Why Is Market Timing So Appealing?

00:00:00.000 | Welcome back to Ask the Compound, where we have the smartest audience in all of finance

00:00:14.200 | YouTube. Ask the Compound show at gmail.com is the email we get tons of emails every week.

00:00:18.560 | Very smart questions. We have a great show for you today. We have not one, but two great

00:00:22.080 | guest experts. First, today's show is sponsored by Future Proof. Yesterday, Michael and I

00:00:26.720 | recorded a podcast with Matt Milton from Advisor Circle. Matt is one of the architects of Future

00:00:32.000 | Proof Festival. We discussed how it all came together, the evolution of finance conferences.

00:00:36.520 | Over time, what makes this event so special. I even gave a few secrets of conferences.

00:00:40.600 | I gave the icebreaker that everyone uses at every single conference you've ever been to.

00:00:43.920 | You've got to wait for Monday to listen to that. If you haven't signed up yet, it's futureproof.advisorcircle.com.

00:00:49.800 | When we talked about it yesterday, it got me all excited again. I think it's like 50

00:00:52.960 | days away, so I can't wait. Make sure to listen to Animal Spirits this Monday for some more

00:00:56.700 | background on it. Again, I share some of my conference secrets. It's going to be fun.

00:01:01.880 | Cool. Ben's top 10 secrets.

00:01:04.560 | Cameras, shooting video. We'll be doing a live podcast. It's going to be awesome.

00:01:08.640 | Yeah. Looking forward to it.

00:01:10.200 | It's beautiful. All right. Let's get into some questions.

00:01:13.120 | Up first today, we have a question from Joel from the YouTube comments. "I feel like you

00:01:17.560 | guys get very similar questions in the realm of what should I do with my money next. Do

00:01:21.840 | you recommend an order of operations that people should follow, like emergency fund,

00:01:26.240 | money match, high interest rate debt, etc.? Would love to hear you talk about this."

00:01:31.480 | As a man of the people, I do dive into the YouTube comment sections. I pulled this one

00:01:34.880 | out myself last week. Great question, Joel. The textbook personal finance answer would

00:01:40.080 | go something like this. First, you get the match from your 401(k). If you have one from

00:01:43.080 | your employer, that's 100% ROI. You can't really turn that down. Then you'd pay down

00:01:47.720 | high interest rate credit card debts. I think the average credit card debt rate right now

00:01:50.880 | is something like 25%, 27%. That's like 1950s Warren Buffett couldn't even beat that hurdle

00:01:56.040 | rate. So, pay that off next. Then, once that high rate debt is paid off, you do three to

00:02:00.040 | six months emergency fund. After that, then you move back to the 401(k), max that out.

00:02:05.160 | I think for 2023, it's $22,500. After that, then you go to the Roth IRA. That's another

00:02:11.600 | $6,500 for 2023. Then maybe HSA, 529s. Then finally, after all that's taken care of, then

00:02:17.240 | you can open a taxable brokerage account. I'm sure some experts might quibble, but that's

00:02:21.920 | like the stuff you find in most boring personal finance books. Here's my problem with this

00:02:25.280 | advice. First of all, not everyone has the ability to save this much money, right? Some

00:02:29.400 | of these buckets would never get filled because you just simply don't have that much money.

00:02:32.680 | Not everyone is that well off. For most people just starting out, I think the three to six

00:02:37.000 | months of expenses and emergency funds sounds awesome, but it might take them years to get

00:02:40.840 | to. So, it's just unattainable as a goal. Then maybe 2% of the population has the ability

00:02:46.400 | to save and invest like a robot like this. I'm going to check this off and check this

00:02:49.520 | off and check that off. I think it just doesn't take into account the human element. I think

00:02:53.240 | the actual hierarchy is different for people depending on their circumstances. Plus, there's

00:02:57.200 | the psychological effects of small improvements and building financial habits, especially

00:03:01.480 | early on in your financial life cycle. Let's say you have a bunch of credit card debt,

00:03:04.560 | which is a bad place to be because it's the biggest compounder against you. Let's say

00:03:08.080 | you have a Macy's card, a Target card. Do people still shop at Banana Republic, Duncan?

00:03:12.560 | Maybe a Banana card, a Gap card? Sure. I'm just kidding. If I'm being honest, I still

00:03:16.680 | shop at Banana Republic. Who am I kidding? Maybe a Chase Sapphire Reserve. I thought

00:03:20.120 | you were more of a J.Crew guy. Yeah, I guess this is probably J.Crew. Let's be serious.

00:03:24.880 | I'm so mid. So, let's say then a Chase Sapphire Reserve because you want that sweet sign-up

00:03:29.120 | bonus and you have all these balances and you're falling behind. Textbook theory would

00:03:31.960 | say you take the highest rate and you pay that down first because that's math, right?

00:03:36.560 | But researchers at Northwestern looked at this and they looked at the debt snowball

00:03:39.920 | thing, which I guess is originally Dave Ramsey's idea. He hasn't had great investing advice,

00:03:45.200 | his personal finance advice is pretty good. Did he steal it from someone? I don't know.

00:03:50.180 | I'm giving it to him. So, they looked at 6,000 people at Northwestern who paid off their

00:03:54.560 | credit cards and they figured out what was the one guiding light here for these people.

