RPF0277-Early_Retirement

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00:00:29.800 | Do you have some money in your bank account?

00:00:33.680 | Good.

00:00:34.680 | That's a good place to start.

00:00:36.680 | If not, don't worry about today's show.

00:00:39.120 | Just skip to a different show.

00:00:40.640 | But if you do have money in your bank account or some type of account, are you aware that

00:00:46.760 | just about every day that money is losing value?

00:00:51.400 | It's becoming worth systematically less and less.

00:00:55.520 | This we like to call inflation and it's a careful design of our currency.

00:00:59.920 | In fact, the controllers of our currency supply, the Federal Reserve Board, there's a lot of

00:01:05.920 | hand wringing in Washington right now.

00:01:07.480 | They can't create as much inflation as they've been working to create.

00:01:12.160 | But inflation calls for a defensive plan.

00:01:16.280 | Today we're going to talk about how do you protect your wealth from the effects of inflation

00:01:21.680 | in retirement.

00:01:23.800 | And more importantly, if you are an early retiree, how do you protect your wealth from

00:01:28.040 | the effects of inflation over a very long period of time?

00:01:51.840 | Welcome to the Radical Personal Finance Podcast.

00:01:53.720 | My name is Joshua Sheets and I'm your host.

00:01:55.520 | Thank you for being with me today.

00:01:57.240 | Today we talk inflation with a man named a rebel spy or Arabelspi.

00:02:02.560 | Well, that's actually not his name.

00:02:04.680 | His name is Joe and he's an awesome guy.

00:02:07.360 | And even if you don't care about inflation, make sure you stay listening to this interview

00:02:12.620 | to hear how a couple of teachers gained financial independence on a teacher's salary by the

00:02:18.800 | age of 30.

00:02:24.480 | Perhaps for some of you, that might be even more interesting than the inflation conversation.

00:02:28.960 | I was able to coax a little bit of information out of Joe about his story.

00:02:32.200 | He didn't want to talk about it too much but I coaxed just a little bit out of him

00:02:35.400 | about how he and his wife, starting with nothing, both of them working as government school

00:02:40.160 | teachers have been able to save their way to financial independence by the time that

00:02:44.480 | they were 30 years old.

00:02:45.480 | You're going to hear a little bit of that story.

00:02:47.480 | Joe has been on the show a couple of times previously.

00:02:50.740 | He is well-known online under the username A Rebel Spy or if you did what I did and many

00:02:58.820 | others do, Arabelspi.

00:02:59.820 | That's how I thought of him as years.

00:03:02.280 | But you've seen him.

00:03:03.280 | He is a moderator in the popular Mr. Money Mustache online forums and you'll see his

00:03:09.640 | screen name splashed across the internet in the personal finance space.

00:03:15.700 | But one of the things that I have enjoyed with conversations with Joe is Joe is not

00:03:19.480 | promoting anything.

00:03:20.480 | He doesn't even have a website.

00:03:22.520 | He's not particularly trying to get anybody to do anything.

00:03:25.440 | He's just one of those quiet guys who's sitting around working on his own plan, systematically

00:03:30.320 | building his financial independence and building it for himself and his family, studying his

00:03:35.260 | way through.

00:03:36.260 | He's very knowledgeable about various aspects of finance as you may have heard if you've

00:03:40.840 | heard previous episodes with him.

00:03:43.120 | He's just a normal guy who's a knowledgeable guy and his extensive involvement in online

00:03:50.540 | forums has led to his facing just about all the different questions that relate to finance.

00:03:55.440 | That's why I brought him on for this FAQ series of what are the most frequently asked questions

00:03:59.820 | of early retirement.

00:04:00.820 | Today, we talk about inflation.

00:04:02.840 | How do you protect your wealth against the damaging effects of inflation?

00:04:05.760 | This is of special interest to Joe because he's 30 years old and he and his wife have

00:04:10.360 | quit their jobs and they are currently traveling around the world expecting never to return

00:04:14.400 | to the world of paid employment again unless they choose that that's something that they

00:04:18.320 | want to do.

00:04:19.680 | Well, inflation is a little different if you're 30 years old versus if you're 70 years old.

00:04:23.800 | It takes a little bit of a different plan and you're going to hear that during the course

00:04:27.120 | of today's interview.

00:04:29.560 | This interview is not a carefully scripted put together presentation where he or I are

00:04:34.560 | trying to convince you to do something.

00:04:36.680 | This is more like the kind of conversation you might hear if Joe and I had been sitting

00:04:40.920 | down in person sharing a cold drink some evening somewhere together and we were sitting around

00:04:46.240 | the table talking about financial topics.

00:04:48.920 | That's more the ebb and flow of this conversation.

00:04:51.520 | So if you enjoy that type of interaction, you'll enjoy today's interview.

00:04:56.320 | Before I play the interview though, I'd like to just thank our sponsors for today.

00:04:58.960 | Sponsor of the day number one is SoFi, the social finance corporation who specialize

00:05:04.600 | in helping you refinance your student loans.

00:05:07.720 | One of the things that we always want to be working for is minimizing cost in all area

00:05:12.000 | of our life.

00:05:14.040 | One very important way to do that is to minimize cost on interest rates.

00:05:18.180 | If you have debt in your life, all things being equal, the lower you can get the interest

00:05:22.240 | rates, the better because you'll save money and there'll be less money out of your pocket.

00:05:26.080 | Now, don't think for an instant that lowering interest rates is somehow going to magically

00:05:29.920 | save you from a debt situation.

00:05:32.040 | It's not.

00:05:33.040 | If you're working on paying off a debt or if you've chosen to deploy your money into

00:05:36.680 | other investments that are growing at a rate of interest higher than your debt, then go

00:05:42.200 | ahead and try to lower your debt costs as much as possible.

00:05:45.660 | One way that you can do that is to refinance your student loans.

00:05:49.200 | SoFi specializes in student loan refinance.

00:05:51.680 | They have rates that are substantially lower than most other sources.

00:05:55.860 | If you'd like the information on that, please go to RadicalPersonalFinance.com/SoFi.

00:06:00.960 | They have a very quick, very simple online application process where they'll give you

00:06:05.160 | a very quick answer letting you know if you qualify for refinance with their terms and

00:06:09.980 | if so, what the rates will be.

00:06:11.820 | If you use my tracking link, you will get a $200 bonus credited to you, $200 bonus for

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00:06:20.400 | The way you do that, go to RadicalPersonalFinance.com/SoFi and apply online.

00:06:30.920 | It's a great modern process and see if you can save some money on your student loans.

00:06:35.200 | Sponsor of the day number two today is Patrick Snow.

00:06:37.360 | Patrick is my personal publishing coach.

00:06:39.760 | As we begin the year in 2016, if you've ever thought about writing a book, why don't you

00:06:45.000 | follow through and actually make it happen?

00:06:46.600 | It's a New Year's resolution for many people and what happens is we often try to do things

00:06:51.120 | over and over and over by ourselves.

00:06:53.440 | Well, I don't know about you, but personally I believe in hiring the best advisors and

00:06:58.760 | consultants that I can find and that was the process with my hiring Patrick Snow to work

00:07:04.080 | with me as my publishing coach.

00:07:05.920 | Patrick has helped me lay out a plan for the book.

00:07:08.360 | He's helped me with some of his templates.

00:07:10.560 | I'm not using some of his templates because I've already had some other ideas, but he

00:07:13.680 | sent me his templates and things that would help me just create the book even if I wasn't

00:07:18.080 | sure of all the ideas to actually create and publish a book.

00:07:21.600 | It's probably one of the best marketing tools that you could have for your personal brand,

00:07:26.600 | for your personal business, etc.

00:07:29.040 | So connect with Patrick.

00:07:30.320 | Find out more information on him at thepublishingdoctor.com.

00:07:34.040 | You can find some interviews with him and some details on all of his different packages

00:07:38.080 | and services.

00:07:39.080 | If you're remotely interested, reach out to him for a complimentary consultation.

00:07:41.880 | He'll give you a 30 to 60-minute complimentary consultation, give you some nuggets of advice

00:07:46.360 | on what you should do, whether or not you choose to hire him, that's up to you.

00:07:50.400 | But check out his information at thepublishingdoctor.com.

00:07:53.200 | Let him know I sent you.

00:07:54.960 | Right now, sit back, relax, and enjoy the interview with Joe.

00:07:59.440 | Joe, welcome back to Radical Personal Finance.

00:08:02.440 | Joe F. Luskowitz, CFO Alphabet and Google

00:08:03.280 | Thanks, Joshua.

00:08:03.880 | Glad to be back.

00:08:04.680 | Always enjoy chatting with you.

00:08:06.080 | I was looking through the archives and the last time you were on the show was episode

00:08:10.480 | 95.

00:08:12.040 | So I'm not sure if it's about a year or almost a year, but it's been quite a while.

00:08:16.560 | I'm excited to have you back on to talk about some of these early retirement frequently

00:08:20.120 | asked questions.

00:08:21.280 | But before we get into the question of the day, which is we're going to focus primarily

00:08:25.400 | on how to handle inflation in your retirement planning, a few things have changed since

00:08:30.120 | the last time we talked.

00:08:32.320 | Where are you right now in the world?

00:08:34.320 | Yeah.

00:08:35.320 | Right now, I am in Zagreb, Croatia, staying in an apartment we have rented on Airbnb for

00:08:41.640 | a couple of weeks.

00:08:45.440 | Since last year, my wife and I actually decided to pull the plug on working and we quit our

00:08:51.920 | jobs in June, both teachers, and now we are kind of full traveling the world and checking

00:09:02.000 | out some places, seeing what there is to see.

00:09:05.160 | So she turned, let's see, 67 and you just turned 68, right?

00:09:09.080 | To be able to retire as a teacher.

00:09:12.440 | Right.

00:09:13.440 | And I actually retired right before my 30th birthday.

00:09:18.320 | So now I'm 30, but I managed to squeak it in right at 29, about a week before I turned

00:09:23.640 | 30.

00:09:24.640 | And then my wife's a year younger.

00:09:25.640 | She's 29 right now.

00:09:26.640 | No.

00:09:27.640 | So then obviously, your dad died and left you a couple million bucks and you used that

00:09:32.000 | to retire on it.

00:09:33.440 | That's obviously what happened, right?

00:09:35.840 | No.

00:09:36.840 | Thankfully, both of my parents are still in great health.

00:09:40.840 | We didn't get any inheritances or win any lotteries.

00:09:44.020 | We had a lot of fortunate things happen in terms of we were both raised in loving households

00:09:53.600 | that taught us the importance of education and learning, reading.

00:09:59.720 | And then we just were very frugal and invested a lot and put in extra effort and yeah, managed

00:10:09.840 | to pull it off.

00:10:12.600 | So I know obviously I'm being a little bit tongue in cheek here with my questions, but

00:10:17.520 | it is a remarkable story.

00:10:19.440 | It's not a common, even though it seems like there have been a couple people on the show

00:10:22.640 | in past episodes who are teachers who've built their way to financial independence.

00:10:27.680 | It's not a common idea that people say, "I'm going to go into the profession of teaching

00:10:32.480 | and use that to get rich so I can retire early."

00:10:36.260 | At what point in time did you guys get hold of this idea of early retirement?

00:10:42.800 | That's a good question.

00:10:44.600 | It was probably right around when we started working.

00:10:47.760 | We graduated college in 2007 and right as stuff was peaking, right before the recession.

00:11:00.600 | I wasn't planning on becoming a teacher.

00:11:04.880 | It was something I signed up for two years for with Teach for America to try and help

00:11:11.440 | close the achievement gap in lower income communities and just fell in love with teaching.

00:11:17.880 | Just enjoyed so much going to school every day and working with these kids.

00:11:25.800 | But I knew that doing that wasn't necessarily something I wanted to do my entire life.

00:11:34.080 | I think right around that time, we had already been reading personal finance blogs like Get

00:11:40.120 | Rich Slowly back in 2006.

00:11:41.880 | I think we first stumbled on that and then Jacob Lundfisker's Early Retirement Extreme

00:11:46.600 | in 2007.

00:11:49.680 | All along had some of these influences and just started investing and saving and buying

00:11:56.000 | rental properties and slowly and steadily making our way towards that.

