RPF-0056-Financial_Plans_Should_be_Unique
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00:00:15.040 | Radical Personal Finance, episode 56. A financial planner fights back
00:00:21.200 | and lobbies for actually customizing financial plans.
00:00:25.920 | [Music]
00:00:42.880 | Welcome, welcome, welcome to Monday's show, Radicals. I thank you for being here. Today
00:00:47.200 | is Monday, September the 8th, 2014. My name is Joshua Sheets. I am your host and your sherpa
00:00:56.240 | today. And yes, the financial planner mentioned in the intro is indeed me, for I am he. And today
00:01:03.440 | we're going to talk about why financial plans should actually be customized.
00:01:06.960 | [Music]
00:01:15.120 | I appreciate your being here. I'm excited about today's show. And today's show is going to build
00:01:19.920 | exactly off of Friday's show, which was episode 55. And let me give you a quick background on
00:01:25.200 | Friday's show. And then let me encourage you to go listen to it before this one.
00:01:28.400 | And you'll see how they are going to connect together. Friday's show was a Q&A. And there
00:01:33.440 | was a reader named, listener named John, who had written me an email. And basically the gist of his
00:01:39.120 | email was he said, Joshua, I've got a million dollars basically, and I'm about 35 years old,
00:01:44.240 | and I hate my job and I want to retire early. Can I? And this leader, this listener, excuse me,
00:01:50.800 | had gone around and consulted with various financial advisors, had talked with different
00:01:55.440 | people and was getting this broad, diverse number of opinions. And they didn't know what to do.
00:02:02.240 | And so I sat down and I took the information and I, as part of the show, as a central piece of the
00:02:08.400 | show, in addition to kind of pointing out some flaws in his thinking or some, some just kind of
00:02:13.680 | fallacies or misunderstandings in his thinking in the emails, I pointed out and I sat down and I
00:02:18.080 | wrote out five financial plans, all of which would allow him to retire early today. And these were
00:02:23.920 | five wildly diverse plans. And they actually wound up being six wildly diverse financial plans that
00:02:30.960 | I just completely made up. And all six of them worked for him to retire today.
00:02:37.280 | But among those six, choosing among them, there was a broad degree of variability.
00:02:42.480 | And there was nothing magic about the number six. I just sat down and I just, I had intended to
00:02:48.960 | write five and I wound up writing six. I could have written 26 or 206, because frankly, there
00:02:54.720 | is almost an infinite number of plans that I could have created for him. And when I finished that
00:03:02.560 | show, I was thinking about it. And I really, I felt great about that show. And frankly, of all
00:03:07.920 | of the shows that I've created now, today is episode 56, I felt better about the work that I
00:03:12.400 | did on that show than I have about any of the shows up till now. Well, it'll be interesting
00:03:16.320 | to see what the feedback is on it. I haven't gotten much. The listener, John, wrote me an email
00:03:21.520 | and said, "Thank you very much." But as far as comments or other people, so I don't know whether
00:03:25.280 | it's other people, but I felt like I did a really great job on that show. So I felt really good
00:03:28.960 | about it. I felt like I was succinct, I was direct, but I was creative and I was illustrating how
00:03:34.960 | everything I've talked about on the show up till now ties together. Everything from tax planning,
00:03:39.520 | lifestyle planning, retirement accounts, technical knowledge, big picture goal setting,
00:03:45.520 | lifestyle design, how everything came together in one example. So I really enjoyed it.
00:03:51.120 | But as I was thinking about it all weekend, I kept on thinking about this question of how
00:03:55.520 | plans can be unique. And then I watched some feedback that I try to keep an eye on feedback.
00:04:00.880 | And the wonderful thing about the internet is you can see the feedback in public. And I love
00:04:06.480 | getting feedback. And I like to see it on the internet because people are brutally honest when
00:04:10.640 | they're not restricted by the social norms and niceties. And they'll say things in public on the
00:04:17.040 | internet that they would never say to your face. So if someone's going to compliment me on the show
00:04:22.000 | face to face, they'll say, "Joshua, hey, this is so great. There's a couple of things I'd like to
00:04:26.320 | improve." But man, when you go on and start reading the feedback on the internet, it's great
00:04:30.320 | because you get tons of feedback. Which by the way, if you ever want to get someone's attention,
00:04:33.920 | if you want to get an author's attention, go leave a review for their book on Amazon. I guarantee
00:04:38.720 | they'll see your stuff. Every author is watching their feedback because it's valuable. And I gain
00:04:46.000 | a lot from the feedback that I get on the show. And I did an interview late last week with Craig
00:04:52.400 | Mathias for his show, which is the Create My Independence show, which by the way, there'll
00:04:56.720 | be a link in the show notes. If you're interested in some of the background a little bit on me and
00:05:04.320 | my show that I don't often bring out on, again, on my show, because it's kind of self-serving to
00:05:09.120 | talk about yourself all the time, then go listen to that interview. And Craig asked me a few things
00:05:18.640 | about my background. But one of the things that I said in introducing that background, and this
00:05:22.720 | will lead into... This is basically what I'm doing is I'm leading in now into the 18 specific things
00:05:30.400 | that I came up with as examples that will dramatically affect a financial plan for you.
00:05:35.360 | That's the primary of today, but I need to set the stage for it first. On Craig's show, he asked
00:05:42.800 | me a little about my background. I told him how I had gone through this great change, this
00:05:47.920 | transformation where I had to learn to set aside most of what I had been taught and most of what I
00:05:54.400 | had thought, and I had to learn new things. And so one of the things that I was joking in the
00:06:00.000 | interview and I said, I had to set aside some of the things that I had always thought because when
00:06:05.120 | I went and interviewed at Northwestern Mutual, I had always been taught never buy whole life
00:06:10.240 | insurance, and I really had a serious moral issue. And the Northwestern Mutual is a huge provider of
00:06:15.680 | whole life insurance in the insurance industry. And I knew that as I was doing my due diligence,
00:06:21.120 | I knew, I mean, I was like, look, this company does a tremendous amount of whole life insurance.
00:06:24.880 | I don't think I could morally and ethically sell it. And so that was a big deal for me. So I had
00:06:30.240 | to go and do a ton of research on life insurance, on how it works, on all of that to finally convince
00:06:36.080 | myself over time before joining the company, okay, I can see how in some financial planning
00:06:41.120 | situations that the personal finance books didn't tell me about, this can be a valuable tool.
00:06:45.280 | And we'll get to that at some point. I'll do a whole series on life insurance. I just, I don't
00:06:49.520 | want to talk about it anymore because I'm a little bored by it these days. But I'll do all kinds of
00:06:53.680 | shows. I'll show you how different topics interplay. Well, I was watching the comments on Craig's site
00:06:59.600 | and I was one of the commenters basically made the comment that yes, we all have to justify what we
00:07:06.160 | do. And the insinuation of the comment was that anybody can set aside what their moral hang ups
00:07:12.720 | are over time in order to earn a paycheck. And that's what people do. And so now that's a fair
00:07:19.200 | comment, very, very credible, fair comment. I could have done that. But as I was thinking back
00:07:25.360 | on it over the weekend, I was just considering that assumes that I did that. What it doesn't
00:07:31.040 | assume is that there was a fact pattern. So when I have sold whole life insurance,
00:07:35.760 | the assumption inherent in that comment is that there wasn't a fact pattern that would justify that.
