RPF0472-Friday_QA
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00:00:29.800 | It's Friday, that means it's time for live Q&A.
00:00:52.960 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:00:56.400 | skills, insight and encouragement you need to live a rich and meaningful life now while
00:01:00.960 | building a plan for financial freedom in 10 years or less.
00:01:03.720 | On Fridays we do Q&A so hopefully you get a little bit of that in-call encouragement
00:01:09.000 | and insight.
00:01:10.000 | You call up and ask questions and I do my best to come up with answers.
00:01:18.480 | Here we go.
00:01:24.800 | Friday Q&A shows are open to patrons of the show.
00:01:27.720 | If you'd like to become a supporting patron of the show, you can do that at RadicalPersonalFinance.com/patron.
00:01:31.680 | Basically, the way it works is I do my best to seek to keep you, the listener, as my fundamental
00:01:40.640 | customer in the business.
00:01:42.640 | One of the ways that I have worked out to be able to do that has been to build and focus
00:01:47.400 | on the Patreon program.
00:01:49.320 | Probably the best reward that I've come up with for those of you who sign up to support
00:01:52.880 | the show each and every month financially has been access to these live Q&A calls.
00:01:57.000 | It works.
00:01:58.000 | It's a win for you and a win for me.
00:01:59.000 | It's a win for me because it keeps the number of callers down to three, four, five, six,
00:02:03.480 | seven calls which I can handle in an hour.
00:02:06.920 | It's a win for you because you get pretty much guaranteed access.
00:02:12.280 | Every single caller who called in today is able to get online.
00:02:17.000 | That can sometimes be good and sometimes can be bad, but let's get right to it.
00:02:21.160 | To start with, Heather from Tennessee, welcome to Radical Personal Finance.
00:02:23.680 | How can I serve you today, please?
00:02:25.360 | Yes, sir.
00:02:26.360 | Both my husband and I are self-employed and we have traditional IRA that we have already
00:02:35.000 | maxed out for this year.
00:02:37.320 | We are considering opening a simple 401(k) and was just wondering if the IRA contributions
00:02:44.880 | we've already made count toward the amount we can place in that simple 401(k).
00:02:49.800 | No.
00:02:50.800 | They don't.
00:02:52.960 | Traditional IRAs and any kind of employer-sponsored plan function on two different measurement
00:02:59.800 | scales and they are unrelated measurement scales.
00:03:04.120 | Literally anybody who has any kind of plan, who makes any kind of money, anybody can contribute
00:03:09.880 | to a traditional IRA.
00:03:12.520 | The difference comes down to the deductibility of those contributions.
00:03:18.400 | So no matter your income, no matter whether you have 401(k)s, a simple 401(k) in your
00:03:22.200 | business or any of those things, it comes down to – it's a totally different scale.
00:03:27.960 | Anybody can contribute to an IRA.
00:03:30.000 | If your income is over a certain amount, then you may not be able to actually deduct your
00:03:36.560 | IRA contributions.
00:03:39.040 | And that income amount goes based upon essentially a chart that says first and foremost, are
00:03:44.960 | you covered by an employer plan?
00:03:47.680 | So if you are not covered by an employer plan, there's no income limit on the ability to
00:03:52.440 | deduct an IRA contribution.
00:03:55.520 | So in this context, both you and your husband are able to contribute to a traditional IRA
00:04:04.600 | up to the maximum and you are allowed to deduct that on your taxes, no matter what, no matter
00:04:12.960 | how much income is covered.
00:04:15.520 | So if you are not covered by a retirement plan at work, then – and as long as neither
00:04:21.880 | of you, since both of you work in the same business, then neither of you are covered
00:04:26.600 | by a retirement plan at work.
00:04:28.260 | You can make a full contribution and you're entitled to take a full deduction.
00:04:33.360 | However, if one of you or both of you is covered by a retirement plan at work, then your ability
00:04:39.960 | to deduct your IRA contributions will be based upon your income.
00:04:44.640 | So in this context, if both of you are covered by a retirement plan at work and you're filing
00:04:52.000 | your taxes as married filing jointly, if your modified adjusted gross income is more than
00:04:59.180 | in 2017, about $100,000, I think it's $99,000, then you will not be able to deduct your contributions
00:05:07.000 | to the IRA.
00:05:08.600 | So basically, there are two different scales.
00:05:11.620 | You can participate in both, but depending on your actual income, you may or may not
00:05:15.800 | be able to deduct your IRA contributions.
00:05:18.560 | Are both of you – if you were to set up a retirement plan at work, are you in danger
00:05:22.640 | of losing your deductions because you are earning more than $99,000, Heather?
00:05:27.480 | Yes.
00:05:28.480 | Okay.
00:05:29.480 | So in that context, you need to sit down and calculate what the benefits are, what the
00:05:34.960 | costs are.
00:05:35.960 | Is it worth it to you to be able to get more money in?
00:05:38.560 | Do you want to deal with the hassle of it?
00:05:41.480 | Describe to me a little bit about the nature of your business, please.
00:05:44.840 | Well, I have a business where I refurbish jewelry and sell it.
00:05:51.560 | And my husband is a realtor and an auctioneer.
00:05:54.920 | Do either of you have employees?
00:05:57.360 | No.
00:05:58.920 | We have contract – temporary day laborers.
00:06:01.720 | Great.
00:06:02.720 | So that makes it really simple.
00:06:03.720 | If you don't have any employees and you're simply hiring a little bit of contract labor
00:06:06.800 | here and there, then you don't have to go through the hassle and the expense of setting
00:06:12.520 | up a plan that covers all of your employees.
00:06:15.800 | The major cost to you as an employer for setting up a group plan is going to be that you have
00:06:23.120 | to cover all of your employees.
00:06:25.320 | And so as an employer, this can be very, very expensive to do.
00:06:29.400 | It may be worth it to do but that worth always depends – usually depends on number one,
00:06:34.920 | if you can afford it.
00:06:36.320 | Do you have enough income to cover it?
00:06:38.240 | Number two, if your employees will actually value it and participate.
00:06:42.240 | So in white-collar professions, most – I believe most is an accurate word.
00:06:47.880 | Many if not most employees will value their ability to participate in the company's
00:06:54.520 | 401(k) plan.
00:06:55.720 | So it's pretty standard that if you're going to work in a white-collar corporate
00:07:01.000 | entity that you're going to participate in – that you need to have one set up to
00:07:05.800 | be able to attract to you quality employees.
00:07:09.360 | If your employees are earning 60, 80, 100, $150,000 a year, they're going to value
00:07:16.280 | the ability to defer some of that income into a 401(k).
00:07:19.840 | Where you get into challenges would be businesses like your husband's.
00:07:23.120 | If he had employees or if he were running a construction company or a small business
00:07:29.000 | of some kind and he had a few staff members who were earning 25, 30, $40,000 per year,
00:07:35.800 | often that type of employee doesn't value their ability to participate in a 401(k) very
00:07:39.600 | much.
00:07:40.600 | So they find it very difficult to get enough enrollment so that everybody can participate.
00:07:47.400 | The business owner is often in great danger.
00:07:49.880 | If they can't get enough enrollment by the people, then the business owner themself is
00:07:54.360 | not able to participate in that 401(k) plan because it will be considered to be a plan
00:08:00.760 | that's too heavily skewed towards the interest of the business owner and not appropriately
00:08:05.760 | oriented towards the employees.
00:08:08.840 | So all that to say that because you and your husband don't have employees, that's great.
