Bogleheads® 2022 Conference – Accumulators Breakout Session

00:00:00.000 | (audience applauding)

00:00:03.160 | - Everyone, thank you for coming to our session.

00:00:07.600 | This is part of the accumulators track.

00:00:10.300 | I'm Karen D'Amato, and I am joined by a wonderful panel,

00:00:16.680 | starting from my right.

00:00:19.700 | Dan Egan is the Director of Behavioral Finance

00:00:23.480 | and Investing at Betterment.

00:00:25.560 | In his research, he focuses on understanding

00:00:28.560 | how our minds and our emotions work

00:00:30.720 | in order to help people make better decisions

00:00:33.160 | around their money and investing and spending.

00:00:35.980 | Next, Nick Magiuli is the Chief Operating Officer

00:00:40.600 | and Data Scientist at Rittles Wealth Management.

00:00:44.340 | He's the author of the blog of Dollars and Data,

00:00:47.880 | and author of the recently published book,

00:00:49.920 | Just Keep Buying, which he's supposed to be waving up now,

00:00:52.760 | but you can't see it.

00:00:53.860 | And he'll be just--

00:00:56.240 | - I have emotions. (Karen laughing)

00:00:58.480 | - And he'll be discussing the book tomorrow morning

00:01:01.720 | at 8.10, so set your alarms early for that one.

00:01:05.040 | And Randy Bruns is the Founder of Model Wealth

00:01:10.380 | and a Senior Financial Planner with the firm,

00:01:13.320 | which serves consumers with hourly and flat fees.

00:01:17.300 | And as an advisor, Randy works directly with clients

00:01:21.280 | who are widely varied in their ages

00:01:23.320 | and in their financial resources.

00:01:25.800 | - Thank you all for being here.

00:01:29.000 | I think the accumulator's audience is an interesting one

00:01:32.000 | because it can encompass people

00:01:34.020 | from their 20s into their 60s.

00:01:36.260 | Potentially, so an audience potentially

00:01:40.040 | of people at very different stages in their lives,

00:01:42.600 | different financial circumstances.

00:01:45.680 | And I guess the place where I wanted to start

00:01:47.760 | is sort of with a big picture issue.

00:01:50.280 | We all have lots of demands on our time

00:01:54.620 | and our attention.

00:01:56.200 | And so to set the stage, Nick,

00:01:58.200 | I was hoping you could discuss your guidance

00:02:01.560 | on where people should focus.

00:02:03.160 | So thinking about, do I focus on my income,

00:02:05.800 | my spending, saving, investing?

00:02:08.640 | How do I prioritize where I'm putting my energy

00:02:11.180 | around my personal finances?

00:02:13.360 | - Yeah, thanks, Karen.

00:02:14.920 | Thanks for everyone coming out.

00:02:16.720 | In terms of prioritizing time,

00:02:18.280 | I mean, this is a Bogleheads meetup, right?

00:02:20.720 | So we all talk about investing

00:02:22.040 | and how much should I have international?

00:02:23.760 | How do I rebalance?

00:02:24.600 | All those types of things.

00:02:26.080 | And that's very relevant for the people

00:02:27.600 | in the other room, right?

00:02:28.440 | They've done most of their accumulating already.

00:02:30.240 | Their money's already saved up.

00:02:31.900 | They're trying to go through the next 20, 30 years,

00:02:34.620 | et cetera, of their life.

00:02:36.000 | And all those little things matter a lot.

00:02:37.840 | But for people in this room,

00:02:38.960 | people are still accumulating,

00:02:40.040 | or those especially younger,

00:02:41.840 | it matters a lot less

00:02:42.960 | because you don't have all that money yet, right?

00:02:45.360 | So when I talk about, in the first chapter of my book,

00:02:48.740 | I kind of lay out this framework,

00:02:50.560 | which I call the Save and Invest Continuum,

00:02:52.000 | which basically, if you can save more money

00:02:55.440 | than your investments can earn you,

00:02:56.560 | then you need to focus on that savings part.

00:02:58.680 | And that's what this room is really about.

00:03:00.320 | And so when I talk about

00:03:01.320 | where you're gonna use your time, it's your income.

00:03:03.280 | It's like, that's everything.

00:03:04.280 | I think that's something that's downplayed

00:03:06.200 | in most of the personal finance community

00:03:07.640 | is like income, income, income, it's everything, right?

00:03:10.220 | And so people talk about savings and things like that,

00:03:13.060 | but I think you have to focus on growing your income.

00:03:15.520 | And that's like the primary way to build wealth.

00:03:18.640 | - And then that question of how much you're focusing on

00:03:21.960 | investing versus just finding those dollars to save.

00:03:25.200 | I mean, we may have people in this room

00:03:27.600 | who have already accumulated a lot

00:03:29.680 | and they're still accumulating more.

00:03:31.280 | So for them, the investing decisions

00:03:33.720 | do become more significant.

00:03:35.960 | - Yeah, they'll start to become more significant

00:03:37.800 | as your investments can actually earn you more

00:03:39.880 | than you could save in a year.

00:03:41.240 | And let's just use a simple example of this.

00:03:43.120 | You know, if you have a million dollars saved up,

00:03:45.800 | you know, a 10% returns $100,000,

00:03:47.800 | can you save 100,000 a year?

00:03:49.000 | Maybe some people in this room can, right?

00:03:50.960 | But what happens if it's 10 million?

00:03:52.160 | Can you save a million in a year?

00:03:53.240 | Most people probably can't, right?

00:03:54.560 | So you see as that investment value gets higher,

00:03:57.740 | you start to have less and less control

00:03:59.520 | over what happens to your wealth, right?

00:04:00.880 | At least with your savings side.

00:04:02.660 | So that's why I would say focus on income

00:04:04.240 | if you're especially just starting out.

00:04:06.200 | - So I wanna think about my income.

00:04:07.980 | I wanna think about getting money into savings.

00:04:10.600 | But Dan, you were telling me that one thing

00:04:12.720 | I probably don't need to bother with

00:04:14.980 | is using one of those cool apps to track all my spending.

00:04:17.680 | Like, why not?

00:04:18.560 | That seems like it should help me.

00:04:20.440 | - Yeah, so one of the more interesting elements

00:04:22.720 | of money management is how much time and effort

00:04:25.260 | you spend stressing about your money.

00:04:27.280 | It's this perversity of, like, you think you own things,

00:04:29.940 | but actually if those things require time

00:04:32.120 | and concentration and effort, they kind of own you.

00:04:34.480 | They own your attention.

00:04:35.840 | And one of the traps people can fall into

00:04:38.200 | is thinking that budgeting is about looking

00:04:40.360 | in the rear view mirror at what I spent

00:04:42.200 | and being like, oh, I overspent on takeout last month.

00:04:45.080 | Oh, I underspent on this.

00:04:47.600 | There are, like, consistent studies that show, like,

00:04:49.660 | the more that you do that, you're not gonna save more.

00:04:51.920 | You're gonna be unhappier because you're stressed

00:04:54.200 | about the fact that you're not doing better.

00:04:55.640 | And there are constant sort of escalating benchmarks

00:04:57.960 | of if you did good last month,

00:04:59.240 | you should do even better this month.

00:05:01.000 | People who are very good at saving as a process

00:05:06.320 | tend to invert the usual thing.

00:05:08.040 | They don't say, I'm gonna exert a lot of self-control

00:05:10.600 | and I will have saved money by the end of the month

00:05:12.800 | by not spending it.

00:05:14.440 | There's lots of different ways of saying this.

00:05:15.720 | Generally, pay yourself first,

00:05:17.520 | which is effectively, I make two grand.

00:05:20.500 | I know that I should be saving 500 of that when I get paid.

00:05:24.420 | I'm gonna auto-deposit it into a savings account somewhere

00:05:27.340 | so that it's not even in my checking account to spend.

00:05:30.660 | That sort of, like, top-down think about a budget

00:05:33.100 | at one point layout, very simple math,

00:05:35.900 | you know, like, one plus one plus one equals three.

00:05:38.260 | I'm gonna save 1/3 of it.

00:05:39.700 | Allows you to save systematically

00:05:41.920 | and in a way that doesn't stress you

00:05:43.620 | about what specifically you spent money on.

00:05:46.180 | Your retirement doesn't care if you spent it on cappuccinos

00:05:49.640 | or muscle cars or any other thing.

00:05:51.640 | It's just a matter of how much money did you save.

00:05:53.600 | The spending should not be something that causes you stress

00:05:56.200 | because you know you are saving enough from the outset.

00:05:58.900 | - Thank you.

00:06:00.640 | Let's talk a little bit about the investing environment

00:06:04.440 | we find ourselves in.