00:03:58.480 | And they found the people who paid off small balances first and got those small wins actually

00:04:02.280 | were the ones who stuck with it and paid off all their larger balances later, regardless

00:04:05.880 | of the size of the debt and regardless of the size of the rate. So, it's like this idea

00:04:09.320 | of finding these small little victories that give you the confidence to stick with your

00:04:12.760 | plan. And so, I like that idea for a psychological boost. I think that's a lot of what this is.

00:04:17.200 | One of my greatest accomplishments this year has nothing to do with finances. It's getting

00:04:20.560 | my twin six-year-olds to make their bed every morning, okay? It took a long time. And I'm

00:04:26.600 | a guy who wakes up every single day, I make my bed first thing in the morning, right?

00:04:30.760 | My wife has to love me.

00:04:31.680 | I don't think that will surprise anyone.

00:04:33.720 | No. But you start the day out with a small win. You set the tone, right? And I think

00:04:37.280 | the same applies to your finances. If you're starting small, I don't think you try to go

00:04:41.060 | through this checklist. I think you start small in some of these, and you build up small

00:04:44.080 | victories in each of these buckets, so you build good habits. No one starts out running

00:04:49.160 | 26.2 miles marathon right away. Are you training for a marathon, Duncan?

00:04:53.280 | No, my wife. She's a marathoner.

00:04:55.160 | Okay. So, I think you start small, and it's daunting for most people, again, to get to

00:04:59.480 | the three to six months and the 401(k) and all that seems so unrealistic. And I think

00:05:02.600 | most people just throw up their hands and give up. Well, I'm never going to get to that

00:05:04.880 | point. So, I think you start small, especially when you're young. I opened up an IRA in my

00:05:09.400 | 20s well before I started. I had three to six months of emergency funds, because I knew

00:05:12.760 | that was just unrealistic. So, I think that's how I would think about it. Slowly but surely,

00:05:16.360 | reach your goalpost. Don't try to do it all at once.

00:05:18.760 | That makes sense.

00:05:19.760 | That's the hierarchy for me.

00:05:20.960 | Yeah. Yeah, it's kind of off-putting. If it's something that seems unattainable, people

00:05:24.440 | will just give up.

00:05:25.800 | The Carlson's hierarchy of needs is not as pretty as the Maslow's, but I think it works.

00:05:30.600 | I agree.

00:05:31.600 | Another question.

00:05:32.600 | Okay. Up next, we have a question from John.

00:05:38.360 | I love this question before you even get to it. This is a great question.

00:05:40.680 | Yeah, this is a good one. "I find myself in a situation I know I shouldn't be in. I've

00:05:44.040 | recently returned to living in the U.S. from a country with a lot of U.S. tax treaties.

00:05:48.480 | My equity investments had to be sold or taxed as if I sold them, as part of an exit tax

00:05:53.600 | before departing. I sold some years-long holdings and index funds with substantial gains, not

00:05:58.560 | to brag. Let's just say the amount would buy Michael many modern renovations. This money

00:06:03.440 | is now in cash or T-bills. Why is it so hard to avoid market timing and just dive right

00:06:07.960 | back into the same holdings? It was so much easier paycheck to paycheck."

00:06:11.080 | Alright, great question from John here. This is all psychological here, right? This has

00:06:18.200 | nothing to do with math. This is totally psychological. So, let's bring in two of my favorite market

00:06:21.920 | psychologists, Josh Brown and Phil Perlman. I think Phil has an actual PhD.

00:06:27.240 | Hey, boys. What's up, fellas? Great answer to number one, by the way, Ben. Great job.

00:06:33.000 | Thank you. And beautiful shirt. I love that shirt.

00:06:35.440 | Thank you. I just learned last week from Doug Bonaparte that it's called a camper.

00:06:38.520 | It's a camper.

00:06:39.520 | I just want to say, I am also a marathoner who makes his own bed every morning. So, how

00:06:45.040 | about that?

00:06:46.040 | So, one of the pieces of advice that you get when you're young is, before you start trading

00:06:51.280 | stocks, start a paper portfolio. Or, let's think about this hypothetically. I always

00:06:55.240 | thought that was a great idea at first, until you actually put real money to work, and then

00:06:58.600 | you realize, "Oh, wait. The paper portfolio is useless." Once you feel the emotions of

00:07:04.540 | making money or losing money, you can't describe that and recreate that on a spreadsheet.

00:07:10.320 | The other thing is, one of the hypotheticals people will say is, "Pretend your portfolio

00:07:14.240 | was starting from scratch today. You are in all cash. You have none of the same decisions

00:07:18.760 | or tax consequences you had before. What would you do?" And I think that hypothetical is

00:07:22.840 | worthless, too, because there are all those things that are embedded in how you created

00:07:25.880 | the asset allocation and holdings. But this person actually has that. And I think their

00:07:29.620 | problem is, obviously, the siren song of market timing. Like, "Wait a minute. I'm in cash.

00:07:35.160 | What if I just waited a little longer, and the market pulls back 5% or 10%, and then

00:07:38.600 | I could get in?" And I think that's the problem here, because they are starting from zero,

00:07:42.400 | and you don't get this opportunity very often.

00:07:44.320 | So Phil, I'd like to ask you a question.

00:07:46.280 | Yeah, we'll go to Phil. I just want to say what's so interesting about the way this question

00:07:49.160 | is phrased, Ben, and I agree with you, it's a great question. This is not like somebody

00:07:52.960 | that got out of the stock market during the financial crisis and then sat in cash. This

00:07:58.240 | person was forced to sell, and they just did it. So it's like, "Why can't I just buy back

00:08:03.740 | the thing I sold? I had to sell technically. I didn't want to sell. Why is it so hard to

00:08:09.200 | just put the thing back on the shelf that I just took off the shelf?" That's a really

00:08:12.980 | interesting framing of this that you don't hear very often.