00:12:02.400 | So, it is exciting and congratulations.

00:12:04.680 | You're in Croatia now and where have you been so far and where are you heading and

00:12:08.840 | then we'll get to the meat of our conversation today.

00:12:13.400 | We started off doing a religious pilgrimage called El Camino de Santiago in Spain.

00:12:23.000 | It's about a 500-mile walk across northern Spain and there's all these different routes

00:12:28.640 | to get to the city of Santiago.

00:12:32.880 | But it's this pilgrimage that's been going on for over a thousand years that people will

00:12:38.280 | walk this and at the end, you get this certificate of completion, a compostela from the Catholic

00:12:44.720 | Church.

00:12:45.720 | Neither of us are particularly religious but it's kind of people of all walks of life

00:12:50.540 | do it nowadays for whatever spiritual or physical or whatever reasons they have.

00:12:57.040 | It took us 35 days to walk and we were not prepared.

00:13:04.640 | It was a lot harder than we thought it would be.

00:13:09.440 | We read some books about it and there's a movie called The Way with Martin Sheen that

00:13:13.040 | came out in 2010 about this walk and most of them kind of, they don't mention how difficult

00:13:20.640 | it might be.

00:13:22.040 | I think it has a survivorship bias in that all the people who go there and walk for three

00:13:27.520 | days and then stop walking and quit, they don't tell their stories.

00:13:33.120 | Anyone who's completed it and writes a book about it obviously enjoyed it.

00:13:37.600 | But anyway, so we did that.

00:13:39.140 | We walked across northern Spain for 500 miles for a little over a month and then we went

00:13:48.120 | to Portugal for about 10 days and then we went to Germany for about two weeks and then

00:13:54.600 | we went up to London for about a week and down to Marrakesh, Morocco for about two weeks

00:14:00.720 | and now we've been over in Croatia for Split and now Zagreb.

00:14:05.680 | And then we're going over to Istanbul.

00:14:08.880 | My wife is currently pregnant and due January 31st.

00:14:12.320 | - Congratulations, dude.

00:14:13.320 | I didn't know that.

00:14:14.320 | Congrats.

00:14:15.320 | - Thank you.

00:14:16.320 | Yeah, thanks.

00:14:17.320 | So that was kind of our plan all along was to retire and then start raising kids so that

00:14:23.200 | we can be full-time parents.

00:14:27.000 | So we're going to be having the baby in Istanbul.

00:14:29.480 | We're going there in a week or two and we'll be settling down there for three months, having

00:14:35.880 | the kid and then move on from there.

00:14:39.920 | - That's exciting.

00:14:40.920 | Awesome.

00:14:41.920 | So let's get to the major question that we're here to talk about today.

00:14:45.520 | It's been a while and you're a friend of the show and I wanted to have that personal update

00:14:49.040 | because I think it's really inspiring.

00:14:50.840 | I definitely – we're the same age.

00:14:52.560 | I don't know.

00:14:53.560 | Maybe I'm a year ahead of you or half a year ahead of you but I sometimes wish back.

00:14:57.960 | I wish in 2007 when I graduated from college, I wish I had found Early Retirement Extreme

00:15:03.680 | then instead of, I don't know, 2012 or something like that when I finally found it.

00:15:09.400 | I would be in your position.

00:15:11.120 | But unfortunately, I have some money in IRAs and Roth IRAs and I had some good times because

00:15:14.560 | I saved my 10 or 15 percent, Joe.

00:15:17.920 | - You were ahead of most people.

00:15:19.520 | - I was ahead of most people but I feel like I got sold the short end of the stick by the

00:15:23.560 | financial planning profession because I did what they said and I'm 30 and I'm not rich.

00:15:28.920 | I'm rich in many things and richer than most but still have a long way to go toward financial

00:15:33.480 | independence.

00:15:34.480 | So let's talk about inflation.

00:15:37.120 | Inflation is one of those words that brings fear into the heart of most traditional retirees

00:15:43.000 | and it's one of those things that as a financial advisor, we spend a lot of time talking to

00:15:46.800 | people about how to protect themselves from inflation, how to plan for it.

00:15:50.960 | You are basically screwed because you're 30 and you got 70 years to live off of this nest

00:15:56.920 | egg.

00:15:58.480 | Do you wake up with cold sweats in the middle of the night thinking about and worrying about

00:16:02.200 | the inflation of the currency and the fact that you're going to be broke in the future?

00:16:07.880 | - Not exactly.

00:16:08.880 | I do worry about it.

00:16:10.040 | I think that inflation is the number one enemy of the early retiree.

00:16:15.680 | I think because like you said, I've got decades and decades for the purchasing power of my

00:16:22.840 | money to just erode.

00:16:25.120 | So while I'm not worried about it, I definitely think it's something that is important to

00:16:29.720 | talk about and plan for.

00:16:33.120 | - How do you-- well, let's start with talking about what is inflation.

00:16:37.680 | What are the major aspects of inflation that you consider and how they're going to affect

00:16:41.840 | your life?

00:16:42.840 | - Okay, so inflation just in general is just the idea that things get more expensive over

00:16:50.320 | time and prices tend to increase and the value of your money goes down.

00:17:00.140 | We see this example whenever we look at anything from more than a few decades ago, something

00:17:06.240 | from the '50s where someone goes in to get a soda bottle for five cents or you look at

00:17:13.000 | the median house price and it was $5,000.

00:17:15.400 | My wife and I were watching It's a Wonderful Life yesterday because now it's Christmas

00:17:18.600 | time we can watch all those fun movies and George Bailey in there goes, "You know how

00:17:23.040 | long it takes a working man to save up $5,000?"

00:17:25.160 | because he's talking to Mr. Potter.

00:17:28.560 | Right now, I think the poverty line is somewhere around $20,000, four times that.

00:17:32.760 | So you look at examples like this and you see that money buys less things over time

00:17:40.480 | and there's a number of reasons why but that's just generally the idea of what inflation

00:17:45.840 | is.

00:17:46.840 | So if you are an early retiree and you go, "Okay, I want to buy things," but they get

00:17:52.160 | more expensive over time, obviously you're not working anymore, your salary is not going

00:17:56.640 | to increase, so you're going to have to do other things to make up for that, to make

00:18:03.000 | sure that your purchasing power doesn't erode via growing your portfolio in your retirement.

00:18:10.920 | What kind of things?

00:18:13.940 | So there's a few different ways to protect yourself.

00:18:18.600 | In a word, or I guess in two words, asset allocation.

00:18:23.760 | Looking at what sort of things am I invested in and how can I make sure those things themselves

00:18:30.960 | keep up with inflation.

00:18:32.520 | So specifically, there's types of investments called TIPs, they're Treasury Inflation Protected

00:18:41.180 | Securities and IBONs and those are both very similar things.

00:18:46.980 | We probably don't need to go into the differences then, but they're basically like a savings

00:18:51.840 | bond from the government that adjusts with inflation.

00:18:56.280 | So you get paid out every six months, twice a year you get paid interest on it and that

00:19:02.520 | interest increases with inflation, it's pegged to an inflation index and as inflation happens

00:19:11.700 | and the price of goods rises, your interest payment rises and also the principle of that

00:19:16.460 | bond itself rises.

00:19:18.600 | So it's not worth any more at the end unless you're getting a rate plus inflation, but

00:19:29.400 | it holds its value if that makes sense.

00:19:31.160 | But you're not trying to live off of the income, a 30-year-old early retiree, you're not trying

00:19:35.160 | to live off the income from a TIPs portfolio, are you?

00:19:38.080 | No, I'm not personally.

00:19:40.360 | That's one asset I think should be in, if you're making a balanced portfolio, that's

00:19:46.800 | one asset I think every early retiree should consider.

00:19:50.360 | I don't think, I think if you saved up and put your whole nest egg into TIPs, that's

00:19:58.480 | certainly one way to handle deflation.

00:20:01.400 | I think you open yourself up to other potential problems like deflation.

00:20:08.160 | You might be kind of overprotecting yourself and then the other downside is they don't

00:20:13.520 | have a lot of growth potential, meaning you're probably going to have to work a lot longer

00:20:18.720 | and build a lot larger nest egg to be able to survive on the returns from those TIPs.

00:20:25.880 | So how are you planning for inflation?

00:20:28.480 | So me personally, we have a number of rental properties.

00:20:31.300 | So real estate is another great inflation hedge simply because the value of the land

00:20:38.240 | will tend to go up with inflation as well as the actual whatever improvements are on

00:20:42.600 | the land because like I mentioned earlier, that $5,000 house may be $100,000, $200,000

00:20:49.680 | now because the goods themselves, the materials, the wood, the nails, the shingles, whatever

00:20:58.080 | the house is built of goes up with inflation.

00:21:01.520 | So any new person wanting to buy a house, say a young couple buying a new house, if

00:21:07.640 | a new house had to be built for them, then all those goods that are used to build it

00:21:13.280 | would cost more to buy and all the labor of the people building it, also their wages have

00:21:17.720 | gone up over time so their labor costs more.

00:21:20.320 | So the house itself costs a lot more to build.

00:21:22.860 | So then your house that's older, it may not sell for the same as a new house, but it's

00:21:27.100 | still going to rise as those new home prices rise.

00:21:31.560 | So the underlying value of that hard asset rises with inflation and then also any income

00:21:37.760 | it produces.

00:21:38.760 | Our rents, we can increase the rents on our tenants as sort of wages rise.

00:21:46.120 | So if our tenants get a raise at work, a cost of living raise because of inflation, then

00:21:54.960 | we can raise their rents and now we just got a cost of living raise.

00:21:57.720 | Mad Fientist I think real estate is definitely really

00:22:00.840 | powerful for this and the reason is real estate is always going to be – the value of real

00:22:05.520 | estate is always going to be tied to the actual value in the local economy, which is going

00:22:10.320 | to be driven by the local jobs, the local wages, the local things to buy and sell.

00:22:15.960 | It's all going to be driven by what's actually happening in the economy.

00:22:19.480 | If you're living on the rental income from a portfolio – excuse me, if you're living

00:22:24.640 | off of the income from a rental portfolio, then that rental income, it may grow or it

00:22:29.800 | may shrink as you have to adjust rents to stay in line with the local markets.

00:22:34.240 | But the value of that house, because it's a tangible good that's providing a commodity,

00:22:39.080 | a place to live, the value of that house is going to stay consistent with whatever the

00:22:43.400 | local market is doing.

00:22:45.440 | So if you buy right, at the very least, your income can adjust and fluctuate as you adjust

00:22:50.880 | your rents, assuming your houses are in good shape and all that.

00:22:54.280 | Your income can adjust with the local economic environment.

00:22:57.320 | Now if you are investing in a rental portfolio in Detroit, that might mean over time your

00:23:04.600 | standard of living is going to decrease because the local economy has fallen apart.

00:23:09.720 | Or if you are doing it in San Francisco, it might have increased over the last number

00:23:14.500 | of years as the economy has improved.

00:23:16.880 | But it's directly tied to the local economy, which is where you're going to be buying

00:23:20.560 | and selling, which is where you're going to be living and doing business.

00:23:24.040 | So it is a powerful inflation hedge.

00:23:26.280 | Absolutely.

00:23:27.280 | Absolutely.

00:23:28.280 | Another popular one, real estate itself, specifically rental real estate, a lot of retirees kind

00:23:35.320 | of shy away from because they don't want to work.

00:23:37.680 | That's why they retired.

00:23:39.000 | And it can be seen as a lot of work.

00:23:43.360 | I don't necessarily agree with that as I haven't been in the same country as my rental properties

00:23:47.760 | for the last five months and everything's running along just fine.

00:23:53.160 | How have you set that up to be able to do that?

00:23:57.120 | So I have a number of properties in a few different states and the ones outside of where

00:24:03.720 | I was living, I already had a property manager.

00:24:06.920 | So they take care of everything and email me updates.

00:24:10.840 | And then my local properties, I was managing myself.

00:24:15.960 | I have a number of property managers I know in town that I can turn the properties over

00:24:22.120 | to when necessary.

00:24:24.080 | Right now I'm still managing them from afar because my management, I don't ever do any

00:24:30.600 | work on the properties.