00:06:06.760 | So it's a year when stocks and bonds have done terribly.

00:06:11.360 | Inflation is high, it's scary.

00:06:13.640 | The economic conditions are scary.

00:06:16.960 | Bill Bernstein says that's a great market for accumulators,

00:06:21.220 | but he also said you don't know

00:06:23.820 | until you're in that bear market

00:06:25.500 | how awful it's going to feel.

00:06:28.060 | So Randy, if you could talk to us about

00:06:30.260 | when you talk to potential clients

00:06:33.180 | about investing and investing in an environment like this,

00:06:38.180 | what are you talking to them about?

00:06:40.820 | How are you trying to get them to look at the world?

00:06:43.220 | - Well, you stole my quote from Bill Bernstein this morning

00:06:46.360 | and I paraphrased him on Twitter.

00:06:48.260 | I said Bill Bernstein had said, "I would love it

00:06:51.780 | "if I were an accumulator, I'd love a market like this.

00:06:53.840 | "I would drool over it," I think is the word he was using.

00:06:56.580 | But, and it is true because if everybody in this room

00:06:59.320 | is an accumulator, volatility is good.

00:07:01.540 | It helps you buy more shares mathematically.

00:07:04.040 | You end up paying a lower share price on average

00:07:07.040 | than the very same mutual funds

00:07:09.700 | or companies you're buying into.

00:07:11.640 | But that still doesn't mean almost like a,

00:07:14.420 | something I've heard of is like you can take a,

00:07:18.460 | you can do a flight simulator, but,

00:07:22.120 | and have a good feel for what it's gonna feel like

00:07:24.800 | in a plane crash, but until you actually get

00:07:26.900 | into a plane crash, that can't simulate the feeling.

00:07:30.380 | So what we do in our firm is we remind investors

00:07:34.220 | of their timeframe, but we also make sure they know

00:07:37.380 | not just how much they need to save,

00:07:39.540 | but also that there are going to be major bumps

00:07:41.480 | along the road, and we don't say,

00:07:43.020 | "Oh, if you're in an 80/20 portfolio

00:07:44.840 | "that has historically fallen as far as 37%,"

00:07:49.360 | we actually put it in terms of dollars,

00:07:51.360 | and every meeting with our clients,

00:07:53.340 | we make sure we're the nag that says,

00:07:56.560 | "Hey, here's how much value you could lose

00:07:59.380 | "if things go south," and then things do go south,

00:08:02.240 | and they can't say we didn't warn them, and yeah.

00:08:06.600 | - Dan, what are some lessons from behavioral finance

00:08:10.280 | that'll help us act more intelligently in this market?

00:08:14.820 | - So the first one that actually I'm gonna play off of,

00:08:17.840 | which is distance and time.

00:08:20.600 | Distance and time are very powerful assets in multiple ways,

00:08:24.680 | and one of the most powerful is that when we are stressed,

00:08:28.360 | when we are scared, we make worse decisions

00:08:30.880 | that are generally more short-termist.

00:08:32.700 | We say, like, what do I need to deal with?

00:08:34.540 | Right now, I don't care about the long-term,

00:08:36.660 | I just wanna feel better in the short-term.

00:08:39.520 | One of the unfair advantages

00:08:40.900 | that a lot of accumulators are gonna have

00:08:42.400 | is that they're gonna be looking ahead 10-plus years,

00:08:45.340 | and when I log in, I remember during March of 2020,

00:08:49.240 | when it was kind of like the trough

00:08:50.920 | of the pandemic-related drop,

00:08:53.440 | I logged in and looked at my retirement plan

00:08:55.560 | that consists of, like, okay, I'm gonna keep saving

00:08:57.680 | for this many more years

00:08:59.440 | into these account sites, et cetera,

00:09:01.000 | and it said something absolutely horrifying,

00:09:03.400 | like, you're gonna spend $300 less per month in retirement,

00:09:07.800 | and I was like, oh, never mind, okay, no problem.

00:09:10.920 | I'm not stressed about that anymore.

00:09:13.440 | The more that we can remove stress

00:09:16.720 | by using distance and time as buffers between ourselves,

00:09:20.880 | the smarter decisions we make,

00:09:22.600 | and one way you can think about this is,

00:09:24.960 | Jeff Bezos has this quote that he's like,

00:09:26.760 | "If Amazon had a great quarter this quarter,

00:09:29.200 | "it's because of decisions that we made three years ago."

00:09:33.080 | Like, when you are thinking about these things,

00:09:34.520 | the decisions you make today, they roll out,

00:09:37.360 | they kind of get realized in terms of the outcomes

00:09:40.040 | years and years into the future,

00:09:41.760 | and you realize that, you think,

00:09:42.640 | I don't need to react to what's going on

00:09:44.320 | in markets right now, right?

00:09:46.200 | Like, we are planting trees.

00:09:47.700 | These things take decades to grow effectively.

00:09:50.440 | Stuff matters.

00:09:51.280 | You need to come and attend to it.

00:09:52.400 | You need to think about seasonality

00:09:53.720 | and what do I do in different seasons,

00:09:55.440 | but give yourself that relaxation

00:09:57.600 | that, like, I should not be worried

00:09:59.020 | about this quarter to quarter

00:10:00.360 | because I am sticking to a plan

00:10:02.720 | that plays out over decades.

00:10:05.180 | The more that we allow ourselves

00:10:07.120 | to have distance in time in how we make decisions,

00:10:10.840 | we make better decisions that play out better,

00:10:13.520 | and we get to say, we made an awesome decision

00:10:15.960 | three years ago, and we're bearing the benefits of it today.

00:10:18.960 | - I know, Nick, you were also saying

00:10:22.760 | you feel like people, one of the risks today

00:10:26.040 | is that people are so focused on the short term,

00:10:29.040 | which I think it feels natural.

00:10:30.480 | I mean, we're always bombarded

00:10:32.760 | with so much news and information,

00:10:35.200 | but when it's scary, I think it's,

00:10:37.520 | you pay a lot more attention to it

00:10:38.880 | than the days you look at the market

00:10:40.120 | and you say, oh, the market's up again.

00:10:41.200 | Great, and you go on with your life

00:10:42.680 | as opposed to the market is down a lot today.

00:10:44.820 | I'm gonna spend a little more time thinking about it.

00:10:47.580 | Other tips for how I can

00:10:50.280 | resist that and keep my focus where it should be?

00:10:56.200 | - Yeah, I think just like studying history,

00:10:58.440 | you start to realize how much stuff repeats itself.

00:11:01.160 | For example, recently, my sister and I went to Florence,

00:11:04.300 | and I'm not just, it's not a brag, this is relevant,

00:11:06.960 | and they had these little thing called wine,

00:11:09.600 | I know, 'cause I'm like, what the hell, yeah.

00:11:11.000 | They had these little thing called wine windows

00:11:12.640 | that apparently during the Black Plague,

00:11:14.560 | they used to sell wine and things

00:11:15.960 | out of these little windows to prevent

00:11:17.960 | face-to-face contact with people during the Black Death,

00:11:20.040 | right, 'cause it took out like,

00:11:21.520 | some cities took out 2/3 of their inhabitants,

00:11:23.520 | right, in Italy, it was really bad.

00:11:24.760 | So during COVID, they started reusing the wine windows,

00:11:28.360 | right, so you see like, history repeats in very odd ways,

00:11:30.960 | and just like, little things like that,

00:11:32.560 | little stories you find out about stuff,

00:11:34.000 | it's like, we're sitting here looking at like,

00:11:35.920 | this ticker tape moving, and it like,

00:11:37.560 | really doesn't make that much of a difference, right.

00:11:39.400 | And I really love Dan's answer about when he logged in

00:11:42.120 | in like, March 2020, and he looked and he said,

00:11:43.600 | oh, I just lost, you know, X hundred dollars a month

00:11:46.160 | in retirement, and I think a really cool,

00:11:48.160 | just easy way to think about that is like,

00:11:50.360 | for every $100 a month you wanna spend in retirement,

00:11:52.540 | that's about $30,000 in principal, right,

00:11:54.720 | using like, the 4% rule or something.

00:11:56.520 | It's not perfect, just assume that for now,

00:11:58.080 | and just trust me on that, right.

00:11:59.640 | So if that's true, if you're down, you know,

00:12:01.760 | $90,000 in your retirement account right now,

00:12:04.000 | what did you really lose?

00:12:04.960 | You lost $300 a month in retirement.

00:12:06.720 | So, and if you actually look at the retirement date

00:12:08.860 | on how people spend money in retirement,

00:12:10.520 | they don't actually, most people don't pull down principal,

00:12:12.680 | they just live off their income.

