ATHLLC9164007075

00:00:00.000 | (upbeat music)

00:00:02.120 | - Hello, and welcome to another episode of All The Hacks,

00:00:04.720 | a show about upgrading your life, money and travel.

00:00:07.640 | I'm Chris Hutchins.

00:00:08.600 | I've kind of lost my voice,

00:00:09.840 | but I'm excited to have you here today.

00:00:12.000 | Now, you may already know that I'm a big fan

00:00:14.380 | of the Animal Spirits podcast,

00:00:15.840 | which is all about the markets and investing.

00:00:18.160 | And in light of everything that's been going on recently,

00:00:20.720 | I wanted to invite the show's host

00:00:22.120 | and my friend, Ben Carlson,

00:00:23.420 | to join me again today on the podcast.

00:00:25.800 | Ben's also a financial advisor

00:00:27.280 | at Ritholtz Wealth Management.

00:00:28.640 | He's the author of four books about saving,

00:00:30.560 | investing and money.

00:00:32.160 | And he's become one of my go-tos

00:00:33.680 | for questions about investing and personal finance.

00:00:36.120 | If you wanna check out our last conversation,

00:00:37.800 | it's episode 42.

00:00:39.040 | But today we're gonna talk about the state of the market,

00:00:41.560 | the regional banking collapse,

00:00:43.160 | interest rates and inflation,

00:00:44.320 | and what we should all be doing about them,

00:00:45.640 | including anyone who's looking to buy a home right now.

00:00:48.720 | I am really excited about this one.

00:00:50.520 | So let's jump in right after this.

00:00:52.760 | (upbeat music)

00:00:54.480 | Ben, thanks for being here again.

00:00:56.280 | - Glad to be back.

00:00:57.460 | - There is a lot going on in the economy right now.

00:00:59.960 | We're recording this on May 18th.

00:01:02.420 | Seems like everyone I know,

00:01:04.800 | both now and for the last three or four years,

00:01:07.120 | has been saying, "Oh, there's a recession coming.

00:01:08.920 | "We gotta prepare for it."

00:01:10.360 | I feel like I keep hearing this message.

00:01:12.200 | Maybe that's just what everyone is always saying,

00:01:14.180 | but how would you describe

00:01:15.520 | the current state of the markets?

00:01:17.080 | - It'd be the most telegraphed recession in history, right?

00:01:19.120 | If and when it happens, everyone can say, "I predicted it,"

00:01:21.120 | because that's what everyone's been doing

00:01:22.920 | for a couple of years now.

00:01:24.840 | It's a weird time because the economy remains

00:01:27.580 | stronger than anyone could have imagined,

00:01:29.020 | with the Fed going from 0% to 5% on rates.

00:01:31.820 | If that happens, which this is the fastest rate hike

00:01:34.660 | we've seen in history, most textbooks would say,

00:01:37.020 | "Okay, the economy's gonna slow down.

00:01:38.420 | "It's that much harder to borrow,

00:01:39.900 | "and rates go that much higher

00:01:41.100 | "in such a short period of time."

00:01:42.860 | The economy has to go into recession,

00:01:44.300 | and the Fed has wanted people to basically

00:01:47.520 | lose their jobs to slow things down a little bit,

00:01:49.500 | and it hasn't really worked as much as they would like.

00:01:52.560 | The unemployment rate has actually fallen

00:01:53.960 | since the Fed started raising rates,

00:01:55.220 | which is not what you would expect.

00:01:57.780 | So the economy is way stronger, I think,

00:02:00.160 | than anyone would have imagined,

00:02:02.260 | in terms of people still wanting to spend,

00:02:04.100 | and the unemployment rate remaining low.

00:02:05.980 | It's as low as it's been since 1969.

00:02:08.420 | Everyone's waiting for the next shoe to drop,

00:02:10.060 | but as of right now, things remain okay,

00:02:12.420 | especially considering the environment,

00:02:14.380 | that no one would have expected things to remain this strong,

00:02:17.200 | yet here we go.

00:02:18.100 | - For anyone without context,

00:02:19.540 | why is the Fed acting so aggressively right now,

00:02:22.420 | or has been, to raise rates in an unprecedented speed?

00:02:25.520 | - They just don't want inflation to be entrenched.

00:02:28.400 | That's what happened in the 1970s.

00:02:30.120 | Inflation was here for a while.

00:02:31.760 | It had started rising in the '60s,

00:02:33.280 | and then throughout the '70s,

00:02:34.200 | we had this 15-year period

00:02:36.100 | where inflation was basically above 4% or 5%.

00:02:38.760 | It got as high as 15% in the early '80s,

00:02:41.600 | and the problem is,

00:02:42.920 | once the psychology of inflation takes hold,

00:02:45.520 | and you start to think,

00:02:47.000 | "Things are going to be more expensive in the future,

00:02:49.500 | "so I'm gonna buy stuff now,

00:02:51.220 | "and I need more money through my employer,"

00:02:53.520 | so there's like this wage price spiral

00:02:56.040 | where people need more money,

00:02:57.600 | which then pushes up prices more,

00:02:59.000 | and the Fed doesn't wanna get

00:03:00.560 | into that sort of psychological situation.

00:03:03.520 | They're just terrified of a 1970s repeat.

00:03:05.980 | There's a lot of reasons.

00:03:07.480 | I think those fears are a little overblown,

00:03:09.480 | but high inflation hasn't happened in this country

00:03:12.400 | for the past 70 years.

00:03:13.760 | That's like the one period we can point to, right?

00:03:16.400 | The 1970s and the early 1980s,

00:03:18.540 | so they're just deathly afraid

00:03:20.480 | of that situation happening again,

00:03:22.240 | so they want to stop it

00:03:23.720 | before it gets really ingrained in our psyche.

00:03:26.240 | - Has it worked?

00:03:27.080 | Is that risk off the table, or is it still looming?

00:03:29.840 | - So inflation is still higher than most people would like.

00:03:31.960 | It's still running at 5% or so annualized

00:03:34.600 | over the last 12 months.

00:03:36.600 | The Fed wants it to be at 2%.

00:03:39.160 | I think it's going a lot slower than they thought,

00:03:40.960 | but if you look at the past,

00:03:42.800 | inflation doesn't just all of a sudden

00:03:44.400 | go from 9% to 2% in a straight line.

00:03:47.720 | It takes some time to work this stuff off,

00:03:49.840 | and so I don't think it's as easy

00:03:51.160 | as most people would like it to be.

00:03:53.440 | The Fed seems to think

00:03:54.760 | that they still have a little bit of work to do

00:03:56.720 | because they're keeping rates higher

00:03:58.080 | and potentially raising them even more.

00:04:00.000 | - I know there's been a handful of things

00:04:01.960 | on a macro level.

00:04:03.320 | There's been this debt ceiling conversation.

00:04:05.640 | There's been regional banks collapses.

00:04:07.840 | How much of those totally separate factors

00:04:10.080 | are part of all of what's going on?

00:04:11.680 | - It's one of those unintended consequences thing

00:04:13.440 | that the Fed raised rates

00:04:14.380 | because they wanted to slow the economy,

00:04:16.400 | and that would have maybe thrown some people out of a job,

00:04:18.760 | and that would have slowed demand, right?

00:04:20.840 | That's the whole idea.

00:04:21.680 | They want people to spend a little less

00:04:22.720 | so the prices stop going up.

00:04:24.600 | The unintended consequence is

00:04:26.560 | these banks all purchased bonds at ultra-low rates.

00:04:29.960 | The generationally low rates we saw,

00:04:32.320 | 10-year treasury yields were at 1%,

00:04:34.480 | which is as low as they've ever been,

00:04:36.720 | and banks bought them,

00:04:37.560 | and the Fed raising rates this high

00:04:39.680 | basically messed up the balance sheets of these banks.

00:04:41.880 | So that was one of the unintended consequences of it.

00:04:44.320 | - It seems like we've learned some lessons from 2008

00:04:46.560 | and that we're not just gonna let contagion happen

00:04:48.720 | from that sort of stuff.

00:04:49.720 | This is a completely different situation from that,

00:04:52.880 | in that we're not dealing with a bunch of credit problems

00:04:55.920 | and people overextending themselves

00:04:58.040 | in the housing market and that sort of thing.

00:04:59.960 | So this isn't 2008,

00:05:01.600 | but I do think if you put some truth serum

00:05:03.720 | into the Fed officials,

00:05:04.560 | they'd be surprised that this is the way that it played out,

00:05:07.080 | that we have a banking crisis before the economy slowed,

00:05:11.120 | and they've been able to clean it up so far

00:05:13.040 | without many huge problems.

00:05:15.520 | - Yeah, I mean, as an SVB customer,

00:05:17.560 | I could say that there were four days of angst and anxiety.

00:05:20.640 | - Yeah, you had a bad weekend, right?

00:05:21.680 | - But at the end of the day, everything was there.

00:05:23.600 | My mortgage is still with SVB,

00:05:25.120 | or I guess with First National, I think,

00:05:26.920 | or whatever the name of the new bank is,

00:05:28.480 | but it kind of all worked.

00:05:31.160 | - Well, I'm gonna ask you, what's that like now?

00:05:32.640 | Is it just the same thing, basically?

00:05:34.360 | Do you feel like anything has changed?

00:05:36.120 | - It's interesting because SVB

00:05:37.960 | was kind of a reputational bank.

00:05:39.680 | The reason most people banked with SVB

00:05:42.160 | was that they just had great relationships

00:05:44.520 | in Silicon Valley.

00:05:45.840 | And it wasn't actually the migration

00:05:49.240 | from SVB to First National that made me think,

00:05:53.680 | "Okay, maybe this isn't the right fit for me anymore."

00:05:57.640 | First Citizens, sorry, I just remembered, First Citizens.

00:05:59.840 | - There's a lot of first something banks.

00:06:01.600 | - I know, I know.

00:06:02.480 | I wonder if the history of that, by the way,

00:06:04.000 | is that people wanted to be the number one ST

00:06:06.560 | at some point in the phone book,

00:06:08.200 | and then they were like, "Well, now that that doesn't matter,

00:06:09.720 | "we don't need to spell it with a number."

00:06:11.120 | But digression, people that I've heard that work at SVB

00:06:15.720 | are now, and this is very anecdotal,

00:06:17.920 | but kind of not treated like first-class citizens

00:06:20.160 | at the new institution.

00:06:21.440 | - That makes sense.

00:06:22.280 | - Which we've kind of heard from a few people,

00:06:23.840 | which led me to say, "Look, if this new bank

00:06:26.280 | "isn't gonna treat their employees great,

00:06:28.600 | "how are they gonna treat their customers in the long run?"

00:06:31.240 | So we were kind of benefits

00:06:34.920 | of the JPMorgan Chase crazy weekend

00:06:37.800 | of let's go steal all the SVB customers.

00:06:39.800 | So we took the bait there and moved over.