00:24:31.600 | I always hire people.

00:24:33.160 | So I have a number of handymen and different companies that I've worked with, electricians

00:24:37.360 | and plumbing companies and things like that, AC.

00:24:41.120 | And so if there's a problem, the tenants text me, "Oh, hey, the AC is not working."

00:24:45.720 | And then I text my handyman and say, "Hey, can you go over to this property?

00:24:48.400 | Here's the tenant's phone number."

00:24:50.000 | And it takes me about two minutes in a text message to handle any of those sort of issues.

00:24:55.800 | So that won't work necessarily while there's turnover when the tenants move out.

00:25:02.780 | So that's why I'm going to kind of turn the properties over one by one as a tenant moves

00:25:06.360 | out, hand it over to a property manager and they can get it fixed up, re-rented and take

00:25:11.800 | over at that point.

00:25:12.800 | That's great.

00:25:13.800 | And also you get to benefit from earning your money in the United States and spending your

00:25:18.720 | money in Eastern Europe where hopefully there's a good geo-arbitrage opportunity for the value

00:25:24.280 | of your dollars.

00:25:26.040 | Yeah.

00:25:27.840 | That's definitely an advantage potentially at the moment.

00:25:32.360 | I kind of view that as I don't know what it's going to do in the future.

00:25:36.400 | I can't necessarily predict that other dollars will rise or fall faster than the U.S. dollar,

00:25:44.480 | so I'm not counting on being able to continue to do stuff cheap overseas.

00:25:49.360 | But for now, there are definitely some really nice places.

00:25:56.760 | One place that's been on our list for a while is Chiang Mai, Thailand, and it seems like

00:26:00.300 | everybody loves it and it's cheap.

00:26:02.800 | So yeah, that's definitely one thing we're excited about getting to take advantage of

00:26:07.200 | for now.

00:26:08.200 | Let's talk about personalized rates of inflation versus general economy-wide rates of inflation.

00:26:16.320 | First, talk about how the rate of inflation is calculated in the general economy and then

00:26:21.480 | how you would look at your own life and calculate your own rate of inflation.

00:26:25.480 | Okay.

00:26:26.820 | So the way it's generally calculated for the economy is using something called the CPI,

00:26:33.960 | the Consumer Price Index, where the government has what they call a basket of goods.

00:26:39.260 | Basically they have, if you just picture a list of different items and it has on it different

00:26:43.440 | food like it might have chicken and apples and a pound of apples and it has stuff like

00:26:49.160 | gasoline and clothes and cars.

00:26:51.500 | So it's got all these different items that people buy and it's kind of a monthly running

00:26:57.220 | update of here's what it would cost to buy these things.

00:27:01.300 | And then the next month they check in with all these different markets and see and go,

00:27:05.060 | "Okay, here's what it costs now and here's what it costs now."

00:27:07.980 | And slowly over time you see, "Okay, those prices on these things are rising."

00:27:11.860 | Well, that's then what we'll call the inflation rate.

00:27:14.180 | The percent that those goods rose in that Consumer Price Index, that's how much inflation

00:27:20.860 | is.

00:27:23.700 | And one of the biggest kind of myths or maybe misnomers I see in early retirement communities

00:27:33.620 | and I've seen over the last decade when people go and post online and talk about inflation

00:27:38.900 | is they think that they can try and beat inflation by doing certain things.

00:27:46.740 | They want to keep their own personal inflation rate lower and say, "Well, the CPI is maybe

00:27:51.020 | 3% but I think I can experience less inflation."

00:27:56.220 | And they try and argue for why they may not see that much inflation.

00:28:00.420 | So let me put forward an argument and I'd love to hear your thoughts on why I don't

00:28:03.940 | think that's the case.

00:28:04.940 | - Okay, go ahead.

00:28:07.580 | - So generally what people say is, "Well, my inflation rate's going to be lower because

00:28:12.860 | I don't buy cars.

00:28:14.340 | I have a bicycle and I don't buy gasoline."

00:28:17.180 | And so they say, "Well, all those items on the Consumer Price Index, I don't buy a bunch

00:28:22.540 | of those so I'm not going to experience that same inflation."

00:28:26.780 | And that's generally their argument.

00:28:28.940 | But the reason why I don't buy that is because even if you don't buy those particular items,

00:28:35.980 | whatever items you do buy should still increase via the rate of inflation, right?

00:28:42.740 | - Yeah, so I think this argument has pros and cons.

00:28:47.620 | And what can happen is somebody could be a little bit too starry-eyed, somebody who's

00:28:51.700 | new to the world of early retirement and says, "Well, I'm just going to live like Jacob Blundfisker

00:28:56.700 | lives and he's my guru."

00:28:59.700 | We love you, Jacob, but sorry you have to be the guru.

00:29:02.540 | But I'm going to live like Jacob lives and I'm just not going to buy anything.

00:29:05.300 | I'm going to do it all myself.

00:29:06.300 | I'm going to fix my own bike.

00:29:07.740 | I'm going to go out and just find these things everywhere.

00:29:10.900 | And I think that certainly somebody like Jacob or somebody like you who's resourceful and

00:29:16.460 | who's able to demonstrate just their ability to find ways to accomplish things that don't

00:29:25.500 | just involve plopping down your credit card for retail prices, there's always going to

00:29:29.300 | be a way to control for prices.

00:29:32.820 | - I actually disagree with that.

00:29:38.140 | So I think it's irrelevant how handy you are and how much you're fixing yourself because

00:29:46.180 | theoretically you should already be calculating that in your spending to start out with.

00:29:51.460 | So let's say, for example, you do live, you homestead and you've got this farm and you

00:29:57.820 | raise most of your own food and you repair everything yourself and you've got your expenses

00:30:02.180 | down to $5,000 annually.

00:30:04.660 | And that's a couple thousand bucks for property taxes and health insurance and I don't know,

00:30:12.540 | and then some staples that you can't buy, some stuff that you just can't make yourself

00:30:16.540 | that you do have to buy.

00:30:18.260 | So your bike breaks and you repair it free.

00:30:22.700 | Great.

00:30:23.700 | You never had in your original $5,000 any budget to actually repair it.

00:30:28.540 | But let's say you did have, I don't know, a bike tube in there in that $5,000.

00:30:33.780 | Well, that is still going to inflate with inflation.

00:30:37.020 | I mean, whatever you were calculating in that $5,000, even if you're like, I'll fix everything

00:30:41.780 | myself.

00:30:42.780 | So my cost is zero.

00:30:44.900 | Okay.

00:30:46.500 | So your costs of, let's say you're living a $20,000 lifestyle or $40,000 lifestyle and

00:30:52.660 | it's only costing you 5,000 because you insource everything yourself.

00:30:56.220 | But whatever was of that 5,000, you still need to worry about inflation.

00:30:59.860 | So if you have income coming in that covers that 5,000, it still needs to be protected

00:31:05.300 | from inflation.

00:31:06.300 | Does that make sense?

00:31:07.300 | Yeah.

00:31:08.300 | So I'll buy that argument, but I'll just say that the difference comes in where the discussion

00:31:12.360 | comes in is when we're talking about it within the context of people who are knowledgeable

00:31:17.500 | and interested in early retirement, who are living a frugal lifestyle, who are taking

00:31:21.300 | control over their expenses.

00:31:23.080 | Your argument is correct.

00:31:24.780 | When comparing an early retirement lifestyle to a generalized, I'll just say mainstream

00:31:30.620 | lifestyle, that's where the difference comes in.

00:31:33.140 | Because so example, housing, what are the inflation costs that are associated with housing?

00:31:40.100 | Well, once you purchase a property to live in, if you have a fixed rate mortgage and

00:31:45.180 | a fixed, excuse me, and a fixed mortgage payment, you have a fixed rate mortgage and a fixed

00:31:50.460 | mortgage payment, that mortgage payment is not going to be affected by the inflation

00:31:54.660 | rate unless you sell it, but your property taxes are.

00:31:58.100 | So once you start to get in a little bit of control of setting up your lifestyle, you

00:32:02.700 | can control the inflation rate and you can transition some of the things that are going

00:32:06.700 | to be affected by inflation to things that aren't.

00:32:12.380 | And so the way I think about it is I think how can I go through and look at every place

00:32:18.580 | that you connect with the mainstream economy, there's going to be an inflation rate associated

00:32:22.380 | with that because costs are continually going up, the currency is continually debasing,

00:32:27.140 | that is the way that our monetary system is structured.

00:32:30.500 | Until it's reset and adjusted at some point in coming decades, then it's going to continue

00:32:36.020 | to be the same.

00:32:37.160 | But you can decouple from the mainstream markets in some aspects of your life and as long as

00:32:46.860 | you stay decoupled from them.

00:32:48.380 | So for example, your inflation risk is frozen on your house until you've got to go and buy

00:32:54.020 | another one.

00:32:55.300 | And then once you get back into that market, that's where you start to experience the effects

00:32:59.260 | again.

00:33:00.260 | I agree with you on the mortgage.

00:33:05.340 | And that's actually one of the best inflation hedges you can have is a fixed rate mortgage.

00:33:11.580 | And I think for that reason, every early retiree should have a long-term low fixed mortgage.

00:33:18.780 | And I know that's going to sound crazy to a lot of people because they want the paid

00:33:22.260 | off house and the security that comes with it.

00:33:24.700 | But I think you're risking a lot more inflation when you don't have that mortgage.

00:33:32.900 | That basically if you instead had that money invested in something that's protected against

00:33:37.380 | inflation, yes, your budget would be higher, but that part of the budget wouldn't be rising

00:33:42.420 | with inflation.

00:33:43.420 | Yeah, and just to give an example and then you can continue, I would rather have—living

00:33:48.300 | in a $200,000 house, I'd rather have as close to a $200,000 fixed rate mortgage on my house

00:33:53.700 | that I can have and then have a paid off rental property and have the rental income from the

00:33:59.460 | paid off rental property.

00:34:00.460 | Because the rental income from the rental property I can adjust with the local prevailing

00:34:04.020 | inflation rate, but then I can take advantage of the fixed rate mortgage on my personal

00:34:08.980 | house.

00:34:09.980 | Would you agree?

00:34:10.980 | And feel free to continue your point.

00:34:12.980 | Yes, but I would say go ahead and have a fixed rate mortgage on that rental property.

00:34:18.580 | Right.

00:34:20.940 | But in theory, I think the mortgage is the only example I can think of off the top of

00:34:27.700 | my head that is like that because you're essentially borrowing against the dollar.

00:34:33.700 | It's at a fixed rate, so any sort of inflation won't affect you.

00:34:40.340 | It won't affect that payment.

00:34:43.220 | But if we presume a paid off house to make it easier, I think every other expense that

00:34:48.700 | you have is going to rise with inflation, whether that's property taxes, health care,

00:34:56.300 | home insurance, and whatever, food, whatever.

00:34:59.220 | All of those things are going to rise.

00:35:01.040 | So people's arguments of, "Well, I won't buy XYZ thing.

00:35:06.820 | I don't buy a car."

00:35:08.140 | Okay, but you didn't have that in your budget to begin with, so that doesn't affect the

00:35:11.820 | inflation rate on all the other items.

00:35:13.580 | Right.

00:35:14.580 | So I come back to it's basically the only way to escape inflation is if you can decouple

00:35:20.020 | from the market.

00:35:22.780 | So that's where you could escape some of the effects of inflation if you go ahead and purchase

00:35:27.820 | the solar panels that you'll need for your roof to generate your electricity.

00:35:32.540 | You go ahead and set up your water catchment system so you don't have to buy water from

00:35:35.220 | the grid, et cetera.

00:35:36.220 | Well, now you're decoupling and you can freeze the costs.

00:35:39.780 | And so as the general economy is getting more expensive, costs are rising, the local utility

00:35:44.180 | company is supporting all of their pensions, you don't have to deal with that because you've

00:35:48.060 | just said, "Okay, $20,000 here.

00:35:50.340 | I'm buying these panels," or whatever the equivalent is in your area, and now you've

00:35:54.220 | frozen that cost.

00:35:55.540 | But your point is that the budget that you're living prior to retirement is going to be

00:36:03.380 | the same as the budget you're living after retirement, and that budget is being affected

00:36:08.220 | by inflation.

