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00:00:29.960 | Today on Radical Personal Finance, it's live Q&A.

00:00:51.400 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:54.280 | skills, insight, and encouragement you need to live a rich and meaningful life now while

00:00:57.960 | building a plan for financial freedom in 10 years or less.

00:01:00.560 | Today on the show, it's live Q&A, which means open phone lines.

00:01:03.920 | Today's callers are all from Patreon.

00:01:05.920 | If you'd like to join us for the next phone call, you can go to RadicalPersonalFinance.com/patron.

00:01:09.640 | That link doesn't work.

00:01:12.280 | Just search me on Patreon.

00:01:13.280 | Sorry.

00:01:14.280 | Search for Radical Personal Finance and you will find me.

00:01:23.640 | Broken links all over the place these days on the website as I have transitioned out

00:01:26.640 | an old website into a new one.

00:01:28.280 | Just go to Patreon.com, search Radical Personal Finance, and I'm easy to find.

00:01:31.720 | That will get you guaranteed access to the next Q&A call where you can talk with me about

00:01:35.120 | anything as it relates to your personal situation, if you'd like to talk about that.

00:01:38.560 | Any question that you have, comments on anything about a show, the current themes, etc., anything

00:01:43.640 | you like is available to you.

00:01:45.320 | We begin with Derek in Maine.

00:01:46.800 | Welcome to the show, Derek.

00:01:47.800 | How can I serve you today?

00:01:48.800 | Hey, Josh Ross.

00:01:49.800 | Thanks so much for taking the call.

00:01:50.800 | I appreciate it.

00:01:51.800 | I've been listening to you for about a year, year and a half.

00:01:52.800 | I find you inspirational.

00:02:01.440 | I have one question and one thing I'd like you to expound upon based on the thing that

00:02:07.560 | you said in the past and I'd like to hear your opinion on.

00:02:11.040 | But first up, the question is, I was curious, I was going to give you whatever numbers you

00:02:17.080 | wanted for this, but am I spending too much on life insurance?

00:02:26.560 | I know I got oversold.

00:02:29.760 | I do like the product as a whole, but I'm not sure if we're paying an amount commensurate

00:02:37.920 | to what we make versus what we potentially need.

00:02:40.840 | So I'm just curious on what your thoughts on that are.

00:02:43.320 | Okay.

00:02:44.320 | So can you talk a little bit about the insurance policies that you have, how much they're worth,

00:02:48.160 | how much the premiums are and your household income?

00:02:51.400 | Sure.

00:02:52.400 | So starting off with the income situations right now, before taxes, we grossed about

00:03:02.280 | 205K last year.

00:03:05.960 | We are looking to potentially downsize that to shift our life situation a little bit.

00:03:11.800 | It might be very significantly downsized, but we're not really sure.

00:03:17.800 | Right now, the totality of the premiums that we pay is about $1,000 a month.

00:03:25.720 | And that goes towards two term benefits, one for each of us.

00:03:32.640 | One has a $370,000 death benefit and one has a $1.1 million death benefit.

00:03:39.480 | And those are $150,000 and $563,000 per year.

00:03:43.760 | And the whole death benefits are $495K and $408K.

00:03:48.760 | And those add up to about $11,000 a year in premiums.

00:03:54.040 | Okay.

00:03:55.040 | How old are the policies?

00:03:59.600 | We started that, we'll be getting into, I believe, the fourth anniversary of that in

00:04:05.760 | this year, so this spring.

00:04:08.760 | And how are the policies structured?

00:04:10.920 | Is it universal life insurance, whole life insurance, overfunded whole life?

00:04:14.960 | How are the policies structured?

00:04:20.360 | They are mostly whole life and they're augmented with the two term policies that I refer to

00:04:26.520 | as well.

00:04:28.160 | Okay.

00:04:29.300 | So on the whole life policy, is this, describe the policy to me a little bit.

00:04:34.240 | How long are you scheduled to make premiums, et cetera?

00:04:37.840 | How long does it last?

00:04:38.840 | I mean, it obviously lasts forever, but how long are you scheduled to make premiums under

00:04:41.360 | your current schedule?

00:04:45.920 | I think it's 65 is when we're supposed to be paying those premiums until.

00:04:50.520 | So if I say something like it's whole life paid up at 65, does that sound like probably

00:04:55.940 | about what it is?

00:04:57.360 | Yes.

00:04:58.360 | Okay.

00:04:59.360 | So then that kind of policy is a traditional whole life insurance policy.

00:05:03.600 | It will last for your entire lifetime, but you are scheduled under the policy schedule

00:05:08.720 | to pay premiums until the age of 65.

00:05:11.760 | How old are you and your wife currently?

00:05:15.840 | We're both 31 later this year.

00:05:21.000 | Okay.

00:05:22.000 | And tell me about your general wealth plan.

00:05:24.560 | How do you plan to become wealthy?

00:05:30.160 | I'm actually extremely comfortable with the current, we're very, very comfortable with

00:05:34.800 | our current income situation.

00:05:39.120 | And so I focus heavily on the invest wisely piece as well as living, like you say, I'm

00:05:48.000 | very comfortable with, I probably overspend, but we have a lot of fun doing it.

00:05:56.520 | And as far as getting wealthy, it's by putting a significant amount of funds into a different

00:06:03.200 | investment portfolio.

00:06:04.760 | So how much are you investing outside of this life insurance policy?

00:06:08.540 | How much are you investing per year and what are you investing in?

00:06:14.280 | So I put about 7% or I put about 5% with a match to into my 401k.

00:06:20.120 | My wife has a fee that she puts in.

00:06:23.880 | Those are already up to about a hundred thousand together.

00:06:27.840 | And I put about another, I'd say 12 grand into different ventures like Fundrise and

00:06:36.600 | Acorns and that kind of stuff.

00:06:40.140 | You mentioned, so you're putting 5% into your 401k and how much is your wife putting away?

00:06:47.680 | I believe she does 5% as well.

00:06:50.960 | Okay.

00:06:51.960 | So hers is matched because it's a federal government.

00:06:54.560 | So right now then in general, excuse me a moment, I need to sneeze.

00:07:07.640 | In general then right now you are spending, sorry, you're saving about 15% of your income.

00:07:13.880 | And the way I got to that number is you're putting about 5% into whole life insurance

00:07:19.840 | on a $205,000 income, $11,000 of annual premiums is about 5%.

00:07:24.560 | You're putting 5% into your 401k funds and you're putting $12,000 per year, which is

00:07:30.560 | again about 5% into your other investment pursuit, which is about 15%.

00:07:36.640 | Is that accurate?

00:07:37.640 | Yes, that sounds about right.

00:07:42.320 | So if your income goes down, how much do you think your income might go down?

00:07:50.480 | So we're looking to potentially move back closer to family because our life situation

00:07:56.800 | has gotten a little chaotic with just where we live now because we live in Maryland.

00:08:03.080 | I'm trying to drag up to Maine and as you might imagine the employment opportunities

00:08:10.400 | are a little bit different up here.

00:08:13.680 | And so it could go down as much as half, but hopefully we try to keep it up to around the

00:08:19.920 | 150, the joint $150,000 range.

00:08:24.320 | And if you were to move to Maine, what would you do, how much would it cost you to live?

00:08:29.360 | How would it be your annual living expenses?

00:08:34.360 | Probably less, but I have not calculated that.

00:08:38.080 | It probably would be a little bit less, probably about two thirds of what ours is now.

00:08:44.240 | So to answer the question specifically, no, I don't think that you necessarily have too

00:08:48.760 | much whole life insurance.

00:08:50.400 | I don't think your current plan is unreasonable.

00:08:55.480 | Although I can see how if your income goes down, it can become difficult.

00:09:00.120 | So let me get to how do I get to the point of reasonable or unreasonable.

00:09:04.400 | What I'm imagining your thinking was when you bought these policies, as you said, I

00:09:08.880 | like the idea of having some life insurance that lasts forever.

00:09:12.640 | I like the idea of having some cash value that builds up.

00:09:20.760 | It's attractive to me perhaps because it's safe and it's stable.

00:09:24.400 | It may not do as well as some of my other investments do, but it's safe and it's stable

00:09:29.080 | and I know it's going to go up and it's accessible to me with all the benefits of a life insurance

00:09:33.560 | policy.

00:09:34.560 | So hopefully that was kind of what you were thinking when you bought it.

00:09:37.320 | I would guess that's what you're thinking because you made a sizable commitment to your

00:09:41.880 | whole life insurance policies in terms of $11,000 a year is nothing to sneeze at, but

00:09:47.440 | you didn't put 30% of your income into those kinds of policies, which tells me you're not

00:09:51.640 | pursuing a bank on yourself, infinite banking type of concept.

00:09:56.360 | You're just saying this is a useful pot of money.

00:09:59.160 | And under those constraints, I personally am very comfortable with that approach to

00:10:05.320 | whole life insurance.

00:10:06.680 | I would imagine this policy is probably with a decent company that's decently run.

00:10:11.760 | When people wind up owning traditional whole life insurance, especially life paid up at

00:10:17.320 | 65, that usually tells me there was one of the traditional mutual life insurance companies

00:10:21.400 | because most people who are working with some of the more aggressive companies, usually

00:10:26.280 | they'll wind up with some kind of universal life insurance contract versus a traditional

00:10:31.080 | whole life insurance contract.

00:10:32.720 | So I like a traditional whole life insurance contract for young couples like you.

00:10:37.040 | I like a life paid up at 65.

00:10:40.080 | I think it's a very reasonable difference.

00:10:48.240 | It gets you a little bit better cash value than a traditional ordinary whole life paid

00:10:51.580 | up at 120.

00:10:53.400 | It's not quite as aggressive as an overfunded life insurance policy, which I sometimes would

00:10:59.560 | prefer, especially given this situation that you're in.

00:11:03.080 | But I don't dislike your program.

00:11:06.280 | So the first thing is I don't think it's unreasonable in my assumptions, unless you need to correct

00:11:11.240 | any of those assumptions.

