How to Buy a House Right Now

00:00:00.000 | (beeping)

00:00:02.180 | Welcome back to Ask the Compound Show.

00:00:13.680 | This is our last show of the year.

00:00:15.820 | Duncan wore a Dundon Miffler sweater for us.

00:00:18.720 | Remember our email here, askthecompoundshow@gmail.com.

00:00:22.000 | We love all the emails.

00:00:24.040 | Personal emails, personal responses, as Michael says.

00:00:26.680 | Today's show is sponsored by our friends at Bird Dog.

00:00:29.280 | I just had a comment from a friend today saying,

00:00:31.440 | Ben, thank you, I bought one of the Bird Dog polos.

00:00:34.840 | It's amazing, the material.

00:00:36.960 | They like it, they said I'm gonna have to get another one.

00:00:38.840 | I think it's too late to buy Bird Dogs

00:00:40.040 | for people for Christmas.

00:00:41.560 | Unless you wanna give something late,

00:00:42.520 | but you can still get a gift card.

00:00:44.140 | I actually ordered from Bird Dogs a pair,

00:00:46.240 | remember I found those new pairs of shorts, new colors.

00:00:49.060 | I bought two pairs of shorts

00:00:51.080 | and they gave me a free t-shirt.

00:00:52.880 | A little pocket tee, it was nice.

00:00:54.880 | And we're still giving away the free hats.

00:00:58.080 | Duncan wants one of these so bad.

00:00:59.600 | The dad tag hat. One day, one day.

00:01:01.720 | Birddogs.com/ATC or enter the code promo code ATC

00:01:06.720 | when you check out.

00:01:09.120 | Remember they have shorts, polos, khakis, joggers.

00:01:12.540 | I've been wearing the joggers a lot lately.

00:01:14.480 | Very comfy, very stretchy.

00:01:16.000 | I don't think it's too late either.

00:01:17.400 | You get it and you just tell your family,

00:01:18.960 | hey, supply chain issues.

00:01:20.800 | That's true.

00:01:21.640 | You'll get 'em sometime soon.

00:01:23.600 | That's fair.

00:01:24.560 | Before we get into the show,

00:01:26.040 | we wanna shout out one of our loyal viewers, listeners,

00:01:29.280 | Dave at Brewery424, my favorite brewery in Holland, Michigan.

00:01:33.000 | We're at the college.

00:01:35.600 | Big listener, huge contributor

00:01:36.960 | to the Animal Spirits Discord over the years.

00:01:40.060 | Dave has actually sent us some gear and some beer before.

00:01:42.320 | Every holiday season,

00:01:43.440 | Dave actually organizes a charity raffle.

00:01:45.480 | I guess he's given over like $30,000 to various charities.

00:01:48.240 | We're gonna partner with Dave this year to help him out.

00:01:50.040 | So make a donation to No Kid Hungry,

00:01:53.280 | save your receipt, send it to Dave

00:01:55.280 | at thecompoundcharity@gmail.com.

00:01:57.320 | That's thecompoundcharity@gmail.com.

00:02:00.000 | And he'll give you one entry into this raffle

00:02:01.840 | for every $20 you donate.

00:02:03.100 | Very cool.

00:02:05.120 | And the prize is a package from him

00:02:07.360 | and it's gonna have some stuff from the compound.

00:02:08.960 | Yeah, so he's gonna pick two winners

00:02:11.040 | and he's gonna send a brewery prize pack,

00:02:12.640 | which I think could be some clothes,

00:02:13.640 | maybe a case of beer, something like that from 424.

00:02:15.680 | And then we're also going to send some free compound gear

00:02:18.920 | from idontshop.com.

00:02:20.840 | So it's thecompoundcharity@gmail.com with your receipt.

00:02:24.080 | That email is not affiliated with us at all,

00:02:25.560 | so don't try to get ahold of our team that way,

00:02:27.040 | but that's going to Dave and who's a good guy.

00:02:29.040 | So we're just trying to spread the good word

00:02:30.040 | here on the holidays.

00:02:31.120 | Yeah, just to reiterate,

00:02:32.180 | no one will check that email after this.

00:02:33.800 | So just forget it after you send your receipt.

00:02:37.100 | But 'tis the season, if you are doing well,

00:02:39.240 | and a lot of the people who listen to our show are.

00:02:41.220 | Not to brag.

00:02:42.060 | If you're able to give back, try to do so.

00:02:44.040 | Yeah.

00:02:44.880 | Yeah, No Kid Hungry, we've supported them a lot in the past.

00:02:46.600 | So yeah, great charity

00:02:49.000 | and looking forward to being able to support them some more.

00:02:50.480 | 424 is great beer.

00:02:51.940 | It's true.

00:02:52.780 | I enjoy it.

00:02:53.600 | Even for a guy who doesn't like IPAs, I like the beer.

00:02:55.800 | I've liked everything that Dave's sent me.

00:02:57.840 | Yeah.

00:02:58.680 | He even sent me one that was like,

00:02:59.520 | it felt like it was a prank.

00:03:01.200 | It was like 11% alcohol or something, or 10%.

00:03:03.520 | It was like really strong.

00:03:04.880 | Still liked it.

00:03:05.720 | He didn't get me.

00:03:06.720 | Put you down for the night.

00:03:07.560 | All right.

00:03:08.380 | Let's do some questions.

00:03:09.320 | Okay.

00:03:10.160 | Up first today, we have a question from Mark.

00:03:13.520 | My portfolio is still below its highs

00:03:15.320 | due to the sell-off in bonds.

00:03:17.200 | Could you do a piece on how far we are

00:03:19.000 | below the bond market peak?

00:03:21.000 | All right.

00:03:21.840 | This was a response to, I wrote last week,

00:03:24.200 | the stock market had round-tripped.

00:03:26.240 | It was almost two years.

00:03:27.680 | We had to, in the S&P, we were down 25%.

00:03:30.280 | The NASDAQ I think was down 34% in the 2022 bear market.

00:03:33.940 | Back to break even with dividends reinvested, pretty good.

00:03:37.240 | So the question is, what about bonds?

00:03:39.280 | And bonds had a bear market of their own in a lot of cases.

00:03:42.180 | You can't really say you've made your money

00:03:45.080 | back in bonds yet.

00:03:46.020 | So the thing is, there's really no Dow or S&P

00:03:48.880 | when it comes to the bonds.

00:03:49.760 | So I guess the best proxy

00:03:50.680 | is something like the Barclays aggregate,

00:03:52.040 | which is, you could look at total bond market.

00:03:54.160 | The next one, so John, throw up the chart here.

00:03:55.400 | I got a ton of charts.

00:03:56.500 | The AG, and this is total returns with income reinvested

00:04:00.700 | and yields with bonds,

00:04:01.640 | 'cause you can't just look at prices on bonds.

00:04:03.720 | It was down nearly 19% of the lows.

00:04:05.740 | Now we've shot back up.

00:04:07.000 | And these numbers are through

00:04:08.560 | the close of the day on Wednesday.

00:04:10.520 | It shot back up a lot lately as rates have fallen.

00:04:12.920 | So we're still 10% down.

00:04:14.040 | So we're still in a correction there.

00:04:15.820 | Do the next one, John.