00:08:16.520 | Yeah. So Phil, what's the psychology behind this? Because this person, the greatest thing

00:08:21.160 | is that they know that they have a problem. They've admitted it. "I know my emotions are

00:08:25.560 | getting in the way here. How do I overcome them?"

00:08:28.340 | So here's the thing about this, is the brain is so complicated, right? We're just learning

00:08:34.840 | a little bit about it. And so you're going to get answers from neuropsychologists, behavioral

00:08:40.760 | economists, especially the ones with the big egos that have really big words, ego, dystonic,

00:08:48.680 | or whatever they're saying. And all of that stuff is nonsense. So there really is no good

00:08:55.840 | answer to that question. Why is it so hard not to be a marketer? We don't know. As a

00:09:01.160 | matter of fact, probably the best answer comes from Fisher Black, Black-Scholes. And he wasn't

00:09:08.260 | even an economist or psychologist. He was a mathematician. And he just said, "People

00:09:13.720 | just love the action. Maybe people just love the action. We just love the excitement of

00:09:18.360 | it." So there's an answer, but that answer actually does you no good at all because it

00:09:25.600 | doesn't give you any practical advice.

00:09:27.560 | So what I would say is to reframe, to do this cognitive reframing, which is, "Sorry, I just

00:09:36.360 | used fancy words. I said don't use fancy words, but I just did it." Cognitive reframing is

00:09:40.480 | just reframe sort of what the problem is. And so the way that I would think about this

00:09:45.520 | is I would say, "Well, let's say that I was part of a club that not so many people were

00:09:51.960 | a part of." And this club is the Rational Actors Club. Nobody is a part of this club.

00:09:59.180 | Everybody is crazy out there. Everybody's chasing. Everybody's FOMO. But if you're part

00:10:04.800 | of the Rational Actors Club, it's an exclusive club. And you write down on a piece of paper

00:10:09.480 | what would be the rational thing for the rational actor to do. You keep it super, super stupid

00:10:15.480 | simple. One, for me, if it was me, it would be one, buy a lot of VTI. Just stuff my accounts

00:10:24.020 | with VTI. Two, buy more of it. Read Nick's book and buy more of it. And then three, never

00:10:31.240 | sell. And then if you think about that, if you frame that as, "I'm doing something that's

00:10:36.320 | special, not I'm missing out or I'm doing a boring thing." Back in the day, if you heard

00:10:45.760 | about a band before everybody else did, you were part of the cool crowd. You saw U2 at

00:10:51.200 | a club in 19-whatever. That would be the way to think about, "Hey, I'm doing this thing

00:10:58.280 | that is actually, it sounds boring, but it's actually the special thing that nobody else

00:11:02.480 | is doing."

00:11:03.480 | - My favorite behavioral quote, I think from you, was, "The thing about behavioral finance

00:11:10.840 | is people are crazy." Was that your tweet?

00:11:13.040 | - Everybody's crazy, yeah. Everybody's crazy, right.

00:11:15.000 | - But I think the great thing about this person is they realize they're crazy and they still

00:11:18.800 | are having a hard time doing it. I think that's the first step. Some people don't realize,

00:11:21.640 | "Oh wait, I don't realize that I'm making an irrational decision." So that's the first

00:11:25.200 | step for most people, is like, "Okay, how do I force myself to make good decisions ahead

00:11:28.800 | of time so I'm not making them under an emotional state?"

00:11:32.200 | - I have a question. Is it still market timing if you're just like, "The market, the S&P

00:11:36.240 | is up 2% today. I'm not gonna put it all to work today. I'm gonna wait for the next."

00:11:40.600 | Is that market timing?

00:11:41.600 | - It is.

00:11:42.600 | - Yeah.

00:11:43.600 | - It's a less egregious form.

00:11:44.600 | - Okay.

00:11:45.600 | - I think the way to do this, the way I make a lot of decisions like this is, and I would

00:11:49.520 | have just as much of a hard time like, "Wait, now I'm all in cash and it's like, the slate

00:11:55.680 | has been wiped clean. Do I really want to put all this money back in the stock market

00:12:00.480 | with the S&P up 20% year to date, the NASDAQ up 40% year to date, and interest rates and

00:12:06.380 | all this? Do I really want to do that?" So I would have the same issue. But what I would

00:12:10.120 | do, and we've helped clients with this over the last, I don't know, nine or 10 years.

00:12:14.240 | We've heard different versions of this. I would not write it down, but mentally write

00:12:18.840 | it down. Okay, which would be a worse outcome? Outcome one, you put all the money in, and

00:12:25.880 | there's a 20% S&P 500 correction. It starts an hour later. It could happen. And Ben actually

00:12:32.080 | did a famous post about, "Let's pretend you are the world's worst market timer." And I

00:12:37.320 | think you did that in response to all the people that were in cash thinking the minute

00:12:41.760 | they buy, it's 2008 again.

00:12:43.400 | - All right, what if I invest at the top?

