How do Series I Savings Bonds Work?

00:00:00.000 | Welcome to Portfolio Rescue, I'm Ben Carlson, your host, with me as always is Duncan Hill.

00:00:22.520 | How's it going, Duncan?

00:00:23.520 | Hey, how's it going?

00:00:24.520 | Today, I want to talk about inflation in my opener here, because no matter what the number

00:00:29.520 | is, people are going to be angry, right?

00:00:32.720 | It's really high right now, it's the highest it's been in 40 plus years, but no matter

00:00:36.520 | what happens, someone will say it's understated because if you go X this and X this and X

00:00:40.280 | this, then it should be lower.

00:00:42.660 | But a lot of people say no, it's actually overstated because the government doesn't

00:00:45.920 | count things the right way.

00:00:46.920 | So I want to talk about this thing about people saying the inflation rate is always overstated

00:00:52.680 | or understated.

00:00:53.680 | John, put up this chart here about the consumer price index.

00:00:56.480 | This is the consumer price index for shelter and it's showing over the last year it's less

00:01:01.320 | than 5%.

00:01:02.880 | Now people are up in arms about this one because they throw their hands in the air and say

00:01:05.840 | this is ridiculous.

00:01:06.840 | Housing prices are up 20%, rents are up 17%, mortgage rates are at 5% now, how could the

00:01:12.000 | inflation rate for shelter be 5%?

00:01:15.400 | I'm going to walk you through this and why this, for some people it's way more than that,

00:01:18.440 | for some people it's probably less than that.

00:01:19.880 | There's a 65% home ownership rate in this country.

00:01:23.160 | That doesn't mean 65% of the people own homes because you could count, I think an apartment

00:01:27.540 | complex counts as one owner, whatever.

00:01:31.360 | If you're one of the people that owns your home and you bought before rates rose or refinanced

00:01:35.700 | when rates were 3% or lower, those mortgage payments are fixed.

00:01:40.040 | You've basically experienced deflation as housing costs have risen because your asset

00:01:44.640 | is up in value, right?

00:01:45.640 | Your house has gone up 20% or 30% or 40% or 50% and your payment is fixed.

00:01:50.800 | It's not moving at all.

00:01:52.460 | So inflation rates are inherently personal.

00:01:55.200 | So much of it depends on your spending patterns and your circumstances.

00:01:58.400 | And so my point is the inflation rate that you see in the headline is always going to

00:02:01.920 | be wrong for you personally.

00:02:03.080 | And that's why people get so mad about it.

00:02:05.160 | Yeah.

00:02:06.160 | Yeah.

00:02:07.160 | I mean, it's, it's very personal.

00:02:08.160 | Like you and Michael have talked about so much before.

00:02:09.880 | It's what you buy, right?

00:02:11.280 | Yes.

00:02:12.280 | If you happen to have to buy a car in the last year and buy a house for the first time

00:02:17.580 | and you buy a bunch of meat all the time, like you're screwed.

00:02:21.240 | That's what I was about to say, you know, being, being vegan is like inflation proof,

00:02:24.240 | you know?

00:02:25.240 | Yeah.

00:02:26.240 | I'm just kidding.

00:02:27.240 | Coffee.

00:02:28.240 | Coffee is the main thing that I noticed.

00:02:29.240 | Coffee is up like so much, you know, the coffee that I buy.

00:02:31.700 | See that's why I'm going to be able to retire like seven days before you because I don't

00:02:34.520 | drink coffee.

00:02:35.520 | Sure.

00:02:36.520 | It's true.

00:02:37.520 | Yeah.

00:02:38.520 | Yeah.

00:02:39.520 | All right.

00:02:40.520 | Remember, before we get to the questions, if you have one, ask the compound show@gmail.com

00:02:41.520 | and let's get into it.

00:02:42.520 | Okay.

00:02:43.520 | Also, I'll just apologize to everyone.

00:02:45.320 | We don't have the clock ticker today, the comments, everyone seemed to love it so much

00:02:49.300 | last week, but, but yeah, we don't have a ticking clock.

00:02:52.100 | I don't think anyone complained about it at all.

00:02:53.860 | Not one person.

00:02:54.860 | No.

00:02:55.860 | I think everyone loved it.

00:02:56.860 | It was a resounding success.

00:02:58.300 | Okay.

00:02:59.300 | So up first, my husband and I are both in our early to mid thirties with 30 plus years

00:03:04.260 | until we retire.

00:03:05.260 | We are a hundred percent invested in equities, mostly index funds with about 16% company

00:03:09.880 | stock and about 5% in my fund portfolio.

00:03:13.900 | What is the best way to start investing in bonds?

00:03:16.240 | One option would be to start buying $10,000 in I bonds over the next few years and continue

00:03:20.880 | until we retire.

00:03:22.640 | This would give us an income.

00:03:24.140 | This would give us income spread out over retirement and in an emergency, we could cash

00:03:27.740 | out early.

00:03:28.740 | Another option we've considered is to DCA into Vanguard bond funds starting in, uh,

00:03:33.840 | in our mid forties, but with monthly income on these so low, uh, we'd need to have a lot

00:03:38.580 | saved to have any meaningful income from it.

00:03:41.140 | So I'm leaning towards the I bond route.

00:03:42.860 | What would you do?

00:03:43.860 | All right, let's talk about the I bonds first because they are so, so hot right now.