00:07:41.520 | And frankly, that's ignorant. It's not meaning to be mean, but it's just ignorance. And I thought
00:07:53.760 | of an example. And here's the example where I learned this the most strikingly in my lifetime.
00:07:59.200 | And the example was in the McDonald's hot coffee case. Now, I'm sure that you have heard about the
00:08:08.240 | court case where a woman spills hot coffee in her lap, it burns her and she sues McDonald's and gets
00:08:13.600 | awarded millions of dollars by the lawsuit. So this case is often presented as this proof for
00:08:22.560 | how we have this twisted, horrible legal system that doesn't know how to, justice system that
00:08:27.920 | doesn't know how to be fair and equitable towards people. And I often thought that myself. I often
00:08:35.120 | said that. And I often would rail against the crazy court system and political debates with my buddies,
00:08:41.840 | rail against the court system that would have all these unjust things and justice would not be served
00:08:48.000 | until I got to business law in college. And in business law, we actually read the facts of that
00:08:54.640 | case. I was never more humbled, humiliated, frankly, is a better word than I was just because of how
00:09:07.120 | wrong I was. So I went and found I didn't I knew the whole facts was going to be too long, but I
00:09:12.640 | found the short summary of it and it'll be linked in the notes, but I'm going to read you this short
00:09:16.240 | summary of the McDonald's case. And if you've never researched this stuff out, just consider
00:09:20.400 | these facts. And from these are this is from a legal site. This is what is this the the electric
00:09:28.080 | law library. And so this is a this is a summary and an excerpt of the fact sheet from the the
00:09:34.560 | official fact sheet from the case. There's a lot of hype about the McDonald's scalding coffee case.
00:09:41.280 | No one is in favor of frivolous cases of outlandish results. However, it is important
00:09:46.560 | to understand some points that were not reported in most of the stories about the case. McDonald's
00:09:51.760 | coffee was not only hot, it was scalding, capable of almost instantaneous destruction of skin,
00:09:58.720 | flesh and muscle. Here's the whole story. Stella Lee back of Albuquerque, New Mexico,
00:10:06.240 | was in the passenger seat of her grandson's car when she was severely burned by McDonald's coffee
00:10:11.440 | in February 1992. Lee back 79 at the time ordered coffee that was served in a styrofoam cup at the
00:10:18.720 | drive through window of a local McDonald's. After receiving the order, the grandson pulled his car
00:10:24.000 | forward and stopped momentarily so that Lee back could add cream and sugar to her coffee.
00:10:29.120 | Critics of civil justice who have pounced on this case often charged that Lee back was driving the
00:10:34.320 | car or that the vehicle was in motion when she spilled the coffee. Neither is true. Lee back
00:10:40.320 | placed the cup between her knees and attempted to remove the plastic lid from the cup. As she
00:10:45.600 | removed the lid, the entire contents of the cup spilled into her lap. The sweatpants Lee back was
00:10:51.680 | wearing absorbed the coffee and held it next to her skin. A vascular surgeon determined that Lee
00:10:57.200 | back suffered full thickness burns or third degree burns over 6% of her body, including her
00:11:04.160 | inner thighs, perineum, buttocks, and genital and groin areas. She was hospitalized for eight days,
00:11:12.000 | during which time she underwent skin grafting. Lee back, who also underwent debridement treatments,
00:11:18.400 | sought to settle her claim for $20,000, but McDonald's refused. During discovery,
00:11:25.200 | McDonald's produced documents showing more than 700 claims by people burned by its coffee between
00:11:30.720 | 1982 and 1992. Some claims involved third degree burns, substantially similar to Lee back's.
00:11:38.640 | This history documented McDonald's knowledge about the extent and nature of this hazard.
00:11:42.880 | McDonald's also said during discovery that, based on a consultant's advice,
00:11:48.320 | it held its coffee at between 180 and 190 degrees Fahrenheit to maintain optimum taste. He admitted
00:11:57.200 | that he had not evaluated the safety ramifications at this temperature. Other establishments sell
00:12:03.680 | coffee at substantially lower temperatures, and coffee served at home is generally 135 to 140
00:12:11.600 | degrees. I'm going to pause for a moment. That was what really struck me. McDonald's held its coffee
00:12:17.120 | at 180 to 190 degrees, and home coffee is 135 to 140 degrees, almost a 40 or 50 degree difference.
00:12:26.160 | Further, McDonald's quality assurance manager testified that the company actively enforces a
00:12:31.520 | requirement that coffee be held in the pot at 185 degrees plus or minus five degrees. He also
00:12:39.120 | testified that a burn hazard exists with any food substance served at 140 degrees or above,
00:12:46.080 | and that McDonald's coffee, at the temperature at which it was poured into styrofoam cups,
00:12:51.280 | was not fit for consumption because it would burn the mouth and throat. The quality assurance
00:12:57.120 | manager admitted that burns would occur, but testified that McDonald's had no intention of
00:13:02.240 | reducing the holding temperature of its coffee. Plaintiff's expert, a scholar in thermodynamics
00:13:08.960 | applied to human skin burns, testified that liquids at 180 degrees will cause a full thickness burn to
00:13:15.840 | human skin in two to seven seconds. Other testimony showed that as the temperature decreases toward
00:13:22.880 | 155 degrees, the extent of the burn relative to that temperature decreases exponentially.
00:13:28.800 | Thus, if Liebeck's spill had involved coffee at 155 degrees, the liquid would have cooled and
00:13:35.840 | given her time to avoid a serious burn. McDonald's asserted that customers buy coffee on their way
00:13:42.160 | to work or home, intending to consume it there. However, the company's own research showed that
00:13:48.400 | customers intend to consume the coffee immediately while driving. McDonald's also argued that
00:13:53.680 | consumers know coffee is hot, and that its customers want it that way. The company admitted
00:13:59.280 | its customers were unaware that they could suffer third-degree burns from the coffee,
00:14:03.920 | and that a statement on the side of the cup was not a "warning" but a "reminder," since the
00:14:08.960 | location of the writing would not warn customers of the hazard. The jury awarded Liebeck $200,000
00:14:15.520 | in compensatory damages. This amount was reduced to $160,000 because the jury found Liebeck 20%
00:14:24.480 | at fault in the spill. The jury also awarded Liebeck $2.7 million in punitive damages,
00:14:32.320 | which equals about two days of McDonald's coffee sales. Post-verdict investigation found that the
00:14:38.560 | temperature of coffee at the local Albuquerque McDonald's had dropped to 158 degrees Fahrenheit.
00:14:44.160 | The trial court subsequently reduced the punitive award to $480,000, or three times
00:14:51.680 | compensatory damages, even though the judge called McDonald's conduct "reckless," "callous,"
00:14:58.400 | and "willful." No one will ever know the final ending to this case. The parties eventually
00:15:04.240 | entered into a secret settlement which has never been revealed to the public, despite the fact that
00:15:09.040 | this was a public case, litigated in public, and subjected to extensive media reporting.