00:12:45.760 | - What if I buy at the top? And your work suggests, actually, forget dollar cost averaging,

00:12:51.520 | even on a lump sum basis, actually, even if it's a worst case scenario, you get back to

00:12:56.720 | even way faster than you think, historically, which is my takeaway from your piece. But

00:13:03.200 | so I would say, okay, what's worse? That I buy it, and the correction starts that night,

00:13:08.760 | which I suppose is conceivable. It's a low probability bet, but fine. Or B, I don't buy

00:13:15.480 | back my holdings, and then three years from now, the stock market is 30% higher, and I

00:13:21.960 | capitulate and buy back then. My point is, unless you're 70, choice A is worse. So if

00:13:29.520 | we're saying, like, this is choosing between two not great options, obviously, you know,

00:13:36.600 | it's way worse to watch the market keep going without you, and then you buy higher anyway.

00:13:41.960 | So I would take the risk that today is the start of a new Great Depression, and I'm the

00:13:46.840 | last asshole to buy stocks going into that. Take that risk. That's probably not the risk

00:13:51.860 | that's going to hit.

00:13:52.920 | - Yeah, it's a rare minimization.

00:13:54.320 | - Yeah. I get it, though. Listen, I'd be the same way.

00:13:57.720 | - Good question. Alright, Duncan, let's do another one.

00:14:00.480 | - Okay. Up next, we have, "I'm 26 and have been studying the market since I was 19. I

00:14:06.400 | realize the safest way is probably holding low-cost index funds in an IRA. However, I

00:14:11.520 | recently opened a Roth IRA with the idea of purchasing quite a few small caps and hoping

00:14:15.720 | for them to potentially 20 or 50X in 30 years. Since the Roth is a major tax shelter," oh,

00:14:22.840 | yeah, that's why they use that, "I've talked with a few people who think it's a good idea

00:14:26.640 | and others who think I should just stack ETFs and let compound interest take control. Am

00:14:30.720 | I wrong for wanting to swing for the fences and what some would call gambling? With my

00:14:34.840 | timeline, even if all the companies go to zero, I think I'd be able to recover with

00:14:39.400 | proper position sizing. For context, I own a condo and contribute to my 401(k)."

00:14:44.500 | - I like this guy. Send him a laptop sticker.

00:14:47.240 | - Okay.

00:14:48.240 | - Phil, what do you think?

00:14:49.240 | - Another smart way of thinking about this, but they're thinking, they're asking for permission

00:14:52.680 | to gamble.

00:14:53.680 | - Are they? Is that what they're asking? He's not looking to day trade. He wants to make

00:15:00.560 | long-term investments. He just wants to bet on smaller companies that he thinks have the

00:15:05.360 | ability to outgrow the S&P. Is that the same as gambling?

00:15:09.400 | - He's a dreamer.

00:15:10.400 | - It's not crypto shit. He wants to invest in companies. I really don't hate this that

00:15:15.440 | much.

00:15:16.440 | - I would just have him add up all of his assets on one spreadsheet in one column. So

00:15:24.720 | he says, "I have a condo, I have 401(k)," and then he gets a number down at the bottom.

00:15:31.040 | And then from that number, he makes a pie chart. And he says, "Okay, the majority of

00:15:35.640 | the money, I'm just going to put in ETFs and forget about it and keep piling in," and "stacking"

00:15:40.480 | was the word he used. "And then I'm going to take a small part over here and I'm going

00:15:44.640 | to buy those small, you know, I'm going to buy a higher risk stuff with that and play."

00:15:52.240 | And you know, two things could happen. One, he really does get super rich and he hits

00:15:56.520 | all and he has 100 baggers and 10 baggers or whatever. And two, he learns that this

00:16:02.480 | is a very hard thing to do, picking stocks like this and there's a lot of sharks out

00:16:06.960 | there and there's a lot of irrationality and our emotions get in the way. Either way, he

00:16:11.320 | learns and either way, he does the wise thing with the majority of his money. And with that

00:16:17.800 | small part, he also has this opportunity to gamble or as Josh says, you know, make good

00:16:25.280 | risky investments.

00:16:26.280 | Yeah, the fund account has to be sized correctly. It's 10% of my portfolio and I'm going to

00:16:30.400 | leave it at that. I just think that 20 to 50X hope is like bringing your expectations

00:16:35.040 | a little bit. That's my only worry. That's why I'm thinking it's gambling, because if

00:16:39.520 | that's your expectation, then you're bound to be disappointed.

00:16:42.360 | He might be amazing. I suppose if you pick a few biotechs, you could get a 20X, 30X,

00:16:49.240 | 40X. Like if you pick a few biotechs that somehow miraculously get a pharma partner,

00:16:55.600 | drug, gets FDA approval.

00:16:57.920 | Just think of it like a VC portfolio that the other nine of them are going to go out

00:17:01.280 | of business and one might hit big.

00:17:02.440 | Well, that's what I was going to say is like some of these might be zeros, but if you have

00:17:05.800 | a few that 50X, you should more than offset that. And if that's like what you need to

00:17:12.240 | scratch that itch, there's probably way worse ways to do it.

00:17:16.460 | And we have no idea. This could be 94 for AI right now. You know what I mean? Like this

00:17:21.880 | could be like the early, early days of AI. And there's going to be a few companies that

00:17:25.800 | are like Intel or whatever that become these gargantuan, or Microsoft, they become gargantuan

00:17:30.860 | companies. We could be at the beginning of that bubble right now.

00:17:35.540 | Just size it correctly.

00:17:37.420 | If all of these stocks that he picks go to zero, then he just switches strategy and starts

00:17:41.200 | shorting all of the stocks he wants to buy?

00:17:43.640 | I still follow stocks. My first year as a stock broker, like the late 90s, I still follow

00:17:50.700 | the stocks.