00:04:16.660 | 30-year treasuries.

00:04:17.480 | TLT, 20 to 30-year treasuries.

00:04:19.440 | At the lows, it was down nearly 50%.

00:04:22.760 | It's still down 37%.

00:04:24.440 | So you've seen a nice snapback rally.

00:04:26.400 | Rates have fallen.

00:04:27.480 | If you've been holding on for the past three or four years,

00:04:29.320 | you're still down a lot.

00:04:30.600 | Next one, IEF.

00:04:31.640 | This is seven to 10-year treasuries.

00:04:33.520 | At the lows, we were down 24%.

00:04:35.240 | We're now down a little less than 17%.

00:04:37.960 | Still pretty good ding for 10-year treasuries.

00:04:40.200 | Last year was the worst year

00:04:42.340 | for 10-year treasuries on history.

00:04:44.280 | Next one, three to seven-year treasuries, IEI.

00:04:47.240 | This is down 9%.

00:04:48.520 | It was down 15% or so.

00:04:50.840 | At the lows, not too bad.

00:04:52.400 | So that's mostly treasuries.

00:04:53.840 | Barclays AG also has some mortgage bonds.

00:04:55.480 | Let's look at corporate bonds.

00:04:56.680 | LQD.

00:04:57.920 | This is the biggest ETF for corporate bonds.

00:05:00.640 | It was down 25% at the lows, now down 12%.

00:05:04.780 | Finally, high-yield bonds.

00:05:05.800 | This one is kind of crazy.

00:05:07.180 | High-yield bonds were only down 17% at the lows,

00:05:10.000 | now down a little less than 2%.

00:05:12.480 | Now, this seems weird

00:05:13.320 | because how could high-yield outperform

00:05:14.800 | these other bond areas because it's more risk?

00:05:16.920 | Well, high-yield acts more like equities than bonds.

00:05:20.040 | And so that's one of the reasons

00:05:21.080 | that we saw high-yield not go down as much

00:05:23.680 | and then also rally a lot more.

00:05:27.120 | You didn't really have spreads blow out.

00:05:28.460 | So something like high-yield

00:05:29.360 | actually is outperforming the bond bear market,

00:05:31.440 | which seems crazy to think about

00:05:32.680 | because usually if there's a bear market,

00:05:34.260 | high-yield is gonna get crushed.

00:05:35.960 | In 2008, it was down 40% or 50%.

00:05:38.480 | Knowing what you know about my risk tolerance,

00:05:40.960 | which bond fund do you think I have the most of

00:05:44.520 | in my portfolio?

00:05:45.600 | You just hold a single Oatly corporate bond

00:05:47.560 | and it's trading for 12 cents on the dollar.

00:05:49.400 | I probably would, but no, it's junk bonds, you know?

00:05:52.600 | Okay, so you're doing pretty well.

00:05:53.880 | And if you're in T-bills,

00:05:55.200 | obviously you didn't have to worry about losses.

00:05:57.440 | If you're in short-term treasuries,

00:05:59.200 | one to three year or something like that,

00:06:01.080 | you really didn't have to worry about losses.

00:06:03.040 | And so it really depends.

00:06:05.440 | How you feel about bonds depends on where you are.

00:06:07.560 | And if you're in zero-coupon bonds,

00:06:09.080 | which is, Duncan, that should be you, zero-coupon bonds,

00:06:12.360 | that we're talking 50 to 60% losses

00:06:14.440 | and they've shot back up, it's still down a lot.

00:06:16.800 | - I like to give those a look.

00:06:18.360 | - But yeah, the total bond market's

00:06:19.800 | still technically in correction territory.

00:06:21.880 | So you've got some work to do.

00:06:24.000 | And that's gonna be made up by rates

00:06:25.800 | would have to fall a lot more

00:06:26.800 | to get out of correction territory

00:06:28.000 | or the yields are higher now,

00:06:29.560 | so you're gonna make it up over the course of,

00:06:31.120 | you're just gonna have to wait.

00:06:32.440 | But it's coming, we're getting there.

00:06:34.680 | Stocks round trip before bonds.

00:06:36.120 | - You have hope.

00:06:37.080 | - Next question.

00:06:38.680 | - Okay, Travis writes in,

00:06:40.960 | "I'm a big fan of the show

00:06:42.000 | "and have been listening for the last two years.

00:06:44.360 | "I'm 26 with a net worth of about $135,000

00:06:47.880 | "and no debt, not to brag.

00:06:49.760 | "I have investments in a Roth IRA and a brokerage account.

00:06:52.600 | "I regularly hear how you and Michael

00:06:54.800 | "are 100% in stocks because you guys

00:06:56.760 | "are still relatively young.

00:06:58.040 | "Middle age is still young, right?"

00:06:59.880 | - Shot's fired.

00:07:00.720 | - "Hearing you guys say this inspired me

00:07:03.800 | "to sell the bond portion of my portfolio,

00:07:06.040 | "which was 10%.

00:07:07.120 | "I invested this in the Q's,

00:07:09.200 | "but 70% of my portfolio is invested in the S&P 500.

00:07:12.280 | "So my current portfolio is 70% S&P,

00:07:16.120 | "20% international stocks, and 10% triple Q.

00:07:19.940 | "Does this allocation make sense?

00:07:22.040 | "I'm relatively young with $73,000 invested in the market

00:07:25.320 | "and don't plan to sell anytime soon.

00:07:27.520 | "Is investing in the Q's and the S&P 500 redundant?

00:07:31.820 | "If the S&P goes up, so will the NASDAQ,

00:07:34.120 | "but the NASDAQ gives me more exposure to tech,

00:07:36.400 | "AI, and the giant innovative juggernaut country.

00:07:39.080 | "Companies."

00:07:40.920 | - So let's play a new round of Ben's favorite game,

00:07:43.280 | Am I Diversified?

00:07:44.660 | - Am I Diversified?

00:07:46.160 | - So 70% in the S&P, 20% international, 10% NASDAQ.

00:07:49.520 | You're diversified, kind of.

00:07:52.280 | Like if we're doing a one to 10 here,

00:07:53.840 | you're at a six maybe.

00:07:55.640 | You have a heady concentration of growth stocks.

00:07:58.840 | And the question is, are you comfortable with that?

00:08:01.080 | I actually wrote a piece this week

00:08:02.040 | called A Short History of NASDAQ 100 Returns.

00:08:04.360 | John, throw the table up here for me

00:08:05.880 | that shows the NASDAQ, S&P, and Russell.

00:08:08.160 | And I looked at these different time frames.

00:08:09.280 | The NASDAQ 100 goes back to late 1985.

00:08:11.480 | So 1986 is the first year.

00:08:12.840 | I looked at these different periods, 1986 to 1990.

00:08:15.760 | And then you had this huge run up in 1991 to 1999.

00:08:18.440 | The NASDAQ 100 was up 38% per year,

00:08:21.200 | up over 1,700% in total, as the S&P was up 440%.

00:08:25.640 | And I compared the small caps here too.

00:08:27.760 | Then you had this period from 2000 to 2011.

00:08:29.960 | So we're looking at a 12 year period

00:08:31.720 | where in total the NASDAQ 100 was down 36%.

00:08:34.840 | S&P was up 7% over that period.