00:11:12.360 | I think you're not in a bad place.

00:11:14.960 | Now the second thing that I want to look for is do you have enough money invested in things

00:11:19.260 | that are going to really make you wealthy, which is why I asked what your wealth plan

00:11:22.520 | is because where I don't think life insurance works well is it doesn't work well as a primary

00:11:28.000 | investment solution.

00:11:30.160 | The returns are simply too constrained.

00:11:32.560 | The potential returns are just too constrained by the market of what the life insurance companies

00:11:38.820 | are investing in that you're not going to get really wealthy just investing through

00:11:44.160 | whole life insurance contracts.

00:11:46.100 | So there I think you need some money that's much more aggressive.

00:11:49.840 | And so when you told me that you've got 5% of your income invested in going into a life

00:11:57.040 | insurance contract and you've got upwards of 10% plus employer matches going into more

00:12:02.280 | aggressive investments, as long as you're still keeping that ratio, then I think that's

00:12:06.860 | a sensible ratio.

00:12:08.440 | Now the biggest problem is the affordability.

00:12:11.640 | And so the big drawback of a traditional whole life insurance contract, such as the one that

00:12:16.400 | you have, is it's pretty inflexible.

00:12:20.200 | You can't just willy-nilly drop the premiums in half.

00:12:23.800 | You can always adjust a contract.

00:12:25.900 | So there are different things that you could do if you have to take it down.

00:12:29.600 | And I would strongly encourage any listener who does need to adjust a life insurance program,

00:12:36.680 | then you need to make sure that you know all the options because you don't just have to

00:12:42.000 | cash it out and cancel it.

00:12:43.600 | There are lots and lots of options under the non-forfeiture benefits of a life insurance

00:12:47.960 | policy.

00:12:49.320 | But the disadvantage of the structure that you've chosen is that it's not particularly

00:12:54.560 | flexible.

00:12:55.660 | And when I used to sell life insurance, one of the things that changed was when I was

00:12:59.760 | getting started, I was extremely aggressive to sell as much premium as I could into a

00:13:04.640 | situation like yours.

00:13:06.440 | In time, I learned that I needed more flexibility because people's lifestyles and circumstances

00:13:12.640 | could change.

00:13:13.940 | And I learned that I could be very effective at selling life insurance and sell somebody

00:13:18.260 | too much and then they might not be able to afford it if they were going to go through

00:13:21.520 | some kind of life transition.

00:13:23.480 | Now based upon what you're telling me, I wouldn't make any changes to my life insurance program

00:13:27.400 | at this point.

00:13:28.400 | There's no rush to it.

00:13:30.100 | Do you, Derek, additionally have cash savings, emergency funds, accessible liquid money that's

00:13:35.200 | not in a retirement account, that's not in a life insurance policy?

00:13:40.040 | Yes, sir.

00:13:41.040 | Yeah, it's also been, it's come in handy twice already.

00:13:47.440 | We usually keep about a $20,000 cash reserve.

00:13:50.440 | Okay, good.

00:13:51.440 | So you've got plenty of money to move.

00:13:53.160 | You've got plenty of money to rent a new place, first, last security, that kind of thing.

00:13:57.220 | And you've got wiggle room while you find a new job.

00:13:59.300 | So I guess in summary, I would not immediately try to change my life insurance policies.

00:14:04.960 | Rather what I would do is I would try to get very well employed in Maine.

00:14:09.400 | I would try to get settled in Maine because there's no reason why your income has to go

00:14:13.240 | down.

00:14:14.240 | Yes, there are certain circumstances in which you move from one job market to a new job

00:14:20.000 | market and your income goes down.

00:14:22.040 | It's hard to move from New York City to Papua New Guinea and expect to make the same salary

00:14:28.040 | with that move.

00:14:29.220 | But in many circumstances, if you'll just spend a little more time looking, a little

00:14:32.600 | bit more time networking, a little bit more time doing a really intelligent job search,

00:14:36.480 | there's no reason why your income can't go up because there are jobs in Maine that are

00:14:41.600 | paying $250,000 or $300,000 per year.

00:14:44.680 | So look for those.

00:14:46.040 | The second thing is your actual spendable income may not go down because of the tax

00:14:50.480 | changes from Maryland to Maine.

00:14:52.800 | I don't know exactly what those numbers would be, but I would encourage you to calculate

00:14:56.680 | that.

00:14:57.680 | And then also when you make a lifestyle transition, given that you now have some years of experience,

00:15:03.720 | you and your wife have a chance to make new decisions, you might choose less expensive

00:15:08.200 | housing.

00:15:09.200 | You might have just costs go down because of lower taxes, lower car insurance rates,

00:15:13.000 | etc.

00:15:14.000 | You might sell a car.

00:15:15.000 | Who knows?

00:15:16.000 | And so it may be that your actual expenses are lower.

00:15:18.680 | So even if the percentage of income dedicated to a life insurance contract goes from 5%

00:15:25.320 | to 7%, that might be okay.

00:15:28.160 | What I would be careful of is if you find after you move that you start to be very pinched

00:15:33.680 | and you're not having enough money exposed to investments with higher potential and all

00:15:40.440 | the money is going in the life insurance policy, that's when I think you might need to adjust

00:15:43.760 | it because it's just too conservative for someone as young as you to be putting huge

00:15:50.040 | percentages of income into a life insurance contract.

00:15:52.840 | So as long as you still have other investments that are going to give you really big wins,

00:15:57.240 | I think the life insurance is fine.

00:15:59.300 | If it's becoming all-consuming, I get concerned about that and I'd like to see you have a

00:16:03.240 | little bit more risk and opportunity for growth.

00:16:05.960 | Great.

00:16:06.960 | I never thought about it that way.

00:16:12.000 | Thank you very much.

00:16:13.000 | Yeah.

00:16:14.000 | Can we give you a couple of other tips as well?

00:16:15.000 | I don't want to go through everything that your life insurance agent will have to go

00:16:17.200 | through but if you need to adjust your life insurance program, there are many options

00:16:23.920 | and especially now that you're starting to get four years into it, you will be able to

00:16:28.760 | change options within the contract.

00:16:31.200 | But the challenge with a traditional whole life insurance contract is you can't, the

00:16:37.880 | challenge with that contract is there aren't as many options as there are with some other

00:16:41.760 | kinds of insurance.

00:16:42.760 | So the first thing that I would do is check how your dividends are being credited.

00:16:48.480 | If you need to put less money into the contract, the first thing that you should do is redirect

00:16:53.160 | your dividends and instead of using those dividends to buy paid up additions, just use

00:16:56.840 | those dividends to reduce the premiums.

00:16:59.040 | And in a traditional 65 life, traditional whole life insurance contract, that won't

00:17:04.280 | be a major problem.

00:17:05.680 | Have your insurance agent show you the projected values of it.

00:17:09.960 | But if you just simply redirect your dividends to reduce the premiums instead of to purchase

00:17:14.160 | paid up insurance, that will start to decrease and in time, the insurance policy will become

00:17:19.760 | less and less impactful.

00:17:21.320 | The second thing is you may be able to take a small amount of the insurance paid up.

00:17:25.080 | It's a little bit early in terms of four years to do that.

00:17:28.920 | But in fact, I don't want to go into any more options than that.

00:17:32.320 | Just simply say that if you do adjust it, you can just make a minor adjustment if needed

00:17:37.600 | and still retain the policy.

00:17:38.840 | Because at four years into the contract, if you just bail out of the whole thing, you

00:17:44.600 | will come out having had very expensive life insurance.

00:17:47.840 | So you always need to of course assess it.

00:17:49.400 | But the same reasons that you bought it for, unless something has substantially changed,

00:17:52.640 | they're probably the same reasons why you still want to have it.

00:17:55.200 | So if it's just a temporary thing, you just change the dividends, readjust the dividends

00:17:59.840 | for a couple of years, and then maybe your income goes back up.

00:18:02.320 | In that case, you can go ahead and pick up those dividends.

00:18:05.560 | Next time you buy a life insurance contract though, what I would encourage you to do is

00:18:09.360 | try to make sure that at least some of your premiums are what are called additional premiums

00:18:15.760 | and make sure that at least some percentage of it is there with additional premium.

00:18:18.880 | That gives you a lot more flexibility because with a policy that has additional premiums

00:18:23.640 | on it, let's say that 15% of it is 15 or 20% is additional premium, you can just simply

00:18:31.040 | drop those additional premiums without impacting the underlying contract and you get all the

00:18:35.280 | benefits of the whole life insurance contract over a universal life contract which has almost

00:18:41.220 | infinitely flexible premiums.

00:18:43.040 | You still have the benefits of whole life, but you have the ability to lower your premiums

00:18:47.800 | if you need to and sometimes you can just do that temporarily.

00:18:50.840 | So next time you buy a whole life contract, try to make sure there's at least some additional

00:18:54.160 | premiums on it and I would encourage anybody who sells life insurance, try to always sell

00:18:57.720 | your contracts with at least some additional premiums so that if somebody goes through

00:19:01.260 | a life change like this and they need to reduce premiums, they have that chance to do it as

00:19:05.760 | well.

00:19:06.760 | So that's my suggestion, Derek.

00:19:07.760 | Go ahead with your second question or comment, please.

00:19:11.280 | Thank you very much.

00:19:15.000 | So about a year and a half ago, during 2017, you were talking about preparation for storms

00:19:24.920 | because it was during the hurricane season and it was part of your avoiding catastrophe

00:19:30.280 | series.

00:19:34.000 | You had started to make a comment that you stopped yourself from making because you considered

00:19:42.440 | that you were rambling, but you started saying something interesting about how, in your opinion,

00:19:48.440 | Walmart has done.

00:19:49.440 | I don't remember the exact quote, but you started to say that Walmart had done almost

00:19:54.520 | as much as the Catholic Church or whomever for lowering prices.

00:20:04.560 | I don't really remember what you were saying, but I was hoping that you would expound upon

00:20:08.720 | that point.