00:06:41.760 | There wasn't really any incentive other than moving over.

00:06:44.280 | And so we still have our mortgage there.

00:06:46.040 | I still have an auto ACH three days

00:06:48.280 | before the mortgage payment to move the mortgage payment

00:06:50.280 | into the SVB account so that it's ready

00:06:52.080 | for the mortgage withdrawal.

00:06:53.600 | But other than that,

00:06:54.800 | I think we've kind of fully migrated away,

00:06:57.440 | but not for reasons that I'm worried about the money.

00:06:59.200 | I'm not worried the money's gonna go away.

00:07:00.560 | - They've done a good job shoring that up,

00:07:01.680 | and people worry about, "Oh, we're gonna lose faith

00:07:03.480 | "and trust in the whole banking system."

00:07:05.160 | Probably not.

00:07:06.000 | It's probably more these bigger banks

00:07:08.000 | are just gonna get bigger.

00:07:09.400 | And you're probably not gonna see as many perks

00:07:11.840 | as you were getting at an SVB kind of bank

00:07:14.200 | as you would have in the past.

00:07:15.160 | And I think that's probably what the knock-on effects

00:07:17.440 | are gonna be of just JPMorgan and Bank of America.

00:07:20.360 | People are just gonna feel safer having their money

00:07:22.440 | at one of these bigger banks.

00:07:23.480 | And I think that's probably what's gonna happen.

00:07:25.800 | - Even though the FDIC thing,

00:07:28.120 | I'd never been through or witnessed

00:07:29.920 | what happened when a bank collapsed.

00:07:31.840 | It blew my mind that in what seemed like 24 to 48 hours,

00:07:37.680 | a bank effectively collapsed, was protected,

00:07:40.320 | and funds were made available.

00:07:42.280 | If you'd asked me with no context

00:07:44.120 | how long it would take a government entity

00:07:46.640 | to solve that problem, I would have said months.

00:07:49.120 | And then when it was like over the weekend,

00:07:51.280 | it didn't even take one full business day.

00:07:53.440 | - They almost snapped their fingers 'cause they could see it.

00:07:55.240 | Yeah, it was a social media bank run.

00:07:57.440 | It happened so fast.

00:07:58.480 | The old story from back in the day, the panic of 1907

00:08:01.920 | was JPMorgan told his bank tellers

00:08:05.920 | to count the money out as slow as possible

00:08:08.080 | to stop a bank run, right?

00:08:09.320 | So people couldn't get their money out fast enough.

00:08:11.880 | And obviously you can't do that today

00:08:13.240 | because people can just push a button.

00:08:14.960 | So the Fed has to act that fast, I think.

00:08:17.920 | That's almost one of the positive externalities

00:08:20.520 | of the 2008 crisis is they realized

00:08:22.320 | this stuff can happen so fast

00:08:24.160 | that we have to step in right away.

00:08:25.440 | We can't let contagion spread and go from bank to bank

00:08:28.960 | because that's just chaos.

00:08:31.080 | - I was still surprised.

00:08:31.960 | No matter how fast they thought they needed to act,

00:08:34.200 | I was actually surprised that they could act.

00:08:36.160 | Government entities are not known for their speed.

00:08:38.560 | - Yeah, they're not handcuffed.

00:08:39.480 | - But what's the average investor right now

00:08:42.200 | supposed to do any differently

00:08:44.320 | after watching regional banks collapse?

00:08:45.920 | Do we change anything?

00:08:47.560 | - Probably not.

00:08:48.400 | I think it's only like 1% of bank accounts

00:08:51.160 | across the country have more than $250,000 in cash

00:08:54.240 | sitting in a bank.

00:08:55.080 | And if you have that much money sitting at a bank

00:08:56.960 | and it's earning the 0.1% that you can get

00:08:59.040 | at a savings account at a brick and mortar bank,

00:09:00.960 | then you were making a mistake before this.

00:09:03.360 | That was something that should have been remedied

00:09:04.720 | before this whole thing happened.

00:09:05.960 | So I think now you've seen a huge shift.

00:09:07.680 | A bunch of money is going into money market funds,

00:09:09.560 | in treasury bills, in online banking accounts.

00:09:12.640 | That's the big first step people should have been taking

00:09:14.360 | for years is don't have your money sitting

00:09:16.960 | in a savings account at a bank

00:09:18.000 | because they're not going to pay you anything.

00:09:20.280 | You have to have it somewhere else.

00:09:22.320 | In the past, you might've been able to earn 50 basis points

00:09:25.120 | or 1% or something like that,

00:09:26.800 | which no one really cared about.

00:09:28.280 | But now we're talking three, four, 5%

00:09:30.480 | because short-term rates are higher.

00:09:31.520 | That's the only thing people need to worry about

00:09:33.000 | is just if your cash is sitting in a checking account

00:09:35.320 | earning nothing, then it's way easier now

00:09:37.400 | to earn some sort of yield that you couldn't in the past.

00:09:40.240 | - I want to come back to that yield,

00:09:41.320 | but what about from the market standpoint?

00:09:43.760 | You've been saying rates are rising.

00:09:45.960 | The goal is to potentially create

00:09:47.840 | even a small recession to curb inflation.

00:09:50.440 | Knowing that's something that the Fed's trying to do,

00:09:53.200 | are you doing anything differently?

00:09:54.440 | Are you advising clients to do anything differently

00:09:56.080 | with their investment portfolio?

00:09:57.320 | - The hardest question to always answer

00:09:58.640 | about the markets is what's priced in, right?

00:10:01.000 | So we had a big bear market last year

00:10:03.320 | where the S&P 500 fell 25%.

00:10:05.680 | The NASDAQ 100 was down well over 30%.

00:10:09.000 | So was that bear market pricing in a recession already?

00:10:13.520 | And has the market already sort of digested this

00:10:15.640 | and we already expect there to be a mild recession?

00:10:18.240 | Or was that just we were dealing with higher rates last year

00:10:20.920 | and higher inflation and that made the equity markets fall?

00:10:23.800 | So that's the hardest question to answer.

00:10:25.840 | And even if we do go into a technical definition

00:10:29.720 | of a recession, which is all these different checkpoints

00:10:32.160 | that the National Bureau of Economic Research creates,

00:10:35.040 | by the time we actually know we're in a recession,

00:10:38.200 | it's probably gonna be too late

00:10:39.120 | and the stock market will have bottomed anyway.

00:10:41.000 | I think that's the hard part about timing of these things

00:10:43.480 | is that, especially during a slowdown,

00:10:46.000 | the stock market and the economy

00:10:47.240 | are never going to fully line up.

00:10:50.000 | And the weirdest thing could be,

00:10:51.280 | we could go into a recession

00:10:53.000 | and the stock market looks over that valley and sees,

00:10:55.400 | listen, we've already had all this pain

00:10:57.600 | from higher inflation and we've already priced in a slowdown

00:11:00.600 | and the stock market may just take off

00:11:02.000 | before any of that even happens.

00:11:03.760 | That's the hard part here.

00:11:04.800 | Obviously, the other side of it would be,

00:11:06.840 | the economy slows more than people are expecting

00:11:08.680 | 'cause the Fed went too far and we have this hard landing

00:11:11.360 | and the stock market does roll over again.

00:11:13.160 | That's always a possibility.

00:11:14.280 | But I think you could see some sort of counterintuitive

00:11:18.040 | situation where the stock market actually does fine,

00:11:20.280 | even if the economy slows,

00:11:21.480 | 'cause we've already priced it in.

00:11:22.760 | - It's why I kind of haven't touched anything

00:11:25.080 | in my portfolio really for the last handful of years,

00:11:28.080 | if not decade, because I don't know.

00:11:31.000 | Every time I've tried to catch a falling knife

00:11:33.800 | or make a bet that I thought was going to do well,

00:11:35.920 | if it wasn't something I really felt like I understood,

00:11:38.400 | I've always seemed to regret that decision.

00:11:40.320 | - My general guiding principle is the stock market

00:11:43.200 | usually goes up, but sometimes it goes down.

00:11:45.480 | And that could be for any number of reasons.

00:11:47.120 | I think the stats that I've used

00:11:48.640 | are over any one year period,

00:11:50.400 | we're up three out of every four years on average.

00:11:52.680 | It doesn't follow that exact pattern,

00:11:54.840 | but that just means if you were a strategist on Wall Street

00:11:58.240 | and you had to predict every year,

00:11:59.440 | what's the stock market going to do?

00:12:01.160 | 75% of the time, if you just said it's going to go up,

00:12:03.560 | you would be right.

00:12:05.040 | So I think the people get stuck constantly

00:12:08.560 | trying to predict the downside and what's going to cause it.

00:12:11.800 | And I think if you just let yourself understand that,

00:12:15.320 | I know the downside there is going to happen,

00:12:16.640 | but most of the time the stock market is going to go up,

00:12:19.080 | corporations are going to make more money.

00:12:21.400 | They're going to pass those profits along

00:12:22.720 | in terms of share buybacks or dividends

00:12:25.000 | or profits or all these things.

00:12:27.040 | Instead of trying to think through the next recession,

00:12:29.760 | I think people are probably better off

00:12:31.120 | preparing for personal finance

00:12:33.200 | as opposed to their portfolios when it comes to recession,

00:12:35.120 | because that's way more impactful.

00:12:37.680 | - And what does that mean,

00:12:38.520 | preparing your personal finances for recession?

00:12:40.400 | - Well, I mean, whether it's a recession or not,

00:12:42.560 | if your income is impacted by your current situation

00:12:45.680 | and you have a problem for most people losing your job,

00:12:48.160 | that's not a recession, that's a depression.

00:12:50.520 | That's a huge impact on your whole life.

00:12:53.120 | So just understanding what your prospects are

00:12:55.960 | and how safe you feel at your job

00:12:58.920 | or how steady your income is.

00:13:00.280 | Do you have a fixed salary you earn?

00:13:01.680 | Do you have a variable income that could change

00:13:03.800 | if things slow down?

00:13:04.640 | I think understanding these things,

00:13:05.800 | what is your fallback in terms of

00:13:07.160 | not only emergency savings,

00:13:08.200 | but any sort of other liquid cash that you could tap?

00:13:11.200 | Is all of your cash tied up in your house or in a mortgage,

00:13:14.040 | or do you have other ways of accessing cash

00:13:16.200 | if something should go wrong?

00:13:18.120 | 'Cause we've seen in the past,

00:13:19.480 | you being on the West Coast know this better than anyone,

00:13:22.040 | technology went from being just bulletproof as an industry

00:13:25.480 | and things were going great.

00:13:27.200 | And then all of a sudden,

00:13:28.700 | the tech sector seemed to be the only place

00:13:30.360 | that was in a recession.

00:13:32.040 | And people were losing jobs

00:13:33.320 | and trying to figure out what it all meant.