00:08:37.220 | And the Russell 2000 small caps was actually up over 70%.

00:08:40.160 | And then you have the cycle from 2012 to 2023

00:08:43.440 | where the NASDAQ's up 19% per year,

00:08:45.800 | totally outdoes the S&P 500.

00:08:47.480 | So the way I like to think about it is,

00:08:49.800 | and by the way, these start and end dates are cherry picked.

00:08:51.920 | I did this for a reason,

00:08:53.360 | but I think it's helpful for a question like this.

00:08:55.440 | The NASDAQ 100 is the S&P on steroids.

00:08:57.360 | It's higher highs and lower lows.

00:08:59.240 | Both indexes are concentrated

00:09:02.000 | more in large cap growth stocks,

00:09:04.520 | but the NASDAQ is so on a much bigger scale.

00:09:07.380 | So the S&P 500, the top 10 stocks make up 30% of the total.

00:09:11.420 | For the NASDAQ 100, it's more like 50%.

00:09:13.980 | So a lot more concentration,

00:09:16.080 | a lot more bang for your buck.

00:09:17.100 | The losses are gonna be bigger.

00:09:18.380 | The gains tend to be bigger as well.

00:09:21.200 | The question is, can you stick with a strategy

00:09:24.800 | of investing in large cap growth stocks?

00:09:26.460 | I think it's probably gonna be an okay strategy

00:09:28.780 | over the longterm, but can you deal with the time

00:09:30.540 | when that strategy doesn't work?

00:09:32.460 | Because looking at the last 10 years or so,

00:09:34.840 | you'd look back and go, why would I invest in anything else?

00:09:37.160 | This makes no sense.

00:09:38.640 | We don't have to go back that far in history

00:09:40.280 | to find a period where this strategy didn't outperform.

00:09:44.120 | John, chart on again, asset class returns, 1999 to 2009.

00:09:48.120 | So this is from the end of 1999.

00:09:49.680 | So the first decade of this century,

00:09:52.280 | NASDAQ 100 in total over this 10-year period was down 48%.

00:09:57.200 | S&P had a lost decade as well, down about 10%.

00:09:59.480 | In that same time period, mid-caps were up 85%.

00:10:02.240 | Small-caps were up 85%.

00:10:04.060 | International stocks were up almost 20%.

00:10:05.680 | Emerging markets were up 160%.

00:10:08.320 | So all of these areas that have underperformed

00:10:10.320 | in the last decade or so outperformed the NASDAQ

00:10:13.640 | by a lot in the first decade of the century.

00:10:15.840 | John, throw the next one up.

00:10:17.080 | This is the following.

00:10:18.680 | Give me a, John, can you go back and forth a few times?

00:10:21.920 | See, that one, there we go.

00:10:24.280 | Now stick on this one.

00:10:25.520 | You can see the difference.

00:10:26.360 | We went worst to first for the NASDAQ 100,

00:10:28.540 | and we went first to worst for emerging markets.

00:10:31.060 | Small-caps and mid-caps actually did okay

00:10:32.480 | for both of the first two decades of the century.

00:10:34.760 | S&P had a strong comeback as well.

00:10:37.120 | So I think this is a, I love showing this example

00:10:40.460 | because it shows, proves the power of diversification

00:10:42.440 | as a risk mitigation strategy and not going to extremes.

00:10:45.240 | Those extremes are really fun

00:10:47.000 | when the NASDAQ 100 is up a lot,

00:10:48.360 | like it has been for the past 12, 13, 14 years.

00:10:52.200 | But you had that 12 or 13-year period

00:10:54.040 | to start out the decade where the NASDAQ got just crushed

00:10:57.280 | coming out of the dot-com bubble.

00:11:00.000 | Obviously, it should be noted diversification isn't perfect.

00:11:02.100 | When you diversify, you're guaranteed to hold the losers,

00:11:04.220 | but you're also guaranteed to hold the winners.

00:11:05.420 | The point is, it blunts the impact of the losers.

00:11:07.620 | So you're not just getting crushed.

00:11:09.820 | So if you can stick with a strategy

00:11:11.260 | that's gonna underperform by a lot at certain periods,

00:11:13.500 | that's fine.

00:11:14.440 | I think diversification helps it.

00:11:15.620 | So when you have those periods of underperformance,

00:11:17.700 | you also have something else that lifts it up a little bit

00:11:19.580 | and you can rebalance.

00:11:20.420 | And it's kind of a pick-your-poison kind of thing.

00:11:22.700 | You could invest in large-cap growth stocks like the S&P

00:11:24.780 | and stick with it.

00:11:25.980 | I'm sure it'd be a pretty decent strategy.

00:11:27.260 | It has been for the past 100 years or so.

00:11:29.060 | It's just, can you stick with it

00:11:30.860 | when it's going to underperform?

00:11:33.140 | And it will at some point.

00:11:33.980 | I don't know when, but it's going to.

00:11:36.220 | - And just for the record,

00:11:37.260 | when you and Michael talk about being 100% stocks,

00:11:39.700 | you're talking about your retirement.

00:11:41.340 | - Yeah, we're talking about retirement.

00:11:43.020 | I also have a lot of...

00:11:45.020 | I mentioned this from a barbell person.

00:11:46.860 | I have plenty of liquid cash on hand for other stuff,

00:11:50.620 | and that's what allows me

00:11:51.800 | to leave that retirement stuff alone.

00:11:53.700 | So yeah, you're right.

00:11:54.980 | It's 100% of stocks for things like retirement accounts,

00:11:58.060 | not stuff that I need to spend on

00:12:00.040 | that's going to be in the near intermediate term.

00:12:02.420 | - Right.

00:12:03.260 | You have to be crazy to do that, right?

00:12:05.780 | - Yeah.

00:12:06.780 | You're what, 115% in stocks?

00:12:09.460 | - Probably.

00:12:10.700 | - All right.

00:12:11.980 | - Okay. - Next question.

00:12:12.820 | - Up next, we have a question from Chris.

00:12:14.940 | What would you advise as an alternative

00:12:17.420 | to getting on the real estate ladder,

00:12:20.080 | saving and waiting for lower interest rates

00:12:21.980 | or investing in the market

00:12:23.060 | until you can put down a larger down payment?

00:12:25.580 | - All right.

00:12:26.420 | Each week, there's a question

00:12:27.240 | where I kind of do a deeper dive than usual.

00:12:29.020 | This is my deep dive one.

00:12:30.740 | The thing is, offering advice on something like a home

00:12:33.220 | is even harder than offering someone advice,

00:12:35.300 | personalized advice on your portfolio,

00:12:37.620 | because there's so many idiosyncratic risks.

00:12:39.940 | Where you live,

00:12:40.940 | what the local real estate market looks like,

00:12:42.940 | the number of houses that are available

00:12:44.140 | for sale and the supply,

00:12:45.620 | like your tastes and preferences for a house,

00:12:47.540 | your financial situation, your budget, all these things.

00:12:49.860 | So I'm gonna look at this

00:12:51.220 | from a perspective of what would I do

00:12:52.820 | if I was forced to buy a house right now?

00:12:55.020 | I have a career change.

00:12:56.360 | I have to move, family, whatever the reason is.