00:15:14.400 | Such secret settlements after public trial should not be condoned.
00:15:22.320 | That's the end of the article there. I'm going to pause for just a moment. How did you
00:15:28.720 | think about that case before I read that fact pattern?
00:15:32.800 | And then after the case, what do you think?
00:15:36.480 | I tell you, for me, when I was in college, this rocked my world because I thought,
00:15:44.960 | "How have I been so ignorant? How have I been saying, 'People are suing McDonald's
00:15:51.760 | for spilling hot coffee?'" And when I read through the facts, and the facts that we read were much
00:15:57.840 | more lengthy than those facts, I just thought to myself, "Wow, this seems like a really fair
00:16:02.560 | treatment." They awarded her damages for her medical bills. They found her 20% at fault for
00:16:11.120 | her negligence. The $2.7 million of punitive damages, those were later reduced, but you
00:16:17.200 | never saw that in the paper. And I thought, "Wow." So this case for me has been a major
00:16:23.760 | thought process in my life where I go back and I think to myself, anytime I start judging something,
00:16:28.800 | I try to ask myself and say, "Joshua, before you make a judgment here, let's make sure that you
00:16:33.440 | fully understand. Fully understand what's going on. And don't assume that people are stupid.
00:16:40.880 | Don't assume that people are unethical. Don't assume that people are ignorant.
00:16:45.680 | Start with assuming that they are intelligent, caring people, and try to understand why
00:16:51.600 | they would want to do something. Why do they act the way that they do?" Now,
00:16:57.360 | are there people who are ignorant and stupid? Probably. Yes, there are. But
00:17:03.920 | it always bothered me when I was working as a financial planner that it's like,
00:17:09.760 | "Do you ever consider that a financial planner who knows somebody intimately
00:17:14.480 | might actually have some insight into what the person is trying to accomplish?"
00:17:18.480 | See, I think we all need a unique plan that is customized to us. Each of us is a unique person.
00:17:27.440 | And for some reason, we are happy to say that as a platitude to, "Yeah, we're all unique. We're all
00:17:34.880 | different. We're all unique." But when it comes to our financial plans, they're all supposed to
00:17:37.360 | look the same. They can't look the same. And so, you've got to look at the specific facts
00:17:44.080 | and the specific fact pattern of each case, and you've got to apply creative thinking to that
00:17:49.760 | case. And you have to say, "What are the goals? What are the desired outcomes? Now, what is a
00:17:54.480 | compelling plan for achieving that in a really intelligent way?"
00:18:04.800 | And so, as I go through this list that I brainstormed, and this is not intended to be
00:18:09.280 | an exhaustive list. I wrote down 18 things. This is intended to be an illustrative list,
00:18:14.480 | is just to show how you can make dramatically different decisions based upon dramatically
00:18:22.000 | different facts. And you can do whatever you want, but I would prefer if people would study the facts
00:18:30.560 | of each case before making a decision. If you don't believe that that can matter, go back and
00:18:35.920 | listen to 55, episode 55, and just listen to how I can lay out six dramatically different scenarios,
00:18:43.440 | all of which on those current facts. And the feedback that I received from John after listening
00:18:48.400 | to my show is he said, "I need to go back and do some thinking because you're right. I'm not clear
00:18:52.720 | on what I want." So, here are some things that will make a difference in your answers and the
00:19:03.360 | solutions that you implement in a financial plan. The first one is going to be the longest,
00:19:08.560 | and the next 17 are fairly short. The first one, I would say, is the phase of life.
00:19:12.400 | Now, that probably strikes you as true because we're so schooled in the idea that,
00:19:22.160 | well, as you age, you should adjust your risk tolerance over from stocks to bonds. So,
00:19:27.680 | there should be this ideal ratio of what percentage of stocks and bonds we own based upon our age.
00:19:34.640 | And I don't have any problem with that. It's fine. I don't have anything against target
00:19:37.280 | date retirement funds. I think they're great. They're perfect for people. I don't have any
00:19:41.440 | issue with that. But let's go a little deeper. So, we know that this is true,
00:19:45.120 | but how can we go a little deeper? How would you advise somebody
00:19:49.520 | differently based upon the simple fact of whether they're a child or whether they're an adult?
00:19:57.520 | And here's what I mean. Where would you recommend to a child that they invest their money?
00:20:03.200 | Would you recommend to them that they trot down to Vanguard and buy
00:20:10.960 | the lowest expense ratio index fund that they could buy? Maybe. Or would you recommend to them
00:20:19.120 | that they buy a tool belt and some carpentry tools and they learn how to swing a hammer and build
00:20:24.480 | stuff? You say, well, the answer would never be between those two things. You're sure it could.
00:20:30.080 | So, you obviously see right now, my first example, well, how much money are we talking about? Are we
00:20:36.560 | talking about the fact that this child just inherited $4 million or $400,000 or $4,000 or $40?
00:20:43.600 | Would you encourage the child to invest in a trade education or into a college degree?
00:20:52.880 | That should immediately set off red flags in your head and say, well, wait a second,
00:20:59.600 | what are they suited for? What are their goals? What are their interests? Exactly.
00:21:04.480 | Based upon who they are as a person. Would you recommend to this child that they
00:21:11.680 | buy rental houses or that they buy index funds, REIT index funds?
00:21:19.280 | That should set off several questions in your mind. You say, wait a second, well,
00:21:24.640 | is this child, did they buy the tool belt and the hammer and do they like working on houses
00:21:29.200 | or are they kind of bookish and they don't really care about swinging a hammer and they wouldn't
00:21:34.880 | enjoy managing a portfolio of rental houses? Where would you recommend they invest?
00:21:41.840 | I would start, if I were advising a child, I would start by saying,
00:21:50.320 | how can you, as a child, how can you invest in acquiring character, knowledge, skills and tools?
00:21:58.480 | Because your stocks could be stripped away from you in an instant. But if you have character and
00:22:07.120 | knowledge and skills and tools, then those things cannot be taken away from you.
00:22:13.040 | How can you invest and build work ethic or character ethics?
00:22:22.000 | How can you enhance your literacy, your numeracy?
00:22:25.840 | How can you develop your ability to learn? What books, what training courses will give
00:22:32.480 | you the knowledge and the skills that you need? What tools do you need? Do you need a hammer and
00:22:36.480 | a saw and a tape measure? Or do you need a financial calculator? Do you need a graphing
00:22:41.360 | calculator? Do you need a library? What tools do you need for your situation? So, the phase of life
00:22:49.840 | can be, right there, you can open up a gazillion different ways that you would encourage somebody,
00:22:54.960 | just for the factor of they're a child or they're an adult. You say, "Well, Josh,
00:22:59.120 | we're that stupid. What child would go, you know, why is it going by index funds?"
00:23:02.720 | I don't have any problem with index funds. No problem at all. I think they're wonderful. And
00:23:08.080 | for the vast majority of people, they're probably what they should do. Probably, maybe. But this
00:23:14.160 | single-minded focus is what I have a problem with. And we know that because we talk about,
00:23:19.200 | "Well, going to college." But take it beyond college and see through what even the go to
00:23:23.280 | college or don't go to college advice is getting at the core and look at the individual.