00:12:14.000 | So it doesn't matter, it's actually kind of

00:12:15.560 | very interesting what I'll talk about,

00:12:16.640 | I need to have much more money in retirement,

00:12:18.160 | this and that, everyone just lives off their income,

00:12:20.280 | no matter what that income is.

00:12:21.440 | Even the people that have no savings,

00:12:22.880 | they just live off their social security, right.

00:12:24.480 | So if you have some savings, you're ahead of them, right,

00:12:26.360 | and so you're just gonna live off whatever income you have.

00:12:28.760 | Now I'm not saying it's gonna be a great retirement

00:12:30.440 | if you don't have a lot saved,

00:12:31.400 | but you're going to make it work

00:12:33.000 | like everyone else in America

00:12:34.080 | is currently making it work, right.

00:12:35.480 | So that's one positive side.

00:12:37.080 | - There's a key kind of insight here,

00:12:40.440 | which is when you start thinking about your balance

00:12:44.040 | like a score, like in a video game or something,

00:12:46.840 | and that you just want your score to go up,

00:12:48.280 | it puts you into a very bad place.

00:12:50.400 | But when you convert it into what matters to you

00:12:52.240 | in your life, it's very easy to be de-stressed about it.

00:12:55.040 | So again, March 2020, I worked for a fintech company,

00:12:59.760 | markets were down, things were not good.

00:13:02.120 | My wife said, "Hey, just so we're clear,

00:13:03.960 | "if you get laid off, what happens?"

00:13:05.920 | And we had a very large emergency fund,

00:13:08.120 | and I was like, "At least over six to nine months,

00:13:10.240 | "we don't have to worry about anything."

00:13:12.160 | That meant that I didn't stress at my job,

00:13:13.960 | I was able to focus on the income,

00:13:15.960 | on doing what needed to be done.

00:13:18.040 | It meant that I didn't think about

00:13:19.480 | taking money out of a retirement account

00:13:21.120 | where there might be tax penalties

00:13:22.340 | and I can't put it back in.

00:13:23.720 | So the only other thing is think about setting yourself up.

00:13:26.480 | If you're worried about markets, think about why.

00:13:29.120 | Does it actually affect anything other

00:13:30.720 | than looking at a score and making you feel good?

00:13:33.380 | Or is there an impact to your life?

00:13:34.840 | And if there is an impact to your life,

00:13:36.920 | how can you hedge that or immunize it?

00:13:39.520 | How do you make it so that you don't care what markets do?

00:13:42.300 | 'Cause if you care what markets do,

00:13:44.120 | and it's not just 'cause it's a score,

00:13:45.880 | you're in a risky position and you wanna focus on that

00:13:48.520 | as almost a financial planning thing to do.

00:13:50.880 | How do I not care about markets?

00:13:53.120 | - So I appreciate your point about the emergency fund.

00:13:56.960 | Part of what it is buffering me from

00:13:58.880 | is making a short-term decision

00:14:02.080 | that might not be the right one for the long-term.

00:14:05.480 | I feel like emergency funds,

00:14:07.240 | that's one of the pieces of advice you always hear,

00:14:10.280 | and I think there are a lot of people who don't do that.

00:14:14.360 | So how much of an emergency fund

00:14:18.240 | do you recommend people have and where do you put it?

00:14:22.920 | And I'm just wondering if we're all in agreement here

00:14:25.960 | on the magnitude of that.

00:14:28.000 | - So studying for the CFP exam,

00:14:33.320 | I always remember they said,

00:14:34.560 | have somewhere between three to six months of spending

00:14:38.840 | in an emergency fund.

00:14:40.560 | And it would be six months

00:14:41.800 | if it was just one sole income earner

00:14:43.840 | or one of the earners had less than stable income.

00:14:47.640 | But we would typically recommend three to six months.

00:14:51.440 | In most cases, we would definitely put it in

00:14:55.160 | like the highest FDIC-insured savings account

00:14:58.520 | you can find that's still accessible.

00:15:00.560 | I personally have my checking account through Chase Bank,

00:15:03.080 | which is a phenomenal bank if you live in the Chicago area,

00:15:06.000 | but it's horrible when it comes to the interest rates

00:15:08.920 | they pay on savings, almost offensive.

00:15:11.120 | So I chose Ally for its online savings account,

00:15:14.760 | and don't wait for a Chase banker to remind you of this,

00:15:17.280 | but you can actually link external accounts

00:15:20.200 | where I don't even go to Ally anymore.

00:15:21.960 | I just go to Chase to move money in

00:15:23.880 | or out to Ally back and forth.

00:15:26.800 | But I also think having an emergency reserve

00:15:28.800 | plays into your risk tolerance during tough times,

00:15:31.720 | because we can look at our investors and our clients

00:15:34.680 | and say, you have to spend through this

00:15:37.760 | before you'd even get to that.

00:15:39.760 | And so if somebody has afforded themselves

00:15:42.320 | a lower required return,

00:15:45.600 | we would agree if they need a bigger savings account,

00:15:49.080 | because the savings account at the end of the day

00:15:50.400 | is just going to follow inflation.

00:15:51.720 | You're not going to beat inflation.

00:15:53.520 | But if they've afforded themselves the ability

00:15:56.200 | to have an overabundance of recommended cash and savings,

00:15:59.880 | if that allows them the peace of mind

00:16:01.360 | to ride out a down year like this, we're all for it.

00:16:04.360 | - So yeah, the only thing on emergency fund,

00:16:11.000 | I agree with that.

00:16:11.840 | I think it's also very individualized.

00:16:13.320 | Every person's different.

00:16:14.640 | I'm guessing many of you know Morgan Housel,

00:16:16.800 | psychology of money, he wrote the book.

00:16:18.320 | He's 25% cash and he's been like this

00:16:20.600 | before he had a bestselling book, like he was 25% cash.

00:16:23.480 | So it's like, and he's like, I sleep great at night.

00:16:26.280 | I'm never going to change that.

00:16:27.400 | So I think that's way too high of an allocation personally,

00:16:30.680 | but that's, everyone's each their own.

00:16:32.320 | So don't feel bad if you have like,

00:16:33.880 | oh, I want to have two years of emergency cash.

00:16:35.640 | Like, I think Bill Gates,

00:16:37.000 | when he was running Microsoft early,

00:16:38.200 | had at least what, 12 months or 24 months of cash,

00:16:41.400 | you know, when he was running the company.

00:16:42.520 | He's like, I want to be able to say

00:16:43.360 | if we got no more money coming in the door,

00:16:44.680 | I can pay my employees for at least a year or so.

00:16:46.800 | So like, there's different ways of thinking

00:16:48.480 | about risk management, but yeah.

00:16:50.520 | - So when we look at the people

00:16:52.000 | who are attending the conference, if you're here,

00:16:54.600 | you are probably pretty darn serious about investing,

00:16:58.640 | about thinking about your personal finances,

00:17:01.120 | about saving in your 401k and doing other things

00:17:04.800 | you know you should looking ahead to the longterm.

00:17:08.560 | Randy, what are some of the things

00:17:10.800 | that people may be less likely to focus on

00:17:14.800 | because they're awkward and painful

00:17:18.480 | and difficult to even talk about?

00:17:21.680 | - I love this question because it's one thing

00:17:24.400 | to build a financial plan

00:17:25.960 | based on everything going as expected,

00:17:28.440 | but then something doesn't go as expected.

00:17:31.000 | And this might be an estate plan for a young family

00:17:35.120 | or even if you don't have kids yet,

00:17:37.640 | you should, everybody, every adult

00:17:39.800 | should have an estate plan

00:17:40.800 | just to know who makes your health decisions.

00:17:43.120 | If God forbid you end up in a hospital

00:17:45.200 | or who manages your finances

00:17:46.920 | if God forbid you end up in a hospital.

00:17:49.360 | Having term life insurance in place,

00:17:51.920 | whether it's before you have children

00:17:54.440 | or if you ever plan to have anybody dependent

00:17:56.720 | on your income, get a term life insurance policy

00:18:00.200 | immediately while you're healthy.

00:18:02.880 | Long-term disability.

00:18:03.960 | It's all based on, everything in accumulation

00:18:07.920 | is based on your ability to save,

00:18:09.560 | which starts with your ability to earn an income.

00:18:11.800 | And if you suddenly can't earn an income,

00:18:14.720 | as I learned in March of 2020, day one of COVID,

00:18:18.720 | I thought I had COVID.

00:18:20.200 | I ended up collapsing in the shower.