00:12:59.820 | In 2017, when we had my twins,

00:13:03.280 | we could have made it work, I guess,

00:13:04.620 | but our old house, it wasn't set up for twins.

00:13:07.420 | We had two bedrooms upstairs and two bedrooms downstairs,

00:13:10.180 | and we had an older daughter as well.

00:13:11.380 | And so the layout of the house just never would have worked.

00:13:14.180 | For the first month we were there,

00:13:15.760 | we had the twins in cribs sleeping in my office

00:13:19.020 | because it was on the same floor.

00:13:20.900 | So we had to move, we had to get a bigger house.

00:13:22.140 | So we were kind of forced to do it, right?

00:13:24.020 | That's what happens.

00:13:24.860 | Okay, housing is so unaffordable right now

00:13:27.160 | and no one's ever gonna move again,

00:13:28.040 | but people are going to because life gets in the way.

00:13:29.760 | So I'm looking at it if that was my situation

00:13:32.840 | 'cause I can't look at it from other people's,

00:13:34.040 | this is just me, okay?

00:13:35.440 | Activity in the housing sector is down,

00:13:39.280 | but there's still activity happening.

00:13:40.900 | So John, throw up existing home sales.

00:13:42.940 | They've been crashing, but we're at a run rate

00:13:44.680 | over the last 12 months of 3.8 million.

00:13:46.840 | It's the lowest it's been

00:13:48.440 | since the depths of the 2008 financial crisis,

00:13:51.940 | but there's still housing changing hands.

00:13:53.840 | Now show new home sales, John.

00:13:56.260 | It's actually been rising.

00:13:57.180 | It fell, but throughout 2023,

00:13:59.060 | even with 8% mortgage rates,

00:14:01.140 | new single family houses sold rose.

00:14:04.140 | So now let's do the next one.

00:14:06.060 | This shows the breakdown of new versus existing home sales.

00:14:09.220 | In the existing home sales, obviously dwarf it,

00:14:11.620 | but back in the 2000, early 2000s housing bubble,

00:14:14.540 | we got to about 15 or 16% of all sales were new homes.

00:14:17.140 | They were building a lot

00:14:17.980 | and we actually had oversupplied.

00:14:19.140 | And that's one of the reasons that housing markets ramped up

00:14:21.220 | and then they crashed in 2008.

00:14:23.540 | It got to the lows 'cause all the builders pulled out

00:14:26.060 | and they're like, screw this, we're out of here.

00:14:27.380 | We're not building any more houses.

00:14:30.180 | So it got down to 5% of the total by 2010.

00:14:34.060 | John, throw that chart back up there one more time.

00:14:36.340 | It's now falling, the existing home sales,

00:14:38.940 | so new home sales are rising.

00:14:39.780 | It's back up to 15 or 16%.

00:14:41.380 | So there's a lot more new home sales going in

00:14:43.900 | than there were for the past decade or so.

00:14:46.380 | So how is this the case in a world of higher inflation,

00:14:48.940 | meaning higher input costs,

00:14:50.020 | now you can do chart off, John,

00:14:51.260 | and higher mortgage rates?

00:14:52.260 | Because home builders own the land, right?

00:14:54.180 | They're not gonna just sit there like a homeowner

00:14:56.380 | who has a 3% mortgage locked in

00:14:57.740 | and most of those homeowners say, I don't need to move.

00:15:00.020 | I can wait.

00:15:01.500 | Home builders are incentivized to sell.

00:15:03.220 | So surprisingly, costs have gone up.

00:15:05.820 | Remember when lumber was the biggest thing?

00:15:07.440 | Everyone on social media had a picture of people on a date

00:15:11.140 | sitting next to lumber at Home Depot

00:15:12.940 | and said, take me somewhere expensive, and it was lumber.

00:15:15.620 | So you had all these costs go up.

00:15:17.800 | So home builders raised their prices,

00:15:19.600 | but then, hey, the cost of lumber fell

00:15:21.580 | and all these other costs fell,

00:15:22.860 | but home builders didn't then lower their prices.

00:15:25.120 | They took it to margins.

00:15:25.960 | So I had our research analyst, Sean, look at this.

00:15:28.380 | John, throw up, this is gross margins.

00:15:30.600 | At the beginning of the pandemic,

00:15:31.780 | for the five biggest publicly traded home builders

00:15:34.380 | in the United States and through the latest numbers

00:15:36.940 | in Q3 2023, across the board,

00:15:39.900 | we've seen a 25% average increase in home builder margins,

00:15:44.100 | which sounds crazy.

00:15:44.940 | Again, in the highest inflation we've had in 40 years,

00:15:47.540 | how do they improve their margins?

00:15:48.740 | 'Cause they raise prices faster than costs went up.

00:15:50.780 | And when costs went down,

00:15:51.700 | they took that to the bottom line, right?

00:15:55.060 | So the thing they can do though,

00:15:58.180 | because most home builders don't wanna lower prices,

00:16:00.380 | 'cause if I lock in a price for a new home,

00:16:02.940 | and then a month later, some other person comes along

00:16:05.460 | and locks in a price that's lower than me,

00:16:06.660 | I'm gonna say, whoa, whoa, whoa, stop building my house.

00:16:08.900 | I want that lower price.

00:16:10.220 | So they're not gonna really lower prices like that.

00:16:12.420 | What they can do is buy down mortgage rates.

00:16:13.940 | So I looked on Pulte Homes website this week.

00:16:16.300 | They say 30 year fixed rate mortgage at 5.75%.

00:16:19.500 | They just buy down the mortgage rate for you.

00:16:21.220 | - Wait, can you explain that?

00:16:22.820 | I don't quite understand what you're saying.

00:16:24.020 | - So anyone could buy a mortgage down.

00:16:25.860 | You just pay more money up front

00:16:27.260 | and you basically buy points, they call it.

00:16:29.500 | So you pay money up front to have a lower mortgage rate.

00:16:32.780 | Right? - Interesting.

00:16:33.940 | - Yeah, instead of paying the interest

00:16:35.180 | out over the course of the loan, you pay to lower it.

00:16:37.340 | Lenar has one that says they have a fixed rate for 4.5%.

00:16:40.260 | So how is that possible if the mortgage is for 7%?

00:16:42.660 | 'Cause they're buying it down for you.

00:16:43.740 | So that's how they make it cheaper.

00:16:45.420 | So these home builders can incentivize you to build now

00:16:49.220 | by offering you lower rates.

00:16:50.500 | 'Cause they, again, they have larger margins

00:16:52.100 | so they can afford it.

00:16:53.460 | So it's pretty good.

00:16:55.940 | So another benefit to the new home sale thing

00:16:59.860 | is that there's been an increase in it

00:17:02.220 | and they build more smaller homes.

00:17:04.020 | So John, throw up my chart from Fred here.

00:17:05.420 | This is a median sales price for new houses

00:17:07.780 | sold in the United States.

00:17:08.700 | You can see it's crashing.

00:17:09.980 | And a lot of people were commenting on this

00:17:11.660 | on social media a couple of weeks ago

00:17:12.900 | saying, how is this possible?

00:17:14.460 | The median price of a new home

00:17:16.460 | has gone from $500,000 roughly to 409,000.

00:17:20.140 | How is that possible if housing prices

00:17:21.620 | are at all-time highs?