00:23:28.640 | So, that would be one phase of life of child versus adult. What about the phases of an adult?
00:23:36.480 | Is an adult just starting out? Are they in an accumulation phase? Are they in a preservation
00:23:42.320 | phase? Are they in a distribution phase? If somebody's just starting out, then I would
00:23:47.840 | have them focusing on building wages. So, for example, increasing their skills so that they
00:23:52.560 | can command a higher hourly wage. I would focus on acquiring tools. If somebody has tools, whether
00:24:00.000 | those are physical tools or skill and ability, the tools of skill and ability, then those tools can
00:24:07.360 | be leveraged to gain a higher wage. If somebody is, I'll keep picking on fast food workers. So,
00:24:13.840 | let's say someone's a fast food worker at a minimum wage. If they can acquire some basic
00:24:17.920 | carpentry tools or some basic tile setting tools or some basic plumbing tools or some basic
00:24:22.560 | electrical tools, they can go from $8 an hour to $18 an hour over the course of probably a couple
00:24:28.560 | of years. So, the investments in that situation would be into tools. And we know that to be the
00:24:39.840 | case, but we don't talk about that enough. So, we should talk about that and we should consider
00:24:44.240 | that when we're advising somebody. If we look at what capital does somebody have, do they have
00:24:52.720 | financial capital when they're just starting off or do they not have financial capital? What other
00:24:56.320 | forms of capital do they have other than financial capital? Look at what college provides. College,
00:25:01.280 | for many people, one of the biggest benefits of college is not knowledge. It's social capital in
00:25:06.160 | the form of a network of college friends and professors. And it's social capital in the form
00:25:11.040 | of this network that they have gone through life with for four years or two years, if it's a
00:25:16.320 | master's degree program or some number of years. They've built these strong relationships and
00:25:21.840 | that's the social network, the good old boys network that gets leaned on throughout life.
00:25:25.600 | Or what if somebody's in an accumulation phase? Well, now you're going to look at,
00:25:30.000 | do they have savings? Do they have reserves? You're going to focus on what's their investment
00:25:34.800 | plan to invest their money wisely. I think if somebody can develop an area of unique skill
00:25:39.920 | in investment, that would be ideal. Because if you can apply an area and develop an area of unique
00:25:46.400 | skill, you can get unique returns and a higher growth rate on your investments. It is possible.
00:25:55.120 | That's what people do every single day is by building unique skills on unique areas that
00:26:02.480 | they understand, they know about. You need to develop an asset allocation plan that's unique
00:26:09.920 | to you in accumulation phase. So this needs to go beyond just what percentage of your money in
00:26:16.640 | stocks or bonds? What percentage of your money in these different asset classes? If you're a home
00:26:21.760 | builder, does it make any sense for you? Let's say you're a home builder, you're building houses,
00:26:25.680 | they're spec houses or whatever. Does it make any sense for you to buy a REIT, a real estate
00:26:31.200 | investment trust, a mutual fund that owns real estate? No. But then again, does it make sense
00:26:38.720 | for you to have all of your assets in real estate? Well, it depends on the life stage, right? So I
00:26:45.200 | could make a good argument. There are some very wealthy home builders here in West Palm Beach
00:26:51.120 | that I know that have developed some huge developments and made massive fortunes.
00:27:00.080 | I could make a really good case for the idea that a home builder needs to acquire a certain
00:27:06.960 | level. So if in the beginning, if you're just in the accumulation phase and you're just starting
00:27:12.240 | out and you're a home builder and this is where you're going to make your fortune
00:27:16.480 | and through the business of real estate and real estate construction, I think it would be a really
00:27:21.840 | wise idea to focus on building that capital and building everything in real estate because you
00:27:29.120 | can achieve a certain scale that once you reach a certain size, you can build a thousand homes at
00:27:34.160 | once and then you can reap those higher profits. But there does come a point in time at which it's
00:27:40.000 | probably not so smart for you to have all of your money in real estate. I know of some people right
00:27:45.760 | here in West Palm Beach that when five years ago when we had the real estate crash, got destroyed.
00:27:54.080 | So their financial plan didn't adequately identify
00:27:57.600 | and insulate them from the risks of their asset allocation. If you're a coin dealer,
00:28:05.120 | does it make a lot of sense for you to keep a personal stash of gold coins and you're safe at
00:28:09.600 | home? It's just your personal collection. I would suggest that it might be smarter for you to start
00:28:14.880 | buying some rental houses. What does it help you? You've got a whole inventory at your store.
00:28:23.600 | Are you all in on gold? Are you that sure of yourself that gold and silver are your thing
00:28:28.480 | that's going to always go up? Now on the other hand, if you work as a mutual fund manager or
00:28:33.680 | you work in the investment business, does it make sense for you to have all of your money in publicly
00:28:38.240 | traded stocks? Or does it make sense for you to maybe own a little farmland somewhere, have a
00:28:45.360 | condo that you rent out, or have a little business on the side that's a private business that you're
00:28:49.840 | an advisor and an investor in? If somebody's in a preservation stage of life, well you need to look
00:28:58.880 | at the safety of your assets and various scenarios. So what are you concerned about? What keeps you up
00:29:04.720 | at night? What is it specifically that is causing you the problem and how would different scenarios
00:29:12.560 | affect you? How would a Great Depression style 25% unemployment rate affect you and your wealth?
00:29:19.760 | If you've built wealth, then you need to protect it. It's very different to be a bootstrapping
00:29:27.760 | entrepreneur at the beginning of his life stage, just starting and getting into that accumulation
00:29:33.360 | stage and throwing everything at building out condo communities to make their fortune.
00:29:39.040 | That's very different than somebody who's made a fortune and is looking at preserving the assets.
00:29:45.680 | What rate of return do you actually need? It really doesn't make a lot of sense to me
00:29:50.720 | to take a lot of risk for excess return if you only need a small amount of return to hit your
00:29:55.360 | financial goals. But then that brings in the question of what kind of risk are you concerned
00:30:02.400 | about? You need to think through what is the type of risk that you are concerned about. Are you
00:30:09.120 | concerned with market volatility? Are you concerned with currency risk? Are you concerned with
00:30:14.160 | repayment risk? Are you concerned with sovereign risk? What's that called? The country that you're
00:30:20.960 | living in. If you're in the distribution phase of wealth and you're figuring out whether that's
00:30:26.960 | you're working on an estate plan or you're distributing assets to heirs, you've got to
00:30:31.360 | look at what are your goals and plans? What is your tax situation? What do you specifically need?
00:30:36.720 | What are the risks that you're concerned about? Maybe, and this is what people often don't get
00:30:43.840 | until they've worked with clients, is that maybe the highest return on a portfolio is not the
00:30:49.600 | number one goal of all people. It's really not. It's very rare that a client will say, "My number
00:30:57.040 | one goal is the highest rate of return." This is one of the biggest holes in the literature. The
00:31:01.600 | literature is being written from an academic perspective saying, "What gives the highest rate
00:31:05.840 | of return over a period of time?" But I'm telling you, the highest rate of return is not what all
00:31:13.280 | investors are shooting for. Many people are just simply saying, "I want to minimize volatility."