00:08:12.920 | Now you're in a situation where you just can look and say, "What's going to be
00:08:16.080 | the best for us?"
00:08:17.280 | And so a simple IRA could be simple to set up.
00:08:20.200 | A SEP IRA could also work for you or a solo 401(k) which I outlined in last week's
00:08:28.200 | Q&A for you and you can go back and listen to that for details on that.
00:08:31.360 | But if you earn more than $99,000 and if you participate in your group plan, then you will
00:08:38.840 | not be able to take your deduction for your traditional IRA.
00:08:43.320 | Remember however that that doesn't necessarily mean that you can't contribute to a Roth
00:08:47.080 | IRA.
00:08:48.200 | And so the Roth IRA works on a different scale and the Roth IRA works on simply the scale
00:08:53.920 | of your income and it doesn't matter whether you are or are not covered by an employer
00:08:59.400 | plan.
00:09:00.400 | So the scale for a Roth IRA for a married couple filing jointly in 2017 is $186,000.
00:09:08.560 | Do you think that your modified adjusted gross income would be lower than $186,000 or higher
00:09:12.440 | than that?
00:09:15.480 | It will be lower.
00:09:17.000 | Okay.
00:09:18.000 | So what you can do is probably the best of both worlds is establish some kind of plan
00:09:22.320 | at work.
00:09:23.320 | A simple plan would work fine or a SEP or whatever you choose to do and then go ahead
00:09:26.760 | and just make contributions to a Roth IRA.
00:09:29.240 | You won't get the upfront tax deduction but you will get the benefits of a Roth IRA and
00:09:33.320 | as long as your modified adjusted gross income is less than $186,000, you can make that contribution.
00:09:40.080 | Good for now.
00:09:41.080 | Any other follow-up questions?
00:09:42.080 | So I listened that the call last week is how we found out about the simple IRA or the simple
00:09:49.720 | 401(k) excuse me.
00:09:52.940 | We have a SEP set up but we've never contributed to it because our accountant says that it
00:10:00.200 | wouldn't benefit us.
00:10:01.440 | So we've just never put any money in it.
00:10:04.480 | So with the $18,000 that you can put in the 401(k) plus the other that's the formula-based,
00:10:12.800 | does the $5,500 that I've already put into my IRA take away from that $18,000?
00:10:20.700 | The scale for your contribution to the IRA and the amounts that you're going to contribute
00:10:26.680 | to an employer plan of any kind are unrelated.
00:10:29.880 | Okay.
00:10:30.880 | They are unrelated.
00:10:31.880 | They're completely unrelated.
00:10:32.880 | Okay.
00:10:33.880 | So that does answer my question.
00:10:36.880 | Great.
00:10:37.880 | Awesome.
00:10:38.880 | Thank you so much for calling in.
00:10:39.880 | Thank you.
00:10:40.880 | All right.
00:10:41.880 | Next up we've got Tim in Alabama.
00:10:42.880 | We got the South.
00:10:43.880 | I got Tennessee, Tennessee, Alabama and one caller from Iowa.
00:10:47.080 | Tim in Alabama, welcome to the show.
00:10:49.000 | Hey Joshua.
00:10:50.000 | Thanks for letting us call in.
00:10:54.400 | I really appreciate your show and one of the parts I appreciate about it is hearing about
00:10:58.440 | books on different topics and it's really opened my eyes to books on financial planning,
00:11:05.160 | investing and personal finance.
00:11:06.160 | I was wondering if you had a list of the top books that you recommend in these subjects
00:11:12.800 | or where you would start, that kind of thing.
00:11:15.800 | I get asked this question.
00:11:17.160 | I've had so many people say, "Joshua, can you recommend a reading list?"
00:11:20.440 | And I'll tell you why I struggle with it and then I will try to give you a couple of answers.
00:11:26.360 | And I'll tell you a little bit about my story and why I struggle with it.
00:11:30.720 | When I grew up, I didn't have anybody that came alongside to try to teach me about money.
00:11:36.480 | I really didn't.
00:11:37.480 | I didn't have – my parents were – did a great job and were excellent parents.
00:11:43.280 | But they weren't particularly all that interested in business.
00:11:45.680 | My dad is an engineer.
00:11:46.680 | He's not a businessman.
00:11:48.200 | He doesn't particularly care that much about money in the context of being rich was never
00:11:52.880 | one of his goals.
00:11:55.000 | And similarly with my mom.
00:11:57.360 | So neither of them was a big influence for me like some parents are to talk about here
00:12:02.520 | is everything you need to know about money.
00:12:04.600 | I really didn't have any experience in – with people in my life that would come and do that.
00:12:13.200 | So most of my exposure to finance just simply came because I was always interested in the
00:12:18.880 | subject and I'd go down to the bookstore and my favorite sections seemed to be the
00:12:23.040 | business section and the personal finance section.
00:12:26.000 | And so I started my path in with personal finance.
00:12:31.640 | For example, I can remember reading a book like David Bach, well-known author of the
00:12:37.560 | – I'm blanking on his series.
00:12:40.560 | Yes, automatic – thank you.
00:12:44.280 | I remember reading The Automatic Millionaire and it just blew my mind and I was exposed
00:12:49.040 | to the simple concept that if you just don't buy a latte a day and you just save the money
00:12:53.520 | and put it into a mutual fund, then wow, I can be rich and it can happen automatically
00:12:57.000 | and this is so great.
00:12:58.440 | And it's just a simple personal finance book but it opened my eyes and it kind of
00:13:02.360 | blew my mind.
00:13:03.360 | It's like, wow, this can be – this is fantastic.
00:13:07.280 | I remember the first book I ever read on index investing.
00:13:10.600 | I think it was called The Lazy Man's Guide to Investing, something like that.
00:13:13.640 | It was talking about the portfolio of buy a stock index fund and a bond index fund and
00:13:18.480 | boom, you're done and you get great results and I just thought, wow, how cool is that?
00:13:23.040 | And I basically kind of read my way through what I consider to be the standard bibliography
00:13:29.680 | for mainstream personal finance.
00:13:31.920 | Rich dad, poor dad, check.
00:13:33.360 | That was the book that all of my friends were reading and Millionaire Next Door, check,
00:13:41.360 | and Dave Ramsey, check.
00:13:43.800 | These books were all very influential on me and they had a big impact on my life.
00:13:48.440 | And so I would encourage others to read them and I would share them with other people,
00:13:52.560 | et cetera.
00:13:53.560 | But then I moved and over time – and of course there were others that were more technical
00:13:57.960 | that are not bestsellers.
00:13:59.240 | To create a bestselling book that everyone is going to know, it's got to be light.
00:14:02.120 | It's got to be a narrative basically and it's got to be non-boring.
00:14:04.800 | So some of the more technical – technically valuable ones with comprehensive discussions
00:14:10.000 | are generally don't get nearly the airtime that a simple book does.
00:14:14.160 | But then I moved into the world of professional finance and in professional finance, I thought
00:14:18.400 | that I had all of the – I thought I had figured everything out.
00:14:21.840 | All I got to do is just get other people to do the automatic millionaire approach or to
00:14:25.640 | get out of debt a la Dave Ramsey, et cetera.
00:14:28.960 | I grew to learn that there was kind of a little bit more to it.
00:14:33.080 | I looked around and basically the most challenging thing for me was noticing that nobody – that
00:14:40.920 | my clients didn't necessarily look like the people that I thought they would look
00:14:44.880 | like because they were – they had followed the automatic millionaire plan.