00:18:22.160 | My wife drove me to the, or my wife drove me,

00:18:24.760 | the ambulance took me to the hospital

00:18:27.000 | and I found out like, I was in the hospital all day long.

00:18:31.000 | I found out at about 4.30 that night

00:18:33.000 | that I had a tumor on my brain.

00:18:34.680 | And because it was day one of COVID,

00:18:37.160 | I couldn't go home.

00:18:38.000 | They said, we don't know

00:18:38.840 | what the hospital is gonna look like.

00:18:41.080 | If you're even gonna be back in here,

00:18:42.480 | we would suggest you get it removed immediately.

00:18:44.720 | So that was Thursday, March 12th, day one of COVID.

00:18:48.560 | And on Saturday, March 14th, I had surgery.

00:18:52.600 | So, and if I didn't have Alex here,

00:18:54.960 | who's my partner at the office,

00:18:57.880 | he pretty much saved our practice

00:19:00.560 | from what could have been financial ruin

00:19:02.600 | just because it's not like COVID just hit

00:19:04.760 | and everything else was a breeze,

00:19:07.920 | but the stock market fell 30 plus percent

00:19:10.520 | that sharp period of time.

00:19:12.120 | And if I didn't have a long-term

00:19:13.400 | disability insurance policy in place,

00:19:15.560 | I would have had to sell,

00:19:17.120 | or didn't have a savings account in place,

00:19:19.320 | I would have had to sell from assets

00:19:21.920 | that were sharply down in value

00:19:24.040 | and they wouldn't have been there

00:19:24.880 | for the ensuing recovery,

00:19:26.200 | which is everybody in this room knows was extremely sharp.

00:19:30.200 | So, we are professional nags at making sure

00:19:35.840 | that those areas like having an emergency savings,

00:19:38.800 | having a term life insurance,

00:19:40.120 | getting an estate plan,

00:19:41.960 | and having long-term disability insurance,

00:19:43.760 | which most employers provide,

00:19:46.040 | those are the things that are very easy to overlook

00:19:49.080 | and say, well, it'll never happen to me.

00:19:51.040 | I mean, I'm not gonna say I knew,

00:19:52.680 | I didn't own long-term disability insurance

00:19:54.760 | because I knew for some reason

00:19:56.200 | I was gonna get a brain tumor,

00:19:58.080 | but I knew the financial implications

00:20:01.440 | of something like that so catastrophic happening.

00:20:05.000 | - Yeah, I was just thinking as you were saying that,

00:20:07.120 | and I have to say thank you for sharing that.

00:20:08.840 | Obviously, that really brings home

00:20:11.560 | the things that can happen to any of us so suddenly,

00:20:15.680 | and that is why we make plans.

00:20:18.600 | But I was also just thinking,

00:20:19.760 | when talking about estate planning,

00:20:21.880 | that is a phrase that has a bad name

00:20:25.080 | because you think, well, it's about estate planning,

00:20:27.160 | it's about dying, so I'm not gonna think about it,

00:20:28.920 | and I'm not gonna die right now, I'm young.

00:20:30.960 | But if you go to an estate plan

00:20:33.960 | or all those other documents,

00:20:36.520 | the healthcare proxy, the living will,

00:20:40.680 | your powers of attorney, I mean,

00:20:43.520 | those are not about when you're dying,

00:20:46.200 | they're about now if something happens to you

00:20:49.120 | and you were temporarily incapacitated.

00:20:51.840 | And so I think if we thought about it

00:20:53.800 | as like critical legal documents

00:20:56.040 | as opposed to just estate planning,

00:20:58.000 | maybe a few more people would focus on it.

00:21:02.120 | - Dan, I wanted to ask you from--

00:21:03.880 | - Hey, Karen. - Yes.

00:21:05.280 | - So one last thing on the estate plan.

00:21:07.160 | So I have an almost six-year-old and a four-year-old

00:21:10.400 | that, like, my wife and I got an estate plan

00:21:15.360 | because we didn't know, if we didn't have an estate plan,

00:21:19.200 | who would raise these kids if we weren't around?

00:21:21.360 | I have two brothers, she has two sisters.

00:21:23.600 | I don't trust either of my brothers to raise my kids.

00:21:26.760 | Her older sister, not a chance.

00:21:29.440 | But her younger sister is the greatest person ever

00:21:34.440 | to raise our two kids and her fiance,

00:21:37.680 | but they're not great with money.

00:21:39.720 | And so the person that you name

00:21:41.980 | as a guardian for your children

00:21:43.440 | may not be the person who you appoint

00:21:45.600 | as somebody who is the guardian of your finances, basically.

00:21:49.800 | - And there are benefits, also,

00:21:50.980 | just from a separation of powers, checks and balances,

00:21:54.400 | to having those be different people, I think, too.

00:21:56.720 | - I think so, yeah.

00:21:58.480 | - Dan, are there lessons from behavioral finance

00:22:01.520 | that would help me, any of us,

00:22:04.600 | actually carry through on all these things

00:22:07.240 | that we need to do?

00:22:08.680 | You know, the things that are sort of fun to focus on

00:22:11.160 | in personal finance and the things that are just chores,

00:22:14.600 | what can I do to help myself get everything done?

00:22:19.340 | - Well, there are great things.

00:22:20.880 | So my favorite is what's called temptation bundling,

00:22:24.700 | which is that, and I started doing this

00:22:27.440 | before I knew there was a term for it.

00:22:28.560 | When I was in college, I would go into the library

00:22:31.440 | when I had to study for a test,

00:22:32.520 | and on the way in, I would buy myself

00:22:34.420 | four York peppermint patties.

00:22:37.000 | And I'm allowed a York, I put them in front of me,

00:22:39.560 | and I was allowed one of them

00:22:40.600 | once I had studied for 45 minutes.

00:22:42.240 | I didn't smoke cigarettes, but I would go outside

00:22:44.120 | and I would eat a York peppermint patty.

00:22:45.960 | It was exactly like the commercial, so refreshing.

00:22:48.380 | (audience laughing)

00:22:51.120 | So it's been simple, but set this up

00:22:54.160 | so that it is bundled with a reward.

00:22:57.320 | Me and my wife have a thing,

00:22:58.240 | we have it regularly in the calendar.

00:23:00.720 | We usually have date nights,

00:23:01.920 | and I think it's like once a quarter.

00:23:03.380 | We have admin night, and we go out and we have a beer

00:23:07.120 | and we look at spreadsheets together

00:23:08.640 | and we talk about what's right, what's not right.

00:23:11.400 | Are we thinking about everything okay?

00:23:13.000 | And that night is a nice thing because at the end of it,

00:23:15.720 | I'm allowed to go to the really fancy,

00:23:17.900 | silly hipster cocktail bar and get a nice drink

00:23:20.380 | and say I've done my job, now I get a reward for it.

00:23:23.720 | Use technology for planning it out, doing it regularly.

00:23:26.340 | If you're thinking about it, if you're doing it ad hoc,

00:23:28.800 | I'm probably not gonna do it, but when I have number one,

00:23:31.760 | it in the calendar and in the calendar with someone else,

00:23:34.200 | we can go do it together.

00:23:35.120 | You can do this even if it's, you know,

00:23:36.800 | you're not gonna go to the bar

00:23:38.260 | and go over finances with your buddy,

00:23:39.880 | but you can both go to the bar and say

00:23:40.760 | we're gonna do this thing,

00:23:41.600 | and at the end of it we'll be able to chat.

00:23:43.440 | Do it with somebody else.

00:23:44.440 | Make it something that's a recurring activity

00:23:46.120 | with somebody else so that you kind of

00:23:47.200 | hold each other accountable, just like going to the gym.

00:23:50.720 | - Thank you.

00:23:52.320 | Thinking about bundling,

00:23:53.560 | not quite York peppermint patties, maybe.

00:23:55.880 | Nick, tell us about your, is it the two times rule?

00:23:59.220 | Do I have that right?

00:24:00.300 | - It's the two X rule, but basically,

00:24:03.300 | I think this is really relevant for bogleheads

00:24:05.260 | because I was just having lunch with some people I met,

00:24:07.980 | and the big problem for all of us is,

00:24:10.660 | you know, we talk about, you know,

00:24:11.600 | most Americans don't have $400 to meet,

00:24:13.980 | you know, some random expense, right?

00:24:15.820 | That's not the problem for people in this room,

00:24:17.340 | people in that room, right?

00:24:18.620 | It's, for most of us, it's gonna be like

00:24:20.220 | spending down our money, and so I think the real issue

00:24:22.940 | and the stuff I kind of write about is like, you know,

00:24:25.180 | people are disciplined or saving money over time,

00:24:27.000 | it's like, how do you spend money without guilt?