00:03:47.960 | This is from the wall street journal, us treasury series.

00:03:50.680 | I bonds will offer annual interest payments of 9.6% based on the bonds latest inflation

00:03:56.480 | calculation, which is tied to March's consumer price index.

00:03:59.680 | Basically they recalculate the interest rate on these every six months and it's may and

00:04:03.500 | November and because rates are so much higher on these, this is basically the best deal

00:04:07.680 | you could get in fixed income right now.

00:04:09.400 | It's backed by the government, their index to inflation.

00:04:12.620 | They said the wall street journal article said over the past six months, $11 billion

00:04:15.820 | of these have been bought, which compared to the same period in 2020 was 1.2 billion.

00:04:19.860 | So people are loving these things right now.

00:04:22.460 | Um, they basically pay a fixed rate or they're supposed to, and that's set by the treasury.

00:04:26.980 | That rate has been set at zero for a long time, but you're just getting the inflation

00:04:29.620 | kicker.

00:04:30.620 | So if you want to know how that interest rate is determined, it's basically determined on,

00:04:33.540 | on the last six months of, of CPI data.

00:04:36.720 | One other positive, I talked to our tax expert bill suite on this.

00:04:40.280 | You don't pay state income taxes on this because it's a federal bond, but you also can defer

00:04:44.820 | federal income tax on that income until redemption.

00:04:48.420 | So again, interest is compounded semi-annually.

00:04:52.100 | You can, you do have to hold it for 12 months after you buy it.

00:04:55.220 | So you have to cash it out after 12 months and if you redeem before five years, you're

00:04:59.580 | going to give up three months worth of interest, right?

00:05:02.020 | So you know, if you do redeem after 12 months, you're, you're only getting 75% of that interest.

00:05:07.020 | Here's the problem.

00:05:08.020 | After five years, no penalties, nothing like that.

00:05:10.140 | You can only invest $10,000 per household.

00:05:11.920 | So I know a lot of really wealthy people say that's not enough.

00:05:16.120 | I think if Biden wanted to score some political points right now in the crazy political inflation

00:05:20.600 | environment, he'd probably up that cap.

00:05:22.280 | I don't know, 15, 20,000.

00:05:23.960 | And it seems like they could do away with the federal, federal tax, you know, like why

00:05:28.000 | is there a federal tax on these if they really are supposed to help middle class people save,

00:05:32.360 | you know?

00:05:33.360 | That's true.

00:05:34.360 | And if you took your tax refund and send it right there, you could do an extra 5k, I guess

00:05:38.280 | you could do 15 if you wanted to.

00:05:40.400 | The problem with these things, you have to buy them straight from the US government at

00:05:43.560 | Treasury Direct.

00:05:44.560 | John, pull up that, that website.

00:05:47.120 | This website looks like it was created in 1994 by like a 12 year old.

00:05:51.760 | I really like the idea of buying these bonds, but it's not user friendly at all.

00:05:55.700 | Like shocker, the US government doesn't have a good technology system.

00:05:58.860 | It's very clunky.

00:05:59.860 | The customer service isn't great.

00:06:00.860 | It's not a great user experience.

00:06:01.860 | One of the other things, like if you and a spouse wanted to buy one, Duncan, you and

00:06:05.720 | your wife wanted to buy one, you have to do, you can't do joint accounts.

00:06:08.000 | So you'd have to do one, set it up.

00:06:09.600 | She'd have to do one as well.

00:06:10.800 | You can't buy IRAs.

00:06:12.640 | You can't buy them with IRAs as far as I know.

00:06:15.880 | You can buy them, you know, on behalf of your children if you wanted to.

00:06:19.800 | And the other thing is if you wanted to use them for educational expenses, then you're

00:06:22.440 | paying no tax at all.

00:06:23.440 | So you want to use these as a 529 vehicle.

00:06:25.440 | So I actually think, so if you're one of these people, you know, you're in your 40s and you're

00:06:28.840 | getting closer to retirement than you are from your 20s, you're thinking, how do I more

00:06:32.840 | conservatively like slowly but surely get there, right?

00:06:35.480 | Because how do I do that glide path sort of thing?

00:06:38.080 | This probably isn't a bad way to do it, where you buy this 10K every year and slowly build

00:06:41.680 | up that bond position.

00:06:43.200 | Now you can't actually find yield on other bonds right now.

00:06:45.360 | So the SHY is one to three-year treasuries.

00:06:47.400 | It's yielding 2.5% right now.

00:06:49.560 | IEI is the three to seven-year treasury ETF.

00:06:53.320 | It's yielding almost 3%.

00:06:55.680 | Corporate short-term yields at SLQD is over 3%.

00:07:01.400 | Josh wrote a good piece the other day talking about how he was buying SHY, I think.

00:07:06.480 | So if you're a person who holds bonds right now, it doesn't feel very great.

00:07:09.680 | But if you're dollar cost averaging into bonds slowly, this is actually pretty good because

00:07:12.840 | rates are rising.

00:07:13.840 | You want yields to go up.

00:07:15.120 | Now some considerations, asset location, again, you can't do this in an IRA or a 401(k).

00:07:21.000 | And I think the really big key is, you know, obviously it's probably worth going through

00:07:25.360 | some hassle of using that crappy government website because you're getting such a great

00:07:29.480 | deal, almost 10%.