00:14:51.280 | I realized that it wasn't that it didn't work.
00:14:53.200 | Of course, most of us have – most of us who were professional financial advisors,
00:14:57.560 | we'd have some clients that worked a job and saved money in their 401(k), et cetera.
00:15:02.120 | But I just looked around and realized that often there were other paths.
00:15:05.300 | There was a high percentage of entrepreneurs.
00:15:08.520 | There was a high percentage of very high-paid, highly paid people, highly paid professionals.
00:15:15.640 | Many people had unique investment ideas.
00:15:19.040 | I remember how strange it was when I was sitting and be sitting in front of someone who was
00:15:22.720 | super rich and they would say, "I don't invest in stocks.
00:15:25.920 | I don't trust the stock market."
00:15:27.720 | Here I was completely convinced of the stability of stocks because that was what every one
00:15:34.060 | of these books said and it was religious heresy to say, "I don't trust the stock market."
00:15:40.040 | I was trained to undo that.
00:15:42.000 | I was trained to overcome those objections and with good backing to some degree.
00:15:49.400 | But over time, I just grew to look at things a little bit differently.
00:15:53.200 | I started to look and then I started to understand how in essence most of the people – I started
00:16:01.200 | to look at how people got rich, not how they said to get rich.
00:16:05.040 | Then I looked at David Bach and I studied his history a little bit and I understood
00:16:09.320 | that, wait a second, it's a valuable story to tell about him being a Merrill Lynch financial
00:16:14.520 | advisor and sitting there and talking about how you can become an automatic millionaire
00:16:18.920 | over time.
00:16:20.120 | But in reality, he built this mega huge powerful information publishing business and that was
00:16:26.760 | how he got rich.
00:16:28.320 | Then I would sit and I looked at Dave Ramsey's business and I thought to myself and I kind
00:16:32.880 | of analyzed it and I said, "Wait a second.
00:16:35.080 | There's a difference here between the advice that he gives to a listener who's earning
00:16:38.480 | a little bit of money and saving money versus the type of business that he chose and the
00:16:43.280 | type of business he was able to do."
00:16:44.640 | I went in my local area and I talked to some of my rich clients and rich friends and people
00:16:49.920 | and I all of a sudden realized that even me as a financial advisor, I was working to get
00:16:55.400 | rich not by saving 10% of my 401(k) but rather by using the power of synthetic equity, synthetic
00:17:03.760 | leverage by using other people's money for me to earn my own money off of, by using and
00:17:10.120 | taking a fee for the control of other people's money.
00:17:13.760 | Then I started to realize that, well, wait a second, I could do that in just about any
00:17:16.960 | business.
00:17:17.960 | I can go and I don't necessarily need to own the real estate.
00:17:20.160 | I can go and start a real estate management company and take advantage by providing a
00:17:23.520 | service, et cetera.
00:17:24.720 | I started to look at the world a little different.
00:17:27.280 | Over time, I became deeply – I guess I just became attracted to a different philosophy,
00:17:35.160 | to trying to understand things a little bit deeper.
00:17:37.920 | I've never known or understood if it's necessary to go down the path that I went,
00:17:44.800 | reading the simple books, reading a powerful allegory like The Richest Man in Babylon and
00:17:51.680 | dropping all these names as just hopefully useful things to consider.
00:17:56.320 | I never have figured out if it's necessary to go that way or if it's possible to come
00:18:02.480 | a different way.
00:18:04.240 | I struggle to recommend books because so much of it is – I look at it and say, "Where
00:18:10.600 | is this person at this point in time?"
00:18:12.920 | I generally don't recommend Rich Dad, Poor Dad.
00:18:16.960 | I don't recommend it.
00:18:18.320 | But there are times in which I would recommend it.
00:18:20.880 | I don't just hand out Total Money Makeover like I used to, but there are times in which
00:18:25.560 | I would recommend it.
00:18:27.000 | I have struggled and struggled to come up with that reading list because I don't particularly
00:18:30.640 | see any value of somebody reading through 10 or 15 or 20 books unless they're reading
00:18:36.280 | for the meta-narrative of those books.
00:18:38.840 | It's my hope that I can kind of suss out the meta-narrative, the philosophy.
00:18:43.960 | Unfortunately, I found it hard to articulate it in print myself.
00:18:48.800 | I've done it more here on the show, but I've taken kind of all the books and I've
00:18:53.920 | categorized what I've learned from them in terms of these differing approaches.
00:19:00.880 | What I'm trying to figure out how I can get out and get into educational format that's
00:19:06.200 | accessible to people is the underlying truths that are the same no matter whose approach
00:19:14.000 | or no matter which book.
00:19:16.200 | So long roundabout way of saying I struggle to answer that question unless you give me
00:19:21.220 | a specific scenario that I may be able to recommend the book.
00:19:24.680 | So tell me about your situation and I'll try to make a book recommendation specific
00:19:28.280 | to you.
00:19:29.280 | I think I'm pretty similar to you.
00:19:33.040 | I used to be a big Dave Ramsey fan.
00:19:34.960 | I don't dislike him now, but I think I have very similar views to you and went through
00:19:39.160 | all the books that you were describing.
00:19:41.720 | I guess I'm not sure if there was a particular topic I was interested in hearing your opinion
00:19:47.560 | on just generally.
00:19:48.560 | One thing I've gotten into recently is different equity investing strategies like index versus
00:19:55.560 | dividend value investing.
00:19:59.040 | Do you have any recommendations in that arena?
00:20:04.880 | I don't have anything there.
00:20:06.080 | It's out of my area of interest, so I don't have anything there.
00:20:09.820 | But I will give you two book recommendations that are books that I'm reading right now
00:20:14.920 | that are deeply affecting my thinking.
00:20:17.260 | So literally I'm almost finished with both of these books, reading them simultaneously.
00:20:22.640 | One is a recent book by Tyler Cohen called The Complacent Class and this is a recently
00:20:29.120 | published in the last year or so.
00:20:31.760 | And basically it's a discussion of the changing nature of the American culture and what's
00:20:41.100 | happening in the US American – I don't know a better way to say it, the culture.
00:20:47.500 | It's called The Self-Defeating Quest for the American Dream.
00:20:51.060 | This book is giving me really good – it's more of a book, a sociological book, not a
00:20:59.660 | finance book, but it's giving me a lot of insight into things I've kind of felt but
00:21:04.100 | didn't have any data on.
00:21:05.620 | That's been really interesting.
00:21:07.820 | And simultaneously, I'm reading it with a – reading it – reading also a book by
00:21:16.980 | an author named R.G.
00:21:19.460 | Letourneau and it's called Mover of Men and Mountains.
00:21:25.740 | Let me find it.
00:21:26.740 | It's in the other room.
00:21:27.740 | I can't get the title correctly.
00:21:28.740 | In just a moment, I'll give you the exact title.
00:21:31.540 | But this – yeah, it's called Mover of Men and Mountains and it's the biography
00:21:34.980 | – or I think – sorry, autobiography of a man named R.G.
00:21:40.300 | Letourneau who made his – built his business in the early 1900s, came of age basically
00:21:51.380 | around the turn of the century in about 1900.
00:21:54.620 | And he went on to become just this mega wealthy and hugely influential construction – man
00:22:01.700 | who constructed heavy equipment.