00:17:22.460 | Well, it's not because new home prices are crashing.

00:17:25.020 | It's because we're building smaller homes.

00:17:26.540 | So the next one, John,

00:17:27.460 | this is the median square foot of a new home.

00:17:31.300 | It's falling.

00:17:32.140 | So this is a good thing.

00:17:32.980 | Remember for years we talked about

00:17:34.100 | how no one was building starter homes anymore?

00:17:36.460 | Because new home builders have stepped in

00:17:38.180 | to pick up this vacuum

00:17:41.580 | where people aren't buying

00:17:42.660 | and selling existing homes anymore,

00:17:44.300 | we're making more starter homes.

00:17:45.460 | So you have a low supply in existing home sales.

00:17:48.780 | Demand still exceeds supply.

00:17:50.300 | And if mortgage rates fall,

00:17:51.260 | I think we're gonna have more demand come in.

00:17:52.420 | So if I were in the market for a house,

00:17:54.700 | I'm putting a bow on this here, okay?

00:17:57.180 | I would skip the existing home market altogether

00:17:58.980 | and I would build.

00:18:00.260 | You can get a lower mortgage rate.

00:18:01.460 | You can find a house that fits your needs and desires.

00:18:04.060 | Anecdotally, I'm seeing new houses go up

00:18:05.780 | in every nook and cranny in my area.

00:18:08.140 | That wasn't happening a decade ago.

00:18:09.940 | Anywhere they can find land,

00:18:10.980 | they're putting up houses.

00:18:11.940 | They're knocking down trees.

00:18:13.140 | They're putting up houses.

00:18:14.420 | Now, I have gone through the building process

00:18:16.060 | multiple times before.

00:18:17.140 | There are pros and cons to it.

00:18:18.220 | The pro is you get to pick out the house

00:18:20.140 | exactly like you want it.

00:18:21.100 | It's brand new.

00:18:21.940 | So it means your maintenance costs going forward

00:18:23.340 | are much lower.

00:18:24.780 | There's no bidding wars.

00:18:25.620 | There's no back and forth with realtors,

00:18:27.060 | any of that stuff, which is good.

00:18:28.860 | Get a lower mortgage rate, as I mentioned,

00:18:30.860 | which is probably more true with national builders

00:18:32.380 | and local builders.

00:18:33.220 | So that kind of depends.

00:18:34.740 | And then you get time to figure stuff out.

00:18:35.980 | 'Cause it could be, I don't know,

00:18:36.900 | 12, 18 months until the house is done.

00:18:38.540 | So you don't have to be in a rush.

00:18:39.380 | - That's what I was about to ask,

00:18:40.200 | what the average time range is.

00:18:41.040 | - You don't have to be in a rush.

00:18:41.880 | It probably was six to nine months in the past,

00:18:43.600 | where now with labor shortages and supply shortages,

00:18:45.520 | it might be more like 12 to 15 months.

00:18:48.040 | The cons include the cost would probably be higher

00:18:51.000 | than you think, because a lot of people will do add-ons.

00:18:53.320 | It's gonna be more, you're gonna want more stuff

00:18:54.920 | once you start getting through the process.

00:18:56.640 | The number of decisions is mind boggling.

00:18:58.720 | It just melts your brain.

00:18:59.640 | - I want solar shingles.

00:19:01.200 | - It's fun to go through like,

00:19:03.360 | hey, countertops and cabinets, that's cool.

00:19:05.880 | But then you get to like,

00:19:07.220 | I got to pick out the doorknob colors

00:19:08.640 | and the cabinet things.

00:19:09.640 | And wait, I have to pick out the color of the grout.

00:19:11.600 | Do you want it light gray or off gray?

00:19:13.800 | Or do you want, it's like mind boggling

00:19:15.880 | the number of choices you have to make.

00:19:17.720 | It can take longer than you think,

00:19:18.800 | and you obviously can't get in a house right away.

00:19:20.520 | And the other problem for most people is,

00:19:22.520 | is there land available where you want to build?

00:19:24.880 | But, you know, like most financial decisions,

00:19:27.240 | there's trade-offs involved.

00:19:28.080 | But if I was doing it personally,

00:19:29.760 | and I didn't want to deal with a crazy home market

00:19:32.200 | where there's not a lot of supply, I would build.

00:19:34.880 | Obviously, the big thing is, can you afford it?

00:19:37.240 | You can always save for a bigger down payment

00:19:39.440 | and keep renting if you can't.

00:19:40.800 | But my biggest advice to anyone is,

00:19:43.240 | don't try to time the housing market.

00:19:44.880 | If you can afford to buy a place,

00:19:47.160 | buy it now and worry about the rate stuff later.

00:19:49.680 | If you can't afford it,

00:19:50.520 | then obviously it's not a great time to buy a house ever.

00:19:53.400 | I just don't see the idea of,

00:19:55.320 | I'm going to try to thread the needle

00:19:56.980 | and time it perfectly and buy this house

00:19:59.000 | when they're down 7%.

00:20:00.560 | Like, I don't think that way.

00:20:01.880 | You can afford it, buy it.

00:20:03.080 | If you can't afford it, don't buy it.

00:20:05.280 | - You've sold me, you've sold me.

00:20:07.420 | I have a question.

00:20:08.260 | Do you think that we're going to see more rent-to-own

00:20:12.080 | situations because of the housing market?

00:20:14.360 | - Yeah, I think it makes sense.

00:20:15.480 | I think that's what all the institutions are going to do.

00:20:17.000 | Although, they're pulling back right now, too,

00:20:18.280 | because rates got so high for them,

00:20:19.960 | it made their hurdle rate even higher for their cap rates

00:20:22.440 | on what they're making on these houses.

00:20:24.000 | - Because, yeah, I remember years ago,

00:20:25.180 | there's a company called, like, Bizuto, I think.

00:20:27.480 | And if you rented an apartment from them,

00:20:29.680 | they also had communities with houses.

00:20:32.360 | Something about, like, $1,000 a month of your rent,

00:20:35.640 | they put aside for, you know,

00:20:37.500 | if you ever wanted to buy a Bizuto home down the road.

00:20:40.260 | And I've just been curious,

00:20:41.460 | because I haven't seen much more of that.

00:20:43.740 | But, yeah, it seems like that would

00:20:44.780 | be getting more and more popular now.

00:20:47.260 | - Yeah, it makes sense.

00:20:48.080 | But I don't know how many places

00:20:48.920 | they're going to want to sell those houses right now,

00:20:49.900 | but, yeah.

00:20:50.740 | - True, yeah.

00:20:51.780 | - All right, another question.

00:20:53.260 | Right from the live chat from last week.

00:20:55.420 | - Yep, our very own Dave Airy.

00:20:57.960 | So Dave said, "Why not ask Blair, or Taylor,

00:21:02.140 | "or Tony Izola, or other RWM CFPs

00:21:05.940 | "about what questions one should ask

00:21:07.840 | "a prospective financial advisor?"

00:21:10.080 | - All right, ask by name, and we shall make it happen.

00:21:13.720 | Taylor Hollis.

00:21:15.400 | - Hey, Taylor. - Hi.

00:21:16.240 | - How's it going, Taylor?