00:36:09.220 | Right.

00:36:10.220 | So if you say, "Okay, I got my solar panels and now I put in my electricity cost is zero

00:36:16.420 | because the solar panels generate everything I need," then that's not a line item in

00:36:21.260 | my budget anymore, but whatever items are in my budget are still going to increase and

00:36:25.140 | you still have to think about inflation.

00:36:26.620 | So when people talk about like, "Okay," or let's take another example.

00:36:31.780 | Let's say you stockpiled food.

00:36:33.220 | Let's say they say, "I'm worried about the price of food, so I'm going to stockpile all

00:36:37.100 | these canned goods."

00:36:38.420 | Okay, you've then protected yourself from inflation on the price of those foods, but

00:36:44.340 | what I would argue is you're doing it suboptimally by—what you're doing is you're losing out

00:36:52.420 | on the opportunity cost of that money that you purchased it with.

00:36:56.060 | And so if you stockpile food, you're basically presuming food is going to inflate faster

00:37:02.220 | than whatever investment I would put that money into.

00:37:07.860 | That's the only way you would come out ahead.

00:37:10.500 | So I would actually hold to this perspective, and here's why.

00:37:14.340 | So far, we've been talking about a normal inflation rate.

00:37:18.500 | So normal inflation rate, usually we plan on say 3 or 4 percent.

00:37:23.500 | But there have been periods in history in which economies go through abnormal periods

00:37:28.200 | of inflation.

00:37:29.400 | So you can go through a period of deflation, extremely unlikely in the U.S. economy, but

00:37:34.620 | you could, in theory, go through a period of deflation.

00:37:37.340 | You could go through mass inflation, the term that I use, 10, 15, 20 percent per year for

00:37:43.300 | a period of years.

00:37:44.780 | And in theory, you could get to the point of hyperinflation, where you get dozens of

00:37:49.180 | percent or in excess of 100 percent of annual inflation.

00:37:51.940 | It's happened in some places in the world.

00:37:54.540 | I think it's very unlikely to happen in the United States, but it's in theory at least

00:37:59.980 | possible.

00:38:00.980 | I look at a period, and what I expect as a possibility and perhaps even a probability

00:38:06.660 | is that at some point in time, we'll go through periods of short-term mass inflation.

00:38:12.500 | So back to the idea of what happened in the '70s, or where you're talking about inflation

00:38:18.540 | 10, 15, 20 percent per year for a couple of years as you deal with recession and deal

00:38:23.340 | with working your way through the economic cycles.

00:38:26.500 | So those short-term hedges make a big difference.

00:38:30.860 | And if you look at each line item on the budget, so food would be heavily subjected to major

00:38:36.100 | changes in inflation.

00:38:37.460 | Gas purchases would be heavily subjected to major changes in inflation.

00:38:40.740 | But your electricity costs, the utility companies are not going to be able to raise their electricity

00:38:45.260 | costs on a month-by-month basis to deal with a period of mass inflation.

00:38:50.160 | So I think if you expand the mindset and open up the potential economic situations that

00:39:00.020 | you're planning for from beyond just a standard 3 to 4 to 5 percent annual increase in the

00:39:05.620 | consumer price index, now all of a sudden you do open up some ways that you can plan.

00:39:11.380 | What say you?

00:39:12.380 | I hear the sighs coming in of the disagreement welling up.

00:39:15.420 | So this will be fun.

00:39:16.420 | Go ahead.

00:39:17.420 | No, no, actually, I 100 percent agree.

00:39:20.420 | And inflation—so I just wanted to start with kind of the base level of inflation because

00:39:27.180 | I think that's what we're kind of—the environment we've been in recently and maybe for the

00:39:33.260 | last decade and a half, two decades, we've had relatively low inflation, especially over

00:39:40.500 | the last five years.

00:39:41.500 | It's been close to zero.

00:39:43.340 | It's not even close to the 3 percent.

00:39:45.780 | So I wanted to start with kind of that basic, like, this is what inflation does sort of

00:39:51.460 | scenario.

00:39:52.460 | But I'm much more worried about what you mentioned.

00:39:54.500 | First though, before we switch over to those other crazy inflation scenarios, let me read

00:39:58.860 | a quote to you from Todd Tressiter's website, the financial mentor.

00:40:05.580 | I think you had him on—you interviewed him before in the past.

00:40:08.820 | Because he says—I was looking for numbers around inflation and he just says this example

00:40:13.580 | so much better than I could, so I'm just going to read just a paragraph here.

00:40:18.020 | He said, "A couple retiring in their 40s with at least one partner making it to their 90s

00:40:23.820 | can expect their purchasing power at 4.5 percent average inflation to get cut in half three

00:40:28.620 | times during their retirement.

00:40:30.780 | A dollar today would be worth little more than a dime when you're infirm and dependent.

00:40:35.900 | That's a very big deal.

00:40:37.260 | If you think this example is far-fetched and can't apply to you, then think again.

00:40:40.420 | According to Charles Ellison, winning the Losers' Game, $100 of goods in 1960 would

00:40:44.700 | have cost $500 in 1995.

00:40:47.380 | That's a 4.8 annual compound inflation rate that destroyed 80 percent of your purchasing

00:40:51.580 | power."

00:40:52.580 | So, I mean, this is what we've seen in the U.S. over, you know, maybe not over the last

00:40:58.460 | five years or over the last ten years.

00:41:02.100 | But I'm always cautious when people say, "Oh, well, this is the new normal.

00:41:05.860 | This is—it's different this time."

00:41:08.100 | And so while we've seen some lower inflation rates, I think we very well could go back

00:41:12.200 | to an average of more like 4 to 5 percent.

00:41:15.020 | And if you're an early retiree, a few decades later, your purchasing power has been cut

00:41:20.300 | in half and cut in half and cut in half, it's worrisome.

00:41:25.260 | But going back to your point, in the '70s, that's really what worries me, is not so much

00:41:31.180 | this mundane inflation that's really not that mundane, just because of compounding.

00:41:38.580 | And we all always look at examples of, "Man, you invest this much and you do this for this

00:41:44.560 | number of years, and in 50 years you're a jillionaire."

00:41:48.180 | And we all look at compounding and it's amazing and it's great when it's working for you.

00:41:53.380 | But when it's working against you, that kind of double-digit inflation in the '70s, '80s,

00:42:00.780 | and you get that multiple years in a row to where that double-digit inflation builds on

00:42:06.180 | itself and builds on itself because it's compounding, it's really scary.

00:42:11.580 | It very quickly makes the value of your dollar a lot less.

00:42:17.900 | Mad Fientist Oh, yeah, hugely.

00:42:20.460 | Ryan Neuhofel So going back to, we kind of started talking

00:42:23.020 | about some ideas to protect yourself.

00:42:24.980 | So one would be tips or I-bonds.

00:42:28.420 | Another one is real estate, raising your rents as wages increase and they get cost of living

00:42:37.660 | raises and stuff like that.

00:42:40.460 | Another kind of very popular one, I feel like the one you hear about most, is gold.

00:42:46.460 | And gold typically is not a great investment, but it is viewed as an inflation hedge.

00:42:52.780 | And it's one of the four main cornerstones of the permanent portfolio, which is trying

00:42:57.420 | to protect against a number of different downside scenarios, including inflation and deflation

00:43:03.180 | and all the different environments.

00:43:05.140 | And a quarter of the permanent portfolio is kept in gold to help hedge against inflation.

00:43:12.560 | So that's another good one for people to consider when they're looking at their asset allocation

00:43:16.140 | of how can I help protect myself.

00:43:18.580 | Mad Fientist Do you have comments or perspective on the

00:43:20.860 | importance of investing in gold from your perspective?

00:43:24.180 | Ryan Neuhofel I think I'm not personally a fan of investing

00:43:33.340 | in gold because it's an unproductive asset.

00:43:38.060 | There's a Warren Buffett quote, anyone listening can Google, that basically he talks about

00:43:43.980 | all the amount of gold that's been mined fits in this 90 by 90 cube inside a baseball, what's

00:43:51.900 | the word, not the outfield, the infield of the baseball stadium.

00:43:56.740 | And it's worth X amount of dollars versus, and then he lists Chevron and all these oil

00:44:02.820 | companies, all these different companies that are generating billions of dollars in profits.

00:44:06.060 | And he's like, and they're worth about the same, I know which one I'd rather own.

00:44:10.820 | And so I don't like the idea of owning it as an investment.

00:44:16.820 | I don't really like the idea of owning it while you are working, while you are accumulating,

00:44:22.820 | because theoretically if inflation happens while you are still working, hopefully your

00:44:28.580 | wages should rise with inflation.

00:44:30.980 | And that's not always the case.

00:44:34.460 | But eventually they have to, because if things get too out of whack where people can't afford

00:44:38.820 | food, then you have riots in the street.

00:44:41.900 | I don't see that happening in America.

00:44:43.580 | So I do think wages, even if they may lag inflation somewhat, they'll kind of tend to

00:44:48.580 | catch up.

00:44:49.580 | So that's your inflation hedge while you're working is your job.

00:44:56.420 | And so, but I do see the value of having inflation hedges in retirement.

00:45:02.780 | And so if someone says, yeah, gold is the one I've decided on for these particular reasons,

00:45:07.260 | I'm okay with that.

00:45:08.700 | Let me read you the Warren Buffett quote.

00:45:13.580 | So I asked the duck and the duck says, here's the quote.

00:45:15.980 | I will say this about gold.

00:45:17.340 | If you took all the gold in the world, it would roughly make a cube, 67 feet on a side.

00:45:22.620 | Now for that same cube of gold, it would be worth at today's market prices about $7 trillion.

00:45:28.260 | That's probably about a third of the value of all the stocks in the United States.

00:45:31.740 | For $7 trillion, you could have all the farmland in the United States.

00:45:35.340 | You could have about seven Exxon Mobiles and you could have a trillion dollars of walking

00:45:39.160 | around money.

00:45:40.280 | And if you offered me the choice of looking at some 67 foot cube of gold and looking at

00:45:44.340 | it all day, and you know me touching it and fondling it occasionally, call me crazy,

00:45:48.640 | but I'll take the farmland and the Exxon Mobiles.

00:45:51.380 | Now that's the version, this is the first version that popped up.

00:45:54.180 | There are other quotes we talked about the putting in a swimming pool and things like

00:45:56.660 | that.

00:45:57.660 | How I think about gold, and there's a lot of argument and debate about this, and I haven't

00:46:02.940 | presented shows on the different discussions.

00:46:04.940 | I'll just talk from me personally without trying to give all the different sides of

00:46:08.020 | the stage.

00:46:12.180 | If I had the money to simply retire on dividends from Exxon Mobile stock, I would rather do

00:46:17.900 | that any day than have gold.

00:46:20.820 | And so because if you can own companies, if you can own great companies, and again, take

00:46:25.280 | Exxon Mobile, diversify your portfolio, et cetera, et cetera.

00:46:28.020 | But if you owned fractional shares of 100 great companies and you were able to simply

00:46:32.740 | live on the dividends, those dividends over time are going to be your best inflation hedge

00:46:36.860 | because those companies, assuming that they are well run, those companies are going to

00:46:40.780 | be looking for new markets, they're going to be hiring, firing, buying, selling.

00:46:44.940 | They're going to be dealing in the economy and they're dealing with the effect of the

00:46:49.100 | economy and as an owner, I'm gaining the dividends from that.

00:46:53.020 | However, those dividends are not always going to lag.

00:46:56.620 | Some of the companies are going to come in, some of the companies are going to go out.

00:46:59.140 | But for me, the ultimate is just simply to be able to live off the dividends from the

00:47:02.580 | companies that I own.

00:47:03.820 | And that's the same thing that we do when we are working in private business that we

00:47:07.500 | own or it's the same thing we do when we're investing in publicly traded stocks.

00:47:12.020 | The major value of gold is for those times when things are changing.

00:47:17.420 | And so the reason I want to have a good portfolio of gold coins I can put my hand on is number

00:47:26.060 | one, something funky happens and I got to get on a plane for Columbia, you need to be

00:47:31.220 | able to put your hands on some money.