00:22:03.740 | He single-handedly designed and developed all kinds of heavy machinery which is just
00:22:12.860 | really, really an incredible story.
00:22:15.820 | And what has been fascinating is reading these two books simultaneously has showed me a culture
00:22:23.700 | that I have never experienced, a culture of American dynamism that has basically fallen
00:22:29.460 | off the scene before I arrived in the United States of America, a culture – an American
00:22:35.820 | culture that shifted – that is just constantly growing and kind of stretching at the seams
00:22:43.140 | and then moving on to build bigger machines and move faster and just this incredible cultural
00:22:48.620 | dynamism that today is long gone.
00:22:53.340 | And what's been so fascinating is reading Tyler Cohen's book, a modern book written
00:22:58.400 | by a sociologist looking back and saying, "Hey, look.
00:23:01.660 | This is all dead and gone and what's the future hold when essentially we're so comfortable
00:23:06.940 | and so complacent that we don't really go out and strive for anything difficult now?"
00:23:13.740 | And then I go back and read this insight, this firsthand account of just fascinating
00:23:18.180 | stories of what life was like back at the turn of the century with this man who had
00:23:23.580 | this just incredible business story, went broke, deep in debt, went broke, deep in debt,
00:23:28.620 | went broke, deep in debt, and then ultimately down the way made a massive, massive fortune.
00:23:34.760 | So there are two book recommendations that are just simply current books that I have
00:23:38.700 | found fascinating and I'll be done with them probably by the end of the weekend and
00:23:43.100 | you might enjoy both of those books.
00:23:44.620 | That's the best I got for you.
00:23:45.620 | Great.
00:23:46.620 | Thank you very much.
00:23:47.620 | You're very welcome.
00:23:48.620 | I've gotten that email from so many listeners about what book and whatnot.
00:23:55.260 | So now you know why I struggle to answer it.
00:23:59.060 | All right, Matthew in Tennessee, let's stay in the South.
00:24:02.020 | Welcome back to the show.
00:24:03.020 | Thank you, Joshua.
00:24:04.020 | Good afternoon.
00:24:05.020 | My question right now is around your website design and I was just curious of what your
00:24:12.660 | overall experience of working with Silly Grasshopper.
00:24:16.220 | Did they complete the design of your website and also do they offer any back-end support
00:24:19.980 | on like an hourly basis to customers?
00:24:22.140 | Can you kind of go over that relationship that you have and kind of your experience
00:24:26.460 | with it?
00:24:27.460 | Absolutely.
00:24:28.780 | So Silly Grasshopper is the company name for the company that handles my website and they
00:24:36.220 | built it.
00:24:37.580 | The owner of the company was a longtime friend of mine and so I've known him for a long time.
00:24:44.540 | So my review is biased because of the personal relationship.
00:24:48.900 | But in a professional capacity, Jonathan does an amazing job.
00:24:53.220 | He's done a great job.
00:24:54.220 | He does a very good job with design.
00:24:56.900 | He's excellent.
00:25:01.140 | He does a good job and I can't do more than that.
00:25:03.460 | I've done some ads for him and given him various accommodations.
00:25:06.100 | I have several listeners who have sought him out for his design work.
00:25:11.860 | What I do and what he does for me is he built my site.
00:25:17.500 | I wrote a good amount of it but he built it and he hosts it and he also does everything
00:25:26.780 | – he and his team.
00:25:27.780 | It's not just him.
00:25:28.820 | But he and his team do everything on the site for me.
00:25:31.860 | So I actually don't – the only thing I do on the site is essentially approve comments.
00:25:36.980 | That's something I do just to make sure that I get a chance to read all the comments
00:25:39.980 | that all of you listeners put on there.
00:25:43.740 | But one of the most frustrating things to me about my business is having to deal with
00:25:48.740 | WordPress and having to deal with web design and all of that.
00:25:51.620 | If I were going to go back and do it again, I probably would not build a WordPress site
00:25:56.140 | which is heresy simply because basically the majority of the internet is built on WordPress
00:26:03.500 | and WordPress is definitely the common language of the online world.
00:26:09.140 | But I have found just the process of learning WordPress to be so frustrating.
00:26:13.900 | It's not that you can't do the basics.
00:26:16.120 | It's that to do something well, it needs to be well-designed.
00:26:19.140 | Yes, you can get – when you set up a WordPress site and I've set up a couple more on my
00:26:26.100 | own.
00:26:27.100 | But when you go and set up a WordPress site, you can set it up and there's about a bazillion
00:26:30.180 | free themes you can use and there are all kinds of great themes.
00:26:33.140 | But it's not intuitive.
00:26:34.140 | You got to learn the language.
00:26:35.140 | I've always been frustrated by that aspect of web work.
00:26:38.960 | One thing I would always seriously consider is I would seriously consider using a platform
00:26:44.900 | like Squarespace instead of WordPress.
00:26:47.220 | A friend of mine who is a real techie explained it to me in this way and it made a lot of
00:26:52.620 | sense to me.
00:26:54.460 | And so they said to me – he said in essence, Squarespace is similar to what an Apple iPhone
00:27:03.900 | is where Apple – one of the secrets that makes the iOS platform, the Apple iPhone platform
00:27:11.260 | so powerful is Apple creates both the hardware and the software.
00:27:16.780 | And as such, the software is written for the hardware and it's very, very standardized
00:27:21.540 | which means it's consistently excellent.
00:27:25.860 | It's not – doesn't have as many options as the open source Android platform but it's
00:27:32.500 | consistently excellent.
00:27:34.020 | So when Android pushes out – excuse me, when Apple pushes out an update to the iPhones,
00:27:38.780 | they do that regularly and there are only a certain limited number of iPhones and so
00:27:43.100 | they can keep the software patched.
00:27:44.700 | And so because of that, iOS is inherently more secure and inherently more stable than
00:27:51.980 | the Android platform.
00:27:53.580 | And so Squarespace is a platform where you go to them and you purchase their website
00:28:00.380 | services.
00:28:01.380 | They set up the server for you.
00:28:02.900 | They handle the hosting of your content.
00:28:04.920 | They have a limited number of themes that you can choose from and then you have a limited
00:28:08.940 | number of modules that you can put on those themes.
00:28:11.820 | But most people could put and get their website exactly as they need it on Squarespace.
00:28:16.700 | The great thing is when Squarespace is updating the module, they're updating that module
00:28:21.020 | and they've got the hosting, they've got the themes.
00:28:24.180 | Everything is done really, really well on that context.
00:28:28.740 | It's not as cheap as a WordPress site can be but it's a really good value.
00:28:32.540 | And so I reached out to Squarespace.
00:28:36.380 | I wanted them to sponsor the show because I have this opinion of that that I just shared
00:28:39.500 | with you.
00:28:40.500 | I've never been able to set up a sponsorship with them sponsoring the show but I really
00:28:43.980 | think that that's worth your looking into.
00:28:47.100 | WordPress on the other hand is definitely far more powerful and there are so many more
00:28:51.460 | powerful things that can be built on WordPress and it's really, really good.
00:28:56.220 | But to get its best, you're probably going to wind up with a designer, somebody handling
00:29:00.160 | your site.
00:29:01.160 | I think that that's where Silly Grasshopper comes in.
00:29:04.580 | That's where Jonathan and his team do a good job for me and it's freed me of a tremendous
00:29:09.340 | energy to be able to just not worry about it.
00:29:12.820 | So I have a standing arrangement with them.
