and grandma's

01:04:20.160 | not thinking about her lifetime.

01:04:21.680 | She's thinking about this is money that in my trust is going to go to my

01:04:24.760 | grandkids.

01:04:25.600 | My grandkids are now three and this is money that's going to be spent 15 years

01:04:30.400 | from now. So even with grandma, don't think about end of life.

01:04:34.800 | Think about when that crop needs to be harvested.

01:04:37.880 | Yeah, that's great advice. Last one is from John and this is a fun one.

01:04:43.040 | He wanted to understand leverage in a portfolio, right? And it was interesting.

01:04:47.320 | He said, you know, I move around a lot. Buying a house is not something

01:04:50.280 | interesting,

01:04:51.120 | but it seems like everyone who buys a house takes out a mortgage and gets this

01:04:55.120 | great leverage where you put 20% down on an asset that can appreciate.

01:04:59.000 | And if that asset appreciates,

01:05:00.520 | you get the appreciation from the whole asset and you only put down 20%.

01:05:04.000 | So what role does leverage have for someone who's not buying a house?

01:05:08.440 | Oh, great question.

01:05:10.840 | Cause leverage magnifies everything,

01:05:13.720 | which means it's going to go hella good.

01:05:17.120 | It's going to go so much better when times are good,

01:05:20.040 | but it's also going to unravel more quickly.

01:05:22.800 | So what wealthy people know is that they are predisposed.

01:05:27.840 | And I've seen so many studies on this.

01:05:29.880 | Most wealthy people are predisposed to not using leverage except in very

01:05:35.200 | strategic cases. So I'll give you an example,

01:05:39.120 | interest rate on your mortgage, very low.

01:05:41.160 | If you've got a pot of money sitting in a bank account where you can pay the

01:05:46.160 | mortgage off right now, and it's not going to mess with your psyche,

01:05:50.400 | not paying it off.

01:05:51.800 | Why would I take money that's earning in an I-bond earning over 7% and put it

01:05:57.200 | down on a house with a mortgage that's at two and a half? I shouldn't do that.

01:06:01.680 | Now what I might do is if there's a way, and there's not with an I-bond,

01:06:05.440 | but taking money out of my investment portfolio every month and have it pay that

01:06:09.480 | monthly bill.

01:06:10.080 | So I just have freedom from worry and the pile of money can pay it.

01:06:13.800 | That's a great use of leverage.

01:06:15.720 | I'm using interest rate arbitrage between those two positions.

01:06:19.760 | But I start off from a place of it's incredibly dangerous and I don't want to

01:06:25.160 | use it unless I have completely thought through,

01:06:29.440 | not wow, this looks like a great opportunity,

01:06:31.840 | but if the walls come crashing down, how is this going to look?

01:06:35.000 | And I'll give you an old guy story. Real estate right now.

01:06:38.600 | We talked about earlier about how there's so many shysters in real estate.

01:06:41.600 | The reason Chris is that the real estate market's been,

01:06:44.120 | it's easy to be an expert. So there's tons of experts out there.

01:06:47.080 | And the reason why they're making money hand over fist is because of exactly

01:06:51.040 | what he's saying, that because people are using mortgages,

01:06:54.320 | they're not creating stock market winners, which are small. No,

01:06:58.680 | I'm using leverage and I'm creating these big winners.

01:07:01.760 | But what happened in 2007 2008 real estate has a much bigger,

01:07:06.520 | and this is by the way, not just that one downturn,

01:07:08.560 | but when real estate goes bad,

01:07:10.480 | real estate flushes so many people real estate is just has a great toilet

01:07:15.840 | flushing system when things go horrible and it's all because of leverage.

01:07:22.400 | So real estate is going to be much better than the stock market when things are

01:07:27.160 | really great and it's going to be much, much worse when things go wrong.

01:07:31.000 | Yeah. The couple of things I'll point out that I think make it a little bit

01:07:34.720 | different to take on leverage with your investment portfolio is that when you

01:07:39.200 | take out a loan against your portfolio, if your portfolio drops enough,

01:07:43.040 | the brokerage firm is going to call back and say, Hey,

01:07:45.560 | you need to deposit more money. And if you own a house and the house value drops,

01:07:50.560 | if you don't have money to pay your bills, then you're going to be underwater.

01:07:54.360 | But the bank isn't going to take back the house if the value drops.

01:07:58.120 | So one of the biggest reasons that leverage on your investment portfolio is much

01:08:02.040 | riskier than leverage on a home is that you're not guaranteed that they won't

01:08:07.040 | recall that if the underlying asset drops.