00:20:09.720 | Do you know what I'm talking about?

00:20:11.880 | Sure.

00:20:12.880 | Yeah.

00:20:13.880 | So basically, the position that I hold and that I defend is that, so first for context,

00:20:21.200 | Walmart is an easy target for many people, especially in the political sphere.

00:20:26.960 | When you are a big player, you're going to be targeted.

00:20:29.760 | And so whether it's Walmart or Amazon now taking on the brunt of that targeting, etc.,

00:20:35.000 | large companies are targeted.

00:20:36.840 | And one of the most common attacks that is made against Walmart, there are a few of them.

00:20:41.820 | So the first one would be that Walmart has destroyed local businesses, local companies.

00:20:48.160 | Mom and Pop franchise locally was run out of business by Walmart.

00:20:51.800 | And so that really is, Walmart's a bad influence there.

00:20:56.120 | Another thing is, well, Walmart's just a bunch of greedy capitalists and all they do is make

00:21:00.440 | money.

00:21:01.440 | And so as they start to pack up more money, then things are worse.

00:21:05.600 | And so that was the primary one that I was identifying, is that many times people look

00:21:10.280 | and say, "Well, you need a charity, somebody that gives money away or gives things away,

00:21:16.240 | and that's going to be the most effective way to help people who are in need or who

00:21:19.920 | are poor."

00:21:20.920 | We'll come back to that in a moment.

00:21:22.600 | In the modern world, of course, also, there are many other things such as Walmart.

00:21:26.320 | Walmart employees are being subsidized by Medicaid or by other government welfare benefits.

00:21:31.840 | That's what allows Walmart to pay the lowest price, to pay lower labor costs, etc.

00:21:36.240 | So there are many attacks that come against Walmart.

00:21:39.080 | And I think there are legitimate lines of critique against a company like Walmart, just

00:21:44.320 | like with any other company.

00:21:46.480 | But the one that I was zeroing in on there was the idea that charity is better than business.

00:21:53.080 | And my contention, although I don't know how I would prove it, my argument is Walmart has

00:21:58.680 | done far more for poor people than almost any large, than the Red Cross has or any large

00:22:04.720 | charity.

00:22:06.000 | And there, I think, there would be a number of lines of reasoning for that.

00:22:08.520 | So first, Walmart has revolutionized, single-handedly revolutionized retail sales in the United

00:22:14.240 | States and brought a tremendous diversity of low-cost products and made them available

00:22:21.760 | to anybody who wants to get them in the United States of America.

00:22:26.440 | Now most of us who have a little bit more money and who are probably a little bit more

00:22:30.840 | hoity-toity, most of us don't love shopping at Walmart.

00:22:33.960 | Frequently I've avoided going to Walmart because I don't want to stand in line in the checkout

00:22:37.680 | just to save a few dollars.

00:22:39.360 | I don't like a lot of the inventory that Walmart sells in terms of just junk, just Chinese

00:22:44.000 | junk.

00:22:45.040 | But at the end of the day, Walmart has made a world of incredible things available to

00:22:51.100 | people without much income all over the world, but especially in the United States.

00:22:55.900 | When you look at the selection that is available at a Walmart store, when you look at the products

00:23:00.880 | that are conveniently available, when you look at the prices, even just simple things

00:23:06.860 | like having those in one place.

00:23:09.280 | Let's say that you're a poor person, you don't have a car and you've got to ride a bus to

00:23:12.120 | go to the grocery store.

00:23:13.620 | It is so much more efficient for you to go to Walmart and do all your shopping in one

00:23:18.040 | place and then go home on the bus or take a taxi home or ride a bike home than it is

00:23:22.360 | for you to go to seven or eight little mom-and-pop stores.

00:23:25.400 | And the prices that Walmart brings are far lower than what any of the mom-and-pop stores

00:23:30.400 | that Walmart drove out of business were charging.

00:23:33.540 | And so for a poor person today who only has $1,000 a month to spend or $1,500 a month

00:23:38.660 | to spend, if they shop intelligently, they can have everything they need from one store

00:23:44.320 | at insanely low prices.

00:23:46.620 | And if you travel a little bit around the world, you start to see how incredible that

00:23:50.240 | is.

00:23:51.240 | It is easier to live on a low income in the United States of America than almost anywhere

00:23:56.060 | else in the world, at least that I have been or observed or studied, because, largely because

00:24:01.760 | of the massive amount of inexpensive products that are available.

00:24:05.860 | And it is nothing like where you go to a local convenience store in some neighborhood in

00:24:10.840 | another country and have a limited selection, high prices, whereas Walmart, low prices,

00:24:16.300 | ready to go.

00:24:17.300 | Now there are other benefits as well.

00:24:18.300 | If you look at the way that the number of jobs that Walmart has added and the jobs that

00:24:24.180 | are available to relatively unskilled people and the opportunities that are there for workers

00:24:31.180 | that simply were not there before, you can make this argument from the corporate opportunity.

00:24:36.180 | And let's pick on that argument about what happened to mom and pop stores.

00:24:40.180 | Let's assume that you were going to go and you're a relatively unskilled person, you

00:24:44.380 | don't have a lot going for you in your earning ability, you can go and work at a mom and

00:24:48.500 | pop store, but what are you going to do?

00:24:50.660 | It's basically a dead end job.

00:24:52.060 | You're not going to take over the store because the mom and pop store is going to be, they're

00:24:57.300 | not going to give over their store, it's their store.

00:25:00.640 | You're not going to have opportunity for advancement.

00:25:02.740 | If you're sweeping the floor and stocking the shelves, that's what you'll be doing for

00:25:05.180 | the next 30 years as you live there.

00:25:06.940 | You're not going to have access to many of the benefits of a large company.

00:25:10.560 | But if you go to Walmart, I mean go back to my show, How I Became a Millionaire on a Minimum

00:25:14.320 | Wage Job at Walmart.

00:25:16.220 | Walmart offers a motivated, modestly intelligent, but unskilled entry-level worker an opportunity

00:25:24.480 | to completely transform their life.

00:25:26.960 | So that would just basically be the basic component.

00:25:30.480 | And then if you look at just what the company has done in terms of the wealth that the company

00:25:35.920 | has created for its shareholders, how that wealth gets reinvested back into the economy

00:25:41.060 | and new enterprises and new businesses, how the wealthy owners of Walmart redirect their

00:25:46.740 | charitable funds into other things as well.

00:25:49.900 | I don't think everything is a matter of this or that.

00:25:53.800 | I think there's a place for non-profit organizations and I think there's a place for for-profit

00:25:59.260 | companies.

00:26:00.260 | I think everything can be done well by one or the other.

00:26:03.220 | They have different roles.

00:26:04.580 | But if I had to choose between them, I would a whole lot rather have Walmart than just

00:26:09.520 | a non-profit organization in terms of the actual good.

00:26:13.240 | Walmart doesn't talk about much good that it does.

00:26:15.260 | Of course they have their corporate PR arm, but in reality they spend more of their time

00:26:19.200 | trying to defend themselves than anything else.

00:26:20.860 | They don't talk about the good that they do.

00:26:22.600 | You and I as consumers just take it for granted.

00:26:24.980 | Meanwhile you have most charitable organizations, non-for-profits, talk all day long about what

00:26:29.500 | they do and they actually do very little.

00:26:31.940 | But if I were poor, I want Walmart because Walmart is going to be my single-handed best

00:26:38.300 | source of the things that I need to keep my life going effectively and efficiently and

00:26:43.420 | Walmart is the most sensitive thing to my needs.

00:26:47.340 | I appreciate and I'm sympathetic to the challenges that storekeepers have faced, independent

00:26:53.960 | mom and pop storekeepers in the United States as Walmart came in.

00:26:58.340 | I appreciate that.

00:26:59.340 | I'm sympathetic to them.

00:27:00.580 | But the fact is they were put out of business by Walmart because they did not serve their

00:27:06.140 | customers effectively as Walmart did.

00:27:08.860 | And specifically for Walmart, I often wish that more people would spend time investigating.

00:27:14.140 | Sam Walton was an incredible guy and he went where no one else wanted to do business.

00:27:19.700 | The thing that people forget is there have always been large supermarkets and large big

00:27:23.780 | department stores across the United States.

00:27:26.140 | But Walton went to the communities where other people didn't want to do business and he transformed

00:27:31.560 | those communities and brought his idea of retail service to there.

00:27:37.540 | And the customers are the ones who chose.

00:27:40.620 | The end of the day, as long as Walmart didn't engage in bribery, going into a local place

00:27:47.500 | and saying, "Hey, we'll give you some extra money, the politicians, to give us this prime

00:27:51.740 | location of government owned land," or things like that, as long as Walmart didn't engage

00:27:56.920 | in bribery and as long as they engaged in simple competition, I am happy to trust the

00:28:01.740 | market.

00:28:02.740 | And the market has said that the mom and pop store owners did not serve their customers

00:28:07.420 | as effectively as Walmart and that's why Walmart has won.

00:28:10.660 | So that's just some of the lines of argument that I would present to say Walmart has helped

00:28:15.860 | more poor people and helps poor people in the United States to live better than any

00:28:23.100 | other organization I can think of or come up with.

00:28:25.620 | And I need just clarity because it's such an abrasive argument in the modern world.

00:28:29.860 | I would just clarify, that doesn't mean that everything is perfect.

00:28:32.740 | But Walmart sells what people want.

00:28:35.340 | I don't buy, I don't want the majority of what Walmart sells.

00:28:38.780 | I don't want most of the stuff that Walmart sells in their food.

00:28:43.140 | I spent, when my wife and I were traveling around the United States, we spent quite a

00:28:46.460 | bit of time in Walmart.

00:28:47.460 | I did a lot of shopping at Walmart because of sleeping in their parking lots.

00:28:53.060 | And Walmart is so kind to allow travelers to stay overnight in their parking lot and

00:28:57.780 | so they have a lot of loyalty of customers who say, "I want to support Walmart."