00:29:14.100 | I pay them a not insignificant fee and we have a business arrangement.
00:29:18.980 | I'm not sure if it's custom to me or if it's – I think he offers that to some other people
00:29:22.780 | as well.
00:29:23.780 | But it handles – hosting handles a bunch of other stuff.
00:29:27.640 | So I wholeheartedly endorse and recommend if you need help with WordPress or if you
00:29:31.860 | need help setting up a website and you're intimidated by doing it by yourself, sillygrasshopper.com.
00:29:36.380 | I sent you.
00:29:37.380 | Yeah, I definitely will.
00:29:42.300 | I agree with what you were saying about kind of trying to take on the whole WordPress world
00:29:48.740 | and it's just things just – in an early stage of trying to get a business off the
00:29:53.820 | ground, it just seems like a waste of time.
00:29:56.500 | So I understand exactly what you're saying.
00:29:59.340 | Thank you for that.
00:30:00.340 | You're welcome.
00:30:01.340 | Anything else?
00:30:02.340 | Yes.
00:30:03.340 | So that's kind of a boring question.
00:30:06.340 | Maybe something that will be a little bit more exciting for you and your audience.
00:30:11.100 | So say that you and your family are going on a trip for a decade and during this trip
00:30:17.980 | you will have no access to phone or the internet.
00:30:23.500 | But you also care about – and you also have a pot of money and you care very much about
00:30:27.620 | keeping up with inflation.
00:30:28.620 | So I'm only going to give you the option of selecting three investments that you could
00:30:33.900 | put capital into but you can't control them because you're going to be gone for a decade
00:30:39.100 | and you can't really have any day-to-day reaction.
00:30:41.180 | Do you have any idea of what those three investments would be and why?
00:30:45.940 | Permanent portfolio.
00:30:46.940 | I mean, that's the question.
00:30:51.260 | That's what Harry – what was his name?
00:30:55.620 | That's what they tried to solve with the permanent portfolio was to say that we have no idea
00:31:00.660 | which of these things are going to really turn out and so how can we just simply buy
00:31:07.020 | the market.
00:31:08.020 | So the basic outline of the permanent portfolio was the simplified version.
00:31:12.020 | Put 25% of your money into essentially a cash fund.
00:31:15.260 | Put 25% into long-term bonds.
00:31:17.420 | 25% into stock – broad-based stocks.
00:31:20.780 | Index funds work great.
00:31:22.020 | And 25% in gold.
00:31:23.980 | And if you go through the whole theory of it, I've always just found it to be powerful.
00:31:28.620 | And basically, I've never seen a good refutation of the permanent portfolio that didn't say
00:31:34.580 | it fundamentally was flawed.
00:31:37.700 | But what happens is people are flawed.
00:31:40.620 | And so what's frustrating about the permanent portfolio in my observation is that usually
00:31:46.140 | the returns will lag almost constantly.
00:31:49.780 | And so you always feel like I'm behind everybody else.
00:31:53.280 | And so because of that, very – many people have a hard time sticking with the permanent
00:31:58.820 | portfolio.
00:31:59.820 | But I think I would basically do that.
00:32:01.060 | I would – and the constraints that you've given me, the best answer is find a steward
00:32:05.200 | of the money and find somebody who can – who you trust and who is trustworthy.
00:32:11.080 | But absent that, I would buy – put a third of the money in gold.
00:32:16.720 | I put a third of the money into stocks.
00:32:18.280 | I just buy a broad-based index fund and I put a third of the money in bonds and I'd
00:32:22.040 | come back in a decade and probably be far richer than I am today.
00:32:25.560 | Got it.
00:32:26.920 | That makes sense.
00:32:28.920 | I didn't know if you were going to go toward the route of just buying three homes or maybe
00:32:34.160 | trying to pick three companies that you know would be bigger in a decade no matter what
00:32:39.320 | they kind of do.
00:32:40.320 | But I completely understand that.
00:32:41.320 | No, basically – no, basically what's funny about this question over the years, I've
00:32:48.240 | become so cavalier about what's a good investment because at its core, investment is not – good
00:32:55.160 | investing is more about a process of investing than it is about a specific investment.
00:33:02.080 | The other thing that I've seen is that you can find thousands of strategies that are
00:33:08.680 | powerful and will work really well if the investor will stay with the actual strategy.
00:33:15.080 | I've read books over the years on talking about a portfolio of a few stocks that you
00:33:20.440 | could put together that's just a great portfolio.
00:33:23.040 | I break it down to one, even if you just pick one company.
00:33:28.180 | My wife was given years ago by her grandparents I think one share of Coca-Cola as a birthday
00:33:35.600 | present one year.
00:33:36.600 | It was the most annoying thing where you get this 27-cent dividend check that comes in.
00:33:41.440 | But I've always thought of that as kind of – as an analogy.
00:33:46.320 | You can beat up a company like Coca-Cola from an investment perspective if you want to make
00:33:57.500 | your portfolio shine.
00:33:58.960 | You can talk about, well, it's a single stock.
00:34:01.440 | It's far too risky.
00:34:03.040 | It's going to be volatile and it's going to be all over the place.
00:34:06.140 | But if you gave me the option, if you said, "Joshua, you can buy – I'm going to put
00:34:12.400 | $100,000 if I would be happy to buy $33,000 of Coca-Cola stock, $33,000 of Walmart stock
00:34:20.280 | and $33,000 of insert whatever well-known company you want here, GE or it doesn't
00:34:26.120 | even matter, Apple.
00:34:27.120 | I don't care."
00:34:28.120 | The reality is these companies, a large company like Coca-Cola is constantly changing and
00:34:35.480 | adapting.
00:34:36.480 | Hold on one second.
00:34:38.080 | My coworkers are wanting to have their voices heard.
00:34:43.000 | A company like a Coca-Cola is constantly adapting to the marketplace.
00:34:47.640 | So when fizzy soft drinks fall out of favor because people don't want to drink that much
00:34:51.640 | sugar, Coca-Cola just goes out and buys a fruit beverage company or water companies,
00:34:58.120 | et cetera.
00:34:59.120 | If you actually look at the asset base of a giant company like Coca-Cola, they have
00:35:05.440 | such stability in their business and any company that's – any publicly traded company that's
00:35:17.080 | like that is so stable that I would be perfectly happy just to own three stocks.
00:35:23.240 | You always run a risk that any one company could go bankrupt.
00:35:27.860 | That is always the risk of company.
00:35:29.360 | You may have picked GM because GM was the number one greatest company ever.
00:35:35.000 | But if you go and read – who was it?
00:35:37.360 | Joshua Kennan did a bunch of great case studies.
00:35:41.400 | Kennan is K-E-N-N-O-N.
00:35:42.400 | He's a value investor, excellent writer.
00:35:47.860 | He recently started a hedge fund or mutual fund and so he delisted about a thousand articles
00:35:54.860 | from his website.
00:35:55.860 | So I don't know what's there these days.
00:35:57.400 | But Joshua Kennan did a bunch of case studies of individual companies and he wrote through
00:36:02.640 | some case studies of even a couple of companies that had gone bankrupt.
00:36:06.760 | If you had invested $10,000 with this company and then just simply held it over the course
00:36:11.040 | of years and decades, how much money would you have?
00:36:13.760 | I forget the company that he used as his example of a company that went totally bankrupt.
00:36:17.480 | I think it was Kodak.
00:36:18.480 | Actually, that's what – it was Eastman Kodak.