00:07:30.480 | Again, it's six months, you know, annualized.

00:07:33.320 | But you can't do it like automation.

00:07:35.760 | So if you're worried about ease of investing, you want to just have it on autopilot, you

00:07:38.520 | can't really do it that way.

00:07:39.520 | But I think for that extra amount of yield, if you're earning five to four to five times

00:07:45.080 | amount of a U.S. treasury bond right now, that's a pretty good deal.

00:07:48.240 | Obviously, that won't last forever if inflation comes in.

00:07:50.660 | But as far as right now, it's not a bad deal.

00:07:54.720 | One thing I will just mention that I was talking with Nick Magiuli about recently is some people

00:07:59.320 | have this weird authentication problem when you try to sign up.

00:08:02.280 | I recently bought iBonds like six months ago.

00:08:05.040 | And my wife, it said like, we need more information, and you have to send these forms and all this

00:08:10.160 | kind of stuff.

00:08:11.160 | It happened to Nick, too.

00:08:12.160 | And apparently he was reading about it.

00:08:13.160 | It happens to a lot of people.

00:08:14.540 | And essentially, you're in limbo forever.

00:08:16.120 | Like you can't actually get your account signed.

00:08:17.680 | I've heard this too.

00:08:18.680 | For me, it worked fine.

00:08:19.680 | But for some people, it won't.

00:08:20.680 | I've heard that too.

00:08:21.680 | You have to like go to a bank and get a note.

00:08:23.040 | Yeah.

00:08:24.040 | So again, this is a problem with ease of use and access.

00:08:26.480 | It's not as easy as opening a Robinhood account and trading five minutes later.

00:08:29.960 | It'll take a little bit of time to set up.

00:08:31.200 | And I guess once you figure it out, it's probably easier, but that first time could be a problem

00:08:34.400 | for people.

00:08:35.400 | Funny.

00:08:36.400 | Which of those is easier to do?

00:08:37.400 | Right?

00:08:38.400 | Yes.

00:08:39.400 | I know.

00:08:40.400 | Right.

00:08:41.400 | Yeah.

00:08:42.400 | I'll do the next one.

00:08:43.400 | Okay.

00:08:44.400 | So up next, we have on a recent podcast, you mentioned that you went from being a saver

00:08:45.400 | to being okay with spending.

00:08:46.400 | I know you've mentioned it before, but how about an episode on it's okay to spend?

00:08:51.080 | I'm trying to get more comfortable with spending myself.

00:08:53.320 | I have enough save to have a comfortable retirement, about $500,000 with 20 years to grow, but

00:08:58.920 | I like saving.

00:08:59.920 | I use tax deferred accounts and I don't have expensive taste.

00:09:02.800 | I grew up poor and we never had enough money.

00:09:05.240 | My wife grew up similarly and both our parents live off of social security and any little

00:09:09.360 | thing is an inconvenience.

00:09:11.040 | How did you change your mindset to be more okay with spending?

00:09:14.380 | So someone on Twitter asked yesterday, what's your personal finance take that's going to

00:09:18.960 | get you canceled?

00:09:19.960 | And mine was something along the lines of it's okay to spend your money and enjoy yourself

00:09:23.760 | a little bit.

00:09:24.760 | The people who tell you, who spend, shame you all the time and say, don't spend your

00:09:27.520 | money.

00:09:28.520 | Every little piece of your money here could be way more in the future.

00:09:32.640 | Just don't enjoy yourself at all.

00:09:33.640 | I think that's crazy.

00:09:34.640 | Actually, I think it was Ramit at I Will Teach You To Be Rich was the first one who really

00:09:37.400 | kind of taught me this.

00:09:39.160 | And he said something along the lines of like spend extravagantly on the things you love

00:09:42.280 | and cut costs mercilessly on the things you don't.

00:09:45.120 | Yeah.

00:09:46.120 | He's got a great book called I Will Teach You To Be Rich.

00:09:47.120 | He's kind of been my personal finance mentor.

00:09:48.560 | I actually had him on the show three years ago, it was pre-pandemic, right?

00:09:51.520 | A long time ago.

00:09:52.520 | It was before I actually worked here.

00:09:53.520 | Oh, it was that long?

00:09:54.520 | Okay.

00:09:55.520 | Maybe it was like four years ago.

00:09:56.520 | So also I think part of, for me, I was always a big saver and I always was like penny pinching

00:10:00.760 | and saving from like a young age.

00:10:02.160 | I think it was just kind of inherently in me.

00:10:03.800 | Part of it was, you know, my upbringing, my parents, part of, I think it was just my personality.

00:10:07.640 | But the older I got, the more I realized that like seeing the value of my portfolio go up

00:10:12.160 | didn't bring me nearly the same amount of satisfaction of, wait, spending a little extra

00:10:15.960 | to go on a trip this year.

00:10:17.000 | Like what's going to bring me more regret?

00:10:18.680 | Not having a little bit more when I retire or actually enjoying myself a little bit now.

00:10:21.920 | So I think the idea is once you automate your savings, then I think you can try to prioritize

00:10:27.080 | your spending.

00:10:28.080 | You don't have to have expensive tastes to spend money to make you happy.

00:10:30.640 | Like my way of looking at it is I'm selectively cheap.

00:10:34.520 | Like I like a nice high quality car that's like new-ish, but I don't drive luxury cars.