01:08:09.680 | And then the second big one is that you're not locking in an interest rate.

01:08:12.360 | So you could borrow money from your portfolio at one price and interest rates

01:08:16.240 | rise and that rate would go much higher and cost much more than you thought it

01:08:19.760 | would.

01:08:20.040 | I have never had a client back when I was a planner where I recommended it and I

01:08:26.840 | also never had a client who it didn't make them sleep better at night.

01:08:31.840 | It always made them sleep worse. Yeah. For the two reasons you said,

01:08:36.440 | if the stock market goes South tomorrow, I might get called.

01:08:38.800 | If you keep those loans small, maybe, but I don't know.

01:08:42.480 | Yeah. That's one thing that I talked about in another newsletter was look,

01:08:45.520 | if you keep the loan small enough, right?

01:08:48.280 | If you borrow against your portfolio and you borrow 10% of it,

01:08:51.240 | your portfolio is going to have to go down. I'm not going to quote numbers,

01:08:55.800 | more than half. I think the magic number is somewhere around like 30, 30,

01:08:59.640 | 40% your portfolio would have to drop by 50%.

01:09:02.840 | So if you borrowed against 10% and did something with it,

01:09:05.800 | I don't think that you have a lot of risk that you're going to get called.

01:09:08.960 | I still think there's a lot of interest rate risk. Someone told me, wow,

01:09:12.160 | what if I, what if I borrow against my portfolio at 2% and I go put it somewhere

01:09:16.360 | where I can earn 5% and I said, look, if it's a short term kind of thing,

01:09:20.080 | whether it's a investment or whether it's to renovate your house and you have a

01:09:24.640 | plan to pay that back, either with savings or, you know,

01:09:28.280 | by withdrawing money,

01:09:29.440 | then you're not really subject to the interest rate risk because if interest

01:09:32.640 | rates go up, hopefully you can pay it off.

01:09:34.240 | And I don't expect interest rates to go up by 5,

01:09:37.200 | 10% in a matter of months. I've always said, look, if it's small enough,

01:09:41.160 | that you're not,

01:09:41.560 | you're kind of avoiding the margin risk and it's short term or the money you're

01:09:45.640 | using it for is something you have access to. It's not as scary.

01:09:49.720 | Unfortunately, because of those things,

01:09:52.260 | because you're not locking in the interest rate,

01:09:53.620 | because I just don't think you can take the kind of leverage you can with a

01:09:56.700 | home as safely. So for me, it's not something that I'm forexing by,

01:10:01.660 | you know,

01:10:01.980 | I'm not taking 80% of the value out of my portfolio and trying to bet it

01:10:05.180 | somewhere and the stuff, Chris, it can go wrong, has nothing to do with you.

01:10:08.660 | When we look at the last numbers on inflation and we know what the response is

01:10:13.220 | for the fed rate to come up, which is not a direct link for all other things,

01:10:17.240 | but the fed rate is the prime mover that,

01:10:19.500 | that begins the cascade of other interest rates going up.

01:10:22.420 | So whether directly or indirectly.

01:10:25.060 | So if we're in a rising interest rate environment like now,

01:10:29.340 | I think the risk is even higher.

01:10:31.340 | Yeah. Yeah.

01:10:33.220 | And I don't think people that have only been thinking about buying a home and

01:10:37.460 | realize that interest rates for mortgages in the recent past

01:10:42.940 | have been way higher. So early 2000s,

01:10:47.060 | interest rates got as high as seven, 8%. And my,

01:10:50.380 | my parents have talked about interest rates being in the teens.

01:10:53.740 | Back in the eighties.

01:10:55.700 | Yeah. So I think it's, it's easy to think, gosh,

01:10:58.820 | borrowing money is always a, you know, one, two, 3%,

01:11:02.100 | because that's what it's been the last few years.

01:11:03.940 | It's very possible if history is any indication that those

01:11:08.420 | interest rates to borrow money could go up.

01:11:10.220 | And that's great if you locked in your mortgage rate for 30 years,

01:11:13.340 | but it's not great if you borrowed against your portfolio and,

01:11:16.100 | and your interest rate is, is, you know, variable with the market.

01:11:19.060 | I also like, and this is another hack I like based on what you're talking about.

01:11:22.940 | I like looking at the next domino, right.