00:31:18.480 | Let me give you an example. Maybe it will help you to understand.
00:31:23.360 | I don't know what the answer is for you because it's different for every person.
00:31:27.600 | If I were to offer you a guaranteed—what numbers? I need to be careful because I want to use
00:31:38.000 | careful numbers and this is a purely hypothetical scenario. I'm not actually marketing an investment
00:31:42.880 | to you. Let's say that I'm going to offer you a guaranteed 6% rate of return every single year
00:31:49.520 | going forward, guaranteed, no ifs, ands, or buts. I'm not. This is a thought exercise.
00:31:54.240 | I were to offer you a potential return of 8%, but there's also, in any random year,
00:32:05.120 | there's a potential that the value of your portfolio could decline by as much as 75%.
00:32:12.080 | I'm not offering that offer to you either. It's just a thought experiment.
00:32:15.200 | If you were playing with that example between the two, which would you choose?
00:32:21.920 | Now, either one of those you might choose and there would be people who would choose both of
00:32:28.160 | them. Many people, however, if they were offered the confidence and the security of knowing
00:32:33.760 | that they could get a guaranteed 6%, they would give up the extra 2% of return,
00:32:40.320 | even if you run the calculations for the confidence of knowing. You don't know until
00:32:45.360 | you get in the situation and you ask. Depending on where you are in that phase of life, whether
00:32:52.240 | you are a child or an adult, are you just starting out, are you in the accumulation phase,
00:32:56.240 | or preservation phase, or distribution phase, this will dramatically affect your financial plan.
00:33:06.640 | It should. It's right that it does. But you don't know what somebody should do until you
00:33:11.200 | get the fact pattern. You only know what you should do in your fact pattern.
00:33:15.680 | Number two is risk tolerance. It may feel like we just talked through risk tolerance,
00:33:20.720 | but I'm going to give you a different idea now. What's your personal risk tolerance in your life?
00:33:24.560 | Example, are you very much focused on saying, "I've got to get all my debt paid off,
00:33:29.840 | and I don't want to owe any money for anything," or are you comfortable and cool with carrying debt?
00:33:35.680 | Big difference between those and how you structure a financial plan.
00:33:40.640 | How about your financial asset risk tolerance? Are you comfortable with owning financial assets
00:33:48.160 | over which you don't have any control, or do you want control over your financial assets?
00:33:53.760 | Are you willing to invest as a minority shareholder in publicly traded companies,
00:33:59.440 | where you basically don't have any control? Are you comfortable enough that the board of directors
00:34:05.920 | is being held accountable by the shareholders, and the board of directors is properly supervising
00:34:10.400 | the company, and they have your best interests at heart? Or does that make you just sweat all night
00:34:15.600 | long, tossing and turning, and you've got to get out, and you've got to have something where you
00:34:20.400 | get control in it? What about your risk tolerance for the portfolio? Are you comfortable with a
00:34:26.320 | volatile portfolio, or are you uncomfortable with it? Volatility and lack of comfort with
00:34:30.720 | the volatility of a portfolio destroys investors' returns. It really does. It destroys investors'
00:34:38.320 | returns, because what happens is people generally think that they're more comfortable with
00:34:44.240 | volatility than they are, but we fear loss, and we feel loss much more than we do the gains and the
00:34:53.360 | wins. What about your personality? Number three. I've talked a lot about entrepreneurship, but I
00:34:59.280 | was reminded the other day when I was reading an email from a listener, and I was reminded that
00:35:03.360 | I don't think everybody should be an entrepreneur, and I've recognized that maybe I've gone a little
00:35:08.240 | too heavy on that with the content I've produced so far. Many people, who knows, maybe it's the
00:35:15.600 | majority of people, I really don't know, many people are entirely content in a traditional
00:35:22.720 | employment situation, and that's fine. Some personalities really prefer that. Many personalities
00:35:32.640 | really prefer that. They like the stability, and frankly, it's pretty easy. You only have to work
00:35:37.280 | 40 hours a week if that's what you work, or 30 or 20 or whatever, and the job stays there. That has
00:35:42.320 | a lot of attraction. So you've got to factor that into your personality. So now, if you are an
00:35:49.040 | employment type of person, that leads you in one direction, versus if you're an entrepreneur type
00:35:53.200 | of person, that leads you in a dramatically different direction. It's a big deal. What
00:35:59.760 | about your skills? What skills do you specifically have? Do you have mechanical skills? Do you have,
00:36:06.720 | I don't know, construction skills? Are you highly literate literacy skills or investing skills? Do
00:36:13.120 | you have certain skills? That is going to drive what you do, or it should drive what you do.
00:36:23.840 | What about goals? What are your actual goals? What lifestyle do you actually want?
00:36:29.040 | Do you want to live in the country and work on a farm? If you want to live in the country and
00:36:33.520 | work on a farm, that's probably going to affect your investment portfolio. Maybe you'll be
00:36:37.440 | focusing more on real estate and buying productive cropland in Iowa or Nebraska or Florida.
00:36:44.080 | Maybe you're going to buy attractive timber and equipment. In this situation,
00:36:50.480 | investing in a one-ton pickup truck, that could be an incredibly good decision,
00:36:55.280 | because that pickup truck may now be a very valuable asset for your personal productivity.
00:37:00.000 | Now, to go to the opposite side of the spectrum, maybe you want to travel the world and live out
00:37:04.960 | of a backpack. Well, in this case, you definitely don't want to own any stuff, so that one-ton
00:37:10.000 | pickup truck is a massive liability for you. So you probably want to design an income plan
00:37:15.920 | and an investment plan that you can manage online. And then your investment plan is going to be
00:37:21.440 | driven by what you can do when and how much money you have. So do you have enough money that you can
00:37:26.800 | just buy an index fund and forget about it? Do it. Or if not, what are you going to do to get the
00:37:33.280 | money that you need? Are you going to try to learn to trade because you need the excess return? Do
00:37:38.320 | you have the time or the knowledge or the experience to trade, or are you just going to
00:37:41.760 | destroy your portfolio balance through bad trades and now you're done? Or maybe you're better off
00:37:48.880 | just saying, "I don't know anything about investing. I don't care about investing. I don't have any
00:37:52.640 | interest in that, and I've got great graphic design skills. So now I can take my computer and
00:37:57.040 | I can follow my dream of living in a backpack, and I can design brochures or logos or websites
00:38:03.920 | for people, and I can do it all on my own." Or maybe you don't have that, so your financial plan
00:38:08.400 | is to say, "I'm going to use my language skills and my people skills to teach English." There's
00:38:14.400 | nothing wrong with that. But that's going to dramatically affect what you do. In the one
00:38:20.800 | situation, it's like this whole thing about cars. I'm not a fan of owning cars. I don't want to,
00:38:24.480 | but I also don't have a lifestyle that needs it. Let's say that you recommend to somebody,
00:38:34.240 | "You know what? You should drive just a Honda Civic. What about the guy that needs to go buy
00:38:37.920 | a one-ton pickup truck to pull this big giant trailer that he's going to haul cars across the
00:38:44.000 | state with and make his money?" I meet some of those guys. I love to go to truck stops when I'm
00:38:47.520 | on the road, and I always meet those guys. I always talk to them, see how much money they make.