00:21:17.060 | - Good. - Welcome back to the show.

00:21:19.000 | - Good to be back.

00:21:19.960 | - All right, so this is a good question.

00:21:23.760 | Because I think a lot of people

00:21:25.500 | get overwhelmed by this process.

00:21:27.220 | 'Cause it's not something you,

00:21:28.200 | kind of like buying a house and selling a house,

00:21:29.560 | you don't do it very often, right?

00:21:31.640 | You go through the process of vetting financial planners.

00:21:34.100 | A lot of times, the people with the best sales pitch

00:21:37.220 | are the ones that get you.

00:21:38.300 | So what do you think are some good questions to ask

00:21:42.060 | when vetting financial advice?

00:21:44.200 | - I think certainly the questions

00:21:47.560 | that we've kind of all heard of.

00:21:50.180 | Are they a fiduciary?

00:21:51.340 | Meaning, are they required to legally put the client,

00:21:54.500 | you, your best interest ahead of theirs?

00:21:57.020 | How are they-- - Which is certainly

00:21:58.740 | a new topic in the last, I don't know, 10 or 15 years.

00:22:00.940 | It wasn't asked in the past, probably.

00:22:02.280 | - Sure, right, right.

00:22:03.960 | - Just a question on the fiduciary thing.

00:22:06.000 | As a non-financial professional, I'm always confused by this.

00:22:09.040 | I mean, it is just a word, right?

00:22:11.080 | Like, they can always just say, yes, I'm a fiduciary, right?

00:22:13.280 | There's no, like, credential they show you or something

00:22:15.680 | to prove they're a fiduciary, right?

00:22:17.920 | Like, how do you actually know

00:22:18.760 | someone's not just telling you that,

00:22:19.740 | but then they're not actually gonna

00:22:21.220 | abide by the fiduciary? - Well, the follow-on

00:22:22.800 | questions would be, how are you paid?

00:22:24.200 | How are you compensated?

00:22:25.680 | Are you, do you have any affiliation

00:22:26.880 | with other financial firms?

00:22:28.280 | Are there any conflicts of interest?

00:22:29.760 | Are you paid based on the products you sell?

00:22:32.020 | Or are you paid specifically from the client?

00:22:34.520 | And, or, you know, are there any other ways

00:22:36.160 | that you make money?

00:22:37.000 | I think you can kind of drill down to that to understand.

00:22:39.000 | - Right.

00:22:40.240 | - What are you incentivized to do for me?

00:22:42.640 | And how do you get paid?

00:22:44.360 | - How do you get paid is a big one

00:22:45.720 | that I think a lot of people go in thinking to ask.

00:22:48.960 | That's kind of front of mind.

00:22:51.080 | You know, making sure that interests aligned, right,

00:22:54.240 | is important.

00:22:55.080 | I think some that aren't as widely known,

00:22:58.880 | one that I really like is ask about the team

00:23:01.280 | that you would have access to.

00:23:02.780 | Are you dealing with a one-man show or woman show?

00:23:07.160 | Are you dealing with, you know, a whole firm of resources?

00:23:10.960 | You know, if you have tax questions

00:23:13.480 | or estate planning questions, you know,

00:23:16.240 | who do you have access to as part

00:23:19.400 | of what you would be paying as a fee?

00:23:22.600 | So I think knowing that there's a team behind one face

00:23:27.000 | is very important.

00:23:28.160 | - That takes away the key person risk too

00:23:30.080 | of getting hit by a bus, right?

00:23:31.440 | If you're dealing with...

00:23:32.680 | I know plenty of solo practitioners

00:23:34.360 | who are very good at what they do

00:23:35.400 | and they can wear all those different hats,

00:23:36.880 | but it's also a risk of if something goes wrong

00:23:39.720 | or that person decides to retire or walk away or whatever.

00:23:42.360 | So I think another, yeah, another good question is like,

00:23:44.400 | what services do you provide?

00:23:46.000 | Is this just, 'cause some people just do asset allocation

00:23:48.640 | and portfolio management.

00:23:49.720 | Other people do financial planning and tax planning

00:23:51.600 | and estate planning and insurance planning.

00:23:53.600 | So that's another good one is what exactly can you do

00:23:56.480 | for me, even if I don't need it now,

00:23:57.720 | maybe I'll need it down the line.

00:23:59.160 | - Right, another one I really like is,

00:24:01.760 | you know, what is your investment philosophy

00:24:03.640 | and how are investment decisions made, right?

00:24:06.680 | It's one thing to just look at past performance.

00:24:09.480 | You might like what you see,

00:24:10.560 | but how are they making decisions?

00:24:12.360 | Are they going off their gut?

00:24:13.680 | Are they sticking with rules-based investing?

00:24:16.280 | Just having a good grasp of the overall investing philosophy

00:24:19.080 | I think is very important.

00:24:20.400 | - Yeah, that's a big one.

00:24:21.400 | I think it's also fair to ask,

00:24:22.840 | how do you personally invest your assets?

00:24:26.200 | You might not have the same allocation or plan as me,

00:24:28.560 | but do you follow the similar philosophy and values

00:24:31.720 | that you're purporting to the rest of your clients?

00:24:34.480 | I think another good one is,

00:24:35.800 | is what is the client experience like?

00:24:38.200 | How often are we communicating?

00:24:39.800 | What's the tech stack or whatever I'm using?

00:24:41.800 | How am I getting my information?

00:24:43.520 | I think that's something that's important to answer too,

00:24:45.720 | is the upfront stuff is good,

00:24:48.200 | but how will this relationship look going forward?

00:24:50.280 | How are we gonna work together?

00:24:51.800 | - Right, right, agreed.

00:24:53.400 | I like that one.

00:24:55.240 | Duncan, what do you want to ask to a financial advisor?

00:24:59.080 | - Yeah, no, I mean, I think these are all good things.

00:25:01.640 | I guess I would probably ask like favorite bands,

00:25:04.400 | some things like that.

00:25:05.640 | - I would also ask that, that is important.

00:25:07.840 | - I think that, yeah, a lot of people

00:25:10.120 | just have no idea where to begin.

00:25:12.360 | And yeah, I think this area is very easy

00:25:15.800 | to be taken advantage of,

00:25:17.480 | especially for people who don't follow finance

00:25:20.440 | and don't really know that much about it.

00:25:22.880 | - It is, 'cause oftentimes the person

00:25:25.480 | who's the best salesperson

00:25:26.480 | might not have your best interests in mind.

00:25:29.600 | So I think you want to know,

00:25:30.680 | most people want to know, am I gonna be okay?

00:25:32.120 | So it's like, how are you gonna create a plan

00:25:33.600 | that helps me accomplish my goals?

00:25:34.680 | Like, what are we gonna do to get to that point?

00:25:37.600 | I think that's what most people want to know.

00:25:40.160 | Yeah, you're right, there isn't really a checklist

00:25:41.800 | for a lot of this stuff.

00:25:43.320 | It's, in a lot of people, it's kind of feel and body language

00:25:46.760 | and these are the things that are hard to quantify.

00:25:48.840 | - Do you have like, is there a red flag?

00:25:50.840 | Is there something that people should all kind of

00:25:53.040 | have on their radar, if they hear,

00:25:54.720 | that should kind of serve as a red flag?