00:10:39.920 | My wife and I don't really like to go to expensive dinners.

00:10:42.040 | I prefer much rather to go to like a brewery and get a burger or something, you know.

00:10:46.460 | We sell furniture in our house from like Ikea and Target and Talisman, which is a local

00:10:50.280 | West Michigan place here.

00:10:52.280 | I love red wine, but it's hard to find me a bottle for more than $20 that I care to

00:10:58.040 | buy.

00:10:59.040 | Right?

00:11:00.040 | My wife loves Starbucks.

00:11:01.040 | She wants to get a Starbucks every day.

00:11:02.040 | Great.

00:11:03.040 | Get a Starbucks.

00:11:04.040 | I don't care.

00:11:05.040 | You know, that's a little thing.

00:11:06.040 | For me, I used to go to the public library all the time to get books and I'd wait months

00:11:08.680 | for these books that were on hold and now it's like, wait a minute, what am I waiting

00:11:11.600 | four months to read this book for if it's $7.99?

00:11:14.200 | So every time like buy the book if you want.

00:11:16.260 | So I also prefer to pay for things in the past that I would have done myself like for

00:11:20.780 | time.

00:11:21.780 | So in the past I did all the lawn care at my house.

00:11:24.140 | I shoveled the snow, all this stuff, cleaned the house and now we pay for someone to clean

00:11:28.500 | the house and remove the snow and do the lawn care and all gladly stuff that I would have

00:11:33.500 | done myself in the past that I just would rather pay for time now.

00:11:36.660 | So I have more time to spend with the kids and that sort of thing.

00:11:39.060 | Obviously everyone is going to have their own spending categories that they care about,

00:11:41.860 | but I think maybe you have to force yourself.

00:11:44.140 | So if you're, you're a saver, cut out a piece of your budget, say every month $500, I'm

00:11:49.480 | going to spend guilt free on something new.

00:11:52.180 | So pick one thing.

00:11:53.180 | If you're going on a trip, pay up for first class, give it a try.

00:11:55.740 | Try to go out to a nice restaurant, buy some expensive clothes, maybe buy your friends

00:11:59.160 | a round of drinks, right?

00:12:00.160 | Stay in a nice luxury hotel.

00:12:01.160 | Just try it once and see how it feels.

00:12:02.760 | And then you can say, is this the kind of thing that's worth it to spend a little bit

00:12:05.600 | more on occasionally or do I not care?

00:12:08.920 | Like you never know if you've never tried it before, especially if you've gone from

00:12:11.420 | an upbringing where you're always constantly hoarding money and worrying about, you know,

00:12:16.400 | where that money is going to come next and living paycheck to paycheck.

00:12:18.720 | So I think maybe if you've got your finances, you know, in line, try to like actually budget

00:12:24.800 | for it a little bit and force yourself.

00:12:26.320 | This is my guilt free spending.

00:12:27.320 | I'm going to blow it on something new every month and just try it.

00:12:30.320 | Yeah, no, that's, that's good advice.

00:12:32.680 | And yeah, some people, like you're saying, some people don't care and then other people,

00:12:35.760 | it brings them a lot of joy in life, right?

00:12:38.240 | So yeah.

00:12:39.240 | And so let's do this next question because I think this is a perfect example.

00:12:41.700 | Okay, so this is a longer one, but an interesting one.

00:12:46.580 | I've been a huge golfer for all my life and have always wanted to join one of the nicer

00:12:50.440 | golf clubs in our city.

00:12:52.100 | The initiation fee for one of these clubs is between 70 and $100,000.

00:12:56.340 | I had no idea it was this expensive, but it can be paid overtime interest free and the

00:13:02.300 | monthly dues are 500 to $750 a month.

00:13:05.140 | You want to talk about inflation?

00:13:06.140 | I'm guessing with the amount of people golfing these days because of the pandemic, these

00:13:08.780 | prices have probably doubled what they were.

00:13:11.180 | Yeah, it's incredible.

00:13:12.940 | We're still early in our careers and not in a position to afford this kind of expense

00:13:16.500 | yet.

00:13:17.500 | Are there any rules of thumb, percentage of income, net worth, monthly budget, et cetera,

00:13:22.140 | that you would suggest for determining when a big ticket expense is feasible?

00:13:25.820 | I want to wait until we're ready, but these fees are not set in stone.

00:13:29.660 | Initiation was closer to 40 to $60,000 10 years ago.

00:13:32.660 | I don't want to wait until our incremental readiness is eaten up by the increased fee.

00:13:37.700 | For context, my wife and I currently save 60% of our income, have no debt except mortgage,

00:13:42.860 | and max out all retirement options.

00:13:45.020 | This would be our first major discretionary type of expense.

00:13:47.740 | All right.

00:13:48.740 | See, here's the thing.

00:13:49.740 | I am personally not a golfer.

00:13:50.740 | I hate golf.

00:13:51.740 | I love golf, but I'm horrible at it.

00:13:52.740 | See, that's the thing.

00:13:53.740 | I'm horrible at it and I just never had the patience to put in the work.

00:13:56.580 | My dad loves going.

00:13:57.580 | He golfs three or four times a week in the summer.

00:13:59.860 | I have a lot of friends who play golf.

00:14:01.100 | Good for them.

00:14:02.100 | If golf is your thing and you want to spend money on it, do it.