00:38:51.840 | I would do that before I do some other things. That would be lower on my list because I wouldn't
00:38:56.720 | want to be away from home like those guys are. You go out, you can buy a brand new pickup truck.
00:39:03.200 | You got a $450 a month payment. You buy a trailer, you got a trailer payment, but now you've got
00:39:07.280 | something that you can build your business with. Does it come with expenses and costs? Absolutely.
00:39:11.520 | But that's where something that... I wouldn't want to go buy a brand new one-ton pickup truck,
00:39:17.120 | but that doesn't mean it's stupid for everyone to do it. Maybe this is obvious to you, but anyway,
00:39:22.880 | didn't used to be obvious to me. What are your assets and liabilities? Where are you starting
00:39:27.760 | from? What do you have to work with? How are things set up? It's going to be very different
00:39:33.440 | if you're designing a financial plan for yourself or for someone else, if they have very high fixed
00:39:38.480 | costs with a lot of debt or if they don't. Consider the example. If you haven't read it,
00:39:45.760 | it's worth reading. I assume it's out of print at this point, but years ago, I think Donald Trump's
00:39:50.640 | first book was called The Art of the Deal. I remember reading it when I was a kid. I read his
00:39:56.240 | book, Art of the Deal, and he tells in that book, The Art of the Deal, he tells the example of how
00:40:02.640 | when he was broke and bankrupt, and he was a billion dollars in the hole, a billion dollars
00:40:09.680 | in debt. Everything was crashing down around him. As I remember it, maybe it's become slightly
00:40:16.480 | mythological at this point, but as I remember the story from not having read it in at least 15 years,
00:40:22.560 | he said that he had this evening where he didn't want to go to a party or something like that,
00:40:28.720 | but he knew he had to. He went to some networking social function that he felt he needed to go to,
00:40:35.280 | which is kind of interesting. When some people are $30,000 in debt, they're not living very well
00:40:43.040 | if they're $30,000 in credit card debt. Donald Trump is a billion dollars in debt,
00:40:47.200 | and he's wearing a black tie and taking a limousine to a social cocktail hour in Manhattan.
00:40:53.520 | I always just chuckled about that. I guess the point was that he went to this event,
00:41:00.880 | and he met somebody or something like that, made a connection that made all the difference,
00:41:04.240 | and he was able to get his ship turned around. But if you're a billion dollars in the hole,
00:41:09.920 | sitting down and lining up your credit cards in order of highest interest rate to lowest interest
00:41:17.680 | rate and starting to pay them off based upon your cash flow, it's not going to work. Sorry.
00:41:22.640 | The plan's not going to work. You need to put together some serious deals,
00:41:27.520 | and you need to restructure everything, and you need to make some money. Consider what your actual
00:41:35.520 | prospects are. If you're starting a company, what are your actual prospects, and what do you deal
00:41:42.480 | with? I've worked with a few clients who had tens and tens and tens of thousands of credit card
00:41:49.440 | debt. But the reason they had the credit card debt is because they were funding all of their
00:41:53.520 | personal expenses while they were working on businesses with huge growth potential.
00:41:58.640 | And the whole time they're just looking at the business opportunity saying, "I'm not really
00:42:03.200 | comfortable with this, but this is what I've got to do. I see that this business has legs. I'm not
00:42:09.680 | deluding myself here. I'm not just taking a trip to Europe. I'm consciously making a choice to
00:42:18.320 | pursue this path." Guess what? It worked. Business took off. Succeeded. I've read plenty of stories
00:42:26.720 | of people I haven't even worked with, and I've worked with people. And you know what? If they
00:42:30.160 | hadn't, you'd have to deal with that at that point in time. But that's the thing is there's this idea
00:42:36.160 | of scale that a lot of times people forget about. So consider it. Capital. What capital do you have?
00:42:42.880 | The son of an elite banker has very little need for money, not because his father is necessarily
00:42:50.000 | wealthy, but because his dad can just make a phone call and make just about anything happen.
00:42:54.800 | So do you have that kind of social capital to work with? Are you the son of an elite banker?
00:43:01.440 | Now on the other hand, the son of a poor peasant is likely going to have very little access to
00:43:09.200 | money and is really going to need to focus on leveraging their intellectual capital to
00:43:14.480 | gain attention. Unlikely? Probably. Has it happened? Absolutely. So maybe you're leveraging
00:43:21.200 | something else and you've got to gain attention. You've got to do something dramatic or go
00:43:25.040 | design your plan in a very different way. It's interesting on the topic of capital.
00:43:31.280 | I did the interview with Curtis Stone about how he makes a living on a third of an acre. He makes
00:43:36.800 | $80,000 a year farming a third of an acre with no debt. He doesn't even own the land. He just
00:43:40.960 | borrows the land from other landowners. I was talking about forms of capital and I saw some
00:43:46.640 | comments on the show and people were talking about the permaculture, eight forms of capital.
00:43:50.640 | I'd never even heard of that. So I went and checked it out and it's pretty cool. I guess
00:43:55.120 | I wasn't the first one to come up with the other forms of capital. I'd heard people talk about it,
00:44:00.880 | but I didn't know that they'd formalized it. So they came up with these eight forms of capital.
00:44:05.840 | Intellectual capital, spiritual capital, social capital, material capital, financial capital,
00:44:12.320 | living capital, cultural capital, and experiential capital. That's a show for another day. I thought
00:44:18.000 | it was just a fascinating look though at expanding our mind beyond just this idea of
00:44:24.000 | my capital is the money that I have in the bank. What's your needed return? This is something that
00:44:32.640 | people often forget about. What return do you need from your financial plan to hit your goals?
00:44:37.520 | Very rarely do people sit down and say, "What return do I require from my portfolio?"
00:44:43.200 | Because they usually go the other way around and they say, "Well, this is what they say my
00:44:47.680 | portfolio can return." Why don't you flip that around and say, "What return do I require from
00:44:52.320 | my portfolio?" Now maybe you're going to turn this into pie in the sky type of thing and you're just
00:44:56.800 | saying, "Well, I require this percentage rate of return." Well, what that will show, even if you
00:45:01.280 | do that, and I wouldn't do that, but even if you do that, that'll show you whether or not your
00:45:05.600 | investing plan, because you got to ask the second question, the corollary is, "Does my plan have any
00:45:10.880 | hope of succeeding? Is it possible that I'm going to actually get this rate of return?"
00:45:16.160 | Accumulating mega wealth is very different from living simply.
00:45:22.960 | I don't have any interest personally in accumulating mega wealth.
00:45:28.240 | Don't care a bit. I'm a simple living guy. I'm not interested. When I have enough money to
00:45:34.400 | continue my lifestyle in the way that I like it and beyond that,
00:45:38.080 | I don't need a hundred million bucks. Don't even want it.