00:24:28.640 | And a lot of people,

00:24:29.720 | especially if you're really good at saving,

00:24:31.520 | you're by definition, probably not great at spending.

00:24:34.040 | I mean, all is equal, right?

00:24:35.240 | So the question is, how can we get over that guilt?

00:24:37.680 | And there's a lot of different ways to do it.

00:24:38.840 | One rule I came up with is like, I call it the two X rule.

00:24:41.800 | So if you wanna go splurge on something,

00:24:43.440 | you feel bad about that, like, you know,

00:24:46.400 | let's say it's gonna cost, you know,

00:24:47.600 | let's say you wanna take yourself out to dinner,

00:24:48.920 | you're gonna go out to dinner, you're gonna spend like $400,

00:24:50.800 | you're gonna spend like a lot of money,

00:24:51.960 | like a really, you're gonna buy a nice bottle of wine,

00:24:53.480 | whatever you're gonna do, right?

00:24:55.300 | You should save another 400, two X,

00:24:57.380 | and take that other 400 and invest it in something,

00:24:59.940 | you know, S&P 500 index,

00:25:01.340 | or income producing assets of some other sort,

00:25:03.660 | or you could even donate the other 400.

00:25:05.460 | If you feel like, oh, I'm gonna spend it

00:25:06.740 | instead of being selfish and just thinking about myself,

00:25:08.580 | I'll donate the other 400.

00:25:09.580 | So it's these little simple rules.

00:25:11.560 | I mean, they're not anything crazy.

00:25:13.460 | I have no data that shows that they work,

00:25:15.400 | so I can't really back that,

00:25:16.580 | but all I can say is like,

00:25:17.780 | it's these little heuristics that I like to use,

00:25:19.980 | and I know other people have found useful

00:25:21.720 | if you're trying to spend money.

00:25:22.660 | So I'm just trying to get rid of spending guilt,

00:25:24.380 | 'cause I think there's a lot of people

00:25:25.420 | that have a lot of guilt around spending money,

00:25:27.580 | especially in this community

00:25:28.700 | where we're very good at accumulating, obviously.

00:25:31.740 | - We're very good at guilt.

00:25:32.900 | (laughing)

00:25:34.260 | - This is very true.

00:25:35.420 | Nick said it in passing earlier,

00:25:36.780 | but I think it's worth coming back to.

00:25:38.700 | The vast majority of retirees

00:25:40.900 | don't spend down their balance

00:25:42.340 | 'cause it feels bad to see it going down.

00:25:45.180 | Vanguard actually has, I believe it's called

00:25:46.580 | a managed payout fund.

00:25:47.820 | That's a fund that's meant to act like an annuity.

00:25:50.140 | You are meant to spend whatever payments you get from it,

00:25:53.340 | and people take those payments

00:25:54.740 | and they reinvest about 25% of them back into the fund,

00:25:57.980 | which is extremely frustrating for the fund manager

00:26:01.020 | who's like, you are using my product wrong.

00:26:03.060 | Why are you doing this to me?

00:26:04.460 | I don't want inflows.

00:26:05.500 | Stop it.

00:26:06.980 | One of the things that we've seen,

00:26:08.440 | so this is not a plug, it's just an explanation.

00:26:11.540 | At Betterment, you can use goals.

00:26:12.980 | You can say like, this is the thing that I want for this.

00:26:15.340 | This is my vacation fund.

00:26:17.420 | This is my nice new car fund,

00:26:19.660 | or a goal or whatever it is.

00:26:20.980 | And bookmarking things is like,

00:26:22.940 | this is the purpose of this money

00:26:24.980 | does a great deal to remove this kind of guilt

00:26:27.340 | because it's like, I saved up for,

00:26:30.040 | a really common one is a Tesla, for some reason.

00:26:32.500 | And it's like, I saved up for the Tesla,

00:26:34.560 | and now I have all this money,

00:26:36.260 | but it's in the Tesla.

00:26:37.340 | The entire purpose of this money

00:26:39.400 | is to fulfill this real life thing.

00:26:41.380 | It's not to just have the balance go up.

00:26:43.300 | And so, do it however you want.

00:26:46.780 | Set up a whole bunch of different savings accounts,

00:26:48.540 | whatever it is, it's a pain in the butt logistically,

00:26:50.780 | but put labels on things.

00:26:52.780 | So you say like, when I spend this,

00:26:54.660 | it's not gonna feel bad

00:26:55.500 | because the entire purpose of this account

00:26:57.740 | was my 10 year anniversary trip to wherever.

00:27:01.400 | - And Randy, how do you handle that with clients

00:27:05.140 | when clients are saving for multiple goals?

00:27:08.700 | They're saving for buying a house,

00:27:10.380 | they're saving for college,

00:27:12.060 | they're saving for retirement,

00:27:13.580 | they're saving for the home addition they're planning.

00:27:15.860 | How do you recommend that they manage that?

00:27:19.340 | - So what we do is we make sure

00:27:20.980 | that their emergency reserve is covered.

00:27:23.740 | And then we also make sure

00:27:24.980 | that they're putting away enough for retirement,

00:27:26.900 | and it's in very simple, low cost investments.

00:27:29.500 | But I remember one particular client who was,

00:27:33.860 | she was probably 31 at the time,

00:27:36.900 | but she was gonna buy a home in the next five years.

00:27:39.580 | And we made it very clear to her

00:27:41.580 | that the growth of the portfolio is not so important,

00:27:45.580 | anywhere near as important as the confidence you can have

00:27:49.260 | that those funds will be available in five years.

00:27:52.660 | And Nick, I think you mentioned this in your book, right?

00:27:55.220 | Here's a plug, a shameless plug for Nick's book.

00:27:59.220 | But anyways, like, it was five years down the road,

00:28:02.540 | she was putting money in on a monthly basis.

00:28:04.660 | And we, it also wasn't like something

00:28:08.860 | that she was dead set on, it has to be bought in five years.

00:28:12.860 | So she had some wiggle room,

00:28:14.420 | but we just, she was putting money in on a monthly basis.

00:28:17.020 | We recommended the Vanguard Wellesley Income Fund.

00:28:19.620 | But if it was something that they were going to use

00:28:22.540 | within two years, or even less than three years,

00:28:25.460 | we would quantify the value of it,

00:28:27.580 | work the math backward, assume a 0%,

00:28:29.940 | if not a negative 1% or negative 2% return

00:28:32.940 | relative to inflation,

00:28:34.060 | because that's the cost of short-term safety and liquidity.

00:28:37.260 | And then we just make sure

00:28:39.300 | that they manage to that goal, basically.

00:28:43.740 | - One of the things I want to talk to you about,

00:28:46.580 | sort of the flip side of feeling so guilty

00:28:49.180 | that you don't actually spend, is lifestyle creep.

00:28:52.760 | You know, the shared apartments and the hostels

00:28:56.500 | on vacation are great when you're in your 20s,

00:28:58.700 | but at some point down the road,

00:29:00.020 | you probably want to use your raises to have a bigger house,

00:29:04.740 | live in a different lifestyle.

00:29:07.420 | How do I figure out if I'm in a comfortable place,

00:29:13.060 | not spending too much?

00:29:16.340 | I mean, how do I make sure

00:29:18.840 | I don't let my lifestyle get out of hand?

00:29:22.100 | - So, I think a lot of personal finance experts,

00:29:27.860 | especially in, you know, Boglehead's community,

00:29:29.840 | may say things like, you know,

00:29:30.940 | oh, we don't want your lifestyle to creep,

00:29:32.500 | just save all your raises, et cetera.

00:29:35.140 | I actually wanted to test that,

00:29:36.460 | so I've written a blog post about this,

00:29:38.460 | it's in the book as well.

00:29:39.820 | Basically, long story short,

00:29:41.300 | you have to save like half of your raises, more or less.

00:29:43.860 | And actually, for people who have a very high savings rate,

00:29:46.780 | you actually have to save more of your raises

00:29:49.020 | to kind of end up at the same place, right?

00:29:51.620 | You can imagine someone in equilibrium,

00:29:53.100 | imagine you're saving now,

00:29:53.940 | you know you're gonna retire at 65,

00:29:55.580 | you're saving whatever you're saving, right?

00:29:57.580 | And then you get this positive shock to your income,

00:29:59.260 | you'll get a raise, it's a good thing, right?

00:30:01.380 | If you want to spend the same amount of money

00:30:04.040 | through the rest of your life and in retirement, right?

00:30:05.940 | Remember, you're already on your equilibrium path.

00:30:08.080 | The question is, when you get that extra money,

00:30:10.180 | if you spend it all now, when you hit retirement,

00:30:12.060 | you have to drop your spending again, right?