00:17:51.700 | There's a bubble crossing.

00:17:52.700 | I still follow the stocks that we were pitching and we like most of them are zero by now.

00:17:57.400 | It's been 25 years. But I remember there was a company called Cooper Companies. If you

00:18:03.280 | pull up, I think it's COO. If you pull up this chart, I think the stock's up thousands

00:18:08.160 | of percentage points. They make contact lenses like that. And that was the pitch in 98. We

00:18:14.580 | were cold calling and pitching. And the pitch was they make contact lenses like what? What

00:18:19.580 | else do you need to hear? And that's still what they do.

00:18:24.720 | There are those opportunities that exist. But I remember that one because it's still

00:18:29.660 | trades. I don't remember all the ones that went to zero.

00:18:32.260 | That's a $396 stock now.

00:18:34.580 | $396. I swear to God, I think I was selling this at $5 a share. I swear to God. Now, most

00:18:41.060 | of the ones I was selling at $5 a share are gone. But I'm just saying, it's not impossible

00:18:46.940 | that you're going to get a few Cooper Companies-type home runs, but just don't count on it.

00:18:52.340 | But if we're going back to the hierarchy question from before, this sounds like this guy's already

00:18:56.420 | checked off some of the other things and he's left himself some room. So, yeah. Pick a size

00:19:01.000 | for this part of your portfolio and then don't mess with it.

00:19:04.020 | Alright, let's do another one.

00:19:06.620 | Okay, so that question was from Evan, by the way. So, this one's from Peter. "My girlfriend

00:19:12.340 | and I have been living off my salary while she's in grad school, and we've been together

00:19:15.740 | for almost nine years. I'm financially literate, have a 401(k) and contribute to other investment

00:19:20.660 | accounts with any leftover savings. She is now making substantial money, and we would

00:19:24.620 | like to include part of her pay as a contribution to these funds. Do you have any recommendations

00:19:31.100 | on how to navigate these situations? She's not nearly as financially educated, so to

00:19:35.660 | her it's difficult to understand where the money is going. I feel added responsibility

00:19:39.500 | investing her/our money on her behalf, so I find myself in a strange place of trying

00:19:44.060 | to navigate relationships and our finances."

00:19:46.540 | I have more questions.

00:19:47.540 | Me too.

00:19:48.540 | Are we engaged?

00:19:49.540 | Yeah.

00:19:50.540 | That's true.

00:19:51.540 | Nine years.

00:19:52.540 | This guy's like her/our money, which is gangster, but like are, you know, did we buy a ring?

00:19:58.180 | That's true. Trying to put them together. That could be, that's a big part of it.

00:20:00.940 | Nine years is a while.

00:20:01.940 | Nine years is a while.

00:20:02.940 | It's a while.

00:20:03.940 | Yeah.

00:20:04.940 | Her mom is asking questions.

00:20:05.940 | He feels responsibility about investing her money. I feel responsibility to know if you're

00:20:12.260 | investing that money as though it's going to be yours.

00:20:14.100 | Yeah, he better show her the fund that's saving for an engagement ring here. I've told this

00:20:19.160 | story before.

00:20:20.160 | Where are you registered?

00:20:21.660 | Before my wife and I got married, we were engaged. I sat her down with a literal PowerPoint

00:20:26.100 | presentation to show her how we're going to invest our money, and it didn't go over well.

00:20:30.580 | She's like, "What are we doing here?" She shut it down pretty quickly, but I was trying

00:20:33.580 | to have the conversation. I just went about it the wrong way, but this is a conversation

00:20:36.660 | that can be difficult if one person is really into this stuff and the other person is either

00:20:40.800 | just starting out or is not into this stuff. This is honestly one of the harder conversations

00:20:45.900 | to have, I think, for a person who is nervous or scared of investing in the stock market

00:20:50.340 | or just is overwhelmed by what to do. It can be a tricky conversation to have.

00:20:56.020 | I don't really think they should have a conversation. I think he should just give her a few index

00:21:01.580 | funds and have her do that, and if he wants to log into the account with her and do it

00:21:08.360 | with her, but to sit down and explain investing to somebody who's clearly focused on their

00:21:14.660 | own career and making money. It almost feels like, let her, when she wants to learn, say,

00:21:20.420 | "I'm going to dedicate some time to learning." I don't think he should sit there and be like,

00:21:24.660 | "Okay, this is a P/E ratio."

00:21:26.140 | Right. Give her a target date fund in her 401(k) and make sure she gets a match and

00:21:30.300 | call it good.

00:21:31.300 | And maybe go to sales, guy. You know what I mean?

00:21:33.980 | I've heard these conversations before. Sometimes people who are totally financially illiterate

00:21:38.740 | or don't care at all about it, they see this and they're like, "Wait, I can't touch this

00:21:42.900 | money for how long? I'm putting money into what? I can't do anything with it?" So I think

00:21:47.220 | that might be part of what he's talking about. It's kind of difficult to get across.

00:21:51.720 | You get across that by opening an account at a brokerage firm that she would have seen

00:21:55.780 | an ad or a commercial for. Not even joking around, Fidelity or Schwab is probably where

00:22:02.580 | you would want to have her investing. And every time she's watching like a tennis match

00:22:07.540 | or a golf tournament, she'll see Charles Schwab. That's the added comfort. It sounds silly,

00:22:13.820 | but it's real.