00:47:32.700 | I think everybody should have some walking around gold that they can put their hands

00:47:36.820 | on.

00:47:37.820 | The crazy stuff has happened.

00:47:38.820 | The biggest example I mentioned several times on the show is that dentist.

00:47:43.260 | The dentist, now that wasn't bad because it was just the media publicity, the guy who

00:47:47.140 | killed the lion.

00:47:48.140 | It was just media publicity but all of a sudden, his whole business falls apart.

00:47:53.540 | Now in that situation, there's no need for gold coins.

00:47:55.740 | You just need cash in the bank and money to transition to.

00:48:00.260 | So at some point, you got to be able to put your hands on some money.

00:48:04.140 | The other thing is just recognizing that every Federal Reserve, the Federal Reserve Bank

00:48:09.460 | here in the United States and every national bank around the world, they own gold.

00:48:14.220 | And so there is a stability there of that asset based upon the intrinsic characteristics

00:48:22.060 | of the fact that that's what the major banks of the world hold and own.

00:48:28.460 | So that could give you some stability and then if you're looking at the economic environment

00:48:32.220 | around you, the question for those who own gold that I would challenge you is at what

00:48:36.060 | point in time are you going to sell?

00:48:38.500 | There should be almost no asset.

00:48:40.340 | There should be no asset that we are allied to where we say, "This is the asset I'm going

00:48:45.020 | to own and I'm never going to sell."

00:48:46.820 | It doesn't matter whether it's a piece of real estate, whether it's a gold coin or whether

00:48:51.180 | it is your business.

00:48:54.140 | Everything should have a price tag and you should understand, "Here's the point at which

00:48:57.300 | I'm going to sell."

00:48:58.740 | Because if you see a mispricing in the market, you see some things happening with the currency

00:49:06.700 | system or whatnot, now it's time to sell your gold coin to move back into other investments.

00:49:12.980 | That's the opportunity I see is as gold, understanding its characteristics, understanding the value

00:49:18.020 | that it gives you and then understanding when you can go ahead and sell it and move into

00:49:21.700 | other asset classes.

00:49:22.700 | Yeah, and I think the tricky part with doing that would be trying to value the gold, trying

00:49:30.420 | to put a number on that, "When am I going to sell it?"

00:49:36.180 | If you're saying, "Well, I'm going to sell it at $2,000 an ounce."

00:49:41.520 | The problem is if gold rises to that, we're probably in some economic times where the

00:49:45.660 | dollar's falling and we're having inflation and you hit that point and you say, "Well,

00:49:48.860 | no, I'm going to hold it a little longer and then it falls.

00:49:52.540 | I mean, gold doesn't have a value in terms of its productivity.

00:49:59.740 | You can't look at it like you do a business and say, "This is how much revenues it had

00:50:03.740 | and this was its net profit."

00:50:07.220 | So putting that value on it can be difficult, which is why I think just a flat percentage

00:50:13.980 | is the best and easiest way to go.

00:50:16.940 | Is to say, "I want to have 5% or 10% of my portfolio in gold and use it for rebalancing

00:50:26.220 | purposes essentially."

00:50:27.220 | Yeah, but then that's good as a general outline and I like that as a general outline, but

00:50:34.540 | then at some point in time, you should know.

00:50:36.940 | I guess I just am convinced you should know when you're going to sell everything.

00:50:40.860 | By that, I don't mean I got to sell everything I own, but we've got to be – instead of

00:50:48.740 | – we've got to be –

00:50:50.020 | Do you mean completely exiting a market and –

00:50:52.620 | Yeah, I mean paying attention to the relative value.

00:50:55.940 | So if you're looking at your portfolio and in every biography I've read of people who

00:51:00.340 | get rich, like really rich, mega tycoons, things like that, what you'll often find

00:51:05.460 | is you'll often find them looking and seeing a mispricing in the market and going ahead

00:51:10.740 | and taking advantage of that based upon the assets that they have.

00:51:13.420 | Now, those assets are sometimes just hard work.

00:51:16.020 | Sometimes it's just seeing an opportunity and having the work to do it.

00:51:19.140 | Sometimes it's money.

00:51:20.460 | Sometimes it's selling a house and buying a business.

00:51:22.560 | Sometimes it's selling a business and buying a house.

00:51:24.900 | But that in our lives, we can't sit on the sideline and say, "Well, I'm just going

00:51:28.180 | to do nothing."

00:51:29.180 | Rather, we should be prepared to be watching the market.

00:51:31.480 | So we should understand what's going on.

00:51:33.460 | If you tell me that there becomes a mispricing in the market where I can take some gold coins

00:51:38.500 | – I don't know, make up some crazy numbers.

00:51:41.420 | We end up in mass inflation and I'm looking around at my local real estate market and

00:51:44.660 | I can buy a three-bedroom, two-bath house for a dozen one-ounce gold coins.

00:51:49.620 | Well, I'm going to get rid of those coins and go buy the house because the coins have

00:51:53.300 | no worth whatsoever with regard to any utility function whereas the house has a utility function.

00:51:59.500 | If I look at a market and say this housing price is very devalued, the price of this

00:52:04.100 | gold is high, I'm going to transition the gold asset into the real estate asset.

00:52:08.620 | Then as times change and I move forward a period of time, then I'm going to look down

00:52:12.220 | and I'm going to say, "You know what?

00:52:13.220 | I think I'm going to go ahead and rebuild my gold holdings.

00:52:16.380 | The prices, the ratios have changed and now I'm going to go ahead and move into it."

00:52:20.780 | There's no reason to not have the approach of saying, "I'm going to buy and sell

00:52:25.140 | my assets as time goes forward."

00:52:27.460 | Now that's only –

00:52:28.580 | Let me give you a reason.

00:52:30.860 | So I think all of that is phenomenal for a very sophisticated investor who can evaluate

00:52:39.900 | all of these different markets and move back and forth between them trying to time them.

00:52:44.980 | I think that's difficult for a lot of people especially controlling the emotional aspect

00:52:51.020 | of it and I think that as we get older, our mental faculties may decline.

00:53:00.580 | We may be more prone to, I don't know, paranoia.

00:53:07.140 | There's different factors that we deal with as we get older that may or may not be the

00:53:12.220 | case and certainly isn't for everyone, but there's still things you might have to deal

00:53:16.940 | with that I wouldn't be comfortable telling someone who's 70 to, "Okay, now's the

00:53:23.860 | time to sell your house because gold is really undervalued," or having them try and make

00:53:30.060 | that decision.

00:53:31.060 | So setting an asset allocation, making a plan for, "Here's what my investments are

00:53:38.860 | going to look like and gold is 10% of my portfolio and if a year from now gold has gone up by

00:53:46.900 | 10 times in price and now I can use a little bit of it to buy that house," like your

00:53:51.860 | example of now, "Wow, I can use a couple of gold coins and buy a house because this

00:53:56.100 | gold didn't produce anything," well, what it produced was that inflation head, that

00:54:01.860 | diversification in an uncorrelated asset so that, "Wow, now it's worth a bunch more.

00:54:07.780 | That gave me a bunch more money.

00:54:08.820 | I'm going to sell off.

00:54:09.900 | Now gold is 50% of my portfolio because it shot up so much.

00:54:13.340 | I'm going to sell off 40% of that gold so now I'm back down to just 10% still and

00:54:17.980 | invest that in my other assets that are lower," which may include a REIT that does own that

00:54:24.100 | house down the street.

00:54:27.140 | I think in an ideal scenario a very intelligent, sophisticated investor who knows all those

00:54:36.300 | markets might be able to do what you're describing.

00:54:39.060 | I think for most people a much more simple, "Here's my asset allocation and I'm going

00:54:44.660 | to stick with that and use rebalancing in order to do what you're describing."

00:54:49.860 | I don't have to worry about which market is overvalued, which market is undervalued.

00:54:53.740 | I know, "Hey, gold has gone up a bunch.

00:54:55.660 | It's a higher percentage than it should be in my portfolio.

00:54:58.780 | I'm going to sell some of it and buy this one that's lower because I'm just rebalancing

00:55:05.060 | my allocation."

00:55:07.140 | You make good points and I'll accept most of them but I will just simply respond and

00:55:13.620 | say why I'm making the point that I'm making.

00:55:16.620 | I come from the formal financial advisor world and if I were a formal financial advisor still

00:55:22.500 | then I would have to give that answer.

00:55:24.860 | The rules in the financial advisor world is that we assume our clients are ignorant and

00:55:28.580 | we have to protect them from themselves.

00:55:30.420 | That's the reality is most people are ignorant and we have to protect them from themselves.

00:55:36.740 | I would never feel comfortable personally in a one-on-one situation, never is a strong

00:55:43.460 | word.

00:55:44.460 | It's hard for me to imagine the scenario in which I would feel comfortable personally

00:55:50.220 | telling somebody the bet to make.

00:55:53.300 | "Hey, look, you should sell your house and buy this investment asset or you should sell

00:55:57.700 | this investment asset and you should buy the house."

00:56:02.540 | Because that's going to affect their life and I'm not sure if they're ready with the

00:56:06.220 | pros and cons.

00:56:07.660 | But I'll tell you this for me, after years of studying mainstream finance and after years

00:56:13.580 | of being a mainstream financial advisor, I'm done with the crap that the mainstream financial

00:56:18.380 | advice world puts out.

00:56:19.980 | Now, if I'm running a pension portfolio for 40,000 retired school teachers then I'm going

00:56:27.140 | to follow traditional asset allocation rules.

00:56:30.020 | I'm going to stick to that with safety and my reason is twofold.

00:56:34.140 | Number one, it's probably the best move for me to protect those pensioners' income but

00:56:38.540 | it's also going to cover my butt, which is what all of the investment managers have to

00:56:42.460 | do.

00:56:43.460 | You cannot go too far out of the mainstream.

00:56:45.060 | So if everyone goes down together but we all follow the mainstream approach, well, at least

00:56:49.340 | we're all protected.

00:56:50.660 | So I sort through all the advice and say, "Okay, how much of this is actually true and

00:56:55.500 | how much of this is good planning versus how much of this is just simply somebody protecting

00:56:58.960 | their butt?"

00:56:59.960 | As a financial advisor, you cannot make interesting recommendations and interesting analyses.

00:57:06.160 | But what I started to look at is I said, "What do the rich people actually do?"

00:57:09.120 | What I realized is that the rich people actually, the people who live high lifestyles, whether

00:57:13.880 | they have a million dollars in the bank or they just live a really great lifestyle, they're

00:57:17.360 | always buying and selling based upon the value in their local markets.

00:57:21.480 | This is the fundamental function that's been lost in today's world's approach to investing.

00:57:25.940 | So I would rather my 18-year-old son, I would rather he not put any money in the stock market

00:57:32.080 | and I would rather he learn to buy and sell lawnmowers in the fall and snowblowers – and

00:57:36.760 | he buys lawnmowers in the fall and sells them in the spring and buys snowblowers in the

00:57:40.640 | spring and sells them in the fall and learn to judge the value of assets and then buy

00:57:47.360 | and trade them.

00:57:48.680 | And when I look at it, yes, there is a level of sophistication where if you're running

00:57:52.320 | a large fund and you're getting paid, you need to be very sophisticated to understand

00:57:56.480 | the values of large markets.

00:57:58.080 | But I don't think the average person, if they pay attention, they're a listener to

00:58:01.000 | this show, if they pay attention, you don't have to be that sophisticated to get a sensing

00:58:05.620 | in your local market of, "You know what?

00:58:08.120 | Things are a little bit out of whack."

00:58:11.360 | If your taxi driver is telling you about their real estate rental houses, it might be time

00:58:15.420 | to sell and sit back and stick your money in cash and sit back and wait for some deals

00:58:19.680 | again.

00:58:20.680 | So I guess it's a challenge for me to work through and say, "What is the approach?"

00:58:25.600 | And here in this context, I'm talking about like you and me as individuals, as individuals

00:58:31.640 | who are desiring to live a free lifestyle, then we're going to get far, farther by paying

00:58:39.560 | a little bit of attention to education, paying attention to the markets and then dealing

00:58:43.480 | with the opportunities that we have than we are by taking a mainstream approach.

00:58:51.520 | What say you?