00:29:02.700 | I'm giving Walmart a pretty massive plug here because having enjoyed their parking

00:29:05.500 | lots.

00:29:06.500 | But I basically skip all of the aisles of packaged foods in Walmart because I don't

00:29:11.580 | eat the stuff.

00:29:12.780 | But I can still go to Walmart and find what I need and what I want of high quality food.

00:29:17.340 | And what Walmart does is when they get into something, even let's say you're going to

00:29:21.620 | buy organic yogurt.

00:29:22.740 | When Walmart started selling organic yogurt, it transformed the price of organic yogurt

00:29:27.580 | for everybody because they're so massive that when they bring their merchandising arm to

00:29:32.940 | something that you want, it transforms the market and brings the prices down and we all

00:29:37.340 | benefit from that.

00:29:38.900 | So I'm sure that there are many complaints that we could collaborate on against Walmart,

00:29:45.140 | but those are some of the arguments and I'll stand by them.

00:29:48.220 | Walmart has done and does more for poor people across the United States and maybe the world

00:29:54.380 | than almost any organization I can come up with.

00:29:57.940 | >>JAMES: Thank you.

00:30:00.940 | Yeah, I was intrigued with what you were saying and I was really glad to hear you.

00:30:08.820 | >>ADAM: My pleasure.

00:30:10.820 | The big thing for me is just simply I always want to look for results.

00:30:14.740 | I want to look for what actually happens, not for people who say nice words about what

00:30:19.260 | they think should happen.

00:30:20.340 | And so for me, if we measure by results, Walmart wins.

00:30:24.980 | We now go to Colorado.

00:30:25.980 | Welcome to the show.

00:30:26.980 | How can I serve you today?

00:30:27.980 | Okay, I can hear you now.

00:30:28.980 | Go ahead.

00:30:29.980 | >>COL.

00:30:30.980 | ADAM HICKS, COL.

00:30:31.980 | WALMART, CO.

00:30:32.980 | WALMART, CO.

00:30:33.980 | >>COL.

00:30:34.980 | ADAM HICKS, COL.

00:30:35.980 | WALMART, CO.

00:30:36.980 | >>COL.

00:30:37.980 | ADAM HICKS, COL.

00:30:38.980 | WALMART, CO.

00:30:39.980 | >>COL.

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00:30:41.980 | WALMART, CO.

00:30:42.980 | >>COL.

00:30:43.980 | ADAM HICKS, COL.

00:30:44.980 | WALMART, CO.

00:30:45.980 | >>COL.

00:30:46.980 | ADAM HICKS, COL.

00:30:47.980 | WALMART, CO.

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00:30:50.980 | WALMART, CO.

00:30:51.980 | >>COL.

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00:30:53.980 | WALMART, CO.

00:30:54.980 | >>COL.

00:30:55.980 | ADAM HICKS, COL.

00:30:56.980 | WALMART, CO.

00:30:57.980 | >>COL.

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00:30:59.980 | WALMART, CO.

00:31:00.980 | >>COL.

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00:31:02.980 | WALMART, CO.

00:31:03.980 | >>COL.

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00:31:07.980 | WALMART, CO.

00:31:08.980 | >>COL.

00:31:09.980 | ADAM HICKS, COL.

00:31:10.980 | WALMART, CO.

00:31:11.980 | >>COL.

00:31:12.980 | ADAM HICKS, COL.

00:31:13.980 | WALMART, CO.

00:31:14.980 | >>COL.

00:31:15.980 | ADAM HICKS, COL.

00:31:16.980 | WALMART, CO.

00:31:17.980 | >>COL.

00:31:18.980 | ADAM HICKS, COL.

00:31:19.980 | WALMART, CO.

00:31:20.980 | >>COL.

00:31:21.980 | ADAM HICKS, COL.

00:31:22.980 | WALMART, CO.

00:31:23.980 | >>COL.

00:31:24.980 | ADAM HICKS, COL.

00:31:25.980 | WALMART, CO.

00:31:26.980 | >>COL.

00:31:27.980 | ADAM HICKS, COL.

00:31:28.980 | WALMART, CO.

00:31:29.980 | >>COL.

00:31:30.980 | ADAM HICKS, COL.

00:31:31.980 | WALMART, CO.

00:31:32.980 | >>COL.

00:31:33.980 | ADAM HICKS, COL.

00:31:34.980 | WALMART, CO.

00:31:35.980 | >>COL.

00:31:36.980 | ADAM HICKS, COL.

00:31:37.980 | WALMART, CO.

00:31:38.980 | >>COL.

00:31:39.980 | ADAM HICKS, COL.

00:31:40.980 | WALMART, CO.

00:31:41.980 | >>COL.

00:31:42.980 | ADAM HICKS, COL.

00:31:43.980 | WALMART, CO.

00:31:44.980 | >>COL.

00:31:45.980 | ADAM HICKS, COL.

00:31:46.980 | WALMART, CO.

00:31:47.980 | >>COL.

00:31:48.980 | ADAM HICKS, COL.

00:31:49.980 | WALMART, CO.

00:31:50.980 | >>COL.

00:31:51.980 | ADAM HICKS, COL.

00:31:52.980 | WALMART, CO.

00:31:53.980 | >>COL.

00:31:54.980 | ADAM HICKS, COL.

00:31:55.980 | WALMART, CO.

00:31:56.980 | >>COL.

00:31:57.980 | ADAM HICKS, COL.

00:31:58.980 | WALMART, CO.

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00:33:26.980 | ADAM HICKS, COL.

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00:33:30.980 | ADAM HICKS, COL.

00:33:33.980 | >>COL.

00:33:34.980 | ADAM HICKS, COL.

00:33:37.980 | on your rents from your real estate?

00:33:39.980 | - No, not quite.

00:33:45.420 | We could live our normal lifestyle

00:33:49.640 | on the two Social Security incomes

00:33:53.140 | and our rental real estate.

00:33:54.640 | - You have already filed for Social Security.

00:33:58.680 | What's your plan as far as filing for Social Security?

00:34:03.020 | - Yeah, I filed just last year

00:34:06.740 | and I've started receiving my benefit.

00:34:11.740 | She obviously won't file for a couple of years.

00:34:14.340 | - Okay.

00:34:15.720 | So one more question.

00:34:18.320 | What do you want to happen with your wealth

00:34:21.680 | that you don't spend during the next few decades

00:34:25.480 | of your life?

00:34:26.320 | What's your plan?

00:34:27.140 | What are you trying to accomplish with that wealth?

00:34:32.120 | - So we'll probably leave a portion of it to our kids.

00:34:36.900 | We've got six kids between us,

00:34:38.900 | so it'll get divided up pretty easily there.

00:34:43.900 | And we will probably find a,

00:34:48.660 | through one of our mission organizations

00:34:53.540 | that we contribute to or our churches or whatever,

00:34:57.400 | we probably won't give it all to the kids,

00:35:01.220 | but we might.

00:35:02.700 | - Okay.

00:35:04.060 | So first let me talk to you about

00:35:06.100 | what answers the financial planning industry provides

00:35:09.400 | on this question.

00:35:10.900 | And then let me talk to you about

00:35:12.620 | just some thoughts about that

00:35:14.200 | that I hope would be more useful.

00:35:16.860 | So answers to this question.

00:35:18.140 | So first, the standard approach that you will get

00:35:21.540 | if you sit down with a financial advisor,

00:35:23.420 | a licensed financial advisor,

00:35:25.240 | the way that that financial advisor

00:35:28.100 | will try to figure out your asset allocation strategy

00:35:31.780 | is basically one of two methods.

00:35:34.500 | Method number one is to try to figure out

00:35:37.160 | what asset allocation you need

00:35:39.880 | in order to meet your goals.

00:35:41.740 | And this is the most common

00:35:44.500 | when you are trying to get a certain amount of money

00:35:47.500 | out of a portfolio.

00:35:49.180 | So you say, I've got $300,000 of,

00:35:53.100 | let me just say, I've got a million dollars of money

00:35:55.800 | sitting here in these assets.

00:35:57.540 | And I'm trying to spend X number of dollars per month.

00:36:01.740 | How can we get there?

00:36:03.060 | And so the financial advisor

00:36:04.220 | will plop that into a computer program.

00:36:07.220 | And the computer program will spit out a portfolio

00:36:12.220 | and address, and that portfolio will have certain likelihood

00:36:16.620 | if historical indicators or any indication

00:36:19.420 | of what might happen in the future,

00:36:21.100 | that that portfolio will have a probability of success.

00:36:25.020 | And by dialing up or dialing down

00:36:28.060 | the risk level of the portfolio,

00:36:30.060 | and risk is measured by percentage of money

00:36:32.340 | that's allocated to stocks, equities,

00:36:35.460 | as compared to fixed income,

00:36:37.460 | they'll find that either there's a possibility

00:36:39.520 | for you to have more money than you need,

00:36:41.460 | but yet have some lesser chances of running out of money,

00:36:45.900 | or there'll be a possibility of having

00:36:48.340 | a more certain future one way or the other.

00:36:52.060 | And so that's how they address it when solving for need.

00:36:55.420 | To answer that one, that one doesn't apply to you.

00:36:58.500 | And it doesn't apply to you right now for two reasons.

00:37:00.660 | The first reason is the bulk of your money

00:37:04.020 | is currently invested in real estate.

00:37:06.180 | And financial advisors are generally very poorly equipped

00:37:09.420 | to deal with real estate.

00:37:10.300 | It's not what they do, they deal with stocks.

00:37:12.340 | And so real estate doesn't fit neatly

00:37:14.420 | into the computer models.

00:37:16.340 | The real estate doesn't fit neatly

00:37:18.500 | into the asset allocation model.

00:37:21.060 | It can be modeled in terms of a portfolio,

00:37:24.300 | they can model what 5% of your portfolio

00:37:26.660 | invested in REITs would look like,

00:37:28.500 | but they can't model actual real estate income.