00:45:42.400 | The concepts might apply, but the plan is going to be very different. If you're someone, however,
00:45:49.920 | who is very motivated by, "I'm going to have as much money as possible. I need my hundred
00:45:53.680 | million dollars. I need my ten million bucks," fine, go for it. But you're going to have to focus
00:45:58.480 | very differently because you need a different rate of return. Your decisions are going to be
00:46:04.080 | dramatically affected based upon your perspective of what is likely to happen in the future,
00:46:10.160 | your outlook on the future. Do you expect positive global economic growth because
00:46:15.760 | freedom is rising around the world and capitalism is spreading and people are coming out of poverty
00:46:22.480 | all throughout Africa, all throughout India, all throughout China, all throughout Asia,
00:46:28.400 | all throughout the world? Are you betting on that? That's going to dramatically affect
00:46:34.080 | your financial plan. Now, on the other hand, do you expect the total destruction in the
00:46:41.200 | living standards in the Western world? If so, how do you protect yourself?
00:46:48.080 | If I were betting on the growth of freedom and the growth of prosperity throughout the world,
00:46:53.280 | I would be all in on the greatest companies of America and the world
00:46:58.000 | because those companies are producing products that are going to be loved. I would be looking
00:47:03.920 | to build a couple of companies of my own. Now, on the other hand, if I expected a complete
00:47:08.160 | destruction of the US dollar and we're going to go into war in the streets, man, I'm getting
00:47:14.800 | rid of all of that stuff and I'm buying a bunker and a retreat. I'm not trying to use that as a
00:47:24.800 | stupid thing. I'm just saying that your decision between them is based upon your outlook for the
00:47:29.360 | future. How do you protect yourself? Now, in either of those situations,
00:47:33.520 | are you expecting this to be temporary or permanent? Do you expect that over the long
00:47:40.240 | term, growth and freedom is going to expand and capital is going to expand or prosperity can
00:47:44.880 | expand, but there may be short terms of economic upheaval? Or do you say, "Well, there's not going
00:47:49.680 | to be short terms of economic upheaval." If you don't expect short-term periods of economic
00:47:55.200 | upheaval, it may lead you to an unwise financial plan. But on the flip side, are you expecting just
00:48:01.040 | a complete global war for your entire lifetime or are you just expecting that, "Well, there may be
00:48:09.840 | some short-term economic hiccups." That's going to dramatically affect your plan. I'm trying to
00:48:17.360 | stay away from giving, "Here's what you would do." What I'm saying is that a good planner should
00:48:22.240 | listen to you. If you can find a good planner, great. If not, do it for yourself and sit down
00:48:28.560 | and force yourself through this disciplined thinking process and say, "Here's what I am
00:48:33.600 | concerned about. Here's what I am planning for." What about your health or your expected lifespan?
00:48:40.400 | Are you healthy? Are you unhealthy? I've had clients in my office and I'm specifically thinking
00:48:48.640 | of one client and this client was facing some dramatic health challenges. They'd received
00:48:52.880 | some money and I told them, I said, "Dump that investment and go buy better health through
00:49:00.000 | going to—we have this place in West Palm Beach here, it's called Hippocrates Health Institute.
00:49:05.280 | From what I understand, it's a pretty famous place for people that have cancer and all these things
00:49:11.840 | go from all over the world. I've been there for lunch a few times. It's kind of neat." I said,
00:49:17.040 | "Take that money and go spend it at Hippocrates. Go get healthy. What good does it do to you to
00:49:22.160 | have this money sitting here if you don't have your health? If you've got a short lifespan,
00:49:27.600 | why are you saving all your money? Go enjoy your money."
00:49:30.640 | So your health or your expected lifespan is going to dramatically affect your plans.
00:49:36.960 | I expect to live to 100. It always surprises me when people say, "Oh, I live to 80," because
00:49:41.920 | they have this family history of people dying at 60. It always surprises me. All four of my
00:49:46.560 | grandparents lived in their late 90s and my grandmother's 100th birthday is in 12 days.
00:49:54.480 | I just figure, "Well, I've got to count on at least 100, I hope." But that's going to affect
00:49:58.320 | how you think about retirement. What opportunities are available to you? Where are you? What country
00:50:05.920 | do you live in? What state do you live in? What city do you live in? What part of the city do
00:50:10.320 | you live in? That's going to dramatically affect what opportunities are available to you.
00:50:14.560 | And it may very well be a better investment to get an apartment on the other side of town where
00:50:20.000 | you can get out of or to emigrate to another country where you can get out of the situations
00:50:28.160 | that you are in. That very well may be a better investment than what the personal finance book
00:50:33.680 | tells you. You've got to think about that. What's your background? I was thinking as I was preparing
00:50:42.800 | this one about what opportunities are available. Do you have an opportunity to go and spend time
00:50:47.760 | with someone who's extraordinary? I was reading an essay by Ryan Holiday. He was a guy who,
00:50:54.240 | I don't remember, he worked at American Apparel and made some money and wrote a couple books.
00:51:00.160 | But he evidently dropped out of college to go work with Robert Greene. And Robert Greene was
00:51:06.960 | an author who's written a couple of really cool books. He wrote a book called The 48 Laws of Power,
00:51:11.280 | which is fascinating. And then he wrote a book, I think it was like The 33 Principles of Seduction,
00:51:16.960 | or maybe it was 48, I can't remember. And just these fascinating books, this well-respected
00:51:21.920 | author, he had an opportunity to go intern with him. Man, I'd dump college in an instant if a door
00:51:26.240 | like that opened up. But that doesn't mean that everyone should dump college. Just you've got to
00:51:30.400 | look at your situation. What do you enjoy? What do you enjoy? Are you the kind of person that
00:51:38.400 | enjoys working with your hands, working with your brain? Do you like flying? Do you like languages,
00:51:46.080 | travel, fashion, high society, being busy, being not busy, simple life? That's going to dramatically
00:51:52.560 | affect your financial plan. Whether you go to Hong Kong and you work as a trader on a desk of
00:51:57.280 | Asian investment funds, or whether you move to the country and start a yoga studio,
00:52:05.040 | that's going to dramatically affect this. You're going to need to understand and get tapped into
00:52:08.720 | what you enjoy. What's your time perspective? There's a lot of research that's been done on
00:52:14.960 | wealth. One of the consistent things seems to be that those with a long time perspective who
00:52:20.400 | see that they can control their lives, that people with a long time perspective tend to
00:52:25.920 | accumulate more wealth because they're investing for the future. Is that you or is it not you?
00:52:30.640 | Now, I used to think that being a long time perspective person was morally superior,
00:52:35.520 | and this was what everyone needed to do. I've since come to appreciate the other side.
00:52:40.000 | I think there's a balance here. I've since come to appreciate being more focused on just simply
00:52:45.600 | enjoying now. What's your political persuasion or ideology? What's your religious ideology?
00:52:52.240 | These things are going to radically affect where you live. If you are political in one way or the
00:52:57.520 | other, it's going to affect where you live, the money you pay, it's going to affect what you
00:53:00.720 | invest in, what opportunities you consider. There's places I just simply wouldn't live
00:53:04.960 | because I wouldn't be very comfortable there. There are plenty of things that I would just
00:53:08.480 | simply refuse to invest in, no matter how good of an investment they were based upon my own
00:53:13.760 | personal political ideology and my own personal religious convictions.