00:14:04.180 | Guess what?

00:14:05.180 | I give this person permission.

00:14:06.820 | Buy the damn golf membership.

00:14:08.300 | You save 60% of your income, right?

00:14:12.220 | I guess you could make it a goal and say I'm going to carve out 10 or 20 or 30% and save

00:14:16.340 | up for that initiation fee, but if going to the golf course on a regular basis is going

00:14:20.660 | to make you happy, then do it.

00:14:23.260 | Even if keeping up with those expenses is going to cause you to bring that savings rate

00:14:27.900 | down from 60 to 50 or 40, guess what?

00:14:31.820 | You're still better off savings rate-wise than 99% of the company.

00:14:36.660 | This is your one big ticket splurge item.

00:14:39.180 | I'm not going to spend shit.

00:14:40.180 | You could have people who are going to judge you and say, "Did you hear how much they paid

00:14:43.420 | for that golf course?"

00:14:44.420 | Who cares?

00:14:45.420 | If you're already saving in your maximum retirement accounts, do you really think you're going

00:14:47.980 | to regret this when you're 60?

00:14:49.860 | Here's the thing.

00:14:50.860 | People save up for 40 years so they can go golfing one day when they retire.

00:14:55.100 | If you can afford to do it now and you're still saving for retirement, maximum retirement

00:14:58.980 | accounts, do it.

00:15:01.940 | I wouldn't overthink this.

00:15:03.340 | I would figure out a way to make this happen because if this is really going to make you

00:15:06.980 | happy and this is your one thing and everything else you've got figured out and in line, that's

00:15:11.420 | the whole point of prioritizing.

00:15:14.100 | Those memories that you're going to create golfing all the time, even though I would

00:15:16.900 | hate it personally, this person is going to enjoy it so much and have so much fun and

00:15:22.100 | have drinks and dinners and stuff there at the golf club and maybe a pool or something.

00:15:26.900 | Do it.

00:15:27.900 | I had a question about traveling a while back.

00:15:29.060 | Is playing golf at age 70 more fun than playing golf at age 35?

00:15:33.100 | Exactly.

00:15:34.100 | The point is as long as you have your finances in order and you're saving already, then whatever

00:15:39.620 | you have left over, do whatever you want with it.

00:15:42.820 | Then you can go crazy if you want.

00:15:44.460 | You don't have to cut back everywhere else because you already know how to do that.

00:15:48.500 | I do just wonder what you're paying for.

00:15:50.160 | That's a lot of money.

00:15:51.160 | A golf course, whatever.

00:15:53.340 | That's for another show.

00:15:54.340 | It's prestige, Duncan.

00:15:56.260 | Yeah, I guess.

00:15:58.180 | It sounds really, really like a lot of money for a golf course.

00:16:02.460 | Yeah.

00:16:03.460 | It probably is.

00:16:04.460 | I'm giving this permission.

00:16:05.700 | If you want to do this, do it.

00:16:07.220 | All right.

00:16:08.220 | Next question.

00:16:09.220 | Okay.

00:16:10.220 | Yeah.

00:16:11.220 | I saw someone in the chat mentioned Topgolf.

00:16:12.220 | Yeah.

00:16:13.220 | You could just play Topgolf instead.

00:16:14.460 | Okay.

00:16:15.460 | So the next question is, I bought into a Vanguard Target Retirement 2025 fund as a lower risk

00:16:22.900 | investment.

00:16:23.900 | I'm nowhere near retirement age.

00:16:24.900 | I'm 30 years old.

00:16:26.120 | And I have no idea what will happen to this fund in 2025.

00:16:28.860 | Does everything in the fund mature and get returned to shareholders?

00:16:31.940 | Does it continue in some other fashion?

00:16:34.060 | If so, should I cash out during the year?

00:16:36.780 | Is there a general rule for when you should exit a target date fund?

00:16:39.620 | All right.

00:16:40.620 | I have to admit, I have no idea of this either.

00:16:41.620 | When I was reading this, I was like, "Oh, of course."

00:16:43.780 | And then I was like, "Oh, wait.

00:16:44.780 | I actually don't know the answer to this."

00:16:45.780 | All right.

00:16:46.780 | Good question.

00:16:47.780 | And this is a good question because this is a younger investor.

00:16:49.660 | Good question for one of our younger advisors, Ben Coulthard, who's been with Ritholtz probably

00:16:53.400 | a year and a half.

00:16:54.400 | Hey, Ben.

00:16:55.400 | He's the second most important Ben on our staff.

00:16:58.120 | Now, I am a noted target date fan.

00:17:03.420 | I'm a little taken aback that this person is 30 years old and investing in a 2025 fund.

00:17:07.860 | Maybe they have a reason.

00:17:08.860 | But why don't you school us on the point of investing in something like this, when it

00:17:13.180 | would make sense for a young person to invest in like this, and then how the whole target

00:17:15.880 | date funds thing works, like how the dates work because I think some people probably

00:17:19.280 | don't even know.

00:17:20.280 | Yep.

00:17:21.280 | I'm also taken aback by the 2025 target date fund, and I don't want to dunk on our guest

00:17:26.360 | here too much.

00:17:28.160 | So I'll just answer it mechanically.

00:17:30.320 | Currently, that fund is 55% stock, 45% bond, and it's not like it matures in the year 2025.