00:30:14.980 | So you can imagine that already.

00:30:16.180 | So the question is, you always have to spend less of it

00:30:18.900 | to kind of, you can raise your lifestyle a little bit,

00:30:21.060 | but then you can save the rest

00:30:22.140 | and you can still retire at the same date, right?

00:30:24.380 | 'Cause if you spend all of it, or more than all of it,

00:30:27.100 | you'll have to retire later.

00:30:28.060 | You can just think about that logically.

00:30:29.500 | But long story short, basically,

00:30:31.420 | if you run all these simulations,

00:30:32.540 | different savings rates and all this,

00:30:34.540 | you have to save basically half your raises,

00:30:36.020 | which ironically fits really well with the 2X rule,

00:30:38.140 | so it's easy to remember.

00:30:39.340 | I did, the math just panned out that way.

00:30:41.580 | I did not plan on that.

00:30:42.860 | But yeah, so that's what I would say.

00:30:45.140 | Like, I've looked at it,

00:30:45.980 | and I think you can do like half your,

00:30:47.460 | so if you get a raise after a tax income of $1,000,

00:30:49.940 | you can spend an extra $500 a month, enjoy that,

00:30:52.380 | but you have to save the other 500

00:30:53.780 | to stay on track to whatever path you're on.

00:30:56.420 | So, I don't know if anyone wants that.

00:30:59.020 | - The only thing I'd throw in there

00:30:59.860 | is that there's a sort of,

00:31:02.340 | if you go hard in the early parts of your career,

00:31:05.500 | you can have a really easy latter part of it.

00:31:08.460 | Meaning, if you do like 75% of every raise

00:31:12.180 | up until the time you hit like 32, 33,

00:31:15.460 | number one, all that money's going into the market earlier,

00:31:18.060 | more time to grow, et cetera, et cetera.

00:31:20.380 | It also keeps your lifestyle low

00:31:22.100 | up until that point in time.

00:31:23.460 | Generally, right around then

00:31:25.500 | is when you are at very, very high risk

00:31:27.660 | for a certain set of liabilities called a family.

00:31:30.700 | And your ability to save escalates

00:31:33.220 | without your ability to control it.

00:31:35.260 | And you're like, how did afterschool cost this much?

00:31:37.860 | Why does this happen?

00:31:38.940 | But once you, like, if you go hard in the beginning,

00:31:42.340 | all of a sudden you'll find yourself in this middle zone,

00:31:44.020 | you'll spend money on family,

00:31:45.340 | you'll come out of it, let's say 18, 20 years later.

00:31:47.980 | You'll feel okay, and you'll know then

00:31:50.860 | that like because you went hard early,

00:31:52.340 | you have an easy life now.

00:31:54.180 | And you can adjust them.

00:31:56.020 | That's the thing.

00:31:56.860 | You're giving yourself the option to say,

00:31:58.220 | I'm not gonna be stressed

00:31:59.860 | when I come out of the family liability situation.

00:32:02.580 | If you go into it stressed,

00:32:04.580 | you're probably gonna come out of it stressed.

00:32:06.060 | You can always adjust later easily

00:32:08.340 | to say, like, I'm gonna spend more money

00:32:09.940 | 'cause I have too much.

00:32:10.900 | That's a very good problem to have.

00:32:13.180 | The other way is not a very good problem to have.

00:32:15.100 | So go hard when you're younger.

00:32:16.660 | It'll make later life easier.

00:32:18.860 | - Most people, when they say that,

00:32:19.940 | they're not actually talking about saving, but.

00:32:22.100 | (laughing)

00:32:24.700 | - Sure.

00:32:25.900 | - Let's talk a little bit about real estate

00:32:28.300 | and home ownership.

00:32:30.140 | Because you will have people in the accumulator stage

00:32:32.580 | who may be making that first home purchase.

00:32:37.340 | What do you advise people

00:32:39.100 | in looking at the real estate market?

00:32:41.860 | How do I decide if this is the time to buy

00:32:45.820 | and how do I do it smartly?

00:32:48.060 | - So one of the biggest things here, I think,

00:32:52.460 | is try and figure out where your private values

00:32:56.180 | most diverge from public values.

00:32:59.460 | By which I mean you are investing in something

00:33:01.900 | that is your home.

00:33:04.420 | You will live in this thing.

00:33:06.020 | It is where you will spend most of your non-waking hours

00:33:09.340 | and a fair share of your waking hours.

00:33:11.580 | The important thing, everybody,

00:33:12.740 | there's a common price for a house.

00:33:14.060 | It's like, how much is this price worth?

00:33:15.580 | That's what it's worth to some sort of median person.

00:33:18.740 | You will find the best house for you

00:33:20.220 | by thinking about how am I different than most people?

00:33:23.260 | How am I different than the median person?

00:33:24.380 | What matters to me that doesn't matter to them

00:33:27.060 | and what doesn't matter to me that does matter to them?

00:33:29.820 | Real quick example, the apartment that me and my wife

00:33:31.960 | ended up with is not near a subway in New York City.

00:33:35.220 | That is fine.

00:33:36.060 | We love biking.

00:33:36.900 | We live near the river.

00:33:37.820 | We're able to come up and say,

00:33:39.260 | there's a lot of stuff about this apartment.

00:33:40.860 | It doesn't have a washer-dryer in it.

00:33:42.920 | That's not a problem for us.

00:33:44.940 | When you're looking at a home,

00:33:45.780 | the most important thing is, again, to say,

00:33:47.500 | this is my house.

00:33:48.980 | Let me try and go out and find a house

00:33:50.740 | that is most undervalued, to me, in the market.

00:33:54.660 | And that means looking at a house

00:33:55.740 | that is gonna be not cookie-cutter,

00:33:57.780 | not sort of conventional in some way.

00:33:59.500 | It should be different, and that different

00:34:00.820 | is gonna be right for you.

00:34:02.100 | - Yeah, I love that answer.

00:34:05.460 | Only thing I'd add is, I actually don't think

00:34:07.300 | it's as much of a, trust me, it's a huge financial decision,

00:34:10.180 | but I think it's much more of a personal decision.

00:34:11.900 | Like, is this the right time for me to do this?

00:34:13.860 | Should I be, you know, is your professional life

00:34:16.100 | kind of settled or mostly settled,

00:34:18.380 | and is your personal life settled, right?

00:34:19.740 | If you're single, do you wanna be buying a house

00:34:21.660 | to then sell it in a couple of years

00:34:22.980 | and then have to go out and buy another one, right?

00:34:25.340 | It's just, you don't wanna pay those transaction costs,

00:34:27.140 | right, it's usually like, what, 6%,

00:34:29.020 | I mean, when you include all the fees and everything.

00:34:30.660 | So, that's the one thing I would say there.

00:34:32.580 | And in terms of right now with how things are,

00:34:35.260 | with rates as high as they are,

00:34:36.420 | so like, payments are a lot higher,

00:34:37.700 | so unless home prices come down,

00:34:39.940 | you're not gonna be able to get the same payment

00:34:41.220 | that you could've got a year ago

00:34:42.180 | for the same size house, right?

00:34:43.900 | So, it's gonna be interesting to see

00:34:45.300 | what happens in the next year.

00:34:46.780 | - And I can say, I agree that if you buy a house,

00:34:52.500 | you don't buy it for financial reasons.

00:34:54.140 | You buy it because you want to plant your roots there.

00:34:57.100 | I specifically, and my wife specifically,

00:34:59.180 | we're looking for a tall trees, fat squirrels neighborhood

00:35:01.620 | that looks like it had been there a long time.

00:35:04.380 | Our house is 103 years old,

00:35:06.100 | which brings up a whole other set of issues.

00:35:09.580 | But these issues, so, and this is gonna tie back

00:35:12.900 | to the emergency reserve or just having cash on hand,

00:35:16.980 | we finally decided to replace seven windows in our house,

00:35:20.220 | and they cost, everybody knows,

00:35:21.780 | windows are ridiculously expensive.

00:35:23.860 | So, it cost us $18,000,

00:35:26.260 | which we had prepared for,

00:35:28.700 | but what we did not prepare for was our AC unit

00:35:31.900 | going out on the hottest day of August that year,

00:35:35.860 | and then our hot water,

00:35:37.140 | our tankless hot water heater went out.

00:35:38.900 | So, we altogether, that was a $29,000 burden

00:35:43.020 | that we, 18,000 of which we planned for,

00:35:46.700 | 29, the extra 11,000 we did not plan for,

00:35:50.180 | but we had a buffer.