00:37:31.820 | And it's not, all they do is they put it in

00:37:33.820 | as a cash flow for you.

00:37:35.780 | And since you don't need the income,

00:37:37.860 | that whole exercise is basically worthless for you.

00:37:40.940 | The computer program can't give you a useful answer.

00:37:44.780 | You don't need the income because between your real estate

00:37:46.700 | and your social security, you don't need any money.

00:37:48.660 | You've got it taken care of.

00:37:50.300 | So the second way that they address this issue

00:37:53.180 | is they go with what's called a risk profile questionnaire.

00:37:57.220 | And so they'll give you a 10 or 15 question document.

00:38:01.060 | You can take one of these online

00:38:04.340 | and probably should if you haven't recently.

00:38:06.420 | And this document will go through different scenarios

00:38:08.860 | and it'll say, are you more comfortable

00:38:10.020 | with this outcome or that outcome?

00:38:12.060 | And then they'll ask you questions

00:38:13.140 | about when you intend to use the money and et cetera.

00:38:16.020 | And then the computer will assign a score to you

00:38:18.820 | that's supposed to be your risk profile tolerance.

00:38:22.620 | Now that can be useful,

00:38:24.500 | but it's going to be minimally useful for you

00:38:27.060 | because number one, the bulk of your assets

00:38:29.060 | are not gonna be reflected in that questionnaire.

00:38:31.500 | You have your real estate

00:38:34.220 | and it's not gonna be useful for you

00:38:35.820 | because you can't answer all the stuff accurately.

00:38:40.140 | So usually for example, where clients would get into trouble

00:38:43.700 | when I used to do this stuff,

00:38:45.140 | is you would answer something like,

00:38:46.780 | well, when are you gonna need the money?

00:38:48.180 | And you're thinking,

00:38:49.020 | I'm gonna need the money for retirement

00:38:51.220 | because I'm 65 years old,

00:38:53.180 | but realistically you just told me

00:38:54.660 | you're not gonna need the money for retirement.

00:38:56.660 | So the risk profile questionnaire doesn't help you much.

00:38:59.740 | So the mainstream financial advisor approach

00:39:02.140 | in your situation is not gonna be particularly helpful,

00:39:04.300 | which I assume is why you're calling me.

00:39:06.420 | So let me get to some things that will help you.

00:39:11.420 | So the first thing to think through

00:39:12.860 | is what you're trying to accomplish

00:39:15.660 | and what you're actually gonna need the money for.

00:39:17.820 | And in your case,

00:39:18.660 | I think you have to separate your pots of money

00:39:21.180 | into specific buckets and ask yourself,

00:39:23.620 | what am I gonna do with this money?

00:39:25.500 | That's gonna be dependent on what happens

00:39:28.620 | with your wife's employment income.

00:39:31.420 | That's gonna be dependent on what happens with your startup.

00:39:34.100 | That's gonna be dependent upon what you actually want

00:39:37.660 | to spend and what you would wanna spend it on.

00:39:40.400 | From what you're describing to me,

00:39:43.060 | I'm kinda guessing that you actually

00:39:45.540 | aren't ever gonna spend this money.

00:39:47.740 | Now, I think there could be exceptions to that,

00:39:49.660 | but most people who are in your situation

00:39:51.660 | don't wind up spending this money,

00:39:53.920 | or at least not for a long time.

00:39:55.500 | And here's why.

00:39:56.340 | First, you currently have employment income

00:39:59.260 | coming in from your wife.

00:40:00.780 | Now, if she's actually gonna quit a year from now,

00:40:03.980 | then you need to factor that in.

00:40:05.640 | If she's not actually gonna quit,

00:40:07.140 | then that will make a big difference,

00:40:08.800 | but that adds to your life.

00:40:10.540 | You have social security income,

00:40:12.220 | and I'm projecting the fact that you're pretty restrained

00:40:14.620 | with your expenses.

00:40:15.820 | You live in Oklahoma.

00:40:17.140 | There aren't usually a lot of flashy people

00:40:19.380 | that are trying to spend all their money

00:40:20.500 | who choose to move to Oklahoma.

00:40:22.140 | If you were calling me from Miami, that would be different,

00:40:24.460 | but most Oklahomans, that's not a big priority for them.

00:40:27.340 | So when you have your real estate income

00:40:28.940 | and your social security income,

00:40:30.020 | you probably don't ever need any more money.

00:40:32.180 | The additional thing is your startup might generate income.

00:40:35.480 | Now, you would have to assess the likelihood of that,

00:40:37.840 | but if that starts generating income for you,

00:40:40.060 | you should spend that money before you wind up

00:40:43.100 | pulling money from your investment accounts.

00:40:45.800 | So then the real question comes down to

00:40:48.100 | what do we need the $300,000 for?

00:40:50.740 | If you think that there's going to be

00:40:52.500 | some kind of short-term expenses with it,

00:40:55.460 | such as, well, we wanna take all our children,

00:40:58.260 | grandchildren on a big, giant family vacation to Europe

00:41:02.060 | and it's gonna cost us $50,000.

00:41:04.100 | Well, in that case, you should put $50,000 in the bank

00:41:06.540 | and not invest it at all.

00:41:07.900 | So your asset allocation is simple.

00:41:09.680 | If you have any short-term uses for the money,

00:41:12.640 | less than five years, less than 10 years

00:41:14.980 | even in your situation, you should take the money

00:41:17.300 | and basically not invest it.

00:41:18.580 | Basically just simply have it available for those expenses.

00:41:23.420 | If you think you're gonna be doing something with it

00:41:25.540 | in the medium term, that's where things get difficult,

00:41:28.100 | is, well, I think I might wanna do something

00:41:30.540 | with this 10 years from now, but I'm not sure what.

00:41:33.220 | That's the hardest.

00:41:34.100 | The easiest is if you think you're just gonna leave this

00:41:36.120 | behind as an inheritance, I think you should invest the money

00:41:38.940 | in the highest returning investments that you can find,

00:41:42.740 | whether that's an aggressive all stock

00:41:45.300 | or mostly stock portfolio in the stock market,

00:41:48.940 | whether that's in something that you think is better

00:41:51.180 | than that, that you have connections to.

00:41:53.180 | I think you should invest the money

00:41:54.460 | in the most aggressive thing you have

00:41:56.540 | because if you don't wind up spending the money

00:41:58.880 | and you're just gonna leave it behind when you die,

00:42:01.500 | then the best thing you can do with it

00:42:03.740 | is grow it as big as possible.

00:42:05.460 | And in that case, aggression is your friend

00:42:07.420 | because you have now a 30-year time horizon

00:42:09.980 | and the difference of rate of return on the money

00:42:12.620 | or amount of money you have, if you can get 8%

00:42:14.820 | on your money versus 4% on your money is massive.

00:42:18.660 | So in general, I would try to nudge you

00:42:20.740 | in the direction of saying, what is the best investment

00:42:23.660 | that you have access to and can you invest it into that?

00:42:27.420 | - Oh, all of that is actually really helpful.

00:42:34.920 | I hadn't thought about the fact that we might not have

00:42:40.940 | the fact that we might not actually ever need that money.

00:42:44.260 | I'm afraid I'm gonna probably fall more

00:42:51.140 | in the medium term use of that money,

00:42:54.900 | but it sounds to me like it really doesn't really matter.

00:42:59.460 | Did I say really?

00:43:01.360 | So let's just wander around a bit.

00:43:09.620 | So when we moved out here, we kept our main house,

00:43:13.980 | turned it into rental property.

00:43:15.740 | We got a mortgage on this house

00:43:19.340 | because I didn't wanna touch the investment accounts,

00:43:24.340 | 2% tax, I'm sorry, like a 2% interest rate

00:43:31.460 | on our home mortgage here.

00:43:33.540 | And certainly the investment accounts

00:43:36.180 | will do better than that.

00:43:38.740 | Would there be a point in time where you would say,

00:43:41.660 | cash it out and pay off the mortgage?

00:43:45.620 | - I can't imagine the scenario in which I would say that,

00:43:47.500 | no, because you would be doing two things if you did that.

00:43:50.940 | First, so before I get to the two things,

00:43:54.500 | let me give just the background.

00:43:56.100 | What is the benefit of having a paid off mortgage

00:44:00.940 | on a house that you live in?

00:44:02.180 | What's the benefit of that?

00:44:03.540 | - Just some security.

00:44:07.860 | - Right, some sense of security.

00:44:09.900 | Now, and I think that's valid, okay?

00:44:12.940 | But now what is the scenario that could happen to you

00:44:17.100 | in which you would not be able to pay your mortgage payment?

00:44:20.460 | - If we couldn't, if all my renters in Denver moved out

00:44:36.740 | and we didn't have that income,

00:44:41.060 | but that's not very likely.

00:44:44.860 | - Yeah, it's not very likely.

00:44:47.460 | And I agree with you.

00:44:48.340 | In fact, that's what I would point to to say

00:44:50.460 | is one of your biggest risks.

00:44:53.940 | But that particular risk is not very likely.

00:44:57.340 | To have three individual properties all empty

00:45:03.140 | is very unlikely unless something catastrophic

00:45:06.740 | has happened in Denver.

00:45:07.780 | Yellowstone is blown up or something like that

00:45:10.100 | and Denver just empties out.

00:45:11.620 | But in that situation, we've got big problems.

00:45:13.940 | It's just we're in the extreme scenario circumstance.

00:45:18.060 | So for you to have--

00:45:19.340 | - Yeah, not likely.

00:45:20.220 | - Yeah, for you to have three properties

00:45:23.060 | in Denver emptied out is very unlikely.

00:45:27.620 | And even if it did happen,

00:45:29.300 | you still are gonna have your social security income.

00:45:32.140 | - So you still could probably make a mortgage payment

00:45:34.820 | out of your social security income.

00:45:36.060 | What's your mortgage payment in Oklahoma

00:45:37.260 | and what will be your social security income

00:45:38.700 | when your wife also files for it?

00:45:40.420 | - It's about $2,100.