00:17:38.280 | It just becomes like a 30% stock, 70% bond fund, assuming that you're now 68 years old

00:17:45.000 | and you're in retirement.

00:17:46.000 | Right.

00:17:47.000 | Well, that's the way target date funds work, right?

00:17:49.200 | That date is supposed to be the day you retire.

00:17:51.560 | And of course, when you retire, you're not just going to put all your money in cash because

00:17:55.600 | you could have two, three, four decades left to invest.

00:17:58.320 | So they still have to invest in something, it's just going to be more conservative.

00:18:01.640 | Right.

00:18:02.640 | Right.

00:18:03.640 | So like the viewer, I'm in my early 30s, and there are times to get conservative, right,

00:18:09.600 | for certain things.

00:18:10.600 | But I'd ask him like anything in personal finance, like what this money's for, right?

00:18:15.440 | So if it's in his 401k, I have one reaction, and that is, "Come on, man.

00:18:20.720 | I mean, why?

00:18:22.600 | You have 30 more years so you can even touch the money.

00:18:25.400 | Me too."

00:18:26.400 | Personally, I'm in 100% stocks, my 401k, I'm going to be adding to it every other week

00:18:31.120 | for the next three decades.

00:18:32.760 | So why on earth would I have 40% bonds, let alone four?

00:18:35.520 | Right.

00:18:36.520 | So yeah, someone of that age, if they're in a 401k, they should be in a 2060 or 2065 fund

00:18:41.160 | or something, right?

00:18:42.160 | Something much further out.

00:18:43.160 | Exactly.

00:18:44.160 | So the Target Date 2060 fund is 90% stocks, 10% bonds.

00:18:47.520 | So if that's what it's for, if you're just looking to set this on autopilot, Target Date

00:18:51.920 | funds are great.

00:18:52.920 | You don't even have to do any guesswork.

00:18:54.480 | It does all the rebalancing for you.

00:18:56.560 | But I'm going to assume that that's not the goal here, because there is a great, I would

00:19:01.400 | say, reason to hold something like this.

00:19:03.160 | And that's if you have a three to five year down payment goal or something, which I do

00:19:07.360 | have.

00:19:08.360 | I don't have a set date on it.

00:19:10.120 | It could be three, it could be six years, but I can't have that just sitting in cash

00:19:14.860 | and just getting eaten away, but I can't YOLO it into the markets either.

00:19:18.520 | So I'm actually using a 50/50 allocation fund for whether it's two years a place pops up,

00:19:23.720 | five years, maybe I get a little bit more.

00:19:27.160 | But yeah, I would say it, like anything, it comes down to what the money's for.

00:19:32.080 | And as for the viewer, if you're listening right now, shoot Duncan another email.

00:19:36.600 | I'm happy to hop on the phone personally, because this is a conversation, right?

00:19:40.240 | It's hard to know what this money's for and give the right advice.

00:19:45.480 | I do agree with you.

00:19:46.480 | If you have a shorter term time horizon, picking a shorter term target date fund actually makes

00:19:50.560 | sense.

00:19:51.560 | So you're starting to save right now for a house down payment and you pick a 2025 or

00:19:55.680 | 2030 fund.

00:19:56.680 | It actually kind of makes sense because you can put an end date on your fund when it's

00:19:59.960 | going to have that glide path to get more conservative.

00:20:02.280 | Right.

00:20:03.280 | So even like for like a college goal, like I would imagine, you know, this 30 year old

00:20:06.360 | doesn't have a 15 year old kid, that'd be pretty gnarly.

00:20:09.880 | That's going to be in college in a couple of years, but like for a parent, you know,

00:20:12.920 | your kids coming in five years, like I think it would be a great solution for that.

00:20:16.000 | Yes.

00:20:17.000 | Guess what my kids 529 plans are in?

00:20:18.000 | Target date funds.

00:20:19.000 | Come on.

00:20:20.000 | Exactly.

00:20:21.000 | Of course.

00:20:22.000 | At some point this show is going to be sponsored by a target date fund, right?

00:20:25.440 | Like an individual one.

00:20:26.600 | Can we have like one target date fund sponsor us?

00:20:29.280 | It should be.

00:20:30.280 | All right.

00:20:31.280 | I'll do the next one.

00:20:32.280 | Awesome.

00:20:33.280 | Also, Giancarlo in the chat says Benny sort of looks like Matt Stafford.

00:20:35.960 | Interesting.

00:20:36.960 | I'll take that.

00:20:37.960 | I'll take that.

00:20:38.960 | LA Rams Matt Stafford or Detroit Lions Matt Stafford?

00:20:40.480 | There's a difference there.

00:20:41.640 | Good question.

00:20:42.640 | Okay.

00:20:43.640 | Up next.

00:20:44.640 | How should I think about investing for the long term if I also want to speculate or gamble

00:20:48.480 | in the short term?

00:20:49.720 | What amount of my portfolio should I dedicate to these different approaches?

00:20:53.160 | So we talked earlier about me changing from a saving all the time to having some spending

00:20:57.440 | in there.

00:20:58.440 | This is probably something I've changed my mind to.

00:20:59.440 | I've written about this before, how I have 10% of my portfolio is just kind of for fun.

00:21:03.320 | I have it in a Robin Hood account and some alternatives and stuff, and I think scratching

00:21:07.360 | that itch makes sense.