00:22:15.840 | So if that's what we're talking about, it's just like, "I don't know about putting my

00:22:19.220 | money in this thing and I can't touch it." It's like, "Well, this company actually exists

00:22:23.540 | and they've existed for 100 years and many generations of people have saved this way."

00:22:29.360 | And also one last thing, we were joking and Josh was joking about the relationship and

00:22:34.060 | the nine years, but more seriously, you do want to define what this relationship is.

00:22:39.300 | Is this somebody you're planning to spend your whole life with? You're going to be planning

00:22:43.600 | to get married or maybe you're younger, maybe you're never going to get married, but you

00:22:48.480 | are going to be, you don't have to get married to be with somebody for your whole life and

00:22:53.660 | have kids together and bing and bang.

00:22:55.580 | And so you want to define, but you do want to define that relationship because if that

00:22:59.680 | is your plan and it's a strong plan there and you feel like you're on firm footing,

00:23:04.500 | then you want to be focusing the money together and making it a big pot so that you can allocate

00:23:11.920 | it that way, the most rational way.

00:23:15.080 | That's a good point because the first part of the conversation is, are we going to actually

00:23:17.680 | put our money together? Are we going to have a shared checking account? Are we going to

00:23:21.480 | pay the bills together? Who's going to pay what of rent or whatever it is if they're

00:23:25.240 | living together? I think that's the personal finance stuff is way more important off the

00:23:28.960 | bat. How much are we spending on stuff before we ask, is this too much to spend? Those kind

00:23:33.360 | of questions.

00:23:34.360 | - It is rare though for people to cohabitate and live a whole life together, never get

00:23:39.480 | married and co-mingle their accounts. I mean, I've seen it before, but I'm just saying for

00:23:46.080 | the most part, most joint accounts are a married couple. It's fairly rare, even for people

00:23:51.040 | that live together their whole lives to take that next step and co-mingle all the money.

00:23:57.280 | But I suppose it's something that you do see from time to time. It's just, it's a little

00:24:01.760 | bit trickier if God forbid things don't work out.

00:24:04.460 | - Is there a rule of thumb for joint versus separate accounts for like married or in this

00:24:09.040 | case long-term couples?

00:24:11.000 | - It's subjective. It depends on the relationship, I feel like. It's probably no rule of thumb

00:24:16.000 | would really apply to everyone.

00:24:17.360 | - I've heard people who do the separate thing and it works for them. I've heard way more

00:24:21.000 | people who say we do joint and that's, I think that's probably 90% of it, but I have heard

00:24:24.960 | people who say--

00:24:25.960 | - But they're married though.

00:24:26.960 | - Yes.

00:24:27.960 | - For the most part.

00:24:28.960 | - Yeah, yeah, yeah.

00:24:29.960 | - Yeah, but most people keep it together.

00:24:30.960 | - You know where I see a lot of separate stuff with guys where like the wife is real, comes

00:24:37.920 | from a really wealthy family and her family is like giving her money all the time for

00:24:43.680 | various reasons. And it's not that there's like a secret, it's just like, you know, this

00:24:48.920 | is my dad helping us. You know, you see that with young couples in their 20s even though

00:24:54.280 | they've gotten married. You see that there are women whose family, and I've seen it with

00:25:00.200 | one of my friends, a male friend also, so I don't mean to say that it's one or the other.

00:25:04.840 | But in that case, you see separate accounts for married people because there's just some

00:25:10.320 | cash or some source of financing that's not necessarily coming from the job.

00:25:15.240 | - Well, that's another question, another point of conversation. I had a friend who had signed

00:25:18.560 | a prenup because his wife's family was very wealthy. And he was fine doing it, but that

00:25:24.040 | could be a problem, right? Going into the marriage. Not a bad problem to have.

00:25:27.880 | - Oh, no. I always say you sign that prenup because there are a lot of loopholes a lot

00:25:31.600 | of ways around it.

00:25:32.600 | - Yes.

00:25:33.600 | - The most romantic part of the relationship.

00:25:34.600 | - Get your foot in the door. We'll figure out how to deal with the prenup later.

00:25:37.960 | - All right, we've got one more question.

00:25:40.040 | - Okay.

00:25:41.040 | - Okay. Last but not least, I used to fall for the trope that personal finance was just

00:25:46.600 | like health when it comes to changing bad behavior. Investing isn't necessarily easier,

00:25:52.160 | but technology allows you to automate good decisions ahead of time for things like contributions,

00:25:56.120 | investing, rebalancing, et cetera. When it comes to working out or dieting, you can't

00:26:00.760 | automate that. So how do you go about changing behavior when it comes to your health?

00:26:04.440 | - All right, I'm not going to lie. I had planned this question for you.

00:26:07.000 | - I was about to say, this question says Ben.

00:26:09.360 | - This is a fantastic question because-

00:26:12.280 | - I'll handle this.

00:26:13.280 | - Yeah.