00:53:19.120 | That's going to dramatically affect what I do. What's your economic forecast? Are you predicting
00:53:26.800 | inflation? By inflation, are you predicting 3% inflation annually? Are you predicting 20%
00:53:33.840 | mass inflation annually? Are you predicting hyperinflation, 120% or 1,000% annually?
00:53:42.080 | Are you predicting deflation, stagflation? What's your economic forecast? That's going to affect
00:53:48.160 | your financial plan and how you prepare. Do you have family? These are the last two here.
00:53:53.920 | Do you have family? Do you have kids? Do you have dogs? What are your family's goals?
00:53:58.720 | It's funny. If it were me, I've got a wife and a son and two dogs. If it were me, I was thinking
00:54:05.360 | about it this morning, just talking about it with my wife. I would live in the country, I think,
00:54:11.600 | and I would build a big barn in the country. Or maybe I'd buy a property with a barn already on
00:54:16.240 | it. I would park a fifth-wheel RV in that barn. I'd live in the fifth wheel inside the barn
00:54:20.400 | because then I got a comfortable bed. I got a nice place to sit. I got a nice desk. I don't
00:54:25.360 | have to deal with a big house. Then that fifth wheel, I can take it wherever I want, but I would
00:54:29.520 | live inside the barn so it's a little more comfortable. I can have a little more space
00:54:34.240 | outside that's covered. One of my favorite authors is an author named Clive Kessler.
00:54:40.240 | He wrote this series of books. In one of his series of books, his hero was a man named Dirk
00:54:46.560 | Pitt. Dirk lived in this old dilapidated airplane hangar on the corner of an airport. When you went
00:54:52.880 | into it, it was filled with this classic automobile collection. He had a small studio apartment built
00:55:00.400 | in the top of the hangar. It's just this total quintessential guy thing. It was old and dilapidated
00:55:07.680 | from the outside, but when you opened it up, it was gleaming with all these shiny cars,
00:55:11.760 | a little studio apartment up top. Then he actually had a train car for his guests to stay in. Down
00:55:18.000 | on his hangar with all of his cars, he had a train car sitting there. That was where he would put his
00:55:22.400 | guests, in the train car for their accommodation. I always used to think that was the coolest thing.
00:55:27.520 | But whether you have family or kids or dogs, that's going to affect your financial plan.
00:55:32.720 | The fact that I have two dogs makes it more challenging for me to go and rent a studio
00:55:38.320 | apartment in a cheap place in town. It's just a cost of life. It's a decision.
00:55:42.960 | So if someone is trying to advise me, "Joshua, you should go and rent this cheap apartment,"
00:55:50.320 | it's going to be tough. I've got a kid and dogs. That makes it more difficult.
00:55:55.200 | Where is your extended family? One of the major factors for people who are retiring
00:56:01.760 | is where their kids and grandkids live. It's a major, major factor. So can you plan ahead for
00:56:07.520 | that? Is it more intelligent for you to invest in a property that would have accommodation locally
00:56:15.200 | and to invest to live in a place where it's more likely that your kids and grandkids are going to
00:56:19.840 | want to stay than where they're going to move away and now you have to go and chase them?
00:56:24.160 | Can you plan ahead for that? I think you can. And then lastly, what's your specific alternative use
00:56:32.160 | of the dollar? What's your alternative use of the dollar? If you're thinking about, "Should I pay
00:56:39.440 | off my mortgage?" What would you do with the money instead? Would you rather put a down payment on a
00:56:46.640 | little piece of land out in the country and prepare for a time of economic depression?
00:56:51.040 | Would you rather buy another rental house? Or would you rather own some stocks?
00:56:58.320 | Or would you rather buy some shares of a speculative oil and gas limited partnership?
00:57:06.320 | Or would you rather simply owe less money on your mortgage?
00:57:09.840 | See, what happens a lot of times is we're looking for a sense of certainty from someone else. We're
00:57:15.760 | looking for approval. And so what happens is that we look to an outside expert many times
00:57:21.440 | for that sense of certainty. And once we find our expert, we just simply grab onto our expert and
00:57:28.240 | say, "Well, this is what the expert says, so this is true." Now, nothing wrong with experts, but an
00:57:32.800 | expert, a good expert, should be able to teach you why they believe what they believe and should
00:57:37.680 | help you to develop a philosophy that makes sense to you and not just simply say, "This is what you
00:57:42.720 | should do." We've got to build that self-confidence. And when we do, when we build that real deep
00:57:49.360 | self-confidence, I believe we'll make much better decisions. Those are my ideas on this topic. I
00:57:57.760 | hope that that's helpful to you. I know it's kind of a little bit different, but I just encourage
00:58:02.480 | you to think about your situation in unique ways. Think creatively. I'm doing my best to bring you
00:58:09.360 | great content every day with new people who are thinking creatively and with people from all
00:58:15.440 | different walks of life solving their problems in all kinds of ways. And I'm intentionally looking
00:58:19.920 | for people who have been massively successful, moderately successful, and not at all successful.
00:58:26.720 | I'm intentionally trying to stay away from just bringing high-performing entrepreneurs or
00:58:32.880 | multi-millionaires to the rescue. Nothing wrong with that stuff, but sometimes it's hard to learn
00:58:37.760 | from those people. So sometimes just an idea will spark from a place that you don't really expect it
00:58:44.240 | to be. So I hope that you can take this content and consider how you can apply some creativity
00:58:51.440 | to your own situation. That's it for today's show, Monday show. This week, what I've got coming for
00:58:57.120 | you tomorrow, Tuesday, I've got an interview with David Stein. He was a portfolio manager on the
00:59:02.480 | institutional side for about 20 years or so, retired in his mid-40s. I think you'll enjoy
00:59:07.200 | listening to him. We had a really great conversation. I'll be playing that interview
00:59:09.840 | for you tomorrow. Wednesday, we'll be back to hardcore financial planning. And I'm not sure
00:59:14.400 | which of the series we're going to continue forward yet, but I will work on one of them.
00:59:18.160 | Thursday is going to be an interview with Ryan from re-craigslist.com. Ryan and his family were
00:59:25.200 | deeply in debt. They grew up more than 25 grand in credit card and unsecured debt, maybe more,
00:59:30.080 | I can't remember. And he worked his way out. He has a stay-at-home wife and five kids, and he
00:59:35.120 | worked his way out of debt over the course of about four years, making his living entirely on
00:59:40.480 | Craigslist. Self-employed, buying and selling stuff on Craigslist, made his money and paid off all his
00:59:46.080 | debt doing that. For Friday, I need a question for Friday. I haven't received any voicemails yet on
00:59:51.040 | the voicemail line. So pull up the site, radicalpersonalfinance.com, and head over and
00:59:56.400 | leave me a voicemail on your phone or on your computer, and maybe I'll get a voicemail in for
01:00:00.720 | Friday or five or 10 of them. That would be awesome. Thanks for listening, everybody. Be back tomorrow.
01:00:06.240 | [Music]
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