00:21:08.480 | Ben, I think this is something that younger people probably have more of a desire for

00:21:13.520 | than their parents may have.

00:21:15.000 | So what do you think is a good starting place for this?

00:21:17.840 | Do you think younger people want or need to have this more than older generations?

00:21:21.940 | And how do you go about doing this in a way that you're not just going to blow yourself

00:21:26.160 | up and lose a bunch of money that you really need?

00:21:28.120 | Well, I'm going to give the Ben Carlson blog answer, which is that again, it depends on

00:21:32.920 | everyone.

00:21:33.920 | I mean, there are 68 year olds that love to buy some individual stocks, some alt coins

00:21:40.440 | and whatnot.

00:21:41.440 | But I do think when you're younger, you have 40 years to make up the income if you blow

00:21:46.120 | something up.

00:21:47.760 | So the Robin Hood culture, I mean, every other commercial on the Super Bowl was gambling.

00:21:53.840 | So I think there is that kind of, you have Stuhl Presidente throwing out all of his picks,

00:21:58.880 | you have all that stuff.

00:21:59.880 | So I'm just going to answer this personally again, because investing and gambling are

00:22:04.400 | two of my favorite things, but they're similar but different.

00:22:07.880 | So I started out like most people, I read the Intelligent Investor, I read Buffett shareholder

00:22:13.560 | letters, Peter Lynch, and I think I'm ready to be the next Bill Ackman.

00:22:18.500 | So much so in fact, that my first stock purchase was Valiant Pharmaceuticals.

00:22:23.980 | I had seen that it went down from like $300 to $30.

00:22:27.100 | I read over the weekend in Barron's that Bill Ackman was joining the board as if that's

00:22:30.860 | some kind of secret inside information, like the whole world wasn't reading it.

00:22:34.700 | So I buy it, it instantly pops to like $40.

00:22:37.740 | I'm going around the office bragging how I'm up already, which that's another thing, don't

00:22:41.240 | flex on your investments because you're only giving yourself bad karma if that exists.

00:22:45.500 | And then I ended up looking like an idiot when I sold it at 20.

00:22:49.540 | So there's that, then my next purchase was Apple, which was the same quarter that Warren

00:22:55.700 | Buffett initiated his position.

00:22:58.220 | Too bad on like Warren Diamond hands, I sold it nine months later because I saw like a

00:23:02.400 | scary election headline or something.

00:23:04.800 | So I guess meanwhile, like my 401k is just kind of plodding along and index funds, my

00:23:10.820 | sidecar account is going like this.

00:23:14.180 | The beauty of the sidecar account, the play account, the gambling account, whatever you

00:23:17.260 | want to call it, is that you can scratch that itch, right?

00:23:21.260 | You play out your idiot ideas without blowing yourself up.

00:23:25.000 | And I don't care if you're taking Tiger Woods to win the masters or you're buying Tiger

00:23:28.700 | King coin, which is a real thing that I read on the internet this week.

00:23:34.060 | The key is to size it appropriately.

00:23:36.860 | I have 80% of my net worth in index funds because I'm happy to bend the knee to the

00:23:41.060 | market.

00:23:42.060 | I would buy Nike King and Jon Snow if they had a kid.

00:23:45.300 | One of the few guarantees in investing, there's very limited guarantees, but one of the few

00:23:49.580 | ones is that you are guaranteed to own a future winner.

00:23:52.620 | You don't have to worry about picking Amazon, it'll just pop right up in the index and you'll

00:23:55.980 | own it.

00:23:56.980 | The other 20% is where I get my thrills, a little Nvidia here, some Tesla there, dabble

00:24:02.080 | in some Solana, throw $100 on the Patriot spread, which actually when we had Tom Brady,

00:24:08.140 | that dollar cost averaging the Patriot spread, that was an investment.

00:24:11.940 | That is not gambling.

00:24:12.940 | The other thing is, the other good thing about this is you can use it as a comparison.

00:24:17.620 | So in 2020, you're looking at your sidecar investments, you're going, "I'm a genius.

00:24:21.420 | Why am I holding index funds?"

00:24:22.660 | And then 2021 and on, you're saying, "Oh God, thank God that I hold these index funds still."

00:24:27.180 | And it's a way to keep yourself in check a little bit to realize like, "Oh, that one

00:24:30.780 | year of really awesome returns does not mean that I should put all of my money into this

00:24:34.740 | and go crazy."

00:24:35.740 | Exactly.

00:24:36.740 | I think the problem with that whole 2020, 2021 madness is people did put way too much.

00:24:44.980 | And you hear about the guy who concentrated everything in Tesla and turned a hundred grand

00:24:48.820 | into 2 million.

00:24:51.940 | That's the survivorship bias.

00:24:52.940 | You have all the other people that blew themselves up.

00:24:56.160 | So just size it appropriately.

00:24:58.420 | Look at it as like going to the movies.

00:24:59.820 | I put $50 on the Rangers game the other night.

00:25:02.380 | I was on the edge of my seat the whole game.

00:25:05.300 | I might as well have been at the game screaming and yelling.

00:25:07.980 | The bet did hit, so that's great.

00:25:09.700 | But if it didn't, whatever, I owe $50.

00:25:13.500 | We only talk losers here, not winners.

00:25:15.660 | I know.

00:25:16.660 | I definitely have losers.

00:25:17.660 | I definitely have losers.