00:45:44.940 | All of my houses in Denver are fully paid for

00:45:49.460 | and the rent on any one of those houses--

00:45:53.060 | - So your social security income is $2,100.

00:45:55.740 | And how much is your mortgage payment?

00:45:58.300 | - No, mortgage payment is 2,100.

00:46:01.740 | My social security income is more like 25.

00:46:04.380 | - Okay, perfect.

00:46:05.340 | So we can confirm that you could at least

00:46:07.860 | pay your mortgage payment on your social security income.

00:46:11.380 | And since your social security income

00:46:13.260 | is as guaranteed as anything else we can have,

00:46:16.540 | then we know that you're gonna have income.

00:46:19.060 | And since your mortgage payment

00:46:20.380 | is a fixed rate low interest debt,

00:46:23.420 | we know that it's going to be able to be paid.

00:46:26.140 | So you may have to sweep some floors

00:46:28.860 | to have enough money to buy food

00:46:30.820 | if all of your properties are empty,

00:46:32.220 | but you can still pay your mortgage payment.

00:46:33.980 | So with that in mind,

00:46:35.540 | I don't see any risk for you in having the mortgage.

00:46:39.420 | Now that's different than if you were 20 years old,

00:46:42.260 | but you're not 20 years old.

00:46:43.740 | I'd like to have 20-year-olds have debt-free houses

00:46:46.020 | because their risk is losing their income.

00:46:49.300 | You don't have any income risk

00:46:51.020 | at this stage of your lifestyle.

00:46:53.700 | So what's the point of having a paid off home mortgage?

00:46:56.660 | Now, what would actually happen

00:46:59.380 | if you cashed out investments and put it into real estate?

00:47:02.300 | Well, you would make a big difference

00:47:03.740 | in your asset allocation.

00:47:05.180 | 'Cause right now, 3/4 of your income,

00:47:07.460 | or 3/4 of your assets are in real estate.

00:47:09.980 | If you cash out 1/4 of your asset

00:47:12.140 | to put it into real estate,

00:47:13.300 | now you move in a direction of 100% of your money

00:47:15.340 | being in real estate.

00:47:16.300 | And now I don't like that

00:47:17.980 | from an asset allocation perspective.

00:47:19.860 | I would much rather you keep less money in real estate

00:47:23.260 | and more money in stocks

00:47:25.260 | so that if real estate falls apart,

00:47:28.340 | especially Colorado real estate falls apart,

00:47:30.740 | new governor is elected

00:47:31.860 | and the governor imposes a 50% state income tax

00:47:34.660 | and all of a sudden your houses have in value,

00:47:37.020 | at least if you have a portfolio of stocks,

00:47:38.820 | you have another pot of money.

00:47:40.300 | So I think paying off your mortgage in Oklahoma

00:47:43.620 | would be exactly the wrong move

00:47:45.180 | from an asset allocation perspective

00:47:47.660 | because it puts too much money in real estate.

00:47:49.660 | And then finally, I think if you're gonna have a mortgage,

00:47:53.220 | it's much more sensible for you to have that mortgage

00:47:55.660 | on your home in Oklahoma

00:47:58.540 | than on your rental properties in Colorado

00:48:00.900 | because you're gonna get a lower rate on your home in,

00:48:04.420 | in Oklahoma, you're gonna, sorry,

00:48:06.140 | you're gonna get a lower rate on your home in,

00:48:09.020 | on your home mortgage because it's your residence

00:48:12.620 | than you are on a rental property.

00:48:14.660 | And if you can't pay it,

00:48:16.660 | you're going to get better treatment

00:48:19.260 | being just a normal homeowner

00:48:21.740 | who's going through foreclosure than is,

00:48:24.420 | than you are if you're a greedy real estate investor

00:48:27.020 | who's just losing another property.

00:48:28.740 | So I'd rather have, in your situation,

00:48:30.380 | I'd rather have the rental property paid off

00:48:32.700 | and have the mortgage on my home residence.

00:48:34.820 | And then final piece of data in favor of my argument here

00:48:38.580 | would be in Oklahoma,

00:48:39.740 | my understanding of your asset protection laws

00:48:44.140 | is that you don't have any significant

00:48:46.620 | homestead exemption from asset protection.

00:48:49.580 | I think you only have a few thousand dollars.

00:48:51.020 | Is that right for Oklahoma?

00:48:53.020 | - Right, right.

00:48:54.020 | Yeah, I believe that's correct.

00:48:55.100 | - So then you being a rich person,

00:48:57.580 | which is a problem because you're a millionaire

00:49:00.060 | and you've got all this real estate

00:49:01.220 | which exposes you to certain risks there,

00:49:03.140 | then you want to equity strip

00:49:05.460 | any asset that's not protected.

00:49:07.140 | And so in this situation,

00:49:08.540 | a good home mortgage at a low rate

00:49:10.380 | is your best and simplest way for you

00:49:11.940 | to equity strip your house in Oklahoma

00:49:14.340 | rather than having it paid off

00:49:16.180 | and exposed to the claims of creditors.

00:49:18.140 | - Yeah, yeah, cool, cool.

00:49:22.380 | All right, all that's good confirmation

00:49:24.660 | 'cause that's where I am and it's where I want to stay.

00:49:27.420 | Things, if I've got midterm use for that money,

00:49:37.300 | I'd like to build a barn.

00:49:50.740 | I'd like to spend 100 grand,

00:49:52.500 | but I don't want to waste that money to do that.

00:49:57.340 | But I might need it for this business

00:49:59.700 | and so I might get to build a barn anyway.

00:50:03.300 | So would you, if it's fairly short term,

00:50:07.900 | like three to 10 years,

00:50:09.860 | would you put a bunch of this money in bonds

00:50:13.220 | so that it'll be there in five years?

00:50:15.900 | - Yes, I would.

00:50:17.900 | - Okay.

00:50:18.740 | - And any particular kind of bonds?

00:50:25.580 | I don't know anything about the bond market.

00:50:27.580 | I've got a few T-bills

00:50:29.020 | and I don't know what kind of government bonds,

00:50:32.300 | but can you help me out there?

00:50:37.300 | - Yeah, so let me explain.

00:50:39.140 | Probably your safest move is to put money

00:50:43.140 | that you think you might need to spend,

00:50:45.940 | your safest move is to put it into a cash fund.

00:50:50.540 | So it could be a money market,

00:50:51.780 | could be cash account,

00:50:53.660 | could be some kind of CD structure, et cetera.

00:50:57.220 | Bonds would be fairly safe,

00:50:59.780 | but you do still face some risk with bonds.

00:51:02.460 | Your biggest risk with bond mutual funds,

00:51:04.460 | and let me just ask one question as I get to the answer.

00:51:07.340 | This all $300,000, this is all within an IRA at this point,

00:51:10.980 | a traditional IRA because it was a 401k rollover,

00:51:13.940 | is that right?

00:51:15.780 | - Yeah, there's some traditional IRA, 1K,

00:51:20.780 | like 200 grand of this is in my wife's 401k

00:51:31.220 | and 403b accounts.

00:51:33.660 | And I tend toward permanent portfolio

00:51:39.620 | 'cause I can set it and forget it,

00:51:41.340 | but I'm not very good at the balance thing

00:51:46.340 | and actually sticking to an asset allocation.

00:51:48.460 | So some of it is a money market,

00:51:51.060 | and some of it, there's a few bonds.

00:51:55.980 | Most of it is in total market index funds.

00:52:00.500 | - Okay, when you say permanent portfolio,

00:52:02.900 | are you actively pursuing the permanent portfolio

00:52:05.580 | with all of your investment structure,

00:52:09.300 | the 25% portfolio, or are you just using that

00:52:13.300 | in the sense of I'd like to buy an index fund

00:52:14.780 | and leave it alone?

00:52:15.740 | - Well, I'm only using that for the stuff

00:52:21.100 | that's in the market.

00:52:22.620 | The fact that I've got so much real estate

00:52:24.620 | really hurts my brain when I start thinking

00:52:27.700 | about permanent portfolio

00:52:29.900 | 'cause there's not actually a real estate 25% in there.

00:52:37.660 | Real estate is outside of the traditional

00:52:39.660 | permanent portfolio structure.

00:52:41.020 | So the traditional, original permanent portfolio

00:52:43.820 | is to have 25% in stocks,

00:52:47.060 | 25% in long-term treasury bonds,

00:52:50.260 | 25% in gold, and 25% in cash, money market.

00:52:54.620 | And the idea of the permanent portfolio

00:52:56.940 | is that it withstands the various macroeconomic risks

00:53:01.140 | that you face.

00:53:02.780 | And so therefore, because it withstands

00:53:04.740 | the macroeconomic risks, when fiscal policy

00:53:08.300 | or monetary policy is changing,

00:53:09.620 | you always have one asset that is adjusted,

00:53:12.900 | that it's an appropriate solution there.

00:53:15.700 | Now, it's hard with real estate

00:53:17.660 | 'cause real estate doesn't fit into that.

00:53:18.900 | So if you're actually pursuing permanent portfolio,

00:53:21.740 | then you should adjust your,

00:53:24.540 | you'll have to start moving in that direction.

00:53:26.740 | And just to be clear, I think it's reasonable for you

00:53:29.940 | to move in that direction, to reallocate your portfolio,

00:53:33.340 | to make sure that you minimize the amount of real estate

00:53:35.980 | that you own in time.

00:53:37.500 | So as an example, you could go ahead and,

00:53:41.540 | and there are pros and cons to this.

00:53:43.380 | I just want, I don't wanna get too deep.

00:53:45.140 | You'll have to make this decision.

00:53:47.140 | But you could go ahead and just even

00:53:48.620 | with your current portfolio of real estate,

00:53:51.540 | if you don't, if there's a property that you don't like,

00:53:53.660 | maybe at some point you go ahead and sell it.

00:53:55.860 | If the market, you should always be analyzing your market

00:53:58.260 | to see if it's a good time to sell.