00:36:20.320 | If you had invested in Kodak, you would have been so wealthy even though the company ended
00:36:25.060 | in bankruptcy just by owning it and staying put.
00:36:29.440 | So in reality, almost any investment plan is fine as long as you just simply own it
00:36:37.640 | and stay put.
00:36:38.840 | If you could – you could buy three houses.
00:36:41.140 | You need someone to take care of them.
00:36:42.940 | But if you – as part of my deal, you say you can have someone take care of them, that's
00:36:46.720 | fine.
00:36:47.720 | You just wisely choose three houses in a kind of a town that's on the growth, on the increase
00:36:53.360 | and neighborhoods that are on the increase and you leave them alone for ten years, come
00:36:57.480 | back.
00:36:58.480 | You're probably going to be richer than you are today.
00:37:00.160 | Buy three companies.
00:37:01.440 | Buy three asset classes.
00:37:03.080 | The key in almost every single investment success is that the investor sticks with their
00:37:09.600 | strategy.
00:37:10.800 | The key in almost every single failure is that the investor bails due to fear or due
00:37:16.880 | to greed.
00:37:18.360 | If you can control for fear and greed, which is how you controlled it by walking out for
00:37:22.840 | ten years, then you can almost assuredly account for success.
00:37:31.680 | All right.
00:37:34.400 | Last, Ms. Lori in Iowa.
00:37:36.560 | Welcome to the show.
00:37:37.560 | Lori Cudone, CFO Alphabet and Google
00:37:38.680 | Hi, Joshua.
00:37:39.680 | I listened to your podcast since you started and I have kind of been a way late for lately.
00:37:46.000 | But not too long ago, I took a note when you were talking about a charitable remainder
00:37:50.640 | trust and the note I wrote myself was, "Can I buy a house with one of these?"
00:37:56.480 | And I don't remember exactly a lot about the podcast and this discussion at the time,
00:38:03.040 | but I've always had a belief that the upper class in the US use trust to their advantage
00:38:08.600 | and is something like that a way to shelter a pool of money from taxes and enjoy it and
00:38:15.400 | maybe have a really nice coastal property or international property and then give a
00:38:19.720 | gift at the end.
00:38:27.480 | I'm desperately struggling to remember the specifics on this and I knew the question
00:38:33.560 | was going and I meant to research it during the call.
00:38:37.040 | I'll give you an answer and I'm caught flat footed.
00:38:40.800 | If I had a phone screener, you wouldn't have gotten through because it causes me to do
00:38:47.560 | it.
00:38:48.560 | I don't believe there's any reason why – it caused me to feel silly because I can't
00:38:51.840 | remember the answer at all.
00:38:53.360 | I don't believe there's any reason why you can't own real estate in a charitable
00:38:57.600 | remainder trust.
00:39:01.120 | A charitable remainder trust, yeah, I don't see any reason why you wouldn't be able
00:39:07.640 | to own real estate in a charitable remainder trust.
00:39:12.440 | Taxes in the future are going to probably skyrocket and the estate tax is probably going
00:39:18.240 | to lower.
00:39:19.240 | Just in your professional financial life, if you ran across maybe some high earners
00:39:25.920 | or wealthy people and what they might have done in their lifestyle, those of us that
00:39:34.400 | are workers wouldn't know about or would have availability to.
00:39:38.400 | All right.
00:39:39.400 | So let's do this.
00:39:40.800 | I don't want to be – I don't want to – in the last year I've done – the last
00:39:47.080 | couple of years, I've done zero estate planning.
00:39:49.800 | So as such, I don't want to get this wrong in terms of going through and explaining it
00:39:56.400 | accurately especially with the benefits of it.
00:40:00.440 | So I'm long overdue on talking about charitable remainder trust, a charitable lead trust,
00:40:06.400 | a charitable remainder annuity trust and how to set – basically set some of them up and
00:40:14.440 | some of the benefits.
00:40:15.440 | So instead of my talking through it ad hoc and spontaneously and getting stuff wrong,
00:40:19.680 | I'm going to table this and come back to it.
00:40:22.280 | I'll try to answer the question in a specific way that will be better for you instead of
00:40:28.320 | me doing it off the top of my head.
00:40:29.320 | But do you have a bonus question so I can redeem myself?
00:40:33.120 | Anything else?
00:40:34.120 | The other thing, I do know that you're quite interested in investing in real estate as
00:40:39.000 | a landlord and I'm not at all at my stage in life.
00:40:43.560 | But have you ever found a way or have you heard of a way to invest in real estate in
00:40:48.280 | a crowd source or group way when you don't personally want to be a landlord of property?
00:40:53.360 | Yes.
00:40:54.360 | There are a number of companies who are doing that.
00:40:58.920 | I can't list any names off the top of my head.
00:41:01.880 | But many people are taking the crowd sourcing model, the crowd funding model and trying
00:41:07.280 | to apply it to real estate.
00:41:10.360 | Then of course there's also the fundamental way of doing it in the context of a real estate
00:41:18.480 | investment trust or mutual fund or some kind of entity like that.
00:41:24.200 | My answer to that is always you have to ask yourself the question, "Why am I trying
00:41:28.600 | to invest in real estate in the first place?"
00:41:30.800 | Just for diversity.
00:41:32.520 | Well, so let's talk about diversity.
00:41:34.360 | So number one, most companies will own real estate.
00:41:39.240 | A moment ago we were talking about Coca-Cola.
00:41:42.240 | Coca-Cola owns plenty of real estate.
00:41:44.740 | Many companies own lots of real estate.
00:41:47.240 | So there's always some real estate exposure that's fundamental in the ownership of stock
00:41:54.520 | in a certain company.
00:41:56.760 | So that right there leads to some diversification.
00:42:00.040 | Number two is depending on the type of real estate that you're going to invest in, there
00:42:05.200 | needs to be a specific strategy for it.
00:42:08.240 | In general, real estate in general is, in my opinion and in my research, I believe real
00:42:14.800 | estate is basically going to always mirror inflation, especially when we're talking about
00:42:19.480 | residential real estate.
00:42:21.200 | People are always going to pay in rents and in prices what they can afford based upon
00:42:26.400 | their wages.
00:42:27.680 | Real estate is fundamentally a commodity that's based upon somebody's income.
00:42:31.880 | And so it over time will match the rate of inflation.
00:42:35.160 | As income goes up, then the rate of inflation will increase.
00:42:41.240 | As wages inflate, then somebody's buying power to buy and pay a certain mortgage rate or
00:42:46.160 | to pay a certain rental rate, that will change based upon their wages.
00:42:50.200 | You can't fake it for the long term.
00:42:53.600 | Right now where I live in Palm Beach County, Florida, recently they had a big real estate
00:42:59.600 | conference here in town in Palm Beach County because the median rent in Palm Beach County
00:43:04.080 | right now is $1,900 a month and the median home price is something like $350,000 a month.
00:43:10.840 | I do not see how the local economy supports that.
00:43:15.000 | I just don't see it.
00:43:16.560 | And that's actually what some of the elected city officials and some of the local people
00:43:21.720 | were trying to solve.
00:43:22.720 | And they're talking about all kinds of things to try to bring in housing, new housing and
00:43:28.800 | try to improve things.
00:43:30.000 | And this is actually a major problem in many of the largest, most productive cities that
00:43:35.000 | many of the cities have basically outlawed new development.
00:43:37.960 | And the development cycle is so slow because we don't want new development.