00:58:52.520 | I really do, by the way, I really do struggle with these things which is why we're just

00:59:00.320 | kind of having a conversation.

00:59:01.960 | Feel free to disagree but I struggle how to articulate this because I look around and

00:59:06.840 | I see the stuff that people preach is not the stuff that works.

00:59:11.820 | And so what I try to do on the show is I try to give the academic background but the reality

00:59:16.140 | is many of the people who develop the academic background are broke and look at what the

00:59:20.280 | rich people do.

00:59:21.280 | Look at what the rich people do and do what they do, not what the people who are teaching

00:59:26.440 | about finance teach people to do with their money.

00:59:29.520 | Okay.

00:59:30.520 | And that makes sense and for an 18-year-old son who's going to be starting a career, some

00:59:39.960 | sort of active business entrepreneurship will probably make him a lot more than just passive

00:59:48.040 | investing in the stock market.

00:59:51.400 | And that's one reason why my wife and I were able to retire so early is active real estate

00:59:57.240 | investing.

00:59:58.240 | I read dozens and dozens of books, I went to real estate meetings and different training

01:00:02.920 | sessions and after school I would be looking at rental properties and it was fun for me.

01:00:09.880 | I enjoyed it but it was also extra work but it made us a lot higher return than I would

01:00:15.200 | have netted otherwise.

01:00:17.040 | So I'm in 100% agreement that that is valuable and that that's a good way to get rich.

01:00:25.520 | The part where I disagree is when I'm thinking of the typical early retiree who, however

01:00:35.760 | early they are retired or whether they retired at a regular age, whether they're in their

01:00:39.320 | 30s, 40s, 50s or older and they're thinking about inflation, I don't necessarily think

01:00:46.680 | that just saying, "Well, deal with, just have your money in assets that are low and

01:00:54.920 | then when they get high, shift it over to other assets."

01:00:57.280 | I think, I just don't think a lot of people do have that proclivity or necessarily even

01:01:02.320 | want to.

01:01:03.320 | They don't want to buy snowblowers and they don't want.

01:01:05.800 | So a more passive portfolio designed to their risk tolerance and with all these different

01:01:14.400 | things in mind, thinking about inflation and how they're going to feel with different risks

01:01:20.640 | of how are they going to feel if the market falls 30% tomorrow, that sort of thing, is

01:01:26.200 | going to provide them a more stable base than trying to say, "Well, here's a more optimal

01:01:34.920 | way if you know what you're doing, good luck."

01:01:37.560 | I absolutely agree with you and you make good points which is why it's so challenging in

01:01:42.600 | the course of conversation to get the nuances out.

01:01:46.960 | I agree with you.

01:01:50.160 | But we should always be paying attention to the relative value.

01:01:53.600 | And so if you were looking at your, you're traveling in Chiang Mai, Thailand or you're

01:01:57.320 | traveling in Croatia and let's say you've been there for a year and you're looking around

01:02:02.280 | and you're looking at what the rental prices are working at and you're looking at some

01:02:05.840 | of the resorts in the local area and all of a sudden you find out that real estate prices

01:02:10.600 | in the United States have just massively increased in a very short period of time and you start

01:02:16.680 | to get the sense that, "Man, there's a little bit of a, it feels like a bubble."

01:02:20.360 | And you're looking at wages, is there anything that's really causing demand to go up, that's

01:02:26.120 | really solid on my rental properties?

01:02:28.160 | You would start to think about saying, "I've got these values, some of these deals over

01:02:32.160 | here that are much more valued and I can buy land and develop it and you're researching

01:02:39.000 | that and I've got this overvalued property in the United States."

01:02:42.000 | You'd probably start selling a few units and transitioning to something else.

01:02:45.920 | And so it's definitely not all or nothing.

01:02:48.880 | But I know for me, I wouldn't, as an early retiree, who knows, maybe when I get there

01:02:53.680 | then I'll be able to say, but it's hard for me to think that you'd be all in on anything.

01:02:58.720 | You're not all in on real estate, you're not all in on stocks, you're not all in on gold.

01:03:01.880 | It is a balanced, diversified approach but you are paying attention, I guess, to your

01:03:07.760 | portfolio and looking for deals.

01:03:09.760 | Is that accurate?

01:03:11.760 | Yeah, absolutely.

01:03:14.120 | And I think that's where proper planning comes in.

01:03:16.960 | But you're right, it's definitely a balance and a mix of different things to both grow

01:03:22.880 | your portfolio, protect against different potential downsides and just tailor to what

01:03:31.040 | your experiences and interests have made you more knowledgeable of.

01:03:38.280 | I may be able to evaluate certain types of real estate but I would have no clue what

01:03:43.640 | I'm doing if it came to investing in commodities as an inflation hedge.

01:03:47.760 | Agreed.

01:03:48.760 | I would just, yeah, exactly.

01:03:50.600 | So yeah, I think it's very individual.

01:03:56.920 | It is hard to generalize.

01:03:57.920 | Right.

01:03:58.920 | And that's where one of my convictions is that we should be teaching people to invest

01:04:03.240 | in the things that they know.

01:04:05.040 | And so what has happened is the financial advice industry has hijacked the word "invest"

01:04:14.240 | from people.

01:04:15.680 | Investing has become about putting money in your 401(k).

01:04:18.920 | And constantly I'm talking with people just in my personal life or even in a professional

01:04:23.880 | life who are investing through their 401(k), they're investing in mutual funds and they

01:04:28.680 | don't even have the slightest concept of what those things are and how they work.

01:04:32.840 | Well that's how you get taken advantage of is if you don't have a concept of what they

01:04:35.600 | are and how they work.

01:04:37.000 | They're excellent tools and it's hard for me to beat.

01:04:40.600 | If you can earn a couple hundred thousand dollars a year doing a job that is important

01:04:44.360 | to you and you can just stuff money aside in the 401(k), buy low-cost funds, it's hard

01:04:49.200 | to beat that from a simplicity and an efficiency standpoint of an investing perspective because

01:04:56.920 | the investments are taking care of your life.

01:05:00.720 | But that's not the right for everybody and what other people should be doing is investing

01:05:04.320 | in what they know.

01:05:05.680 | And when I look at people, I mean I have some experiences even just in the last couple of

01:05:08.920 | weeks where I know some people who are very, very rich but you would never know it.

01:05:12.760 | It comes down to their skill of buying and selling the things that they need and providing

01:05:18.040 | for themselves with good deals.

01:05:21.200 | Now you can't invest $100,000 in snowblowers but you can teach your kid how to invest $100

01:05:25.840 | in snowblowers, how to flip that and then when they get to the $100,000, that's all

01:05:29.880 | they do.

01:05:30.880 | And so when Warren Buffet, to pick on him, the guy who always gets picked on, when he's

01:05:34.460 | paying a billion dollars for a percentage of a company, he's doing the same thing.

01:05:39.640 | He's trying to figure out how to allocate the capital in a market that is strong.

01:05:43.840 | Yeah.

01:05:44.840 | Yeah.

01:05:45.840 | I agree.

01:05:46.840 | I don't know if we beat the dead horse or if it was interesting.

01:05:50.600 | Go ahead.

01:05:51.600 | The one caveat I do want to add though is you are mentioning – you're talking about

01:05:56.720 | how to get very wealthy and you keep saying the very rich people and I personally and

01:06:04.000 | quite a few people who are kind of in the early retirement different communities online

01:06:08.560 | are very big into the concept of enough.

01:06:11.280 | We don't want to get super rich.

01:06:12.880 | We want to have enough to live comfortably and hedge against potential downsides and

01:06:18.400 | then spend all of our time doing the things that we enjoy and that may make money or it

01:06:24.400 | may not.

01:06:25.680 | We don't care but we're not interested in having tens of millions or more, hundreds

01:06:33.880 | of millions.

01:06:35.640 | So go ahead.

01:06:37.980 | But if that's the case, I think if you wanted to be very rich, like right now if I needed

01:06:45.640 | to make $20 million in the next five or 10 years and I wanted to become very rich relatively

01:06:55.960 | quickly, I would go read a book called The Millionaire Fastlane by M.J.

01:07:00.720 | DiMarco.

01:07:01.720 | M.J. DiMarco.

01:07:02.720 | Yeah.

01:07:03.720 | Have you read that book?

01:07:04.720 | Yes.

01:07:05.720 | Yeah.

01:07:06.720 | Okay.

01:07:07.720 | I love it.

01:07:08.720 | The title is gimmicky for anyone listening.

01:07:10.480 | The Millionaire Fastlane sounds so gimmicky but it's a phenomenal book in terms of it's

01:07:17.640 | just all about here's how you build a business that provides value.

01:07:21.120 | His general thesis is like the more people you impact, the more money you can make or

01:07:26.760 | if you impact less people, impacting them to a greater degree.

01:07:30.920 | But it's all about the impact you make on people's lives, then you can make a lot of

01:07:35.120 | money.

01:07:36.120 | And he talks about how to build a business to do that and it's just filled with solid

01:07:39.320 | tips.

01:07:40.320 | I would go, I've read it, I would go basically reread that two times in a row, spend the

01:07:44.600 | next two days just like reading it twice through and then implement everything in that book.

01:07:48.840 | And I think that's the best way to actually get really, really rich.

01:07:52.680 | And this is obviously just my personal opinion but it's building a company and investing

01:08:02.460 | is a way to get rich slowly over time but it's a lot more probable.

01:08:08.320 | It's a lot more secured and likely.

01:08:09.920 | If you're steadily investing in a passive index fund for 20 years, you're going to do

01:08:16.760 | pretty well.

01:08:19.440 | But you may not be massively rich at the end.

01:08:22.160 | So, I hope you don't feel like I'm just arguing with you.

01:08:27.680 | Hopefully listeners will just like this back and forth as far as you two.

01:08:30.800 | I love debating so I don't mind at all.

01:08:33.140 | Hopefully I can get some out of you.

01:08:34.140 | Good.

01:08:35.140 | So, it's up to them to listen or not.

01:08:36.140 | But I'll tell you.

01:08:37.140 | So, I don't actually care.

01:08:38.140 | I don't make the differentiation you made about becoming really, really rich.

01:08:42.140 | I also come from the perspective of what is enough.

01:08:46.540 | So with my personal plan, I don't ever intend to live a lifestyle that is massive because

01:08:52.500 | I've got much more important things to do with the money than just simply to turn it

01:08:57.020 | into personal lifestyle.

01:08:58.540 | So whether it's $20 million or $30 million, to me, that doesn't matter.

01:09:02.000 | I think that it's mostly irrelevant to most people who are focusing on the details of

01:09:11.360 | their financial lives of how to actually go through and make it happen.

01:09:17.420 | The key thing that I am focusing on is just simply how do you build a plan that's going

01:09:21.880 | to work for you in your specific situation.

01:09:26.000 | The likely way that you're going to do that is by focusing on the minimum level that you

01:09:30.520 | need to cover your lifestyle.

01:09:31.880 | So that might be as simple as three rental properties.

01:09:34.480 | If you need $3,000 a month and you own three rental houses, which in net, given allowances

01:09:39.540 | for vacancies and repairs, net you $1,000 a month each, you're now financially independent.

01:09:45.560 | And so I would focus first on developing that.

01:09:48.440 | And if that were my plan, if I needed $3,000 a month, I would focus everything on getting

01:09:52.800 | those three rental properties.

01:09:54.480 | I would not buy gold coins.

01:09:55.900 | I would not buy any of those other things.

01:09:58.720 | I wouldn't do that.

01:10:02.160 | I wouldn't focus on that.

01:10:03.160 | I'd focus first on the rental properties.

01:10:04.800 | But then as you have the rental properties, if you continue to have excess, which you

01:10:09.480 | will, you'll start to have continued excess.

01:10:12.480 | Now how do I diversify that?

01:10:13.960 | And that's when you start to push, you start to adjust your portfolio.

01:10:18.980 | And so I'm always interested in levering up.

01:10:21.120 | I wouldn't risk it all.

01:10:22.320 | Once you've built a certain lifestyle for yourself, I wouldn't want to risk it all.

01:10:25.720 | But I would want to focus on, I guess, looking for the opportunities that are there because

01:10:32.400 | we should be working to make our portfolios as productive as possible as we go through.