00:13:35.240 | I think having that fallback plan is always a good idea,

00:13:39.140 | regardless of whether the country's in a recession or not.

00:13:41.720 | Because the economy as a whole can impact you,

00:13:44.440 | but a lot of it is personal

00:13:46.360 | in terms of what is impacting you and your day-to-day

00:13:49.400 | and your own personal economy is a lot more important.

00:13:52.160 | - I have a couple of thoughts there,

00:13:53.000 | but I wanna ask about the tech recession, if you will.

00:13:55.960 | I know a lot of people were holding stocks

00:13:57.840 | that were down 50, 60, 70, 80, 90,

00:14:00.240 | close to, in some cases, 100%, not quite there.

00:14:03.160 | I've heard a lot of people say,

00:14:04.880 | "I don't wanna sell all these things that are down 90%

00:14:07.680 | "because when things get a little bit better,

00:14:09.840 | "they're going up."

00:14:11.000 | My response to them has been,

00:14:13.260 | "Yeah, but if you could erase the middle

00:14:14.800 | "and look at how have they performed over five years,

00:14:16.660 | "it might not actually look as bad

00:14:18.080 | "as you feel it is right now.

00:14:20.320 | "If this company is a mess and their stock's down, great.

00:14:23.900 | "But with the entire tech industry down,

00:14:26.640 | "is that a reversion to normal

00:14:28.640 | "or should people still be holding out hope

00:14:30.400 | "that it's gonna kind of correct?"

00:14:32.040 | - Well, that's probably one of the biggest biases we have,

00:14:34.160 | especially when trading individual stocks, is anchoring.

00:14:36.920 | And you say, "As long as I just break even, then I'll sell."

00:14:40.520 | Or, and especially this,

00:14:41.720 | a lot of people are looking at the higher watermark

00:14:43.320 | and assuming that means break even.

00:14:44.480 | But that, to your point,

00:14:46.020 | you had massive gains for some of those.

00:14:47.620 | If you've been in it for five, seven years,

00:14:49.580 | you had massive gains running up to that.

00:14:51.820 | And one of the hardest things to understand

00:14:53.460 | about catching a falling knife

00:14:54.620 | or just holding a falling knife

00:14:56.740 | is a lot of stocks just never come back.

00:14:59.340 | Cisco peaked in 2000

00:15:01.100 | and still hasn't come back to those same levels.

00:15:03.420 | General Electric was the biggest company in the world

00:15:05.420 | through the whole '90s

00:15:06.300 | and is now down 75% from those levels.

00:15:09.220 | I think the number from a JP Morgan study a few years ago

00:15:11.740 | called Agony and Ecstasy

00:15:13.660 | said that like 40% of all US stocks going back to 1980

00:15:16.860 | experienced a 70% drawdown or worse and never recovered.

00:15:21.520 | Right, so even though the stock market as a whole

00:15:24.260 | will continue to charge higher

00:15:25.460 | because the new winners will come up

00:15:27.260 | and make up for those losers,

00:15:28.620 | a lot of stocks just never come back.

00:15:30.900 | And I think that's the hard part to understand.

00:15:33.260 | And it's an impossible question to answer.

00:15:34.700 | Like, am I being disciplined or am I being delusional?

00:15:37.900 | You think I'm being Warren Buffett 'cause I'm holding here,

00:15:39.940 | but then you don't know, like, well, wait a minute,

00:15:41.620 | this stock is down 80%

00:15:43.740 | and I can't tell if I'm being delusional or disciplined.

00:15:45.780 | So I think the first part is just having it

00:15:48.780 | so that one stock or that handful of stocks

00:15:52.340 | aren't your whole portfolio.

00:15:53.460 | You're not so concentrated that it's going to ruin you

00:15:56.340 | if it never comes back

00:15:57.460 | and you're just sitting there like waiting and waiting.

00:15:59.300 | So I think just position sizing

00:16:01.580 | and having those individual bets

00:16:03.700 | be not your whole portfolio

00:16:05.380 | or not a major part of your portfolio,

00:16:07.180 | that's part of it is just not being overly concentrated.

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00:18:38.980 | So on one end of the spectrum, you hold one stock,

00:18:41.260 | it's down a lot.

00:18:42.440 | Like you said, there's a decent chance

00:18:43.820 | that stock's not coming back.

00:18:45.460 | On the whole market side, if you hold VTI,

00:18:47.820 | you hold even the S&P,

00:18:49.260 | you could probably feel reasonably good

00:18:50.620 | that it's coming back.

00:18:51.780 | How do you feel about an industry, like tech in this example?

00:18:54.940 | Like if you were holding a basket of 100 stocks

00:18:57.620 | or an index fund focused on tech

00:18:59.060 | that's taken an outsized beating,

00:19:01.520 | do you treat it more like a stock

00:19:02.940 | or do you treat it more like the market?

00:19:04.440 | Probably somewhere in the middle for sure,

00:19:06.220 | but you can have a subsector like the energy industry.

00:19:09.940 | For the whole 2010s, it was just getting slaughtered

00:19:12.540 | 'cause oil prices were coming down,

00:19:14.140 | interest rates were low, inflation was low,

00:19:16.220 | and as the stock market took off,

00:19:17.860 | the energy industry was just doing horribly

00:19:20.780 | and tech was doing great,

00:19:22.060 | but you could have been in any industry

00:19:23.220 | and just gotten crushed.

00:19:24.300 | Same thing if you picked a subsector like regional banks.

00:19:27.260 | For the past 10 or 15 years, right,

00:19:28.780 | you've made basically nothing

00:19:30.420 | even though the market is up three or 400%.

00:19:33.300 | So I do think that the tech sector is so much bigger now

00:19:37.640 | than it was in the past.

00:19:38.980 | It's not a little piece of it

00:19:40.120 | like the regional banks are, right?

00:19:41.800 | The fact that it's so much bigger

00:19:43.080 | and just part of our lives

00:19:44.620 | would give me a little more confidence there

00:19:46.160 | that if you're holding the sector,

00:19:47.280 | but we saw after 2000, it took the NASDAQ,

00:19:50.780 | I don't know, 12 or 13 years to completely come back

00:19:53.320 | and that was after an 80% crash,

00:19:55.280 | so that was way worse than this one,

00:19:57.120 | but there's nothing that says focusing on a whole sector

00:20:00.460 | means you're gonna be okay and totally diversified.

00:20:02.920 | It's not like a sector is gonna go out of business,

00:20:04.800 | so that's different than holding an individual stock.

00:20:06.720 | If you work in the tech sector

00:20:08.020 | and you have 100% of your money invested in the tech sector,

00:20:11.140 | that's a double whammy potentially

00:20:12.800 | and I think having some diversification outside of it

00:20:15.900 | for your investments is a pretty good idea.

00:20:18.420 | - That makes a lot of sense.

00:20:19.260 | I also wonder at what point

00:20:21.320 | we stop calling it the tech sector

00:20:23.060 | because it seems like is Peloton a tech company?

00:20:26.840 | Is Zillow a tech company?

00:20:28.000 | Like there are all these companies that have websites

00:20:29.860 | and people interact with them online,

00:20:31.840 | but I would actually love to see someone

00:20:34.320 | abandon the concept of the tech sector

00:20:36.480 | and bundle these companies into their

00:20:38.740 | kind of more normalized sector,

00:20:41.000 | maybe their sub-sector now just become the major thing

00:20:43.620 | and then all of a sudden I wonder how this looks.

00:20:45.640 | - That's the thing.

00:20:46.480 | It's like Amazon is, I think,

00:20:47.680 | technically considered a consumer company, right,

00:20:49.920 | in the way that they break out their geek sectors of the S&P

00:20:53.480 | and Facebook is a communications company,

00:20:56.760 | not a tech company,

00:20:57.600 | so yeah, the way that they've doing it,

00:20:59.080 | it is kind of mashed together.

00:21:00.080 | I think if you really boil it down,

00:21:02.040 | I think if you included those kind of companies,

00:21:04.920 | I think it's probably more like 40% of the S&P 500

00:21:07.040 | is made up of tech companies.

00:21:08.000 | To your point, that's a pretty good chunk of the pie,

00:21:10.360 | so that diversification maybe is a little bigger

00:21:12.560 | than it has been in the past.

00:21:14.120 | - And I think it probably would have helped earlier

00:21:16.280 | if we had done it because there'd be companies

00:21:17.920 | that I think were getting these valuations and multiples

00:21:20.400 | because everyone assumed they were tech companies

00:21:22.680 | and then once you kind of peel back the onions,

00:21:24.800 | you look at earnings, they're going public,

00:21:26.380 | you're like, wait, was Lyft a technology company

00:21:28.680 | or was it a transportation company?

00:21:30.000 | Because it was valued like a tech company,

00:21:32.200 | maybe it shouldn't have been.

00:21:33.280 | And once that kind of all corrected,

00:21:35.160 | my unfortunate belief is that the small portfolio I have

00:21:38.160 | of some individual tech stocks,

00:21:40.240 | I'm not waiting for it to kind of correct

00:21:42.240 | as much as it declined.

00:21:43.440 | In some ways, I'm kind of in the process of just getting out.

00:21:46.120 | - And maybe one of the ways to answer that question

00:21:48.120 | in terms of holding these things,

00:21:49.760 | again, because there are gonna be some of these companies

00:21:51.560 | that fell 60, 70% or whatever,

00:21:53.720 | Facebook is a good one that's already come back quite a bit,

00:21:56.760 | but some of these are gonna look

00:21:58.400 | like unbelievable buying opportunities in the future.

00:22:00.480 | You're gonna look back and you go,

00:22:01.320 | man, I could have bought that stock

00:22:02.720 | down 70% or 80% from the highs.

00:22:04.880 | I guess a good way to frame this for yourself is,

00:22:07.240 | would I be willing to put more money in now?

00:22:09.400 | Or if I was starting today from scratch and I'm all in cash,

00:22:13.480 | 100% of my portfolio is in cash,

00:22:14.800 | would I buy these stocks again?

00:22:16.800 | Because that's the opportunity cost thing

00:22:18.240 | that you're always asking yourself,

00:22:19.560 | is there a better opportunity out there

00:22:21.920 | in terms of investable assets?

00:22:23.240 | And if you wouldn't buy those stocks again today

00:22:25.720 | or you wouldn't start into them

00:22:27.600 | because you're coming from cash,

00:22:29.200 | maybe that's a good way to answer

00:22:30.520 | how disciplined you should be in terms of holding them.

00:22:32.880 | - And when it comes to that opportunity cost,

00:22:34.360 | there's something that I've really been struggling

00:22:37.080 | with processing lately,

00:22:38.400 | and I'm hoping you can guide me

00:22:40.320 | and anyone else with the question.

00:22:41.920 | Historically, for at least the last, I don't know,

00:22:44.320 | five, 10 years, no one's really ever thought of cash

00:22:47.560 | as an asset that would even come close

00:22:49.760 | to the kind of long-term portfolio

00:22:51.560 | you'd expect from the markets.