00:26:14.280 | - There are so many parallels between health and wealth, and they are so similar, and health

00:26:19.640 | is wealth. There is the planning aspect. There is the future self aspect, and you're doing

00:26:27.160 | things for your future self that your future self will look at you and say, "Hey, I love

00:26:32.080 | that you're doing that. You're putting money away, or you're exercising and taking care

00:26:35.600 | of yourself." But they're not the same exact thing, so there are some differences. And

00:26:41.720 | one of the differences is exactly what this question asks, that one, you can automate,

00:26:47.580 | but you can't fully automate it, so you can't exaggerate that because there still is emotions

00:26:52.560 | involved. I mean, you could have a completely automated market crashes and you're selling

00:26:56.440 | at the bottom. You can override, manualize the automation. That's one side point, but

00:27:04.960 | the thing is you're exactly correct, and I've thought about this before. One difference

00:27:09.480 | between health and wealth is that you can automate a lot. You can have this direct deposit

00:27:14.360 | automatically. You know, one of the greatest inventions of all time in the financial space

00:27:19.560 | is this automatic 401k, whatever it is, automatic direct deposit was genius. It was the greatest

00:27:26.640 | nudge of all time, right, to use a Thaler term. On the other hand, exercising, you have

00:27:33.360 | to do it all the time. You have to stay with it. Eating well, you have to do it all the

00:27:38.640 | time and stay with it over a very long period of time, and you slip up and you can really

00:27:43.600 | get away from it, and that's why we see so much weight yo-yoing in our society.

00:27:47.680 | - Well, I think the set I heard in one of the books I read was like 95% of all diets

00:27:51.640 | fail. Like, you get on it and it works, then you fail. So, Phil, you've kind of made this

00:27:55.960 | transition into health and wellness. I'm curious, because I think giving that sort of advice

00:27:59.880 | is even harder than giving financial advice, so I'm curious how you've navigated that idea.

00:28:05.120 | - Here's what you do. You find your gateway drug, in the positive sense. You find the

00:28:10.200 | one thing that's healthy that you love to do, and that will generalize over time. Maybe

00:28:16.880 | when you were a kid, maybe when you were 15 or 14, you loved to play tennis. You'd always

00:28:21.400 | go out and play tennis. You know what? Go out and buy yourself a racket, because chances

00:28:25.380 | are there's a part of you that still loves doing that. And then once you start doing

00:28:29.480 | that one healthy thing, it can generalize. Like, "Hey, I'm playing tennis now, and you

00:28:35.320 | know what? If I want to get better at tennis, I maybe have to start sleeping better the

00:28:40.120 | night before I'm playing, because I don't want to be tired. Or maybe I need to take

00:28:44.160 | off a few pounds, because I want to be lighter and I want to have more mobility on the court."

00:28:49.980 | And so, a lot of times, finding that one thing that we love. Our 12-year-old selves were

00:28:55.240 | our real selves. That's what we were just doing. We were just out there having fun and

00:28:59.800 | doing things we enjoyed. Or maybe it's something different. Maybe you love grilling. If you're

00:29:07.540 | creating a lot of animal protein to consume, that's really health food. I mean, don't believe

00:29:12.400 | what you hear in the media. Health food is beef and chicken, and it's on the grill, and

00:29:17.800 | it's really clean. But anyway, find that one healthy thing you love to do. That becomes

00:29:23.240 | your gateway drug, and it becomes a path for you to start doing more and more healthy things.

00:29:28.260 | I agree with that. You know what I just started doing? Very manually, make my own sundae.

00:29:35.480 | That was what I loved to do. So, I'm putting in the work. I'm not just rolling up at Carvel

00:29:42.240 | and having them do it. So, listen, it's really good advice. I think that's a really interesting

00:29:52.360 | question I had never thought of before. Ben said, "Is it harder to give nutrition and/or

00:29:58.920 | fitness advice than it is to give financial advice?" I would say way harder.

00:30:02.640 | It's people's lives, literally, on the line. You agree with that? You've given versions

00:30:07.680 | of both. One other thing that you can do related to that is, and this works for wealth and

00:30:13.400 | health, and as a matter of fact, a lot of RIAs use this type of thing with their clients,

00:30:18.640 | is imagine your future self vividly. So, think about, "Hey, you know, when I turn 65, close

00:30:25.780 | my eyes. What do I want to look like? How do I want to move? How do I look? How do I

00:30:31.740 | move my body? How do I feel when I wake up in the morning?" Imagine those things vividly

00:30:36.720 | and get really tuned into your future self the same way that you might do with your wealth

00:30:42.520 | and say, "Hey, I want the leg caps." Is there a non-depressant way to do that, though?

00:30:46.520 | Here's the way it did for me. You can imagine really positive things. It could be aspirational.

00:30:50.600 | When I had twins on the way, I knew I was going to be getting a lack of sleep and I

00:30:55.960 | was going to need energy. I've always eaten crap. I've worked out my whole life because

00:31:00.440 | of sports, but I've always eaten junky. So, you pick up a bunch of Nerdos.

00:31:03.920 | No. So, I decided to change my diet a little bit to give myself more energy because I knew

00:31:08.280 | I was going to need it for having three kids and two twins. That was the thing that set

00:31:13.280 | me on the path, using them as the goal. What did you do? What was the change?

00:31:17.120 | The Phil's thing of just, it's protein and veggies, basically. It's more, and that's

00:31:22.880 | the automation. Less carbs, less sugar, added sugar.

00:31:25.120 | That's the automation, is eating the same stuff over and over again and then giving

00:31:28.560 | yourself a cheat day or two. That's my dieting automation.

00:31:33.160 | How much time do we have? Can we do a very, very fast health lightning round with Phil?

00:31:38.000 | Go for it. We have a couple of minutes.

00:31:40.520 | Let's just fire stuff at him. All right. So, give us short answers so we can keep going.

00:31:44.600 | Okay. Verbose.

00:31:45.600 | Like, just habits. All right. I'll start. Butter in my coffee. Good? Bad?

00:31:51.240 | I got no problem with that. Okay. You're good with it. Okay. Ben, go ahead.