01:10:37.200 | So it's not a matter for me of $10 million or not.

01:10:39.960 | It's just a matter of how to approach it.

01:10:41.720 | And we approach it within the context of goals.

01:10:43.640 | What are our initial major focuses?

01:10:46.520 | If gold coins are not going to help you be an early retiree until you've got the money,

01:10:50.680 | you need an income plan.

01:10:52.060 | And so once you've built that income plan, now for some level of security or some level

01:10:56.880 | of defense, then gold coins might help you with your portfolio.

01:11:00.040 | Yeah.

01:11:02.160 | And I love all of that for you and for the investor who's interested in that.

01:11:09.940 | But for someone who's, let's say they've worked as a, I don't know, a nurse or a computer

01:11:16.840 | program or whatever, somebody who's just invested in their 401(k) and they've had a super high

01:11:22.000 | savings rate, they've saved 50, 60, 70% of their income and just dumped it into passive

01:11:27.880 | index funds, whatever, and they're going to be relying on the 4% rule, I think their plan

01:11:33.400 | is just fine.

01:11:34.400 | I think that the interested active investor who gets those rental properties as their

01:11:42.200 | kind of their base and then they start diversifying out from that.

01:11:47.120 | And so I'm not putting down that plan because that's exactly what I did.

01:11:51.320 | We got a bunch of rental properties.

01:11:52.680 | I'm very overweighted in real estate and our additional income right now is going into

01:11:59.040 | diversifying into more other assets.

01:12:00.560 | So what you described is literally exactly what I'm doing.

01:12:04.760 | So I'm not knocking that at all.

01:12:06.160 | I'm a big fan of it.

01:12:07.560 | But I'm also, know that I'm different than a lot of people.

01:12:12.280 | And you and I are both different than maybe a lot of people who would love to retire early.

01:12:18.360 | I see people come on, but they don't have a clue about investing and they have no interest.

01:12:23.640 | They will learn it because they feel like they have to.

01:12:27.000 | But once they're retired, they don't want to think about money.

01:12:31.000 | They want to get those dividend checks every month and I'm done.

01:12:34.880 | I don't want to look at what is the S&P at and what's the current price to earnings ratio.

01:12:44.240 | They don't have no interest in that.

01:12:47.060 | And so I think it comes down to the individual.

01:12:53.440 | If we were designing a plan for you or for me versus a plan for my sister, they'd look

01:13:00.240 | very different.

01:13:01.240 | Agreed.

01:13:02.240 | Now, here's my question.

01:13:06.860 | Do you know anybody, and I'm not talking about somebody new who's come onto the boards, onto

01:13:11.280 | the discussion forums and said, "Hey, I just started reading Money Mustache and now two

01:13:15.440 | weeks later I'm going to get this early retirement thing and I'm going to retire in two years."

01:13:18.840 | I'm not talking about a new person.

01:13:20.640 | Somebody who's actually worked their way through, built financial independence and has actually

01:13:25.960 | followed through and pulled out of the workforce in order to live a financially independent

01:13:29.920 | lifestyle or who's at that point.

01:13:31.840 | Do you know anybody who has done that, who doesn't also take at least a serious interest

01:13:38.120 | in their money?

01:13:39.120 | I mean, I don't know how you're defining a serious interest in their money.

01:13:44.780 | Most of them, to get to that point, you're going to need to at least take an interest

01:13:49.000 | in your spending because you will need to be doing more than the save 5% to 10% of your

01:13:56.280 | income thing.

01:13:57.280 | So, they will probably have quite reduced expenses.

01:14:00.040 | They will have an interest in their money but not necessarily an interest in investing.

01:14:05.920 | I do not care personally.

01:14:07.720 | I don't care about the stock market.

01:14:09.320 | I find it utterly boring as far as it's my least favorite thing to talk about.

01:14:15.000 | But I care about investing.

01:14:16.140 | I just don't care about figuring out what is the P/E ratio of the stock that I'm watching.

01:14:21.460 | So I can empathize with that perspective.

01:14:25.900 | What I look at is I just look at the fact that you cannot get rich and stay rich unless

01:14:32.600 | you are interested in your money.

01:14:34.140 | It's not going to happen.

01:14:35.860 | So a good starting point is going to be to say, "Okay, put money in your 401(k)," but

01:14:40.740 | then you got to say, "Let's pay attention to your 401(k)."

01:14:42.940 | Now, there are a bunch of plans that can work but somebody has got to pay attention.

01:14:47.340 | They've got to read Jack Bogle's book and say, "Well, let's see.

01:14:50.020 | Which funds from Vanguard are going to give me what I need?

01:14:52.220 | Oh, look.

01:14:53.220 | Jim Collins says I just need this total stock market index fund.

01:14:55.340 | Okay.

01:14:56.340 | That makes sense to me.

01:14:57.340 | I'll buy this total stock market index fund and I'll live off of that," and they understand

01:15:00.020 | their plan.

01:15:01.020 | Then you'll look at someone who understands and says, "Oh, I read the portfolio approach.

01:15:04.620 | This makes sense to me.

01:15:05.820 | They understand their plan."

01:15:07.260 | But they've got to – people have to get focused and understand what they're actually

01:15:11.380 | going to do in order to make it.

01:15:14.020 | So that – the more efficient they want to be and the faster they want to get there,

01:15:18.740 | the more they've got to pay attention.

01:15:20.020 | I just don't see any other option.

01:15:21.300 | Yeah.

01:15:22.300 | Okay.

01:15:23.300 | I completely agree with that.

01:15:24.900 | My point was the person who decides, "Hey, I like this balanced 60/40 equities bonds

01:15:30.980 | portfolio," or, "Hey, I like the permanent portfolio," or whatever they decide, choosing

01:15:36.780 | that asset allocation and sticking with that while they're retired and having it be completely

01:15:42.380 | passive may fit a lot more with their proclivities of, "I'm not interested in investing.

01:15:48.300 | I had to at least learn the basics.

01:15:50.500 | I had to go read Jim Collins' stock series and go, 'Yeah, that makes sense.

01:15:54.700 | I buy that theory.

01:15:56.260 | That will work for me.

01:15:57.260 | I'm okay with the volatility and that's how I'm going to invest my money.'"

01:16:00.660 | You're right that they need to learn about it, make those initial decisions, consider

01:16:04.700 | the different options, that sort of stuff, but they may not enjoy it and they may not

01:16:10.860 | want to continue doing that sort of activity in retirement.

01:16:14.060 | If they've decided, "This is the portfolio that works for me.

01:16:18.300 | It's quite passive and that's one of the pros of it for me.

01:16:21.780 | That's why one of the main reasons – one of the main draws," then they won't necessarily

01:16:26.660 | be doing anything, actively deciding, "Hey, this market's overvalued," that sort of

01:16:33.100 | thing.

01:16:34.100 | If they wanted to get really rich, yes, but I think lots of people who just go, "Okay,

01:16:40.700 | I've saved up for my job for the last 20 years.

01:16:43.780 | I'm good.

01:16:44.780 | I've just been very frugal and now I'm done, done working and I just want a passive

01:16:50.060 | portfolio where I just collect my dividends every month or every quarter.

01:16:55.140 | I'm good."

01:16:56.140 | I think that's quite common.

01:16:58.140 | Best thing for the people in that situation to do is going to be pile up your money, call

01:17:02.460 | Northern Trust or Bessemer Trust and say, "Here, I don't want to pay attention.

01:17:06.260 | I'll pay you to pay attention to my money for me.

01:17:09.780 | I just want to live in retirement."

01:17:10.780 | There are some other good solutions too.

01:17:12.460 | I like the Target Retirement Date Funds that Vanguard has.

01:17:17.380 | I think that's a fairly good solution.

01:17:22.660 | Let me plug one cool tool that I just found out over the last few months, just discovered

01:17:28.740 | and I think it was only created a few months ago but it's amazing.

01:17:31.260 | It's called PortfolioCharts.com.

01:17:36.180 | It lets you put in different asset allocations for all kinds of different—now, obviously,

01:17:44.100 | something like a rental property it can't cover or a business you're running yourself

01:17:47.220 | but all the traditional kind of standard types of investments and a lot of some non-standard

01:17:52.940 | ones too that he has data for and look at how did those returns happen versus the volatility

01:18:00.260 | that they present.

01:18:04.260 | Then it just visualizes it in just the most beautiful ways, makes these charts and it

01:18:10.860 | shows what your safe withdrawal rate could be for these different potential portfolios.

01:18:21.820 | It shows you how long would it have taken you to work on average and with the standard

01:18:25.540 | deviation and then it shows it in a chart so it's pretty so you don't have to understand

01:18:28.980 | what standard deviation is.

01:18:31.100 | It shows you how long it would have taken to retire if you had 100% equities portfolio

01:18:36.020 | over 1979 or if you had 100% gold portfolio or a mix of those or you had this percent

01:18:43.020 | bonds or you can basically just put in whatever percent you want of all these different things

01:18:47.260 | and it'll show you how long would it have taken you to retire if you had that as your

01:18:52.540 | allocation.

01:18:53.540 | How long would it—what sort of volatility would you have?

01:18:57.460 | It's just fun to go on there and play around.

01:18:58.980 | If you are one of those people who are interested in this sort of stuff, learning about this

01:19:03.040 | and then he's got a little blog on there where he posted some different—like here's

01:19:07.780 | a potential allocation that's really interesting to look at or here's this new calculator.

01:19:13.580 | It's worth—he had a post a month or two ago called the Golden Butterfly which is kind

01:19:19.120 | of a tweak on the permanent portfolio that he made that was just fascinating to me looking

01:19:25.960 | at this asset allocation for this portfolio that I would have never considered.

01:19:30.560 | So if you are into that sort of stuff, it's a fun site to check out, portfoliocharts.com.

01:19:35.940 | Cool.

01:19:36.940 | I'll try to link to it in the show notes.

01:19:39.400 | Any other resources or ideas that you think would be useful for people trying to solve

01:19:44.180 | through this problem?

01:19:45.180 | Yeah.

01:19:46.180 | Yeah.

01:19:47.180 | So let's see.

01:19:48.180 | The kind of circling back to—we kind of got a little off topic but going back to inflation,

01:19:53.340 | there's a cool site called westegg.com/inflation that has all the inflation data from the year

01:20:01.580 | 1800 up through last year, 2014.

01:20:06.460 | You can put in a dollar amount and starting and ending year and it will tell you how much

01:20:12.660 | that amount would have been worth.

01:20:14.900 | So if you're like, "Well, my grandfather said his house was $5,000 in 1925.

01:20:19.700 | How much is that today?"

01:20:21.580 | Or "I have this much today.

01:20:24.540 | What would that have been equivalent to back 30 years ago?"

01:20:27.580 | You know, "Oh, my salary this year."

01:20:29.100 | So it's fun to play around with a cool inflation tool to just see how it actually played out

01:20:35.580 | historically.

01:20:39.980 | I think thinking about early retirees and inflation, it's important to go on and play

01:20:49.500 | with retirement calculators and look at what does inflation—change some of those inflation

01:20:58.460 | assumption rates and see what that does to your portfolio.

01:21:02.060 | And then also make sure you use ones that are not just like have you put in a fixed

01:21:06.180 | number guess but do a Monte Carlo sim that will show a whole range of scenarios.

01:21:13.100 | And then also use a tool like C-FIRESIM, the letter C and then F-I-R-E-S-I-M.com, which

01:21:22.460 | uses historical inflation when it's in historical interest rates—or not interest, like market

01:21:29.100 | returns—to calculate how your portfolio would have done historically.

01:21:32.500 | So using actual real-world data, there's no easy answer, but it's important to get a feel

01:21:43.020 | for what might it look like and playing around with those different scenarios and getting

01:21:50.060 | comfortable with the idea and then coming up with different plans to help think about

01:21:56.540 | it.

01:21:57.540 | One thing you said earlier when you mentioned your thoughts on gold is you said that you

01:22:01.780 | would rather have those productive assets, those businesses making money.

01:22:06.980 | And that's one of the best inflation hedges in my mind is if you are investing in equities,

01:22:13.640 | if you have an index fund, I think a lot of retirees worry about a market crash, and so

01:22:19.300 | they don't want to put too much in stocks.