00:22:53.640 | But I worked at WealthTrap for a while,

00:22:55.280 | you kind of talk about the, is it five to 10?

00:22:57.600 | Who knows what you want to call your portfolio's

00:22:59.320 | long-term expected return.

00:23:00.800 | There's risk and volatility in that number.

00:23:03.680 | But with cash at such a high rate right now,

00:23:07.240 | is there an argument that should actually be a part

00:23:10.120 | of your investment portfolio

00:23:11.440 | instead of just the place you park

00:23:13.000 | some emergency funds on the side?

00:23:15.240 | - The way I think about this is,

00:23:16.600 | what part of your portfolio are we talking?

00:23:18.600 | A young person with 100% invested in stocks,

00:23:21.000 | and they're going to say,

00:23:21.840 | "I'm going to take a certain percentage of this

00:23:23.520 | and put it in cash, 'cause it's running 5%,

00:23:25.200 | and it's way less volatile, and it's just easy money,

00:23:27.120 | I'll clip that 5%."

00:23:28.840 | Or do you have a fixed income part of your portfolio

00:23:31.080 | where you're in an 80/20 portfolio, right?

00:23:32.760 | You're 80% stocks and 20% bonds.

00:23:35.040 | And does it make more sense to take that 20% in bonds

00:23:37.440 | and just put it all in cash?

00:23:38.320 | That's an easy one for me,

00:23:39.480 | like that you could go from bonds to cash.

00:23:41.120 | I think that's a pretty simple decision.

00:23:42.720 | 'Cause you're earning more in cash

00:23:44.280 | because the Fed has jacked short-term rates up so much

00:23:46.240 | and long-term rates haven't followed suit.

00:23:49.080 | By going into cash or short-term whatever,

00:23:51.640 | you know, money markets or CDs,

00:23:53.680 | you take away the interest rate component.

00:23:55.440 | So any sort of variability in movements,

00:23:58.120 | 'cause if rates rise even more,

00:23:59.680 | bonds will get hurt still, right?

00:24:01.000 | So if you're in cash,

00:24:01.840 | you don't have that interest rate risk.

00:24:03.520 | If you're in a bond piece to cash, that's an easy decision.

00:24:06.400 | For me, that's a no-brainer.

00:24:08.200 | But if you're going from stocks to cash,

00:24:10.360 | now that's hard because now you're really

00:24:13.040 | sort of timing the market.

00:24:14.080 | And the problem is, let's say we do have this recession.

00:24:17.040 | Everyone is predicted.

00:24:18.200 | In 12 months or so, we go into recession.

00:24:20.360 | By that point, the Fed's not going to leave rates at 5%.

00:24:22.680 | The Fed's going to lower rates.

00:24:23.680 | Let's say they bring rates back to 2%.

00:24:25.800 | Your cash yield immediately goes from 5% to 2%

00:24:29.520 | when the Fed lowers rates, right?

00:24:31.880 | So now you're sitting there and,

00:24:33.560 | okay, I took 20% out of stocks and I put it into cash.

00:24:36.040 | It was way easier of a decision at 5%.

00:24:38.120 | Now it's 2%.

00:24:39.280 | Now what do I do?

00:24:40.280 | And I think that's the hard part about trying to time it

00:24:42.160 | with money that's in risk assets,

00:24:44.680 | is I think you have to figure out what your exit plan is.

00:24:47.480 | And maybe it's, well, if stocks fall 10%,

00:24:49.480 | I'll buy some more from cash and I'll leg back in

00:24:51.720 | or whatever it is.

00:24:52.560 | But I think you have to have an exit plan to determine,

00:24:55.680 | is this money going to be in cash for a long time

00:24:58.720 | or is it just for a short-term trade?

00:25:00.400 | And I think that's the hard part,

00:25:01.560 | is determining how long that money sits in cash for you.

00:25:03.920 | - Let's say I make a rule right now.

00:25:04.960 | I'm like, okay, when rates drop below 3%,

00:25:07.560 | I'm putting it all back in the market.

00:25:09.320 | Do you think that there's going to be

00:25:11.240 | some type of correlation, positive or negative,

00:25:13.400 | with if rates do drop from 5% to 2%,

00:25:17.560 | is there something that's likely happening in the market

00:25:20.240 | at the same time or is it, who knows?

00:25:22.360 | - That's the worry.

00:25:23.200 | If rates fall and people decide,

00:25:25.240 | okay, the stock market looks better to me,

00:25:28.040 | and the stock market front runs it

00:25:29.160 | and you miss a 25% gain in three months or something,

00:25:32.480 | that's the problem.

00:25:33.320 | And then the hard part about sitting in cash

00:25:35.760 | and market timing in general is,

00:25:38.200 | first, you have to be right twice.

00:25:39.560 | You have to get out at the right time and then get back in.

00:25:41.320 | And getting back in is usually harder.

00:25:43.280 | And the funny thing is, it's hard in both directions

00:25:45.920 | because if the market falls 20% from here

00:25:48.520 | and you're sitting in cash,

00:25:49.520 | you're patting yourself on the back and you're going,

00:25:51.000 | whoo, I missed some of that with some of that cash

00:25:52.480 | I'm sitting on, I'm doing great.

00:25:54.120 | But then you become wedded to that cash.

00:25:57.160 | You think to yourself,

00:25:58.240 | well, it's just going to get worse, right?

00:26:00.000 | To your point, you have to have rules in place.

00:26:01.520 | Otherwise, you're just going to sit in that cash forever

00:26:03.560 | and you're never going to get back in.

00:26:04.400 | I can't tell you how many people we talked to in 2013,

00:26:07.800 | 2014, '15, who said, I went to cash in 2008,

00:26:11.560 | I thought I was a genius, I never got back in.

00:26:13.840 | That's the hard part is getting back in.

00:26:15.880 | The other part is the stock market goes up 20%

00:26:18.760 | and you see it getting away from yourself and you go,

00:26:20.520 | oh shoot, I missed that.

00:26:22.520 | Now I can't get back in, now I got to wait till it falls.

00:26:24.560 | And what if it keeps going up more, right?

00:26:25.920 | So that's the problem.

00:26:26.960 | It's just a psychological game.

00:26:28.160 | So if you're going to do that,

00:26:30.520 | then I think you have to have some hard and fast rules

00:26:32.640 | in place ahead of time.

00:26:33.840 | I'm going to put half of this back in

00:26:35.520 | if the stock market falls 10% from here, 20%.

00:26:38.400 | Or if the market rises from here,

00:26:40.300 | I'm going to dollar cost average once a month

00:26:42.320 | for six months or whatever it is.

00:26:44.320 | I think you have to have some hard and fast rules

00:26:45.960 | because otherwise it's going to play head games with you.

00:26:49.200 | - But it does sound like historically rates drop,

00:26:52.340 | people think borrowing is cheaper,

00:26:53.520 | companies want to spend more, the market goes up.

00:26:55.840 | I'm not going to say you're going to be certainly correct,

00:26:57.920 | but if rates do drop to 2%,

00:26:59.800 | historically more often than not the market goes up.

00:27:02.920 | And if you miss that,

00:27:04.200 | then getting that extra few percent for a handful of months

00:27:07.280 | or even a year is probably not worth

00:27:09.360 | missing out on that swing.

00:27:10.560 | - The good news is unless we have a calamity event,

00:27:14.040 | it's not like the Fed is going to go overnight

00:27:15.560 | from five to two, right?

00:27:16.680 | They're going to go down in a stair-step approach.

00:27:18.280 | They might go down in bigger increments

00:27:20.600 | if things get really bad,

00:27:21.920 | but it's not going to go immediately from five to two.

00:27:24.400 | It could go from five to four and a half to four.

00:27:27.440 | It would take some time

00:27:28.280 | unless something really gets broken in the economy.

00:27:30.200 | - Does that mean that, like you said,

00:27:31.520 | unless something really gets broken,

00:27:33.160 | we could probably expect these rates

00:27:35.040 | at least in the, let's call it two plus percent

00:27:37.920 | for at least another year?

00:27:39.400 | Or how are you thinking about how long we might have rates?

00:27:41.440 | Or could it be 10 years?

00:27:43.480 | - The Fed keeps saying higher for longer,

00:27:45.680 | but obviously that all depends on the economy.

00:27:47.840 | But I think going back to a 0% world

00:27:52.000 | seems pretty far-fetched at this point.

00:27:54.440 | That was coming out of the 2008 crisis,

00:27:56.760 | trying to get that back up and running again.

00:27:58.640 | And then the pandemic really brought rates

00:28:01.200 | to levels that we didn't think were possible.

00:28:04.200 | So I think a world of two to 3% rates

00:28:07.320 | would make more sense to me for something that's normal,

00:28:09.600 | if that is a thing, as opposed to going back to 0%.

00:28:13.000 | I do think that makes a little more sense,

00:28:14.960 | assuming inflation falls.

00:28:16.720 | And that's the other thing here.

00:28:18.000 | If you really wanted to get technical with it,

00:28:19.920 | someone would say, "Great,

00:28:20.760 | you're giving me 5% nominal rates,

00:28:22.680 | but real rates are zero because inflation is 5%.

00:28:25.600 | So if I adjust it for inflation, it's 0% anyway.

00:28:28.720 | So what am I really getting here?"

00:28:29.960 | And that's the problem is if inflation falls,

00:28:32.280 | you would expect rates to come down with it eventually.

00:28:35.240 | It's unfortunate that you're not going to earn 5%

00:28:37.920 | if inflation is at two.

00:28:39.840 | It's probably not going to be that good of a deal.

00:28:41.640 | So if inflation falls, rates probably fall too.

00:28:44.200 | - Okay.

00:28:45.040 | And we're talking about all these rates.

00:28:45.880 | We've talked about a couple examples of where to put money.

00:28:48.400 | IBONs were all the rage

00:28:50.440 | when you're locking in these really high rates.

00:28:52.640 | We still have some inflation,

00:28:54.000 | but given the rate hikes for the Fed,

00:28:55.760 | is that even a thing that you're seeing people

00:28:57.880 | get excited about anymore?

00:28:59.280 | - The yields aren't nearly as juicy as they were.

00:29:00.920 | They got up to as high as what, over 9%, I think.

00:29:03.280 | They based it on the previous six months worth, right?

00:29:05.800 | And so now the yields are 4.3%.

00:29:07.800 | And you can get more than 5% in T-bills.

00:29:10.600 | You can get well over 4% at a lot of places

00:29:12.600 | in terms of online savings or cash management.

00:29:14.720 | So yeah, I think the IBONs had their day in the sun.

00:29:18.280 | And I think a lot of people were willing

00:29:20.200 | to go through the hassle of using Treasury Direct,

00:29:22.800 | which was a website that felt like it was from 1994.