00:25:56.720 | - I think the compensation question

00:26:00.320 | could certainly uncover some red flags

00:26:01.960 | in the conflict of interest.

00:26:04.200 | - And like, what would they say

00:26:05.720 | that would be a big red flag?

00:26:07.160 | - You know, if they're getting, you know,

00:26:12.560 | I don't want to say kickbacks,

00:26:13.640 | but if, you know, there's just compensation arrangements

00:26:18.480 | that might not jive with your best interest,

00:26:22.080 | if they're not compensated in a way that aligns.

00:26:25.360 | - It's more transactional in nature.

00:26:27.200 | - Right.

00:26:28.040 | - I make money based on the stuff I sell you

00:26:30.480 | and I'm gonna be selling you a lot of stuff.

00:26:32.560 | So that's the kind of thing, if it's--

00:26:34.200 | - Or if I invest in these things, I get paid more.

00:26:37.160 | - To turn the portfolio or that sort of thing.

00:26:39.840 | That stuff doesn't happen as much as anymore,

00:26:41.800 | but it does still happen.

00:26:43.120 | The other thing is just, I've seen this in retail space,

00:26:46.680 | I've seen this in institutional space,

00:26:49.320 | you know, people who prescribe without diagnosing first.

00:26:52.760 | Like, here's what you need to be invested in right now.

00:26:55.240 | You need 15% in this and 20% in this

00:26:57.600 | without first asking why you need to be invested

00:27:00.480 | in something like that in the first place.

00:27:01.440 | So people who just say,

00:27:03.120 | our investment team thinks you need 10% in gold

00:27:05.360 | and 5% of this without first,

00:27:06.600 | like, does that fit your plan in the first place?

00:27:08.480 | So I think if they're not asking you the right questions,

00:27:11.120 | that's a good red flag as well.

00:27:12.680 | - Makes sense.

00:27:14.680 | - Good question, Dave.

00:27:16.360 | All right, let's do another one.

00:27:18.160 | - Okay, last but not least, we have a question from Alex.

00:27:21.960 | I follow a fairly conservative 70/30 portfolio

00:27:25.400 | and have some questions about how to think about risk.

00:27:28.120 | I work at a big tech company

00:27:29.600 | and stock is more than half of my compensation.

00:27:32.320 | If this industry were to have troubles,

00:27:33.840 | my job market would get pinched.

00:27:35.720 | Am I doubling up on my risk

00:27:37.200 | by investing in a cap-weighted index

00:27:39.120 | that has lots of exposure to big tech?

00:27:41.360 | Not to brag, but I'm in the highest tax bracket

00:27:43.960 | and live in California.

00:27:45.440 | So the most tax efficient bonds I can own

00:27:47.600 | are California bonds.

00:27:49.160 | How should I think about the risk

00:27:50.520 | of owning a California bond fund

00:27:52.720 | instead of a total US bond fund or equivalent?

00:27:56.360 | - Lots of good stuff in this one here.

00:27:58.200 | So the first one is more about risk in careers

00:28:01.000 | and how you backstop that.

00:28:02.880 | So the market cap weighting thing,

00:28:05.640 | it could be diversifying, as we said before,

00:28:07.960 | but it could also be having a less risky attitude

00:28:11.720 | towards financial assets.

00:28:13.480 | And I don't know, having a bigger buffer of cash and bonds,

00:28:16.840 | if you're really that worried

00:28:18.160 | and so much of it is tied in the stock

00:28:19.720 | and something goes wrong with a company.

00:28:21.400 | If the stock is down, you know,

00:28:22.360 | we saw a lot of tech stocks down 60, 70, 80%

00:28:25.200 | as they were laying people off.

00:28:26.640 | That's a double whammy

00:28:27.800 | that you do not want to find yourself in.

00:28:29.800 | - Well, and I saw a triple whammy in this question.

00:28:32.240 | You have stock as part of your compensation,

00:28:34.600 | which is big tech.

00:28:35.440 | Your compensation comes from big tech

00:28:37.280 | and you're invested in big tech,

00:28:39.200 | separate from your employer.

00:28:42.240 | I'd call that a triple whammy.

00:28:44.400 | I mean, champagne problems, right?

00:28:46.200 | A good problem to have.

00:28:47.040 | - And if half of the compensation is in stock,

00:28:49.000 | that means there's a big piece of that portfolio

00:28:52.000 | in this company stock as well.

00:28:54.000 | So, and that's another question we get all the time

00:28:55.720 | is what's the line in the sand where I have too much?

00:28:58.320 | I actually had a conversation with someone just this week

00:29:00.200 | saying, "Hey, I'm doing my year-end stuff."

00:29:02.200 | And his wife gets a 10% discount for company shares,

00:29:04.920 | so they buy a decent amount of it.

00:29:06.360 | But he's like, "What's too much?"

00:29:08.800 | And I think that's a question

00:29:09.640 | we get asked all the time as well.

00:29:11.200 | - Yeah, yeah, and I've personally seen people

00:29:13.960 | that they receive stock compensation,

00:29:15.920 | and I think because it doesn't feel super tangible,

00:29:18.480 | it's easy to forget about.

00:29:20.000 | And before you know it, you look up

00:29:21.840 | and you own way more than you intended.

00:29:23.900 | So I think for anyone that receives that

00:29:25.740 | as a big part of their compensation,

00:29:27.960 | be mindful of are you overweight?

00:29:31.920 | How can you get out tax efficiently?

00:29:33.920 | Like that needs to be,

00:29:35.360 | you need to thread the needle on that.

00:29:36.920 | - Yeah, so you hear the great stuff

00:29:38.680 | of Microsoft employees and Apple employees

00:29:40.480 | and Google employees making millions,

00:29:42.360 | but the other side of that is Enron and Lehman

00:29:44.400 | and GE in these places where people have 80, 90%

00:29:47.280 | in the company stock, 'cause how could it go wrong?

00:29:49.640 | I know this company, that's the downside.

00:29:51.840 | And I think we've kind of settled on,

00:29:54.000 | I don't know, anything over 20, 25%

00:29:56.160 | is probably a little too risky, especially if you're,

00:29:58.960 | so figuring out ways to diversify,

00:30:00.520 | even if it means thinking about

00:30:02.160 | the tax ramifications of that.

00:30:04.160 | I think that makes sense.

00:30:05.440 | So obviously, yeah, you're right.

00:30:07.000 | It wasn't just doubling up on the risk, it's tripling up.

00:30:08.800 | So figuring out ways to better diversify

00:30:10.360 | and maybe even having a bigger tax or cash buffer.

00:30:14.320 | The next one is interesting because we have a lot of clients

00:30:17.080 | who live in California and New York

00:30:18.920 | who end up being in that high tax bracket.

00:30:21.400 | And so the idea of just holding munis in those bonds

00:30:26.400 | gives you a huge buffer on a tax equivalent basis.

00:30:31.400 | Bill Sweet talked a couple weeks ago

00:30:32.560 | about how if you're buying treasuries or T-bills,

00:30:34.920 | you're still paying some taxes on those.

00:30:36.200 | With munis, you have to look at the tax equivalent yield.