01:22:21.120 | And so they have a high cash allocation and they have a lot of fixed-rate bonds.

01:22:26.480 | And the problem is that inflation just destroys that.

01:22:29.420 | And you can recover from a market crash.

01:22:32.060 | You can kind of wait it out and the stocks will recover, but you're probably not going

01:22:38.500 | to get buying power back.

01:22:39.620 | We're probably not going to have deflation for decades that's going to re-get you your

01:22:45.420 | buying power back.

01:22:46.420 | So I think it's important for an early retiree to look at that.

01:22:51.940 | And owning equities, having a high enough stock percentage, because when prices are

01:22:58.500 | going up, if food is going up, if gas is going up, if clothes are going up, but you own the

01:23:04.500 | companies that are selling that food and selling that gas and selling those clothes, you're

01:23:08.700 | getting more profits.

01:23:11.660 | And that's why it may be scary to go, oh, no, the stock market's tanked.

01:23:18.100 | As inflation happens in the stock markets, I need to sell.

01:23:22.140 | But keep in mind that those companies are still generating profits.

01:23:28.140 | They're selling those items that are now at an increased cost.

01:23:32.100 | And you as the owner of that company are earning those profits.

01:23:35.780 | And even if the stock market drops, it eventually will correct.

01:23:39.980 | Mad Fientist: I had a friend of mine who primarily earned their income from a portfolio of oil

01:23:47.980 | wells that a family member had put together.

01:23:51.660 | And I just remember when gas was up at $4 a gallon here in the States, I remember kind

01:23:56.820 | of just thinking about it.

01:23:58.380 | I was bemoaning it.

01:24:00.180 | And the person said to me, "Hey, it's great for me.

01:24:01.860 | I'm getting bigger checks than I've ever gotten in my life."

01:24:04.740 | And so, it's kind of a cool way to balance it.

01:24:06.780 | If you own some oil wells or some oil stocks or whatever way that you're investing in

01:24:11.820 | the oil market, if gas prices are low, you're not making a lot of money, but you can enjoy

01:24:15.860 | the low cost of traveling in your car.

01:24:18.120 | If gas prices are high, you can hurt a little bit when you fill up your tank, but you can

01:24:22.700 | sit back and enjoy the nice big fat checks coming into your bank account.

01:24:25.420 | It's a good place to be.

01:24:26.420 | Absolutely.

01:24:27.420 | And I think there are specific strategies I've heard of where people will buy stock

01:24:31.380 | in their local electric company and buy stock in their local natural gas company.

01:24:36.020 | And the utility companies that they pay money to every month, well, if those utility costs

01:24:42.700 | rise, theoretically, so should the price of those stocks or at least the dividends and

01:24:47.260 | the amount of profit that those companies are making, the revenues.

01:24:51.180 | And so, that's definitely another kind of fun mental hedge too for inflation is like,

01:24:58.140 | "Oh, my electricity went up per kilowatt, but hey, I'm at least paying some of it to

01:25:02.820 | myself."

01:25:03.820 | Right.

01:25:04.820 | Right.

01:25:05.820 | Yeah, I agree.

01:25:06.820 | I guess, I think it's been a good conversation.

01:25:10.340 | Sorry, before I wrap up, anything else, Joe?

01:25:13.860 | No, I think we covered quite a bit.

01:25:17.140 | It's definitely an interesting topic.

01:25:20.340 | I think there's a lot of resources online.

01:25:23.620 | The financial mentor, Todd Treseder, that I mentioned earlier, he's written a fair amount

01:25:27.220 | about inflation for retirees.

01:25:28.980 | So Google "financial mentor inflation" and that'll give you some more articles to read

01:25:33.300 | if you're interested in the topic because it's a fascinating one for me just thinking

01:25:38.460 | about how money works and how the value of it just really changes over time.

01:25:49.100 | The challenge of these types of conversations, and I think it's been a good conversation,

01:25:52.820 | a good introduction, but the challenge that has emerged is the question of speaking in

01:25:57.140 | broad generalities versus specific application.

01:26:01.220 | And this is always the problem.

01:26:02.960 | And so, what we've done is many people talk about inflation from the perspective of the

01:26:08.780 | large scale economy in general.

01:26:11.300 | And that's what the CPI is measuring.

01:26:12.900 | Well, you can home in a little bit more to the inflation in your town or in your state

01:26:18.020 | or in your industry or things like that.

01:26:20.340 | When you start to dig into financial strategies, you can go with financial strategies for the

01:26:24.020 | mainstream than financial strategies for the early retirees.

01:26:27.620 | But the true power is going to be to hone in on your situation.

01:26:31.740 | And so, that's what's emerged even in the conversation.

01:26:33.860 | You can hear Joe's perspective and my perspective of our situation.

01:26:38.060 | And frankly, Joe, it's very difficult for me to bring together the concept that is prominent

01:26:45.940 | in early retiree scenarios, the idea that, well, we're going to retire at 30 on a portfolio

01:26:52.940 | of passive index funds because I can't find, with the exception of Doug Nordman, I can't

01:26:58.500 | find anybody who's actually followed through and retired at 30 and done it for 40 or 50,

01:27:04.580 | excuse me, and lived for 70 years on their portfolio, maybe Doug Nordman and Joe Dominguez.

01:27:09.820 | That's about it.

01:27:10.820 | And I'm sure there are a couple out there, but I think it's a little unrealistic to say

01:27:14.020 | that this is going to be the approach.

01:27:15.980 | Rather, that's why I bring in things like business.

01:27:18.020 | That's why I bring in these other things and say, "This is a much more expansive, inclusive

01:27:21.540 | opportunity."

01:27:22.540 | And this is what people are actually doing, is they're actually, at some point in time,

01:27:28.580 | you're still going to be buying and selling real estate.

01:27:30.340 | Some point in time, you're going to find some little thing that you care about, whether

01:27:33.460 | it's running a canoe outfit or operation in Chiang Mai, Thailand or something, and you're

01:27:41.060 | going to be back in business.

01:27:42.060 | And then you're going to be filtering that in, and then you're going to sell that business

01:27:45.140 | because you get a good deal on it.

01:27:46.800 | This is the way that the world works.

01:27:49.980 | It's not this approach to passive portfolio perfection.

01:27:54.140 | Yeah.

01:27:55.140 | I agree that you may make more money doing those sort of passions, but not necessarily

01:28:03.420 | doing it for the money.

01:28:06.060 | So your main base may still just be the passive portfolio and you're doing the hobby income

01:28:13.340 | for fun.

01:28:14.340 | But yeah, yeah.

01:28:15.740 | I agree that there's very few.

01:28:17.980 | I think the problem is it's a selection bias, a sample bias, in that most of the people

01:28:25.100 | who do get there to that early retirement are because they are interested in that and

01:28:31.540 | become interested.

01:28:32.660 | And so if someone's not interested in their money, it's rare, or not interested in investing,

01:28:38.820 | it's a lot more difficult for them to achieve that.

01:28:42.500 | And I wouldn't even necessarily count Nords in there because he's got the military pension.

01:28:46.620 | Yeah, I think Paul and Vicky Terhorst, I think there's some out there.

01:28:53.020 | And I think there's more than we know about that don't necessarily blog because they're

01:28:59.660 | not interested in talking about financial topics because they're not that interested

01:29:02.460 | in it.

01:29:03.460 | But I definitely have seen people post questions like, is there anybody out there who actually

01:29:11.740 | built up a big passive portfolio, takes 4% a year, and there are people that are like,

01:29:17.500 | yeah, yeah, I do that.

01:29:18.940 | And then there are other ones who get into angel fund investing and who do all kinds

01:29:23.180 | of other stuff.

01:29:24.180 | And so it's definitely-- there's a range.

01:29:28.740 | But you're right in that most of us seem to be more active and interested in our investments.

01:29:34.900 | And I think that's a great thing.

01:29:36.340 | Yeah.

01:29:37.340 | What you focus on, that's where your energy goes.

01:29:39.620 | And when you focus on your money, then it can start to grow.

01:29:41.980 | So Joe, thanks for coming on.

01:29:43.540 | Is there anywhere-- are you blogging or posting anywhere about your trip?

01:29:47.740 | People can check out even just any personal stuff that you're sharing?

01:29:51.980 | Not yet.

01:29:54.340 | We've talked about starting a blog.

01:29:56.320 | My wife has actually written about a dozen blog posts for it.

01:30:00.940 | But my computer died a couple weeks ago.

01:30:05.540 | And it's a MacBook.

01:30:08.300 | And I have AppleCare.

01:30:09.780 | But apparently, there is no Apple stores in Split, Croatia.

01:30:15.020 | That-- AppleCare is not helpful when there's no Apple store.

01:30:18.540 | So we did just-- we got to Zagreb a couple days ago and dropped it off at the store.

01:30:23.060 | And it's getting diagnosed.

01:30:24.180 | So one of my-- people keep asking us about a blog, family members and friends who want

01:30:28.620 | to keep up with our travels.

01:30:29.980 | And we'll probably eventually start something.

01:30:32.980 | So maybe next time we chat, I'll be able to answer that better.

01:30:36.620 | Well, at least just do Instagram or something.

01:30:38.100 | I'd enjoy seeing pictures of the trip.

01:30:40.060 | And super simple.

01:30:41.060 | Instagram would be a simple way to share something.

01:30:44.420 | That's a good idea.

01:30:45.420 | I don't have one of those yet.

01:30:47.020 | But I will think about that.

01:30:48.940 | That's a good idea.

01:30:49.940 | Yeah.

01:30:50.940 | We'll talk more offline.

01:30:51.940 | But Instagram is the way to go.

01:30:52.940 | So.

01:30:53.940 | Yeah.

01:30:54.940 | We'll see you on the show.

01:30:55.940 | And we'll-- maybe another year, we'll be back in who knows what corner of the world

01:30:58.060 | you'll be in at that point.

01:30:59.060 | Cool.

01:31:00.060 | Thank you so much, Joshua.

01:31:03.500 | As you build wealth, develop wealth and work on your plan, you must take responsibility

01:31:10.260 | to control the risks of your plan.

01:31:13.980 | Every financial plan has risks.

01:31:16.580 | Every stage of life has different risks.

01:31:19.300 | When you are an employee, inflation poses a certain risk.

01:31:23.920 | But it's not nearly so difficult to manage inflation as an employee or business owner

01:31:29.700 | as it is if you are living on your nest egg.

01:31:33.100 | None of us know what the future holds.

01:31:36.580 | But you had better have a plan for your money.

01:31:39.300 | So I hope the conversation today has perhaps given you some ideas.

01:31:43.620 | I'm sure we didn't provide any real answers or specific advice.

01:31:48.460 | But hopefully at least it gave you the encouragement and motivation to go back and consider your

01:31:51.980 | plan and make sure that you have plans to handle the risks that face you and your money.

01:32:00.100 | Remember step four of the radical personal finance framework for wealth is avoid catastrophe.

01:32:06.120 | And that means from time to time, you need to put on-- take off the rose tinted glasses

01:32:10.660 | and put on the dark and gloomy Eeyore glasses.

01:32:13.460 | Look at your situation and ask yourself, what are all the bad things that could happen from

01:32:17.180 | the mild to the wild?

01:32:20.300 | Ask yourself the question, what would you do?

01:32:22.500 | Now what's going to happen?

01:32:23.780 | I don't know.

01:32:24.780 | Neither does anybody else.

01:32:26.620 | We all have ideas about it.

01:32:28.660 | So my personal approach is just simply to recognize that I don't know and do my best

01:32:32.780 | to plan for all eventualities and give myself as many options as possible.

01:32:38.740 | Can't always do that perfectly.

01:32:40.820 | But a lot of times you can do it.

01:32:41.860 | And I encourage you to stress test yourself.

01:32:45.180 | Ask yourself what you would do when facing inflation, mass inflation, hyperinflation.

01:32:50.220 | Ask yourself what you would do and how would that affect your wealth.

01:32:53.380 | Thank you for listening to today's show.

01:32:54.620 | If this content has been valuable to you and you would like to support me directly in the

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01:33:29.620 | Back with you soon.

01:33:30.140 | (upbeat music)

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