00:43:44.520 | This has led to massively high prices, which all this coming earlier in the show, we talked
00:43:49.440 | about the complacent class.
00:43:51.520 | He does a great job.
00:43:52.520 | Tyler Cohen in that book does a great job of laying it out, how some of this is just
00:43:57.400 | really damaging people's ability to move and destroying the vibrancy of our national economy.
00:44:04.520 | So real estate in a city is going to be driven based upon the wage growth in that city.
00:44:09.600 | The reason that Los Angeles, California has such higher or San Diego, California has such
00:44:15.280 | higher, San Francisco has such higher real estate prices than Palm Beach County, Florida
00:44:21.640 | is because there's a wage base there that supposedly can protect that, can affect that.
00:44:28.240 | So the fundamental – all of this to say, the fundamental advantage of real estate is
00:44:32.280 | often that it's a very inefficient market.
00:44:34.360 | That's why individual real estate investors can do so well.
00:44:38.040 | But you lose some of that if you go to a fund.
00:44:40.680 | It's one thing for you as an individual to see another house on your block that you
00:44:45.280 | think is fairly priced to go and work out a deal with somebody and to buy the house
00:44:50.080 | from them and rent it out because you can see and possibly find a good investment.
00:44:54.680 | It's one thing for a local real estate investor to see a property that's underutilized and
00:45:00.720 | try to come in and say, "Hey, you know what?
00:45:02.280 | Let's see if we can improve this a little bit."
00:45:04.480 | But funds have a much harder time with that because as soon as you bureaucratize it and
00:45:09.040 | have your employees doing it, that's going to be a much harder time.
00:45:12.600 | So here where I live, back in the last ten years, Blackstone, the hedge fund, came in
00:45:20.320 | and bought up scores and scores of houses.
00:45:23.040 | They were doing it not because they could see an individual way for any individual house
00:45:28.960 | to necessarily grow, but they hired local people to find them deals.
00:45:33.120 | But they basically were betting on the undervaluation of the market in general.
00:45:39.940 | So forgive me if I'm being a little bit – I'm not being as clear in my answer as possible.
00:45:44.440 | What I'm saying is I don't see a huge benefit of – to say we have to invest in real estate
00:45:51.240 | in the context of a fund just for diversification.
00:45:54.520 | Sure, a few percent, that's fine.
00:45:57.960 | Most of the large – if you're buying – if you're working with a large mainstream financial
00:46:02.400 | advisor, they'll put a few percent in real estate and some kind of real estate fund.
00:46:07.040 | But I don't think it's that big of a deal.
00:46:08.400 | I think it's easier for you just to look at your own life and say I own a $200,000
00:46:15.040 | house in Iowa.
00:46:16.040 | That's $200,000 in my portfolio that's exposed to real estate and to take it on a
00:46:21.080 | much simpler basis.
00:46:22.840 | OK.
00:46:24.000 | I don't personally own any real estate.
00:46:26.560 | So that's why I'm kind of looking for some options.
00:46:30.480 | I would like that answer.
00:46:31.480 | Thank you very much.
00:46:32.480 | I mean it's imprecise because I don't see it as a – well, how do you answer – I
00:46:39.600 | don't know how to answer the question.
00:46:41.360 | The analyst can probably answer it in terms of a perfect portfolio and they can stretch
00:46:46.160 | it out and say exactly how it should be.
00:46:49.240 | But I don't know how to do that in the context of an individual.
00:46:53.880 | I think real estate is probably better owned just where you can see it locally and I personally
00:46:59.320 | wouldn't worry too much about a fund.
00:47:01.800 | I'd go online.
00:47:02.800 | There are a bunch of other crowdfunded platforms.
00:47:04.280 | I got one more caller who just joined us, slipped in.
00:47:06.520 | I forgot to lock the phone lines.
00:47:08.160 | Welcome to the show.
00:47:09.160 | You got a question to ask?
00:47:10.160 | Hey Joshua.
00:47:11.160 | First of all, thanks again so much for the show and no small part thanks to you.
00:47:19.680 | I sat for my CFP at the end of last year and I got it.
00:47:22.480 | Congratulations.
00:47:23.480 | Thank you so much.
00:47:24.480 | Thank you, sir.
00:47:25.480 | I appreciate you.
00:47:26.480 | Hey, quick question for you in regards to long-term care planning and that is do you
00:47:30.120 | have any kind of rule of thumb or guidelines that you used when you worked in that area
00:47:36.920 | in terms of either the asset level, someone is in between say $300,000 and $800,000 or
00:47:44.800 | something like that or a percentage of their income allocated toward the insurance in that
00:47:51.120 | regard.
00:47:52.120 | Did you again have any kind of working rules of thumb or guidelines for that?
00:47:55.520 | I did.
00:47:56.600 | I don't know if these rules of thumb are still valid.
00:47:59.080 | There have been a lot of changes in long-term care and I'm getting rusty.
00:48:02.640 | I probably need to get some policies and get some quotes and actually if any of you listeners
00:48:07.600 | are insurance agents who can run some quotes with different long-term care insurance companies
00:48:13.240 | under a few different scenarios and email them to me, joshua@radicalpersonalfinance.com,
00:48:17.440 | I'd be indebted to you.
00:48:18.800 | I'm getting a little bit rusty now with being out of the day-to-day for the last couple
00:48:22.720 | of years in terms of current prices.
00:48:25.440 | There were a lot of changes that were happening when I left to start Radical Personal Finance.
00:48:29.960 | But my rule of thumb was basically this and this is just a rule of thumb.
00:48:35.240 | Before I do it, let me talk about how to actually plan it properly.
00:48:38.600 | The best way to plan it properly is to pull it into some software and actually model the
00:48:43.160 | scenario and you have to model the scenario for the actual person.
00:48:48.280 | Big difference between a married couple versus an individual person and the biggest benefit
00:48:55.040 | of long-term care insurance is that it will allow – when well-designed, it will allow
00:49:01.200 | a spouse who's sick to receive the care that they need while the spouse who is not
00:49:08.360 | sick can maintain the lifestyle or close to the lifestyle that together as a healthy couple,
00:49:16.840 | the couple was enjoying.
00:49:18.640 | It will basically help to keep from impoverishing the healthy spouse.
00:49:22.480 | In my opinion, it's kind of the fundamental role of long-term care insurance.
00:49:26.800 | It has other uses as well but it allows a couple to get needed medical care for a long-term
00:49:33.840 | care need without impoverishing the healthy spouse.
00:49:38.400 | My rule of thumb was this.
00:49:39.520 | If somebody had less than – and we're talking here people in their 40s, 50s, 60s,
00:49:46.200 | kind of people who are serious retirement plan, not someone who's 30 years old but
00:49:50.360 | 50s and 60s.
00:49:51.980 | If somebody has or expects to have less than a few hundred thousand dollars saved for retirement,
00:49:58.960 | let's call it $200,000 or $300,000, I really don't see how such a person can afford long-term
00:50:05.360 | care insurance.
00:50:06.360 | Unless there's some unknown scenario, they have a very high income or something, I just
00:50:12.000 | don't see how somebody with a few hundred thousand dollars – with less than a few
00:50:17.640 | hundred thousand dollars saved for retirement can afford long-term care insurance.
00:50:22.320 | From the $300,000 range of assets up through let's call it $2 or $3 or $4 million, that's
00:50:29.200 | what I consider to be the sweet spot for where long-term care insurance can save a financial
00:50:34.920 | plan.