00:29:25.400 | And I know a lot of people told me they had problems

00:29:27.960 | and you were capped at the amount of money you could put in.

00:29:30.200 | And there was penalties if you pulled the money out early

00:29:31.880 | and all these things.

00:29:33.120 | It was worth it to jump through those hoops

00:29:34.560 | when you could get nine plus percent, but at 4.3%.

00:29:37.680 | Now that we're back on par with other things,

00:29:39.280 | it's probably not as advantageous.

00:29:41.440 | - The way it worked was you locked it in for six months

00:29:44.520 | and then it reset based on whatever was happening.

00:29:46.960 | And I believe if you take it out within five years,

00:29:49.680 | you get a three-month penalty,

00:29:51.600 | but you have to hold it one year.

00:29:52.960 | So given where the rates are now,

00:29:54.760 | I got to go look at what rate I'm currently locked into.

00:29:57.800 | But I think as soon as I hit about three months

00:29:59.640 | past a rate under 5%,

00:30:01.360 | I'll probably be pulling all the IBON stuff out myself.

00:30:04.120 | - It made sense, but it was a flash in the pan

00:30:06.000 | kind of thing.

00:30:07.280 | I've seen high yield savings rates anywhere from,

00:30:10.440 | there's still your go to chase, you're getting nothing,

00:30:12.560 | but in the four to 5% range.

00:30:15.760 | But with T-bills and tax treatment for them,

00:30:18.440 | is there any argument to not be putting all your cash there

00:30:21.760 | in some form?

00:30:22.960 | - It is higher yielding.

00:30:24.200 | I've had a lot of people ask me,

00:30:25.240 | how do I buy actual T-bills?

00:30:27.400 | - Let's ask how you buy it.

00:30:28.520 | Is it even worth it or just buy a short-term ETF?

00:30:30.960 | - I think ETFs are probably easier

00:30:32.760 | 'cause the way it works is a T-bill,

00:30:34.360 | because it's so short-term,

00:30:35.320 | it could be one, three, six, 12 months,

00:30:38.080 | you don't actually get any interest payments.

00:30:40.080 | You buy it at a discount and then you get it at par.

00:30:43.080 | So let's say you wanted $1,000,

00:30:45.240 | you would pay 900 or whatever.

00:30:47.240 | If it's 5%, maybe pay 950.

00:30:49.200 | And then in three months or six months or 12 months,

00:30:51.240 | you'd get $1,000, right?

00:30:53.200 | But there are T-bills that are already out there

00:30:56.080 | that are not new.

00:30:57.080 | So you have to kind of check the pricing.

00:30:59.280 | And unless you've done it before

00:31:00.840 | and used a broker to buy bonds like that,

00:31:02.760 | it's probably a lot easier to just hit a button

00:31:04.880 | and buy an ETF and go that route.

00:31:06.840 | That's what I've decided to do.

00:31:08.960 | - And the ETF just pays out the dividends

00:31:11.640 | from the fact that they're constantly buying

00:31:13.640 | and selling these in that format.

00:31:15.760 | - Yes, it's just much easier.

00:31:17.600 | The rates are pretty low.

00:31:18.840 | Any Vanguard, iShares, Charles Schwab,

00:31:21.520 | all these places, Fidelity,

00:31:22.720 | will have short-term Treasury bill ETFs.

00:31:27.280 | - And the tax treatment,

00:31:28.360 | whether you buy direct or in the ETF,

00:31:30.960 | you still get that advantage?

00:31:32.280 | - Yeah, so it's the same deal.

00:31:33.760 | I do think online savings accounts

00:31:35.320 | have some benefits as well.

00:31:37.120 | I find it easier to move money in and out of them.

00:31:39.800 | I mean, it's not a big hassle,

00:31:42.040 | but if you're trading T-bill ETFs

00:31:44.600 | in a relative brokerage account, you need the money,

00:31:46.560 | you sell it, then you have to wait two or three days

00:31:48.600 | for the money to settle, and then you can pull it out.

00:31:50.800 | And so I think there is a little bit of an advantage

00:31:53.040 | to an online savings account in that

00:31:54.880 | if you really need the money in like a day or two,

00:31:57.000 | it's much easier to get.

00:31:58.720 | - Yeah, but if you live in California,

00:32:00.760 | if you live in New York,

00:32:01.880 | and you're getting hit with seven, eight, nine, 10% tax rates

00:32:05.440 | or higher, it seems 5% short-term Treasuries

00:32:09.400 | plus the tax benefit, it seems hard to beat.

00:32:11.720 | - It's not a bad deal.

00:32:12.560 | - As long as you have money set aside.

00:32:13.920 | We talked earlier about the way to prepare for recession.

00:32:16.560 | Maybe it's not as much in your portfolio

00:32:18.000 | as your personal finances.

00:32:20.120 | One thing that I've been thinking is,

00:32:22.040 | okay, depending on how stable your income is, right?

00:32:24.880 | Like my income now as a creator is based on sponsor revenue

00:32:29.040 | and affiliate revenue.

00:32:30.080 | So the market really does take a turn.

00:32:32.400 | That stuff cuts quick.

00:32:33.880 | Brands are, we're not gonna spend anymore.

00:32:35.400 | Budgets are cut.

00:32:36.240 | And so I'm thinking about emergency fund

00:32:39.360 | in a way that I didn't when me and my wife

00:32:42.320 | both had employment.

00:32:44.120 | We had jobs where we were probably less likely

00:32:46.520 | to get let go just on a whim.

00:32:48.920 | And if we did, we'd probably have some type of severance.

00:32:52.160 | Is emergency fund the kind of main tenant

00:32:54.760 | of preparing your personal finances for that?

00:32:56.720 | And do you ratchet up that number?

00:32:58.440 | The more you feel like your job's less certain

00:33:00.440 | or how do you think about that?

00:33:01.560 | - I think that makes sense.

00:33:02.680 | If you're in an industry where you think

00:33:04.120 | it's very cyclical and could have an even bigger downturn,

00:33:07.800 | it's kind of like looking at difference

00:33:09.360 | between stocks and bonds.

00:33:10.440 | If you're a teacher,

00:33:12.640 | you know that you're pretty safe in your job.

00:33:15.480 | You're pretty solid there.

00:33:16.480 | But yeah, if you're in a cyclical industry,

00:33:18.680 | like technology or energy

00:33:20.040 | or any sort of variable income stream,

00:33:22.040 | maybe it makes sense to have a bigger buffer there

00:33:24.000 | or understand where other sources you could pull from

00:33:26.880 | in the event that something goes wrong.

00:33:28.120 | Do you have a home equity line of credit you could tap?

00:33:29.960 | Do you have other areas

00:33:31.080 | where you could pull some money out of?

00:33:32.640 | I think that makes sense

00:33:33.480 | to just have that parachute just in case.

00:33:36.480 | If you're comfortable in the past

00:33:37.960 | with six months worth of savings in emergency fund,

00:33:40.400 | maybe you go up to nine months or 12 months

00:33:42.240 | because it gives you a little bit of extra buffer

00:33:44.760 | if you have to make up for that spending shortfall

00:33:46.680 | if you stop making as much money.

00:33:48.680 | - One thing I try to remind people

00:33:49.920 | is you might know how much you spend.

00:33:51.800 | You might track your spending and you might have a good sense

00:33:53.920 | and by all means, if you want to maintain that lifestyle

00:33:56.680 | in the circumstance that you lose your job

00:33:58.680 | or lose your income, you can,

00:34:00.600 | but I try to say you could also price your emergency fund

00:34:03.400 | as if you made some cuts.

00:34:04.880 | If every year you're the kind of family

00:34:06.320 | that takes $20,000 worth of family vacations

00:34:09.440 | or whatever the number is,

00:34:11.040 | you could probably cut that to zero if you lost your job.

00:34:13.760 | So your emergency fund doesn't necessarily have to be,

00:34:17.040 | if it's six months,

00:34:17.880 | six months times however much you spend in a year.

00:34:21.080 | It could be six months times

00:34:22.120 | however much you would spend in a year

00:34:24.080 | if you made some cuts.

00:34:25.760 | And for some people, there's not a lot of room for cuts.

00:34:28.080 | For some people, there might be a lot.

00:34:29.200 | - Yeah, if you lose your job,

00:34:30.320 | I bet it's pretty easy to figure out those areas

00:34:32.240 | of variable spending where you can cut, right?

00:34:34.320 | Okay, this streaming's gone, this streaming's gone,

00:34:36.360 | the gym membership.

00:34:37.200 | There's probably ways that you can figure out pretty quickly

00:34:39.960 | yeah, those places that you're gonna cut back

00:34:41.360 | because it just doesn't make sense anymore

00:34:43.000 | in your new situation.

00:34:45.080 | - Anything else you think on the personal finance side

00:34:47.480 | that people should consider thinking about

00:34:49.640 | in light of what could happen in the economy

00:34:51.760 | and the markets?

00:34:52.880 | - I think especially for young people,

00:34:54.120 | it's never a bad idea to always have some conversations going

00:34:57.920 | in terms of future employment opportunities

00:35:00.280 | and talking to people in other areas of your industry

00:35:02.640 | and just having a foot in the door

00:35:04.840 | if you need to have that conversation

00:35:06.600 | because the whole process of finding a job

00:35:08.280 | sometimes can take a lot of time.

00:35:09.920 | So just having conversations,

00:35:12.280 | especially if you know that you're not completely locked in

00:35:14.480 | and this is my dream job, I'm gonna be here forever.

00:35:16.800 | If something does happen,

00:35:17.800 | I think just having those lines of communication

00:35:20.000 | always open for future employment opportunities

00:35:22.480 | is a good idea.

00:35:23.840 | - And it's a lot less pressure

00:35:25.000 | to have a conversation with a company

00:35:27.440 | if you're not trying to actively find a job.

00:35:29.680 | - Exactly.

00:35:30.520 | - When you're like, "Hey, I'm looking for a job."

00:35:31.920 | It's like, "We're not hiring for this right now."

00:35:33.600 | But if you're just like,

00:35:34.440 | "Hey, I wanted to connect with someone in the industry."

00:35:36.040 | Building that out,

00:35:37.280 | someone's gonna build a cool personal CRM for job searching

00:35:41.040 | that kind of lets you do this more proactively in advance.

00:35:44.080 | You probably just ask ChatGPT to do it all for you

00:35:45.960 | now that I think about it.

00:35:46.800 | - Right.

00:35:47.640 | - Okay, you mentioned HELOC

00:35:48.800 | as a potential thing you could tap.

00:35:50.960 | Let's talk about the other side of the equation, right?

00:35:52.840 | Rates are high.

00:35:54.120 | When it comes to buying a home,

00:35:55.960 | I think that people like myself who kind of,

00:35:59.280 | I have only been in the market for home buying

00:36:02.040 | in an incredibly low rate environment for the last decade.

00:36:05.720 | I know lots of people in my peer group that are like,

00:36:08.520 | "I can't buy a home now.