00:35:51.260 | So, and that's something that, an example we use with,

00:35:54.860 | we have an individual that,

00:35:56.300 | a couple that we worked with a few years ago,

00:35:59.020 | who only one of them was working,

00:36:01.420 | they were living, they were renting,

00:36:02.980 | and they just felt like,

00:36:03.940 | they were 31 and 30 years old,

00:36:05.540 | and they just wanted to no longer rent,

00:36:07.220 | and we said, "Well, why?"

00:36:08.740 | So, first of all, they didn't have any savings.

00:36:10.940 | They woulda had, she was a veterinarian's technician

00:36:14.340 | or whatever, she would qualify for a doctor's loan,

00:36:16.900 | which allowed her to put only like, you know,

00:36:18.960 | however much down, a very small down payment,

00:36:21.940 | and then she didn't have to pay private mortgage insurance,

00:36:25.320 | and we just said, "No, do not do that.

00:36:27.180 | "What if your furnace breaks?"

00:36:28.720 | So, we talked them out of it, thankfully,

00:36:31.340 | but that's a big, big concern, too.

00:36:34.100 | Renting is fine.

00:36:35.580 | - I have one more thing that I think's interesting,

00:36:39.980 | and nobody thinks about it the right way.

00:36:41.980 | You generally don't wanna be

00:36:46.420 | the least well-off person in your neighborhood.

00:36:50.540 | You will be unhappy there,

00:36:51.940 | 'cause you will be constantly comparing yourself

00:36:53.980 | to your neighbors.

00:36:55.080 | It's tricky, 'cause that's usually associated with,

00:36:57.180 | but I wanna get my kid into the good school,

00:36:59.620 | something like that, there are other factors,

00:37:01.520 | but do you think about, like,

00:37:04.240 | the neighborhood that I am buying a house in,

00:37:07.340 | am I gonna feel good living here,

00:37:10.200 | or am I gonna feel unwelcome,

00:37:11.900 | or like I am not as, you know, I'm not spending as much,

00:37:14.700 | and like, just drive around.

00:37:15.800 | What kind of cars are people,

00:37:17.220 | are they displaying their cars out there?

00:37:19.540 | You know, like, what do the houses look like?

00:37:22.460 | Being aware of what it's gonna feel like

00:37:24.260 | to live in a neighborhood in terms of what the houses,

00:37:26.700 | and it feels like money-wise, is actually important.

00:37:29.980 | Be at the upper end of that, not the lower end.

00:37:32.340 | - Because also, if you're at the lower end,

00:37:36.140 | and you are very aware of that, that's another thing,

00:37:38.900 | that's the other lifestyle creep pressure,

00:37:41.340 | and it's not even fun, it's that pressure

00:37:43.500 | to keep up with the Joneses.

00:37:45.380 | - Absolutely.

00:37:48.140 | - One thing we haven't talked about yet is debt.

00:37:51.060 | So there will be some people in the Accumulator audience

00:37:54.420 | who may be early in their careers,

00:37:56.500 | may actually be earning substantial salaries,

00:38:00.780 | but are starting from a point of having significant debt,

00:38:04.420 | as well, from their education.

00:38:06.260 | Randy, how do you work with those clients,

00:38:09.940 | and what are some of their particular issues?

00:38:12.540 | - Well, so being an hourly-based firm,

00:38:14.340 | we do cater to a lot of recent college graduates

00:38:17.380 | who are buried in college debt,

00:38:19.820 | still haven't saved up for a sufficient amount

00:38:22.620 | in an emergency reserve.

00:38:23.860 | They want to save for a down payment on a house.

00:38:26.500 | They also are, you know, they wanna save for retirement

00:38:30.980 | because what's the most precious commodity

00:38:33.620 | that any young saver has,

00:38:35.260 | versus everybody in that room, is time.

00:38:38.140 | So I think we help people prioritize,

00:38:43.020 | and definitely if you have high-interest credit card debt,

00:38:45.540 | if you're paying 19%, that's not doing any good.

00:38:49.380 | So pay off the credit cards first.

00:38:51.420 | But I'd say, like, the debt pay down

00:38:53.460 | versus saving for a down payment on a new home,

00:38:57.220 | and then we have, like, with student loan forgiveness,

00:39:01.740 | I think that's a pretty complex answer

00:39:05.500 | that's gonna be very specific to each individual,

00:39:09.660 | but we would prioritize at least saving

00:39:11.580 | to your 401(k) up to the company match,

00:39:14.420 | and then pay off any high credit card debt,

00:39:16.500 | because again, paying interest in the teens is,

00:39:20.060 | I mean, it's basically getting a 15% return

00:39:22.660 | once that's down, or paid off.

00:39:25.480 | But I don't have a specific answer,

00:39:27.100 | because everything we do is very much case study

00:39:29.220 | specific to each individual.

00:39:31.220 | - Got it.

00:39:32.060 | I think we'll take a moment now

00:39:34.100 | and see if people in the audience have questions

00:39:36.420 | they'd like to ask the panelists.

00:39:37.940 | I'll bring our microphone down,

00:39:40.660 | or I'll let Rick bring the microphone down.

00:39:44.620 | (microphone thuds)

00:39:47.540 | - Thank you all.

00:40:05.620 | I've got a question that might be a bit of a math-ma

00:40:08.100 | to the crowd here, but what are your thoughts

00:40:10.580 | of sort of platforms like SeedInvest, WeFunder,

00:40:15.580 | that allow people to invest small amounts of money

00:40:19.900 | into private companies, and also the proliferation

00:40:22.740 | of ads, at least, of fractional art, fractional cars,

00:40:25.640 | and all that kind of stuff as an asset class?

00:40:27.940 | - So I've done some of these things.

00:40:31.980 | I've done something with WeFunder,

00:40:33.340 | and I've also, I do own some art.

00:40:35.340 | I have a partnership with them,

00:40:36.260 | so I will not mention the name of the company,

00:40:37.780 | but you can probably guess who it is.

00:40:38.980 | So I think that should be a very small portion

00:40:41.580 | of your portfolio.

00:40:42.420 | I think like 90% of your assets

00:40:45.100 | should be in income-producing assets.

00:40:46.380 | I don't see art, or wine, or crypto, or gold

00:40:49.140 | as income-producing, because there's no cash flows.

00:40:52.180 | And so because of that, even WeFunder,

00:40:54.140 | which is private companies, you're like,

00:40:55.300 | well, that's a business, isn't that cash-flow producing?

00:40:57.260 | Well, right now it probably isn't,

00:40:58.700 | so I would say for all practical purposes,

00:41:00.860 | those are like the high-risk, like non-income-producing.

00:41:03.540 | I keep that 10% of my portfolio.

00:41:05.860 | I don't know what other people do,

00:41:06.780 | but that's just kind of how I look at it.

00:41:09.540 | I think those are sometimes,

00:41:11.780 | they're actually hobbies masquerading as investments,

00:41:14.660 | and I think I expect to lose money on my hobbies.

00:41:17.580 | I spend money on equipment.

00:41:18.860 | I spend money on fees of various kinds.

00:41:20.900 | I love it, it's worth it, I'm gonna do it anyway,

00:41:23.340 | but I don't expect to make money on my rock climbing.

00:41:25.580 | And I think a lot of that's similar.

00:41:26.860 | Like enjoy it, get into the community.

00:41:28.900 | This is your spare time.

00:41:30.100 | Don't expect to make money on it, just enjoy it.

00:41:32.420 | - Thank you.

00:41:33.420 | - I had a question about estate planning.

00:41:42.580 | It's something I always know I need to do,

00:41:44.540 | but I've always postponed it because in my mind,

00:41:46.460 | I'm thinking, okay, if I don't have at least two million

00:41:48.900 | or three million, do I really want to do estate planning?

00:41:51.420 | So I guess my question is, is there really the right time

00:41:55.620 | when you should be doing estate planning,

00:41:57.300 | and is there really a certain threshold or dollar amount

00:42:00.020 | that it makes sense to start doing estate planning?

00:42:02.780 | - I can't say much about dollar.

00:42:05.820 | I'm gonna hand it off to you.

00:42:06.660 | There's one, me and my wife said, oh my God, we have a kid.

00:42:11.300 | We need to have this done just so it's clear

00:42:13.420 | what's going on.

00:42:14.620 | The worst thing you can do to a spouse or a significant other

00:42:17.620 | is to have them deal with the loss of you

00:42:19.340 | and all this stuff at the same time.

00:42:21.720 | And I've seen that play out multiple times.

00:42:23.340 | So just if somebody else is effectively dependent

00:42:26.320 | on you in some fashion, or it's gonna be a big pain

00:42:29.060 | in the butt to deal with, do it ahead of time.