00:50:35.920 | Obviously with somebody with fewer assets, maybe a more minimal policy versus a big giant
00:50:41.560 | policy but that's where the long-term care can really save the plan.
00:50:49.360 | So that was kind of the sweet spot, a million, a couple of million bucks saved, long-term
00:50:53.160 | care insurance makes a big difference there.
00:50:56.200 | Beyond somewhere like $3, $4, $5 million of assets, I don't think it's really needed
00:51:01.520 | in terms of – it's hard to make the case to me that if you've got $5 million of assets
00:51:06.960 | that you really have to have long-term care insurance.
00:51:11.500 | Certainly you could get early onset Alzheimer's and spend 20 years needing care but statistically
00:51:15.960 | that's improbable.
00:51:18.080 | So I really shy away from trying to convince someone that you have to have it.
00:51:23.680 | But I do think there's a really compelling case for somebody who's very wealthy that
00:51:28.760 | there's a significant risk and that risk can be mitigated with a little bit of money.
00:51:34.200 | And by allocating a little bit of money, small, relative to the overall portfolio, that has
00:51:40.040 | a substantial insurance effect on the overall portfolio and it's probably a pretty good
00:51:43.600 | idea.
00:51:45.080 | But that was kind of – those were my rules of thumb and that was how I talked about it
00:51:50.320 | with actual clients.
00:51:51.320 | If someone didn't have it, I would say, "Listen, let's talk about some Medicaid
00:51:54.440 | planning or let's talk about making sure that you – someone with $200,000, they need
00:52:00.680 | to do Medicaid planning, good Medicaid planning."
00:52:03.800 | But those were my rules of thumb.
00:52:05.080 | Is that about kind of what you're feeling at this point in your financial planning career?
00:52:08.200 | Yeah, definitely.
00:52:09.880 | However, also from like a budgetary perspective, would you use any guidelines as far as how
00:52:16.640 | much of their income to spend on premium or vice versa, how much coverage to purchase
00:52:25.400 | as like a percentage of their asset level, for example?
00:52:28.840 | Yeah, I don't know the answer to that.
00:52:31.360 | I think that good fact-finding will help it to emerge.
00:52:35.880 | I don't like spending money on insurance premiums.
00:52:38.560 | I've found that there are people who worry about everything and love spending all kinds
00:52:42.500 | of money on insurance premiums and there are people who just don't want to spend anything
00:52:45.420 | on insurance premiums.
00:52:46.420 | I personally am more towards the, "I don't want to spend money on insurance premiums."
00:52:51.080 | So with regard to the budget, I don't know how to do that with a rule of thumb or a percentage
00:52:55.880 | basis.
00:52:56.880 | There's a big difference between somebody with a $2,000 monthly retirement budget and
00:53:03.320 | somebody with a $10,000 monthly retirement budget.
00:53:06.080 | I don't see that – I don't know a rule of thumb there that would be helpful.
00:53:10.000 | What I would talk through is the person's risk and their goals because different people
00:53:14.580 | have different goals with their income.
00:53:17.320 | If I ran into somebody who had a $10,000 monthly retirement income, was living on $3,000, which
00:53:23.200 | is not that uncommon in terms of somebody who has a very high income that they don't
00:53:27.080 | need, and their number one goal is to preserve their assets for the benefit of their children,
00:53:31.880 | their grandchildren or a favorite charitable bequest they want to make or something like
00:53:36.600 | that, then long-term care insurance can be a really valuable tool.
00:53:43.440 | But I don't know how to bring that into a rule of thumb.
00:53:46.640 | I think good fact-finding will emerge.
00:53:48.240 | Is this a real concern for somebody?
00:53:50.120 | Is this something that they're worried about?
00:53:52.320 | Model the scenarios.
00:53:54.000 | Model it and run the premiums and see.
00:53:57.360 | There's a difference in premiums for somebody who's – this is the other thing.
00:54:02.480 | By the time people actually start planning for long-term care, I never sold anybody who
00:54:07.360 | was in their 60s a long-term care insurance policy because when I actually – when I
00:54:11.360 | ran the math, the premiums were so expensive that it just didn't ever seem to make sense.
00:54:18.320 | I sold dozens and dozens of policies to people in their 50s, handfuls to people in their
00:54:23.880 | 40s and 30s.
00:54:25.480 | But by the time people reach 60 years old, in my experience, they could almost never
00:54:29.300 | swing that monthly nut.
00:54:31.040 | Marc Thiessen: Gotcha.
00:54:32.840 | Okay.
00:54:33.840 | Very good.
00:54:34.840 | Thank you so much.
00:54:35.840 | Appreciate it.
00:54:36.840 | Ted Galen Carpenter: I don't know of another subject other than long-term care insurance
00:54:39.880 | that will cause so many people to do it.
00:54:43.400 | There's been huge – it caused so many arguments over things.
00:54:46.920 | The best way to do it is put it in the financial planning software and model the scenarios
00:54:51.920 | and ask the client what scenarios they'd like to model and the answers usually will
00:54:57.600 | be pretty self-evident.
00:54:59.840 | November is long-term care insurance month in terms of what I'm intending to do with
00:55:06.120 | radical personal finance is to kind of move to a monthly themed approach to the show.
00:55:11.600 | And so I've sketched out my topics for the coming year and a half and I may or may not
00:55:17.440 | do long-term care this November.
00:55:20.080 | I might push it to next November.
00:55:22.080 | But long-term care insurance month that the industry does, so lots of resources out there.
00:55:28.240 | Market's changing.
00:55:29.240 | It's funny.
00:55:30.240 | I actually own a long-term care policy on me and my wife has one on her that I bought
00:55:35.600 | when I was an agent and you could still get lifetime benefit.
00:55:38.920 | It's super cheap.
00:55:39.920 | The nice thing about it, you can write it off in your business, the premiums.
00:55:44.280 | And mine is super cheap but I actually have one of the few lifetime benefit policies right
00:55:50.640 | when Northwestern Mutual was closing that out and ending that.
00:55:54.480 | I'm not aware of any companies who are still offering lifetime unlimited benefits.
00:55:59.760 | Same thing happened with the disability marketplace a couple decades ago.
00:56:02.800 | You used to be able to get massive disability policies that would come in for your entire
00:56:06.480 | life and the risk exposure was too high for the insurance companies and they lowered them
00:56:11.440 | out.
00:56:12.440 | So there are times at which insurance products are mispriced and you can jump on them.
00:56:18.400 | I had run out of music here but when I was selling long-term care insurance, there was
00:56:24.960 | one month where Northwestern Mutual was canceling the lifetime benefit policy and I called dozens
00:56:32.880 | and dozens of clients who had been interested in long-term care and I said, "Listen, this
00:56:39.280 | is the deal."
00:56:40.280 | And thankfully I had several dozen of them that actually went ahead and bought policies.
00:56:44.340 | So sometimes when your insurance agent calls you up and says, "Company's canceling this
00:56:47.840 | benefit.
00:56:48.840 | You got to go now.
00:56:49.920 | It's the real deal."
00:56:50.920 | Been there, done that in the long-term care marketplace.
00:56:53.960 | That's enough for closing announcements.
00:56:54.960 | If you'd like to call into a show next week, become a patron of the show, radicalpersonalfinance.com/patron.
00:57:00.680 | Radicalpersonalfinance.com/patron.
00:57:01.680 | This show is part of the Radical Life Media network of podcasts and resources.
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