00:54:00.100 | And if you see that prices start to become overvalued,

00:54:03.500 | sell a house or two and take that money

00:54:06.860 | and then readjust that into your other,

00:54:09.140 | to your permanent portfolio approach.

00:54:10.860 | Or go ahead and take out a mortgage

00:54:12.460 | on one of your rental properties.

00:54:13.940 | And so that mortgage, so you can refinance some money

00:54:16.780 | out of real estate and into some of these other asset classes

00:54:21.300 | and I think you could do that very, very safely.

00:54:23.740 | So for example, let's say that you're concerned

00:54:28.020 | and you decide, I'm gonna go ahead

00:54:29.620 | and refinance property number one.

00:54:31.580 | Go ahead and take out a mortgage on property number one,

00:54:33.660 | then use those funds to go and buy gold

00:54:36.500 | for your 25% in gold or something like that.

00:54:38.940 | So that way you minimize your exposure to real estate.

00:54:41.140 | You still own the property.

00:54:42.620 | In time, your tenants may pay off that debt for you,

00:54:45.340 | but now you have another asset class that is set aside.

00:54:49.140 | So there are some ways to readjust.

00:54:51.020 | Back on target.

00:54:53.900 | If you are pursuing the permanent portfolio,

00:54:55.780 | then you need to make sure that you have

00:54:57.080 | those long-term treasury bonds in your portfolio.

00:54:59.660 | That's different than the money

00:55:01.820 | that you might wanna spend though.

00:55:03.140 | So the benefit of long-term treasuries

00:55:05.220 | is they will provide that smoothing effect

00:55:07.620 | in your asset allocation strategy.

00:55:09.580 | The downside to bonds, to answer the question you said

00:55:12.780 | of what you should do with it,

00:55:14.060 | is you face a risk on bonds that if interest rates rise,

00:55:18.500 | bond values will decrease.

00:55:20.680 | And especially when you're investing in bond mutual funds,

00:55:23.340 | that risk, especially for long-term bonds,

00:55:26.460 | that risk can be significant.

00:55:28.300 | And so if you think that interest rates will rise,

00:55:31.560 | then that means that the values,

00:55:33.020 | especially for long-term bond funds,

00:55:35.640 | those values will decline.

00:55:37.860 | And because a mutual fund of bonds has,

00:55:42.140 | it never matures, you have a duration,

00:55:46.340 | you can measure the duration of the portfolio,

00:55:48.520 | but because the bonds never mature,

00:55:49.980 | because they're always being sold out and traded,

00:55:51.820 | then that's a very high risk.

00:55:53.420 | And so if you look forward and you said,

00:55:55.340 | well, five years from now,

00:55:56.620 | I think I might be using this money to build a barn,

00:55:59.960 | but I'm also thinking that in five years,

00:56:02.620 | interest rates might rise substantially,

00:56:04.900 | then you definitely wouldn't wanna have that money

00:56:07.260 | in a long-term bond fund,

00:56:08.920 | because if interest rates rise,

00:56:10.180 | those portfolio values will drop,

00:56:12.180 | and then you won't have the money to build the barn.

00:56:14.760 | So cash is much safer.

00:56:16.020 | Cash does, of course, obviously expose you to inflation,

00:56:18.960 | but that's a little bit easier for you to watch.

00:56:21.180 | And if you're gonna use it to buy a barn,

00:56:23.420 | to build a barn, if you see inflation start to tick up,

00:56:26.380 | well, you would go ahead and start to move it

00:56:27.960 | out of cash anyway and build the barn fast,

00:56:30.060 | where you can get cheaper prices on your durable goods,

00:56:32.980 | then you would just keep it all in cash.

00:56:37.140 | - Right, right.

00:56:40.220 | All right, that helps.

00:56:44.580 | That discussion helps.

00:56:45.740 | I have one more question on my list here,

00:56:50.460 | and that is, I listened to one of your podcasts

00:56:53.620 | a couple of years ago, I think,

00:56:56.820 | and you were talking to a man in the South at some church,

00:57:01.820 | and they had some program where they,

00:57:05.300 | they invited young people,

00:57:11.980 | from the umbrella of their church,

00:57:16.620 | to meet with entrepreneurs and businessmen in their church,

00:57:21.620 | and they taught those guys how to build a business,

00:57:26.340 | how to start up a business, how to become a one-trucker,

00:57:31.100 | plumber, or HVAC guy.

00:57:33.300 | And do you remember that show?

00:57:35.580 | - I do, I do.

00:57:37.100 | Yes, and it's, I absolutely do.

00:57:41.660 | Now, that episode was episode 398,

00:57:46.020 | and it's called How to Invest in Your Local Community,

00:57:49.540 | How to Invest in Your Local Community

00:57:51.580 | for Financial Profit and Community Gain,

00:57:54.900 | Interview with Businessman and Investor Tim Yarborough.

00:57:58.300 | So, if you look it up there, you'll find it.

00:58:01.700 | And right now, it's off the website.

00:58:03.500 | I need to transition that one onto the new website.

00:58:05.860 | But if you just go back in your RSS feed

00:58:07.500 | on your podcast player, you'll be able to find episode 398,

00:58:11.300 | and it's still there in the feed.

00:58:12.260 | You'll just have to flip back quite a ways

00:58:13.940 | 'til you get to it.

00:58:15.100 | But yes. - All right, so.

00:58:16.460 | - Yeah.

00:58:17.580 | - Yeah, I wanna play that for our group at church

00:58:22.580 | who invest in that sort of thing.

00:58:28.820 | We do a Jobs for Life thing, and I participate in that.

00:58:32.780 | But this thing that you talked about,

00:58:36.340 | I think would be much more in line

00:58:41.940 | with my skills and resources.

00:58:44.820 | - And I would, you're punching my buttons.

00:58:48.020 | I'm so glad you brought that up.

00:58:49.780 | Earlier, when you were asking me a question

00:58:50.860 | about what to invest it in,

00:58:51.780 | here's what I would love to see.

00:58:54.180 | I would love to see guys like you

00:58:57.140 | take the money that you've had

00:58:59.660 | and stop investing in stocks of big companies

00:59:03.820 | that don't need your money,

00:59:05.220 | and figure out how to invest it in your local community.

00:59:08.540 | And I think guys like you have a huge opportunity

00:59:12.340 | to do far more good and potentially profit as well,

00:59:14.900 | but you don't need the profit.

00:59:15.860 | That doesn't matter at this point in time.

00:59:18.540 | I mean, obviously you wanna profit,

00:59:19.940 | but in terms of the impact of the money,

00:59:22.380 | I would much rather see guys like you

00:59:24.780 | take that $300,000 and commit to investing that

00:59:28.620 | into the young men in your community.

00:59:31.180 | And you gotta think through how to do that,

00:59:34.420 | which is so difficult.

00:59:35.780 | It's far easier to buy a total stock market index fund

00:59:40.300 | than it is to figure out,

00:59:41.140 | how do I invest 300,000 bucks

00:59:43.260 | into the guys here in my community?

00:59:45.460 | But that is a--

00:59:47.340 | - No kidding.

00:59:48.180 | - But I mean, it's really hard,

00:59:49.540 | but I have been working and working and working

00:59:52.140 | on solutions of how that can be done and what to do.

00:59:56.540 | I don't have many good answers,

00:59:58.620 | but here's what I would say to start with.

00:59:59.780 | First, go see, so Tim Yarborough, he's in Alabama.

01:00:03.400 | I'd encourage you, get in touch with him, find him online.

01:00:05.420 | He's not easy to find, but he's not hard to find.

01:00:08.940 | Go find him and go visit him in Alabama,

01:00:11.060 | reach out to him and go and see what they're actually doing

01:00:13.940 | and check it out.

01:00:14.780 | Don't just stick with the podcast,

01:00:16.460 | but go and check it out

01:00:17.300 | and see what lessons they would have.

01:00:20.040 | The biggest problem with investing in that way

01:00:23.580 | is it's hard to make use of big amounts of money.

01:00:27.080 | But the great thing is, if you have the time,

01:00:29.900 | and this is what men like you have,

01:00:31.940 | if you have the time and the freedom,

01:00:34.200 | you can invest small amounts of money

01:00:36.480 | into many other people and then start to see

01:00:39.380 | how is it gonna pay off, how's it gonna pay off.

01:00:41.940 | And especially if you're part of a local church

01:00:45.300 | where you can start to work together,

01:00:47.020 | I think what Tim is doing is the most important thing

01:00:50.620 | for guys like you to be doing with your money

01:00:52.660 | is finding people who need some resources

01:00:57.420 | and who need some wisdom and who need some mentoring

01:01:00.860 | and starting to develop those systems

01:01:03.420 | and investing alongside in them

01:01:05.360 | where you put up some capital and you gotta be careful

01:01:07.620 | because you can't give too much.

01:01:09.400 | You gotta keep people hungry.

01:01:11.120 | But you put in capital,

01:01:12.460 | you partner in their business with them,

01:01:13.900 | you help connect them, you help mentor them,

01:01:15.940 | you help them in the community.

01:01:17.620 | And the great thing is I think that those profits

01:01:20.860 | could be far more than whatever Coca-Cola

01:01:24.460 | pays out in their dividend.

01:01:26.140 | Because if you are, like Tim,

01:01:28.420 | if you're a minority stakeholder or a 50% stakeholder

01:01:32.220 | in dozens and dozens of businesses,

01:01:34.220 | I mean that flow of cash is pretty significant.

01:01:36.520 | So I'm glad that you heard that.

01:01:38.800 | It's one of the things that I would dearly love

01:01:40.600 | to figure out more people who are doing that,

01:01:42.840 | learn from what they're doing

01:01:43.920 | and try to get guys in your stage of life

01:01:47.440 | to stop putting money into stocks

01:01:50.880 | and start putting money into your local community

01:01:52.920 | and investing alongside people who need it.

01:01:56.880 | Now I'm rambling on that one, but I love it.

01:02:01.840 | So yeah, episode 398.