00:25:18.660 | I bought Roblox at $100 and then again at $80 and sold it at $50.

00:25:22.260 | There's no stories in the New York Times about the guy who YOLOed his life savings into Dogecoin

00:25:26.420 | when Elon Musk was on SNL and now he's down 80%.

00:25:28.860 | You don't see those ones on the other side of it.

00:25:31.540 | Exactly.

00:25:32.540 | And I think it's almost like a camaraderie thing.

00:25:35.580 | The group chats with my friends, they're all, "Yeah, are you on the Packers this weekend?

00:25:39.060 | Did you buy Shibu Inu?"

00:25:41.180 | Whatever.

00:25:42.180 | It's fun stuff.

00:25:43.180 | Just size it appropriately.

00:25:44.180 | Yeah.

00:25:45.180 | I do think it's...

00:25:46.180 | Yeah.

00:25:47.180 | They say successful investing should be like watching paint dry and that's fine, but it's

00:25:49.700 | okay to be entertained and have a little bit of that other stuff too if you're going to

00:25:54.140 | enjoy it and if you just like following this stuff because it's interesting.

00:25:57.420 | Because it is.

00:25:58.420 | The markets are so interesting to watch.

00:26:00.220 | It is.

00:26:01.220 | A lot of young people would tell you, "Have fun being poor," right?

00:26:03.820 | Oh, yeah.

00:26:04.820 | Yeah.

00:26:05.820 | I don't care.

00:26:06.820 | And guess what?

00:26:07.820 | I am having fun being poor and losing $50.

00:26:08.820 | I haven't heard much about that.

00:26:09.820 | I think a lot of people are having fun being poor who are saying that.

00:26:12.660 | Yeah.

00:26:13.660 | Yeah.

00:26:14.660 | Exactly.

00:26:15.660 | And you know what?

00:26:16.660 | I don't want to rub it in on people, but yeah, they should have sized it appropriately.

00:26:20.060 | That's it.

00:26:21.060 | Can I quickly tell my intelligent investor story?

00:26:23.620 | Please.

00:26:24.620 | I read it back many years ago and I immediately went out and bought a bunch of close-in funds

00:26:28.500 | because he talks so much about close-in funds.

00:26:32.540 | Did you also buy railroad stocks because that's what he was talking about as well?

00:26:35.900 | I looked at them, but I didn't.

00:26:37.460 | I stuck with CEFs.

00:26:38.460 | Yeah.

00:26:39.460 | It's kind of funny what that book does to people.

00:26:41.860 | Okay.

00:26:42.860 | But yeah, I think a lot of dyed-in-the-wool bogleheads would say, "You're an idiot.

00:26:45.820 | Why would you ever do this?

00:26:46.820 | Just put it on autopilot and forget it."

00:26:48.900 | I think for some people that's fine and they can do that, but other people that need to

00:26:52.460 | scratch that itch and have that release, if it allows you to leave the rest of your portfolio

00:26:56.220 | alone, then I think it's serving a purpose.

00:26:58.260 | Exactly.

00:26:59.260 | Exactly.

00:27:00.260 | Great.

00:27:01.260 | All right.

00:27:02.260 | I want to thank Benny Markets for joining me today.

00:27:03.260 | Thanks for having me.

00:27:04.260 | Appreciate it.

00:27:06.660 | Duncan and I will be back next week with Nick Majulie, who's going to be pushing his new

00:27:11.180 | book.

00:27:12.180 | Right.

00:27:13.180 | Just keep buying.

00:27:14.180 | Right.

00:27:15.180 | Keep those questions and comments coming.

00:27:16.740 | If you want us to put the ticker back on, we will.

00:27:18.380 | Just put it in the questions and comments here.

00:27:19.380 | Yeah, just tell us if you want that clock ticking back next week and we'll make sure

00:27:22.340 | we oblige.

00:27:23.340 | If you have a question, askthecombancho@gmail.com and for your summer merch needs, Duncan just

00:27:30.060 | did a total overhaul of idontshop.com.

00:27:33.220 | We have Portfolio Rescue towels now, which I'm going to be using at the beach this summer.

00:27:36.180 | Right.

00:27:37.180 | We have a new t-shirt, a white hoodie now.

00:27:38.700 | It's looking good.

00:27:40.380 | Duncan did a good job on that.

00:27:41.380 | Yeah.

00:27:42.380 | We did it for summer.

00:27:43.380 | It's a summer shop now.

00:27:44.380 | All right.

00:27:45.380 | idontshop.com.

00:27:46.380 | We will see you next time.

00:27:47.380 | Thanks.

00:27:47.380 | Bye.

00:27:47.880 | Bye.

00:27:48.380 | Bye.

00:27:48.880 | Bye.

00:27:49.380 | Bye.

00:27:49.880 | Bye.

00:27:50.880 | Bye.

00:27:51.380 | Bye.

00:27:52.380 | Bye.

00:27:52.880 | Bye.

00:27:53.880 | Bye.

00:27:54.880 | Bye.

00:27:55.380 | Bye.

00:27:56.380 | Bye.

00:27:57.380 | Bye.

00:27:57.880 | Bye.

00:27:58.880 | Bye.

00:27:59.880 | Bye.

00:28:00.380 | (upbeat music)

00:28:02.960 | (upbeat music)

How do Series I Savings Bonds Work? | Portfolio Rescue

Chapters