00:36:09.480 | "Rates are so expensive.

00:36:11.280 | "I gotta wait for them to come back down.

00:36:12.920 | "You got two point something.

00:36:14.200 | "I'm not gonna pay four or five something.

00:36:16.760 | "Is that crazy?

00:36:17.600 | "Should people just adjust to the new normal?

00:36:19.400 | "Are they so anchored

00:36:20.400 | "that they'll kind of live in stress for the next 30 years

00:36:23.400 | "if that's their app mindset?"

00:36:25.200 | - Yeah.

00:36:26.040 | Unfortunately, so much of financial success

00:36:27.880 | is out of your hands at these sort of things

00:36:29.640 | where luck and timing plays such a huge role.

00:36:32.280 | If you bought a house pre-2021 and had pre-2022 rates,

00:36:37.280 | you're in a very good position financially, right?

00:36:40.200 | If you bought in any time in the 2010s or prior,

00:36:42.720 | you're doing wonderfully in terms of home equity

00:36:44.840 | and having the ability to refinance or have a low rate.

00:36:47.600 | If you're buying now,

00:36:48.440 | affordability has never been this bad before.

00:36:50.480 | If you combine housing prices up 40%

00:36:53.520 | since the start of the pandemic

00:36:54.520 | with mortgage rates that have doubled

00:36:57.200 | off their lows to six to 7%.

00:36:59.520 | And the problem is that I think the Fed assumed

00:37:01.880 | if we raise rates and mortgage rates come up,

00:37:04.120 | housing prices have to fall, right?

00:37:06.280 | Because if we're combining this insane run-up in prices

00:37:10.040 | with these newer higher mortgage rates,

00:37:11.600 | the monthly payments,

00:37:12.600 | it just, for a large percent of the population,

00:37:15.280 | doesn't make sense affordability-wise, right?

00:37:17.600 | I'm double whammy of higher prices and higher rates.

00:37:20.880 | The monthly payments alone disqualify a lot of people

00:37:24.280 | to be able to afford it.

00:37:25.120 | Plus you have to come up with a much bigger down payment.

00:37:27.880 | And unfortunately, I think a lot of it

00:37:30.120 | is probably based on demographics

00:37:32.000 | and the fact that we had all these people

00:37:33.200 | with 3% mortgages.

00:37:34.680 | The prices aren't coming down nearly as much

00:37:36.520 | as people would have thought.

00:37:37.800 | Again, in a textbook scenario, rates go up,

00:37:40.200 | prices should come down because so many people like us

00:37:43.600 | are sitting on 3% mortgages going,

00:37:46.200 | "There's no way in hell I'm getting rid of this mortgage.

00:37:47.960 | "I'm sitting in this house

00:37:48.800 | "and I'm going to stay in it longer," right?

00:37:50.480 | So what we've had is just all the supply on the market

00:37:54.120 | has just vanished, essentially.

00:37:56.480 | And so we now have higher prices.

00:37:59.240 | They've come down a little bit

00:38:00.160 | and in certain areas more than others,

00:38:01.560 | but they haven't rolled over.

00:38:02.920 | I think some people were expecting

00:38:04.160 | we're going to see a 2008-type 20% crash in housing prices.

00:38:07.600 | It hasn't happened yet.

00:38:09.040 | Maybe if mortgage rates go to 8% and stay there,

00:38:11.080 | it'll happen, but it hasn't happened yet.

00:38:13.240 | And I think part of that is because all the supply

00:38:15.560 | has been sucked out of the market.

00:38:16.960 | Anytime there is a house that comes on,

00:38:18.840 | there's still all these millions and millions of millennials

00:38:21.880 | who want to buy, who miss their opportunity

00:38:24.200 | or just weren't ready and the timing wasn't right.

00:38:26.600 | They still want to buy them because supply is so low.

00:38:29.160 | Now it's still hard to buy a house

00:38:30.920 | because the pool of buyers has grown

00:38:33.600 | 'cause they've been waiting,

00:38:34.960 | but the supply of houses is down.

00:38:36.760 | So it's almost harder to buy a house now.

00:38:39.680 | I definitely feel for people who are in that situation

00:38:42.080 | and trying to buy.

00:38:43.240 | And unfortunately, I think what's going to happen

00:38:46.000 | is if rates do fall,

00:38:47.120 | say they go from 6.5% to 5% or 4.5 or whatever,

00:38:51.480 | I think that's just going to bring more people

00:38:52.720 | off the sidelines.

00:38:53.560 | And maybe that'll be a good thing.

00:38:54.400 | It'll bring out some sellers too,

00:38:56.200 | but we're in a very bad place in terms of

00:38:59.920 | if you're a first-time home buyer looking to buy.

00:39:01.800 | If you're someone who's lived in a house

00:39:03.640 | and you have all this equity,

00:39:04.960 | sure it'd be hard to trade up from a 3% mortgage

00:39:07.040 | to five or six,

00:39:08.560 | but at least you have that equity to use as a down payment.

00:39:10.920 | If you're coming in completely free,

00:39:13.160 | and clear of any housing asset,

00:39:15.560 | it's a really tough situation.

00:39:17.640 | And your only hope is really,

00:39:19.200 | I'm going to buy now and then I'm going to refinance

00:39:21.560 | if and when rates fall in the future.

00:39:23.040 | That's the hope.

00:39:23.880 | - To me, if I were buying right now,

00:39:25.600 | it seemed like the strategy to lower your mortgage payment

00:39:28.200 | would be to do a short duration, adjustable rate mortgage,

00:39:32.280 | because there doesn't seem to be any benefit

00:39:34.120 | to locking in today's rates for 30 years.

00:39:37.080 | Does that seem sane?

00:39:38.880 | - You probably get a little bit of a better rate

00:39:40.440 | on an adjustable rate.

00:39:41.520 | And then again, you can hopefully, if rates fell,

00:39:44.040 | then you could refinance again at a lower rate.

00:39:46.160 | That's the hope.

00:39:47.240 | You're rolling the dice that that's going to happen.

00:39:49.680 | And in that case, a recession,

00:39:51.920 | unfortunately you'd probably be cheering one on

00:39:54.120 | because you'd want lower rates from that,

00:39:55.960 | which is a weird place to be.

00:39:57.640 | I feel for people who are homebuyers right now,

00:40:00.560 | it's a really, really tough situation.

00:40:03.480 | And I can't imagine the stress you're under

00:40:05.200 | constantly looking and having no inventory

00:40:08.120 | and higher rates and higher prices.

00:40:09.760 | It's tough.

00:40:11.160 | - And is there anything to do

00:40:12.920 | other than the strategy you talked about?

00:40:15.120 | - I don't know.

00:40:17.920 | It's really difficult.

00:40:18.760 | I think you just have to make sure you're ready

00:40:20.760 | and that you can handle those payments.

00:40:22.080 | And some people are going to have to maybe grow into them.

00:40:24.320 | That's a good thing is most people's income

00:40:25.800 | goes up over time.

00:40:26.800 | The payments are fixed.

00:40:28.000 | You can grow into them a little bit

00:40:29.120 | and hopefully refinance over time.

00:40:31.040 | If and when rates fall, that'd be the only silver lining.

00:40:33.640 | - Now I know in the past,

00:40:35.240 | we've ended up in housing situations

00:40:37.120 | because people want to buy homes.

00:40:38.840 | We want to make it a little easier.

00:40:40.480 | Let people do these kind of interest-only mortgages

00:40:43.440 | with giant balloon payments

00:40:44.920 | and things that pop up at years out.

00:40:46.680 | Is there any world where that happens

00:40:49.400 | and people start to get really aggressive

00:40:51.120 | or are banks not kind of getting as aggressive

00:40:53.840 | as they used to to kind of hold back in that situation?

00:40:55.960 | And for context, there was a time

00:40:57.680 | where you could put a very little amount down

00:40:59.760 | and you could get an interest-only mortgage,

00:41:01.760 | but five, 10 years later,

00:41:03.280 | you'd have to start paying the principal.

00:41:04.640 | And in many cases, your mortgage payment could 2X.

00:41:07.840 | - Yeah, big balloon.

00:41:08.920 | - And so your bet was, "Oh, my salary's gonna go up."

00:41:11.680 | But many people's salary didn't go up enough

00:41:13.800 | to support a 2X mortgage payment.

00:41:15.560 | So I'm just curious if that's a strategy

00:41:17.680 | that someone could use

00:41:19.040 | or whether banks are even comfortable with that anymore.

00:41:21.440 | - That's the biggest difference

00:41:22.480 | between now and the 2008 situation

00:41:24.840 | and the run-up in the 2000s,

00:41:26.400 | is you were getting these ninja,

00:41:27.560 | no-income, no-job applications.

00:41:30.600 | And now, we've never had better credit scores

00:41:33.200 | for people who are buying.

00:41:34.400 | So the people who are buying houses,

00:41:36.000 | who've bought houses in the last three to five years,

00:41:38.320 | have had much higher credit scores.

00:41:39.720 | We're not talking about subprime lenders or borrowers.

00:41:42.480 | We're talking about people with high credit scores.

00:41:44.320 | They were not doing these adjustable-rate mortgages.

00:41:46.240 | They were locking in 30-year fixed rates.

00:41:48.520 | And so the housing market,

00:41:49.640 | from a balance sheet consumer perspective,

00:41:51.880 | is really, really strong

00:41:53.280 | and about as well as a place as it's been.

00:41:55.160 | So they're not those problems.

00:41:57.040 | And that was why you saw fire sale prices

00:41:58.680 | in 2008 through 2012, as the housing market cratered,

00:42:02.240 | is people just couldn't afford their payments anymore.

00:42:04.840 | And when they lost their jobs, it was a double whammy

00:42:06.440 | and they had to get out of the houses.

00:42:07.480 | And that's why prices fell.

00:42:10.120 | It would be hard to make a case

00:42:11.240 | that prices are gonna rise substantially from here

00:42:13.120 | after we've pulled forward so many price gains,

00:42:15.720 | but it's pretty tough to see

00:42:17.200 | how housing prices could fall substantially

00:42:19.160 | because we don't have that situation

00:42:21.440 | where people are forced out of their mortgage

00:42:22.840 | 'cause they're underwater.

00:42:23.680 | Because even if you ran into trouble,

00:42:25.920 | people have a ton of equity in their home, right?

00:42:28.520 | Because prices have risen so far.

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00:43:55.140 | and if you choose to apply,

00:43:56.660 | be sure to let them know you heard about it here.

00:43:59.600 | Again, that's longangle, A-N-G-L-E.com.

00:44:03.660 | I just wanna thank you, Quick,

00:44:06.460 | for listening to and supporting the show.

00:44:08.760 | Your support is what keeps this show going.

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00:44:19.620 | So please consider supporting those who support us.

00:44:23.240 | And so if you're on the other side of this,

00:44:24.500 | and you're like, you know what?