01:11:24.780 | And another domino that gets played here, if,

01:11:27.900 | if people are zoning out, cause like this doesn't apply to me,

01:11:30.500 | there's a broader thing that we're saying, which is that if, if you have, uh,

01:11:35.860 | loans that aren't fixed rate loans and you have the opportunity right now in this

01:11:39.460 | environment to lock in a fixed rate strategy on your debt,

01:11:44.140 | if you've debt and you don't have a fixed rate strategy,

01:11:46.060 | I would be trying hard to switch to a fixed rate strategy.

01:11:49.140 | Yeah. Yeah. Yeah. We refinanced it.

01:11:51.700 | And this is a good example of where I guess you could use leverage to invest.

01:11:55.780 | If you do have a home, if you're refinancing your home and it's appreciated,

01:11:59.500 | you might have the option to take some money out.

01:12:01.500 | And so this is an interesting one that I had a fun debate with Andy Radcliffe

01:12:05.660 | about, you know, he, his kind of stance is you probably should never borrow to

01:12:09.980 | invest. And that was his kind of belief. And I said, well,

01:12:12.900 | when you buy a new home, it's okay to put 20% down. He's like, yeah.

01:12:15.700 | And I was like, but if I own a home and I have 40% equity,

01:12:18.740 | can I take 20% out and invest it? And he's like, Oh, this is a,

01:12:21.660 | you caught me in a situation where I would tell you if you were buying a new

01:12:25.340 | home, then yeah, put 20 down and take the extra and invest it.

01:12:28.500 | But for me, if you have an opportunity to cash out and refinance it,

01:12:32.780 | that's an opportunity that I have personally taken.

01:12:35.580 | I'm not obviously going to recommend anyone do anything,

01:12:37.540 | but it's something to consider. And, and the hack here,

01:12:40.860 | and this probably only matters if you live in a high cost of living area,

01:12:44.780 | but if your mortgage interest deduction is $750,000 now in the

01:12:49.940 | U S if you cash out refi and your mortgage ends up being

01:12:54.660 | greater and you invest that difference,

01:12:57.380 | the interest expense you pay on that additional mortgage is actually

01:13:02.020 | deductible as long as it pays off interest expense you've earned,

01:13:05.820 | meaning capital gains, dividends, appreciation. So that's,

01:13:09.980 | I'll put a little quick something in the show notes if you want to dig in

01:13:13.340 | there, but that's a little too technical for the rest of this talk.

01:13:16.100 | And we've already gone deep enough. So I'm going to, I'm going to stop here.

01:13:20.340 | And if you want more from Joe,

01:13:21.780 | he has a wonderful podcast that I've had the pleasure of joining a few times and

01:13:26.140 | a great book. But Joe, where can people find everything you're working on?

01:13:29.380 | Yeah, you'll find us at stacking Benjamins.

01:13:32.140 | And the book is@stackingbenjamins.com/stacked I'm doing a 42 city

01:13:36.620 | tour, Chris, coming to see as many stackers as possible around the country.

01:13:40.660 | We're going to try to get as many people like you, wherever people live,

01:13:44.780 | I get as many of the financial community there.

01:13:47.100 | So hopefully meet some local people that you might've read or heard before in

01:13:50.820 | different towns.

01:13:51.660 | It's going to be fun for that whole tour and to meet up with us. I know in,

01:13:56.300 | in San Francisco, we're going to be at a South Pacific brewing.

01:14:00.460 | I used to live one block from there. Wonderful venue.

01:14:04.460 | I heard it's a fantastic place. I can't wait to go. But anyway,

01:14:07.220 | to get all the dates stacking Benjamins.com/stacked and come and hang out with

01:14:11.620 | us and other people, we call them stackers, but come other people trying to stack.

01:14:15.980 | You got stackers. I guess we got hackers.

01:14:18.460 | Hackers and stackers. Let's get that in San Francisco.

01:14:22.460 | Let's get the hackers and stackers together.

01:14:23.980 | Sounds great. All right. Thank you so much for being here.

01:14:27.580 | Thanks a lot, man. That was fun.

01:14:32.820 | Wow. There was a lot of great stuff in there and I really hope you enjoyed it.

01:14:36.140 | Lots of stuff for the show notes.

01:14:38.260 | And if you haven't already looked up Joe's book, definitely check it out on a

01:14:41.900 | separate note. We are a few days away from 2022.

01:14:44.580 | So I just want to say thank you for all your listening and support.

01:14:48.020 | I can't wait for everything that's coming next year.

01:14:50.860 | Have a wonderful new year's Eve and I'll see you next week.

01:14:53.660 | [inaudible]

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