00:42:31.260 | Again, when you're cool and calm and collected,

00:42:33.760 | it's a lot better way to do it.

00:42:35.340 | We used a site online called Trust and Will,

00:42:37.940 | and I think it's just trustandwill.com.

00:42:40.080 | It was fantastic.

00:42:41.500 | It was like easy to get through.

00:42:43.320 | We don't have an estate.

00:42:44.500 | We don't have, we're not landed gentry,

00:42:46.440 | but it was very good for like the 98%.

00:42:48.820 | - I'll reference the CFP exam,

00:42:54.320 | which I took, shoot, probably 12 years ago.

00:42:56.940 | But there was one question, and Alex,

00:42:59.380 | you had it on your exam too.

00:43:01.340 | They gave just like four just insane things

00:43:04.820 | that no prudent investor or consumer would ever do.

00:43:07.420 | It said like, oh, this person has $30,000

00:43:09.700 | in credit card debt.

00:43:10.620 | All of their retirement's tied up in one stock.

00:43:13.380 | They have no savings account,

00:43:15.140 | and they don't have an estate plan.

00:43:16.380 | What should this person do?

00:43:17.980 | And in the practice exams, I said, oh, you know what?

00:43:20.900 | They should pay off the credit card debt, you know,

00:43:23.060 | whatever, or I can't remember.

00:43:25.340 | But the answer was get an estate plan

00:43:27.660 | because you never, like Dan just said,

00:43:29.500 | you never want to be a burden to somebody else.

00:43:31.620 | And even if you don't have any assets,

00:43:33.280 | or you don't feel like you have $2 million as you said,

00:43:35.940 | well, who is going to make the decisions

00:43:39.100 | if God forbid you end up in a hospital

00:43:40.820 | and somebody has to determine,

00:43:42.340 | do we pull the plug on this person or, you know,

00:43:46.180 | give her treatment?

00:43:48.140 | So it's not, the nice thing about not having

00:43:50.340 | a complex estate means you're not going to pay

00:43:53.180 | that much for a good estate plan.

00:43:55.860 | - So I think that question is appropriate

00:44:03.800 | given my circumstances.

00:44:05.180 | I've been widowed for eight years.

00:44:07.540 | My husband dropped dead on me.

00:44:09.420 | And I would say that that advice,

00:44:12.900 | I would hope that everybody takes that to heart

00:44:14.620 | because had he not had that in place,

00:44:17.580 | I think it would have been considerably worse

00:44:19.740 | than my situation is.

00:44:21.260 | I have a two-year-old and a six-year-old

00:44:22.980 | when he died, and now they're 10 and 15.

00:44:25.740 | So we're still trying to, you know,

00:44:26.980 | make our way through things.

00:44:27.980 | I had two comments.

00:44:29.140 | One of them was, this is a very male heavy crowd here

00:44:34.140 | and there, make sure that your partners

00:44:38.060 | are aware of where your money is.

00:44:40.300 | The greatest thing my husband did for me

00:44:41.820 | was teaching me about where, you know,

00:44:46.020 | keeping track of the money,

00:44:47.220 | keeping track of the accounts, all that stuff.

00:44:49.380 | We didn't have like the big book

00:44:50.780 | that the Bogleheads talk about,

00:44:51.980 | but I had everything in Quicken.

00:44:56.980 | So when he died and two months later,

00:44:59.100 | I had to file taxes.

00:45:00.020 | I filed taxes in two hours

00:45:02.100 | because everything was right there.

00:45:03.140 | The next year, it was a mess.

00:45:04.900 | But so I would say, at a minimum,

00:45:08.020 | even if your spouses are not really into it,

00:45:10.060 | the chances are, you're gonna, you know,

00:45:12.860 | men are gonna die before women.

00:45:14.460 | And, you know, to the extent that you can encourage

00:45:16.620 | your partners to at least know a little bit

00:45:19.860 | about where your puts and takes are,

00:45:21.340 | that's super helpful, as I can attest.

00:45:24.620 | One suggestion I just came to my mind was,

00:45:27.860 | when you have a power of attorney for your finances,

00:45:33.580 | consider, something that I did,

00:45:35.900 | having it be valid right now.

00:45:38.620 | And because when I brought this up to my attorney,

00:45:41.020 | I said, you know, how can I trust somebody

00:45:43.940 | if there's a valid power of attorney?

00:45:45.700 | She could clean me out.

00:45:46.860 | And her response to me was,

00:45:49.220 | well, why would you trust somebody

00:45:51.980 | when you're, you know, half dead,

00:45:53.740 | you know, half brain dead in the hospital?

00:45:56.140 | It should be somebody that you could trust

00:45:57.380 | while you're, you know, compus mentis and non-compus mentis.

00:45:59.980 | So I just throw that out there, too.

00:46:02.460 | My question, though, is what advice do you give

00:46:05.100 | to your clients about the reality

00:46:08.980 | about returning to the workforce

00:46:10.380 | after being out for a period of time?

00:46:18.780 | - First of all, sorry for your loss.

00:46:21.320 | I don't know, I don't really have a great answer to that.

00:46:28.100 | So what advice would we give to somebody

00:46:32.180 | who's been out of the workforce?

00:46:34.460 | (audience member speaking indistinctly)

00:46:39.780 | What is it, you know, (audience member speaking indistinctly)

00:46:44.780 | - Yeah, so first of all, that would be very admirable,

00:46:52.640 | and it's unfortunate because you,

00:46:54.760 | it sounds like you did have to take time off

00:46:57.480 | because of your husband passing.

00:46:59.480 | I mean, I would think the best thing I would do

00:47:01.560 | is just stay very active on the LinkedIn community,

00:47:04.920 | stay closely connected to wherever it is you were working,

00:47:08.600 | make sure your resume stays fresh.

00:47:12.220 | I don't really have a great answer to that, though.

00:47:15.960 | Anybody?

00:47:16.800 | - This is like not necessary for everybody.

00:47:22.000 | This came up, we were looking at the stats

00:47:25.400 | around the impact of women staying home

00:47:28.480 | to take care of kids, especially in the first four years.

00:47:32.920 | And there was a great report that was done on it

00:47:34.840 | that was like the biggest financial hit

00:47:37.560 | is not that they are not earning money.

00:47:40.200 | And it is not that they are not saving.

00:47:42.040 | It is that when they come back to the workforce,

00:47:44.480 | their marketable skills have gone down,

00:47:46.840 | and people are like, oh, we're gonna pay you less

00:47:48.920 | in real terms than when you were here last.

00:47:52.340 | So I think the key thing there is take whatever time you can

00:47:56.540 | to keep some evidence-based skill up

00:47:59.600 | that you're like, I have been doing this.

00:48:02.300 | I have been volunteering to do taxes down here.

00:48:05.080 | I have been doing some professional thing.

00:48:07.920 | So that it is, and you know,

00:48:09.840 | if you haven't lifted weights for four years

00:48:11.640 | and you come back, the first time you do it is horrific.

00:48:14.320 | Whereas if you just go every once in a while,

00:48:15.880 | it's not that bad.

00:48:16.920 | So I think a little bit of continuing to do something

00:48:21.060 | to keep those muffles there and keep it evidence,

00:48:22.840 | like it can be one day a week, whatever.

00:48:24.600 | It's just keep your foot in the game just a little bit.

00:48:27.360 | And I would also flip it and say,

00:48:30.680 | this is a opportunity to think about changing careers

00:48:33.760 | if you haven't.

00:48:35.200 | Again, not for everybody.

00:48:36.360 | My wife went through this.

00:48:37.940 | She went from being a public school teacher

00:48:39.660 | to being a software engineer.

00:48:41.120 | She learned how to program, did all that stuff,

00:48:44.000 | and ended up coming out of it much happier.

00:48:46.640 | So it is, you know, you can go into the chrysalis

00:48:50.060 | and metamorphosis and come out the other side

00:48:51.520 | of something new.

00:48:52.360 | - Thank you all.

00:48:55.000 | I think we're gonna have to cut it off now.

00:48:57.600 | Sorry.

00:48:58.760 | Thank you to a tremendous panel.

00:49:01.040 | It has been my honor to be with you, meet you all.

00:49:04.560 | Rick, tell us where we're going now.

00:49:07.120 | We're going back to the next room for your conversation

00:49:10.960 | with Burt Malkiel, is that right?

00:49:13.200 | Okay, thank you all.

00:49:14.960 | - Thank you very much.

00:49:16.800 | [BLANK_AUDIO]

Bogleheads® 2022 Conference – Accumulators Breakout Session – Panel discussion with Karen Damato

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