00:31:55.040 | How about no coffee ever? That's great, right? Yeah. You know, every person is an N of one,

00:32:01.820 | and if you like having coffee and you can sleep at night, drink it. And if it keeps

00:32:06.080 | you up at night, even if you drink it at nine in the morning, don't drink it.

00:32:08.920 | I've got one. Do you think that alcohol will be seen like tobacco in 20 years?

00:32:14.400 | Yes. And I also think sugar will be seen that way too.

00:32:16.880 | Yeah. I just listened to Huberman's alcohol episode from August of last year. It's a year

00:32:24.240 | old now. It's great.

00:32:25.640 | Honestly, I feel like I might never drink again. I mean, I'm going to drink tonight,

00:32:28.920 | but I'm saying- Besides tonight.

00:32:31.960 | The links between alcohol and cancer that he gets into toward the end of that are like

00:32:37.440 | the first thing that's really scared me. Like, I don't care that much about my liver. I definitely

00:32:42.360 | don't like the things that he was ending the episode with.

00:32:45.080 | Neurodegenerative stuff. I have new clients who are sort of kindaholics,

00:32:51.540 | you know, like functional alcoholics. I give them that episode immediately.

00:32:55.720 | And then what? Well, different people respond to it.

00:33:01.280 | You're a big protein guy. Bacon, end of the world?

00:33:04.400 | Great. It's great.

00:33:05.400 | It's fantastic. Eat bacon. It is listed as a carcinogen, man.

00:33:08.800 | Lay off a beer, eat bacon. All right.

00:33:11.360 | Nah, it's not. Wait, wait. Salt, unlimited.

00:33:14.640 | Salt is fine. Salt is great.

00:33:16.640 | As much as you want? Especially if you're schvitzing. I mean, if

00:33:19.960 | you have high blood pressure, you talk to your doctor and, you know, if you have any

00:33:23.400 | health problems, talk to your doctor. Here's a question I've gotten from people.

00:33:28.720 | Why do you get benefits from intermittent fasting where you eat for like a six hour

00:33:31.960 | period of the day? What are the benefits from that?

00:33:34.400 | It's great. Well, first of all, it limits how much you're

00:33:37.840 | eating because you're eating in less of a window.

00:33:40.200 | Phil only eats at midnight. Only eat at midnight and I only have one egg.

00:33:47.000 | That's what I do. That's my secret.

00:33:48.680 | I eat one egg at midnight and then I cluck like a chicken and then I go to bed.

00:33:53.640 | But seriously, that's one part of it. It condenses the time you're eating, so you're

00:33:58.760 | not like always snacking. This whole thing about eating six small meals,

00:34:03.000 | horrible. Whoever made that up, you know, probably Hostess Twinkie or General Mills

00:34:07.480 | made that up. Terrible advice.

00:34:10.360 | So you condense it. The other thing is that it gives your body

00:34:13.600 | a chance to rest. And when your body is resting, it can do

00:34:17.700 | other important functions like autophagy, which is really just a fancy way of saying

00:34:25.880 | it can clean your body, it can get rid of dead cells, get rid of damaged cells and create

00:34:31.600 | new cells. So if you're always busy digesting, you don't

00:34:34.880 | have time to do autophagy to clean out your cells.

00:34:39.680 | What window do you recommend? Is it feasible for a regular person who needs

00:34:45.760 | enough energy to get through a full day to eat inside of a six hour window?

00:34:49.720 | Is that too restrictive? It's going to fail, right?

00:34:53.280 | The great thing about intermittent fasting is pairing it with high protein, low carb.

00:34:58.280 | Because when you do that, what happens is your body learns to burn fat more efficiently.

00:35:04.240 | You become fat adapted. And when you burn fat more efficiently, you

00:35:07.960 | don't need to eat as often and you don't run out of energy.

00:35:11.680 | Here's the way it works for me. I do it during the week and I eat probably a little bit more

00:35:17.440 | during that window. And I don't count calories and I eat just

00:35:20.480 | the same amount of food. What's your window? How many hours during

00:35:24.320 | the week? Probably like six hours like Phil.

00:35:26.160 | So what is that, noon to dinner? Noon to six, call it. But I eat just as much

00:35:32.480 | food and sometimes more maybe. And then your body gets used to it eventually.

00:35:37.020 | If you stop eating earlier in the evening and you're eating high protein, you will just

00:35:42.120 | shed weight. That is an early way to formula.

00:35:46.080 | If you stop eating around 6, 7 o'clock. Oh, stop eating, okay.

00:35:50.080 | And I've never counted a calorie in my life. Looking at the nutrition facts, that's too

00:35:54.340 | detolerant. Calorie counting is terrible. Eating high

00:35:58.400 | protein is fantastic. Should we have Phil back sometime?

00:36:02.520 | I love the lightning round. Yeah, lightning round is cool, right?

00:36:06.120 | See how I'm innovating? He's a food and market psychologist.

00:36:09.540 | All right, I love it. If you have a question here, askcompoundshow@gmail.com.

00:36:14.560 | Thanks everyone for tuning in live. Pleasure to be here.

00:36:17.040 | Appreciate it. By the way. Thanks to Phil and Josh for coming on as always.

00:36:19.960 | See you next time. Hey Michael. If you're watching on YouTube,

00:36:24.740 | leave us a comment. Appreciate it. Thank you. We'll see you all next week.

00:36:27.700 | Adios. See you everyone.

00:36:30.440 | Was that fun?

00:36:32.440 | [Music]

Why Is Market Timing So Appealing?

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