00:44:25.520 | I locked in one of these great mortgages,

00:44:27.560 | but circumstances have changed, I wanna move,

00:44:29.900 | we need a different house, family's grown,

00:44:31.720 | family's shrunk, with such a low rate,

00:44:34.180 | is it crazy to do anything other than kind of keep it

00:44:36.960 | and try to become a landlord?

00:44:38.260 | I feel like people would be faced with this,

00:44:39.820 | I don't wanna give up my 2.75 or 3.25% mortgage right now.

00:44:44.820 | Is there any creative way that you can keep that mortgage

00:44:49.260 | and like somehow do some kind of weird

00:44:51.700 | sell to own kind of situation?

00:44:54.860 | - The renting thing is something I think a lot of people

00:44:56.300 | did during the pandemic, because they could go from a 3%

00:44:58.920 | and then borrow for another 3%.

00:45:00.800 | It's a little harder now because the payment

00:45:02.160 | in a new one would be so much higher.

00:45:04.080 | My prediction is I think if rates stay high,

00:45:06.480 | one of these banks is gonna let you port

00:45:08.040 | over your 3% mortgage to a new one.

00:45:09.640 | I would love to see that.

00:45:10.760 | I don't know how exactly that would work,

00:45:11.960 | but I wouldn't be surprised if rates are higher

00:45:13.440 | if someone tried that as a sort of gimmick at least.

00:45:16.120 | But unfortunately, there's not much you can do.

00:45:19.160 | I think eventually life gets in the way.

00:45:21.400 | And we've had this supply shock where the supply

00:45:24.080 | and the housing market is just completely dried up.

00:45:26.380 | People get married and they have kids

00:45:28.220 | and they die and they move and they lose their career.

00:45:31.380 | All the life happens and that's why people move.

00:45:33.580 | I moved in 2017 because my wife and I had twins on the way.

00:45:36.780 | And we just totally outgrew our house immediately.

00:45:38.420 | We didn't plan on moving, it just sort of happened.

00:45:40.460 | So I think the housing market will eventually

00:45:44.140 | get to a better steady state because life gets in the way.

00:45:47.180 | And again, I think people will just sort of

00:45:49.180 | plug their nose and move.

00:45:50.540 | I think the number from the Wall Street Journal

00:45:52.180 | I saw the other day was people on average

00:45:54.420 | have an extra $270,000 in equity

00:45:56.900 | above what they had going into the pandemic.

00:45:59.100 | And so it would sting to move from a 3% to a 6% mortgage.

00:46:02.840 | But if you have that equity built in

00:46:04.140 | that you can use for a down payment

00:46:05.300 | to lower what you're going to have to borrow

00:46:06.300 | in the first place, I think eventually people will say,

00:46:09.260 | you know what, if this is going to make my life easier,

00:46:11.900 | I can move to a better school district

00:46:13.260 | or a bigger house for my kids with a backyard,

00:46:15.960 | or I move somewhere where I'm going to be happier

00:46:18.500 | and I can live somewhere else

00:46:19.740 | because I can work remotely, all these things.

00:46:21.860 | Eventually that will happen.

00:46:22.900 | And I think that you're probably in a much better position

00:46:25.340 | than someone who is a first-time buyer right now.

00:46:28.280 | - Yeah, I mean, I go back to what you said earlier

00:46:29.540 | about anchoring.

00:46:30.380 | It's like, this is what the rates are.

00:46:32.220 | Like you could dwell on the fact

00:46:33.900 | that they're not as good as they were before

00:46:35.560 | and hearkens of those times where your parents were like,

00:46:37.800 | I used to be able to buy that thing for a nickel.

00:46:39.740 | But at the reality is that's just not the circumstance

00:46:42.020 | we're in now and life needs to move on.

00:46:45.100 | And I did this great interview with Bill Perkins

00:46:47.620 | who wrote this book, "Die With Zero."

00:46:49.100 | - Love that book.

00:46:49.940 | - And it's really just changed my perspective of like,

00:46:51.740 | look, money's purpose should not be

00:46:53.740 | to just grow money at all costs.

00:46:55.220 | It should be to help maximize your net fulfillment.

00:46:57.940 | If you need a bigger house for your family to be happy,

00:47:00.940 | it might cost a little bit more.

00:47:02.260 | You might be paying a higher interest rate,

00:47:03.980 | but the end of the day, if you don't have the money,

00:47:06.180 | of course, that's not a good option.

00:47:07.600 | But if you do have the money,

00:47:09.020 | think about what's going to maximize

00:47:10.380 | your net fulfillment in life.

00:47:11.820 | - We mentioned the HELOC before.

00:47:13.500 | Another option is you have to pay 7% now for HELOC probably,

00:47:17.100 | seven or 8%, but you could pull some of that equity

00:47:19.540 | out of your house and do an addition or something, right?

00:47:21.680 | If you really didn't want to move

00:47:22.740 | and you wanted to keep that mortgage,

00:47:24.180 | you're gonna be borrowing money, just maybe not as much.

00:47:26.180 | You pull $50,000 out of your mortgage

00:47:28.160 | or 100,000 or whatever it is,

00:47:29.860 | you add that third stall garage or that extra bedroom

00:47:32.780 | or fix the backyard up or whatever it is

00:47:34.620 | and stay where you are and remodel a little bit

00:47:36.140 | using some of that equity that you've built up.

00:47:38.180 | - Yeah, there's a bunch of companies,

00:47:39.100 | I can't remember all the names of them,

00:47:40.020 | that have made like ADU the most like easy process.

00:47:43.460 | Like we will drop ship a container

00:47:44.980 | that is exactly a perfect setup, ADU in your backyard.

00:47:47.460 | So if you only have to borrow for that

00:47:49.180 | instead of have to get a new loan for something else,

00:47:51.660 | that's actually a really great option, I like that.

00:47:53.840 | I did an episode with the host

00:47:55.640 | from the BiggerPockets real estate podcast.

00:47:57.940 | It was yesterday or two days ago.

00:47:59.660 | I don't know if it'll come out before or after this,

00:48:01.440 | but we talked all about optimizing the home buying experience.

00:48:04.300 | We talked a little bit about doing it in this market,

00:48:06.060 | renting things out if you can.

00:48:07.380 | So either go listen to that or expect it,

00:48:09.420 | depending on whether it's out.

00:48:10.420 | - What was their advice?

00:48:12.020 | - Their advice right now that I think

00:48:13.740 | is probably the most relevant thing

00:48:15.180 | is to not focus on the hot homes.

00:48:18.000 | It's like there are homes out there

00:48:20.220 | who have crappy pictures, who are in a weird place

00:48:24.460 | that's not the most obvious place that everyone wants to be.

00:48:27.060 | Look for something that's been on the market for 30 days.

00:48:30.080 | Maybe it's on the market for 30 days

00:48:31.940 | because the kitchen is completely closed off and has a door.

00:48:35.820 | Well, guess what?

00:48:36.660 | Moving walls is not that expensive,

00:48:38.740 | but there are a lot of people that walk into a house

00:48:40.420 | that are like, "Oh, I don't like this layout."

00:48:41.940 | And they just leave.

00:48:42.900 | And so it is so much easier to fix a few walls

00:48:45.860 | than it is to compete

00:48:47.380 | for the hottest home in the neighborhood.

00:48:48.740 | - Yeah, figuring out how to not get in a bidding war.

00:48:50.860 | Look for something that's been on the market for a while

00:48:52.760 | because those people will probably be desperate

00:48:54.220 | to sell as well 'cause they've probably been sitting there

00:48:55.860 | wondering, "Is this gonna happen for me?"

00:48:58.320 | - Just like you said,

00:48:59.160 | now might be a good time for renovation.

00:49:00.620 | The big takeaway I had for people right now is

00:49:03.340 | you don't have to necessarily buy a plot of land

00:49:04.860 | and build a whole house,

00:49:06.060 | but maybe you could buy a house

00:49:07.260 | that's not exactly what you want

00:49:09.500 | and the amount you'd have to put into it

00:49:11.420 | might be net total less than what it would cost otherwise.

00:49:15.420 | And so that was their advice.

00:49:16.580 | But the building thing, if you can,

00:49:18.980 | is actually not a bad idea

00:49:20.660 | because that's where you're getting

00:49:21.580 | a lot of the breaks now is the builders,

00:49:23.740 | they're not in the position to sit back like us

00:49:26.060 | with a 3% mortgage and just wait it out, right?

00:49:28.300 | The builders have this land that they need to build,

00:49:30.020 | so they've been offering incentives

00:49:31.060 | where they'll buy your mortgage rate down for you.

00:49:33.140 | So if you have the money to build,

00:49:35.040 | you could be more like a 5% mortgage

00:49:36.980 | 'cause the builder wants to get that done

00:49:38.980 | and get it off their books

00:49:40.000 | where they'll buy it down from 6 1/2 to 5 1/2 or five

00:49:43.380 | and offer some incentives for you to build

00:49:45.440 | as opposed to buying something that's already there.

00:49:48.340 | - I don't think I know anyone who's even bought and built,

00:49:50.180 | so I don't know anything about that process.

00:49:51.900 | - It's not a fun process

00:49:53.300 | because there's a million things you have to pick out,

00:49:54.800 | but whatever, you get a new home out of the deal.

00:49:56.860 | - And you mentioned HELOC's rates going up.

00:49:58.500 | Anything someone should be doing

00:50:00.020 | if they have other kinds of loans right now

00:50:01.900 | with rates up, student loans maybe?

00:50:03.700 | - Well, the big one is probably auto loans right now,

00:50:06.020 | which I think the average is like 8% on an auto loan.

00:50:09.220 | And that's another place where prices have risen.

00:50:12.380 | So if you could hold out on buying a new car,

00:50:15.720 | now is about,

00:50:16.560 | I mentioned that it's a really bad time

00:50:18.000 | for a first-time home buyer.

00:50:18.980 | It's a really bad time to buy a new car

00:50:21.200 | because they still haven't figured out

00:50:22.760 | the supply chain stuff

00:50:23.840 | because of a lot of the parts coming from overseas.

00:50:26.640 | But if you drive by a car dealership,

00:50:28.520 | you'll see that there's still a lot of empty slots

00:50:30.200 | where cars should be, right?

00:50:32.000 | And with 8% rates and used car prices high,

00:50:35.480 | it's not a great time to buy a car.

00:50:37.000 | So if you can make your car last a little longer,

00:50:39.840 | try to wait it out an extra 12, 15, 18 months.

00:50:42.140 | If you can, that's not a bad idea

00:50:44.080 | because going into a new loan,

00:50:45.640 | you're getting three or 4% car loans

00:50:47.440 | back in the day too, right?

00:50:48.440 | Now we're talking eight, nine, 10% sometimes

00:50:51.480 | for an auto loan.