00:30:37.920 | So what do you think about people

00:30:38.760 | who live in those high tax states,

00:30:41.000 | but also are in the highest tax bracket?

00:30:43.240 | - I think that the, what you said,

00:30:47.840 | looking at the taxable equivalent yield

00:30:49.360 | of the state munis, I think oftentimes

00:30:52.520 | that's going to come out ahead

00:30:54.600 | and there's gonna be a big advantage,

00:30:57.160 | especially 'cause those states,

00:30:58.760 | they don't just have a state income tax,

00:31:01.400 | it's typically substantial.

00:31:03.480 | And if you can avoid that, that is priority.

00:31:08.480 | In terms of like, are you thinking

00:31:10.600 | exposing themselves too much maybe to that state?

00:31:13.320 | - Yeah, maybe there's maybe,

00:31:16.840 | remember a number of years ago,

00:31:18.000 | Meredith Whitney put out the report

00:31:19.040 | that all these municipalities are gonna go under

00:31:20.520 | and that was a big worry for a couple of years.

00:31:23.320 | I don't think that, states are actually

00:31:24.880 | in a much better place now than they were.

00:31:26.120 | I think COVID actually helped a lot there.

00:31:29.080 | But you're right, the tax equivalent yield,

00:31:30.600 | if you look at that, if you get a three or 4%

00:31:32.280 | immunity bond and you're in the highest tax bracket

00:31:34.160 | in one of these states, you could be looking

00:31:35.600 | at a seven or 8% tax equivalent yield.

00:31:37.680 | It's phantom yield for a lot of people,

00:31:39.360 | you don't actually see it.

00:31:40.960 | It's just taxes you're not paying.

00:31:42.400 | But right, for a lot of people,

00:31:43.880 | that is the best way to go through it.

00:31:46.080 | It's just how do you get that exposure?

00:31:47.600 | Are you buying these individual bonds yourself?

00:31:49.400 | Are you using an ETF or mutual fund

00:31:51.680 | that invests directly in these?

00:31:53.640 | Yeah, I think that's obviously a much easier way to go

00:31:56.840 | if you're looking to diversify exposure

00:31:58.400 | and not be stuck to any one bond

00:32:00.720 | or municipality or something.

00:32:02.480 | - Right, exactly.

00:32:03.760 | And I think that, kind of marrying the two questions

00:32:08.080 | together, because this person's compensation

00:32:12.240 | is stock and income from a single company,

00:32:16.560 | looking to further diversify their other investable assets

00:32:20.280 | outside of just that company is important.

00:32:22.760 | I think using those state munis is a great option.

00:32:25.560 | - This might be a stupid question,

00:32:26.880 | but do you still get all those tax benefits

00:32:28.760 | if you're buying a municipal bond ETF?

00:32:32.440 | Or do you have to actually outright hold

00:32:34.040 | the municipal bonds themselves?

00:32:36.080 | - Yeah, and there are California

00:32:38.720 | or New York ETFs that do this.

00:32:41.400 | - Right, because they're notorious for,

00:32:44.120 | the higher income tax states have those ETFs

00:32:46.800 | that you can own.

00:32:47.640 | - Yeah, most of those fund companies will have a Cal,

00:32:49.320 | yeah, so yeah, you get those state tax benefits, yes.

00:32:51.600 | - Okay, cool.

00:32:52.440 | - For buying ETFs.

00:32:53.280 | So yeah, that's another, yeah, potentially triple whammy

00:32:56.840 | 'cause it could be local, state, and federal taxes

00:32:59.040 | that you're saving some money on.

00:33:00.360 | So yeah, it's a pretty good deal.

00:33:02.880 | But I think this person is thinking about things

00:33:04.400 | in the right way, that's a good first step.

00:33:06.000 | 'Cause a lot of people with the risk piece

00:33:07.600 | that you mentioned, they might think

00:33:09.440 | that they're even safer because I'm making my money

00:33:12.400 | in this company and I own the stock

00:33:14.120 | and I know it really well and I'm fine, right?

00:33:16.520 | But this person I think is thinking about it the right way.

00:33:18.800 | - I agree.

00:33:20.200 | - I like it, we talked everything from junk bonds

00:33:22.360 | to municipal bonds today, you know?

00:33:25.800 | Bonds are so hot.

00:33:27.440 | Programming notes, we have a few.

00:33:29.200 | No show next week, right, we're off for the holidays.

00:33:32.480 | We've hired more people on the production team.

00:33:35.800 | Duncan's getting some help.

00:33:36.840 | So going forward in the new year for this show,

00:33:39.920 | we are going to be airing live

00:33:41.560 | 'cause we have all the people in the live chat

00:33:42.800 | we appreciate and some people have mentioned,

00:33:44.920 | it's kind of hard on a 1/30 Eastern on a Thursday

00:33:47.520 | to get off so we couldn't do it before

00:33:49.400 | because production, I blame Duncan, it's Duncan's fault.

00:33:53.240 | We're gonna start releasing these at 5 Eastern now

00:33:56.800 | which gives hopefully people more time.

00:33:58.280 | So the new show, I think it's January 4th,

00:34:00.400 | Ask the Compound will go live every Thursday

00:34:02.160 | at 5 Eastern and every Thursday from then on,

00:34:05.000 | we'll be at 5 Eastern.

00:34:06.240 | - But wait, there's more.

00:34:07.360 | So not exactly live, we're gonna be doing live premieres

00:34:10.720 | so Ben and I can actually carry on my conversations

00:34:13.320 | in the chat and be more engaged with people in the chat

00:34:16.200 | than we are currently when we're actually

00:34:17.520 | trying to do the show.

00:34:18.680 | But also it will allow us to up our production value

00:34:20.960 | and do some cooler stuff and have a little more consistent

00:34:24.360 | quality and audio, things like that

00:34:26.160 | since we'll be recording earlier in the day.

00:34:28.320 | - Yeah, it's one of the reasons we did it live like this

00:34:29.800 | 'cause we didn't have the resources.

00:34:30.800 | Now we have the resources.

00:34:31.640 | - Yeah, we really didn't have time to edit, yeah, basically.

00:34:33.160 | So yeah, exciting.

00:34:34.600 | - So fun stuff.

00:34:36.720 | Thank you to Taylor for coming back on the show.

00:34:38.680 | We appreciate it.

00:34:40.240 | Remember, email us askthecompoundshow@gmail.com.

00:34:42.640 | Thanks again, everyone in the live chat for showing up.

00:34:44.920 | Thanks for all your emails all year long.

00:34:46.560 | We really appreciate it.

00:34:48.040 | Send us your questions about 2024 and beyond.

00:34:51.120 | We'll see you next year.

00:34:52.160 | Merry Christmas, happy holidays, and thanks for watching.

00:34:55.200 | - See you, everyone.

00:34:56.040 | Thanks.

00:34:57.560 | (upbeat music)

00:35:00.140 | (upbeat music)

00:35:02.720 | (upbeat music)

00:35:05.300 | (upbeat music)

00:35:07.880 | (upbeat music)

00:35:10.560 | (upbeat music)

00:35:13.220 | (upbeat music)

00:35:15.800 | (upbeat music)

00:35:18.380 | (upbeat music)

00:35:20.960 | (upbeat music)

How to Buy a House Right Now

Chapters