00:50:52.400 | So if that's something where your car can still make it,

00:50:54.080 | but you really want a new car,

00:50:55.200 | it's probably best to wait it out at this point.

00:50:57.280 | - It's wild.

00:50:58.120 | I'm looking at the credit union

00:50:59.360 | that we got our auto loan from right now,

00:51:01.640 | and it's at 7.99%.

00:51:04.160 | I will say, do please shop around for auto loans.

00:51:08.080 | It is absolutely crazy how much of a better rate

00:51:12.580 | you can find looking at a ton of credit unions all over.

00:51:15.740 | I scoured the internet.

00:51:17.020 | There's this crazy spreadsheet

00:51:18.380 | that some Tesla enthusiasts created

00:51:20.180 | with like all the rates from all the credit unions.

00:51:22.420 | I found a diamond in the rough,

00:51:24.340 | and I'm actually looking.

00:51:25.180 | We got our loan June last year at 1.99%.

00:51:29.700 | - Yeah, and credit unions are a great place for that too.

00:51:32.060 | - You don't have to be a member of a specific credit union.

00:51:34.340 | You can almost always find some way to join them.

00:51:36.580 | There was one credit union I remember,

00:51:38.440 | I think it was the Christian Community Credit Union,

00:51:40.720 | that had the best possible rate

00:51:42.240 | when we bought a car five years ago,

00:51:43.800 | but you needed to submit evidence of tithing

00:51:45.880 | to one of their member churches.

00:51:47.120 | I was like, okay, that one I can't.

00:51:48.800 | That one, I was like, I would just not feel good

00:51:51.560 | trying to meet those requirements.

00:51:53.200 | It would cross that ethical boundary for me.

00:51:55.320 | For many other ones, you need to just join,

00:51:57.400 | or maybe in Palo Alto, the Stanford Federal Credit Union,

00:52:00.480 | you can join by making a $5 donation

00:52:02.880 | to the Palo Alto library.

00:52:04.500 | In student loans, is there anything

00:52:06.040 | someone with student loans right now

00:52:07.240 | needs to be thinking about?

00:52:08.400 | I don't know a lot about how student loans function

00:52:10.400 | in kind of fluctuating rate environments,

00:52:11.960 | but I figured I'd ask.

00:52:13.620 | - Well, people in the student loan,

00:52:15.680 | they've been able to basically put off their payments

00:52:18.100 | for so long because of the pandemic.

00:52:19.440 | So that's something that's probably

00:52:20.780 | just coming back online for people,

00:52:22.800 | is making their payments again,

00:52:24.200 | 'cause they had the ability to put off those payments

00:52:26.240 | because of the pandemic.

00:52:27.240 | So I think that's something that the delinquencies

00:52:29.400 | for student loans is on the floor right now,

00:52:31.040 | because most people weren't paying them

00:52:32.800 | through the pandemic,

00:52:33.640 | and now they have to put their payments back on.

00:52:34.920 | So that could be kind of a shock to people

00:52:37.000 | that they put those payments on hold for a while,

00:52:38.800 | and now they're coming back.

00:52:39.640 | So that's probably the bigger thing,

00:52:40.720 | as opposed to the rates,

00:52:41.560 | is people just having to make payments again at all.

00:52:44.220 | - Okay, I got one question from a listener

00:52:46.200 | about something related to investing

00:52:47.720 | that I wanted to ask you, or at least read to you,

00:52:49.720 | because I feel like you could do a better job answering it.

00:52:52.200 | So Daniel said,

00:52:53.040 | "How do you estimate risk and potential upside?"

00:52:55.480 | He says, "Personally, I always calculate the risk

00:52:57.640 | "as a potential loss, as a percentage of my net worth.

00:53:00.620 | "I do the same with the potential upside.

00:53:02.660 | "Helps me kind of quantify the potential impact

00:53:05.520 | "of the best and worst case."

00:53:07.460 | What do you think?

00:53:08.840 | - It is way easier to predict risk

00:53:11.460 | in something like the stock market

00:53:12.860 | than it is to predict returns.

00:53:14.660 | I think because you're pretty sure

00:53:16.300 | that in any given year,

00:53:17.620 | you're probably gonna have a correction.

00:53:18.860 | Every three to four years,

00:53:19.900 | you're probably gonna have a bear market,

00:53:20.960 | and then maybe once every 10 to 12 years,

00:53:22.660 | you're gonna have a crash.

00:53:23.820 | You can't really set your watch to it,

00:53:25.060 | but that's pretty darn close, that risk is there.

00:53:27.800 | But if you look at, over time, the different decades,

00:53:30.600 | the first decade of the century,

00:53:31.940 | the stock market went nowhere.

00:53:33.540 | The second decade of the century,

00:53:35.000 | we had huge returns.

00:53:36.540 | The '80s and '90s were these huge returns.

00:53:38.020 | The '70s was a terrible decade.

00:53:39.740 | '60s was okay.

00:53:40.580 | '50s was awesome.

00:53:41.420 | The '30s and '40s were terrible.

00:53:43.140 | And so, it's much harder to predict

00:53:45.380 | because of the unforeseen things that can happen

00:53:49.200 | that could cause things to be worse than you would assume.

00:53:52.280 | So, I'm much more of a fan

00:53:53.740 | of trying to predict risk ahead of time than return

00:53:55.740 | and sort of being surprised on the upside.

00:53:58.000 | But I think you can look at the historical range of results

00:54:00.620 | and understand that, over the long-term,

00:54:02.820 | corporations grow their earnings by whatever, 5% or 6%,

00:54:06.180 | and dividends grow by 4% or 5% per year,

00:54:09.420 | and sort of get a good estimation of the long-run returns.

00:54:12.500 | But unfortunately, in the short-term,

00:54:13.700 | it's basically impossible to predict

00:54:15.060 | what the stock market's gonna do.

00:54:16.620 | That's one of the reasons

00:54:17.900 | that I think you're able to earn such high returns there

00:54:19.820 | is because it is so unpredictable.

00:54:21.780 | I wish I had a better answer for you,

00:54:23.060 | but it really is difficult.

00:54:25.500 | And going down to the individual company level

00:54:27.500 | is probably even harder.

00:54:29.020 | The only last thing I was gonna ask you before we wrap,

00:54:31.260 | you have a segment on your show,

00:54:32.660 | which I'm a regular listener.

00:54:34.580 | We both release on Wednesday mornings,

00:54:36.140 | so every morning, I'm like, "Oh, I got mine out.

00:54:37.860 | "Now I'm gonna go listen to Animal Spirits."

00:54:39.520 | You do a lot of recommendations.

00:54:40.860 | You focus those on books, movies, shows.

00:54:43.400 | But I did wanna ask if you had any recommendations

00:54:45.380 | for people that are interested in the personal finance,

00:54:47.740 | the investing side.

00:54:48.900 | Are there any services that you use,

00:54:51.380 | whether it's tracking things or modeling things

00:54:53.900 | or following earnings reports

00:54:55.640 | that you think are cool things people should check out?

00:54:57.660 | - The funny thing is is when it comes

00:54:58.980 | to personal finance apps, I'm pretty old and stodgy

00:55:02.060 | where I still track everything on an Excel spreadsheet.

00:55:04.420 | I never got into any of those tracking services.

00:55:06.700 | 99% of my spending is on a credit card,

00:55:09.140 | and I feel like I just kinda can track it that way

00:55:11.660 | through the credit card, and that makes it easier.

00:55:14.540 | I was joking with my, I saw my parents this past week,

00:55:16.580 | and my mom still had a checkbook

00:55:17.780 | and was balancing her checkbook,

00:55:18.900 | which I thought was just the most antiquated thing

00:55:20.900 | I've seen in my life.

00:55:22.180 | But I never got into too many of that things.

00:55:24.900 | On the investing side of things,

00:55:26.620 | one of the new apps that I've been using lately

00:55:28.300 | to pay more attention, this started off for the podcast

00:55:30.860 | just to be more informed and ended up becoming

00:55:33.100 | an investor in the company, but it's called Quarter,

00:55:34.900 | where you can listen to company earnings calls on an app

00:55:38.260 | like you're listening to a podcast.

00:55:39.740 | And you can listen to it at two-time speed,

00:55:41.800 | and they give you a transcript,

00:55:42.940 | and you can also get the reports.

00:55:44.700 | And they have a button where you can skip all the CEO

00:55:47.740 | and CFO mumble jumble and just go right to the question

00:55:49.660 | and answer from the analyst, which is pretty cool

00:55:51.700 | if you don't wanna listen to all that.

00:55:53.460 | I have a handful of companies that I listen to,

00:55:55.220 | and it just gives me a good sense of what's going on

00:55:57.580 | in certain markets or just specific industries.

00:56:00.180 | And I feel like that's a pretty good macro gauge

00:56:02.220 | to hear how things are going from the horse's mouth.

00:56:04.600 | - And what about when someone's like,

00:56:05.660 | "Oh, how has XYZ stock performed over the last year?"

00:56:08.420 | What's your default website to pull up that chart?

00:56:11.460 | - So I have a lot of subscription things

00:56:13.800 | because of my job in Wealth Management.

00:56:15.460 | So I use Y-Charts for most of that stuff for charting.

00:56:18.620 | That's a subscription service,

00:56:19.900 | but there are free ones out there like Coifin,

00:56:22.660 | which is pretty good.

00:56:23.580 | I still think Yahoo Finance is not bad.

00:56:25.660 | Remember, Google Finance was really good for a while

00:56:27.460 | and they kinda just--

00:56:28.300 | - Didn't do anything?

00:56:29.120 | - I don't know, a few years ago kind of shut it down

00:56:30.380 | and just made it worse.

00:56:32.020 | There's also good backtesting tools

00:56:34.020 | if you wanted to backtest an asset allocation or portfolio.

00:56:36.940 | There's Portfolio Visualizers, always one of my favorites,

00:56:39.700 | that you could backtest specific ETFs or mutual funds

00:56:42.580 | or asset classes to see how performance would have been

00:56:45.320 | if you wanna kinda test out a portfolio.

00:56:47.220 | - Okay, that's helpful, awesome.

00:56:49.140 | Ben, this has been awesome.

00:56:50.020 | Thank you so much for coming, and I really enjoyed it.

00:56:52.380 | - Yeah, this was fun.

00:56:53.540 | (upbeat music)

00:56:54.780 | - I really hope you enjoyed this episode.

00:56:56.580 | Thank you so much for listening.

00:56:58.340 | If you haven't already left a rating and a review

00:57:00.460 | for the show in Apple Podcasts or Spotify,

00:57:03.260 | I would really appreciate it.

00:57:04.980 | And if you have any feedback on the show,

00:57:06.420 | questions for me, or just wanna say hi,

00:57:08.780 | I'm chris@allthehacks.com or @hutchins on Twitter.

00:57:13.060 | That's it for this week, I'll see you next week.

00:57:15.420 | (upbeat music)

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