01:02:03.520 | And I would just say reach out to Tim,

01:02:06.060 | get in touch with him.

01:02:07.160 | - Yeah, that's great.

01:02:10.340 | That was one of my all-time favorite podcasts of yours.

01:02:14.840 | And I'm definitely resonating.

01:02:17.140 | - Good, good.

01:02:18.180 | Well, for the last few years--

01:02:19.020 | - I could ramble forever, but I think I'm done.

01:02:20.900 | - Good.

01:02:21.740 | For the last few years, I've been working hard

01:02:22.860 | to try to figure out how it can be done.

01:02:24.660 | I think just a couple things that I have come up with.

01:02:26.980 | Number one, I think it's important to

01:02:31.200 | be established in an area that you're gonna work in

01:02:35.080 | because geographic stability, I think, is really important.

01:02:38.280 | You have to be in a place.

01:02:39.560 | Tim's advantage, one of his big advantages,

01:02:42.220 | is he is stable in a local, stable community.

01:02:45.600 | He lives in the same place he grew up in.

01:02:48.480 | He's been there all of his life.

01:02:50.000 | He's in his, I don't know, 60s at this point, I would guess,

01:02:53.200 | but he's stable in that community.

01:02:55.880 | And so he knows the people.

01:02:57.100 | He's been very active.

01:02:58.480 | He's stable in terms of the local church

01:03:00.780 | that he's involved in.

01:03:02.480 | You've gotta have people.

01:03:04.180 | You've gotta have a network.

01:03:05.380 | And so you need that stable local body to be behind you.

01:03:10.380 | You can't just go to wherever the latest,

01:03:12.940 | which doesn't sound like you are,

01:03:14.120 | but many people, they just go to whatever

01:03:15.360 | the latest fad church is, where it's a nice church meeting,

01:03:18.620 | but there's no stable body of people working together.

01:03:21.200 | So you need that.

01:03:22.500 | Then in addition, you need local businesses

01:03:25.020 | that are tangible, where you can find people

01:03:27.360 | who are experienced and pass them along.

01:03:30.520 | So it's one thing to, it's easier to help somebody

01:03:35.100 | who's gonna learn to be a fence installer to say,

01:03:40.100 | let's go work with a senior fencing person,

01:03:44.740 | versus just, with technology, it's not changing that much.

01:03:48.920 | And so it's stable.

01:03:49.860 | And I think those local businesses are important,

01:03:51.800 | and especially if you're trying to change

01:03:53.120 | in the local community.

01:03:54.560 | I think for very smart, high IQ, high cognitive ability,

01:03:59.560 | high technological ability, I think that demographic

01:04:05.400 | is really well served right now.

01:04:07.160 | For somebody who has those basic abilities,

01:04:10.400 | there's enough available online to find that.

01:04:12.320 | But the people that I see who are really hurting

01:04:14.980 | are the people who are more tactile.

01:04:16.640 | Their skills are not in digital everything.

01:04:20.820 | Their skills are personal up front.

01:04:22.800 | And they don't have somebody to come along

01:04:25.040 | and pave the way for them.

01:04:26.640 | And so if that's a lawn maintenance company,

01:04:29.320 | or if that's an oil change shop,

01:04:32.260 | or if that's a tile installer, those kinds of things,

01:04:35.740 | those things are more important,

01:04:37.160 | and provide more opportunities for the,

01:04:39.320 | especially the men who are getting left behind

01:04:41.600 | in today's world.

01:04:42.760 | So I think it has to be done locally, and it takes time.

01:04:46.040 | It can't be done, you can punch a few buttons

01:04:48.380 | on the computer and buy stocks, that's great.

01:04:50.680 | But you can't figure out how to work with somebody

01:04:54.240 | and invest $10,000 in their lawn equipment business

01:04:57.400 | to get them going.

01:04:58.240 | It takes time, and so you gotta be willing

01:05:00.660 | to invest time and money.

01:05:03.160 | That's not a complete list, but those are some

01:05:04.760 | of the constraints that I've seen.

01:05:06.000 | That if those things fit, and I'd love to see

01:05:09.040 | thousands of men like you working all over the country.

01:05:11.960 | And if you get in touch with Tim, what I would say is,

01:05:14.460 | try to develop more connections with people.

01:05:16.900 | Find out who he would recommend you to,

01:05:18.600 | and try to develop some best practices

01:05:21.920 | for those of us who are younger.

01:05:23.000 | I can't dedicate time to this, but help guys like me

01:05:26.240 | figure out how guys like you can make that happen.

01:05:30.600 | So thank you for calling in, great questions today,

01:05:32.600 | I really appreciate it.

01:05:33.760 | All right, before we wrap up today's show,

01:05:38.920 | I'm gonna take one more question from a patron

01:05:40.600 | who couldn't call in, but asked this question,

01:05:42.300 | and who writes in and says this.

01:05:44.040 | Joshua, have you ever discussed using private foundations

01:05:47.100 | or a family foundation for wealth planning?

01:05:49.320 | As someone who donates a lot anyway,

01:05:51.400 | they seem to have the added benefit

01:05:53.020 | of compounding wealth tax-free for future giving,

01:05:56.400 | and even the possibility of taking a salary

01:05:58.480 | for managing it someday, should the growth be sufficient.

01:06:01.840 | The money is also completely separated from the founder,

01:06:03.940 | and protected from things like bankruptcy, lawsuit, et cetera.

01:06:07.080 | A family making $300,000 per year could donate,

01:06:10.140 | tax-free, $90,000 per year.

01:06:12.600 | An optimistic look on stock returns could compound this

01:06:15.600 | to over $6 million in 30 years, at which point,

01:06:18.540 | the foundation could have donations and expenses,

01:06:21.180 | for example, a management salary, office, et cetera,

01:06:23.780 | totaling as much as $300,000 per year,

01:06:27.040 | and only be at the 5% annual minimum requirement.

01:06:30.620 | So Andrew, in short, no, I have not talked,

01:06:32.560 | at least that I can remember on Radical Personal Finance,

01:06:34.600 | about using private foundations or family foundations.

01:06:37.620 | I have very modest exposure to them

01:06:41.460 | in my previous professional life,

01:06:43.820 | but I do think they can be an effective,

01:06:47.420 | they can be an effective use of funds

01:06:52.380 | for somebody who is wealthy.

01:06:54.100 | Now, the biggest challenge, I think,

01:06:55.500 | is figuring out the proper scale

01:06:58.300 | at which establishing a private foundation,

01:07:00.300 | or a family foundation, makes sense.

01:07:03.220 | The big trend has been in the direction

01:07:05.900 | of investing in donor-advised funds

01:07:07.720 | through a local community foundation,

01:07:09.540 | and the reason is it's just a much more cost-effective way

01:07:14.420 | for most normal people who are putting aside

01:07:17.860 | tens of thousands of dollars per year.

01:07:19.840 | The costs to properly establish a family foundation

01:07:22.660 | and run one are not insubstantial,

01:07:25.540 | and so you gotta be careful and say,

01:07:27.500 | what's my actual goal here in establishing one?

01:07:30.860 | What are my actual, what benefits am I getting,

01:07:33.280 | and what are the costs that are being incurred?

01:07:37.620 | And when you actually go through that list,

01:07:40.420 | I think you can find substantial benefits,

01:07:42.860 | but you're gonna be paying significant amounts of money,

01:07:44.660 | and legal fees, you're gonna be spending

01:07:47.620 | significant amounts of money.

01:07:49.140 | Now, for somebody who is at the higher end of wealth,

01:07:52.980 | and I don't know that number,

01:07:54.300 | I probably need to start talking to some attorneys

01:07:56.540 | and try to figure out that number.

01:07:57.940 | I just know it's more than, it's higher end.

01:08:00.820 | If you can make those donations, then yes,

01:08:02.640 | a family foundation does provide you

01:08:04.580 | with the ultimate flexibility,

01:08:06.500 | and it does provide you with some potential for benefits.

01:08:10.500 | So yes, if you are making a lot of money,

01:08:12.780 | you have a lot of money, and you want to have your,

01:08:16.700 | to figure out how to transfer money

01:08:19.380 | to a family member or a friend,

01:08:21.540 | absolutely, start a private foundation,

01:08:25.180 | donate money to that, take the income tax deduction,

01:08:28.060 | hire the family member to work for the private foundation,

01:08:31.060 | they get paid by the private foundation,

01:08:32.740 | and you've accomplished effectively

01:08:34.240 | a very decent wealth transfer.

01:08:37.740 | And you can do that, you can amp up the retirement benefits,

01:08:40.680 | you can amp up all kinds of things, you can do it.

01:08:43.940 | Now, what I always try to be very careful of

01:08:46.340 | is I think the general, you always need to follow

01:08:49.820 | the general thrust of the law.

01:08:51.260 | So I get nervous when things are abused,

01:08:53.260 | and I don't want to see people abuse

01:08:56.420 | private foundations or family foundations.

01:08:58.300 | Yes, you could set one up, and you could put in

01:09:00.760 | some massive retirement programs,

01:09:02.380 | make massive contributions to them,

01:09:03.900 | is it possible?

01:09:04.980 | Maybe.

01:09:05.820 | But I'm not confident enough to recommend that.

01:09:09.620 | Maybe if there's an attorney who's actually studied

01:09:12.100 | what the bright line tests are and what the case law is,

01:09:16.460 | maybe they would be much more confident.

01:09:17.980 | I don't have the knowledge in that area.

01:09:19.860 | I just think that the best thing is to,

01:09:22.940 | the best thing is you have to look at it and say,

01:09:25.700 | am I at the right stage for this?

01:09:28.220 | Now, where I do think it's really powerful

01:09:31.060 | is even just for the previous caller

01:09:32.900 | who was talking about what they're trying to do.

01:09:35.060 | I do think that in general,

01:09:36.900 | we need to become much more familiar with using

01:09:39.740 | private foundations, et cetera,

01:09:42.420 | to accomplish change in our communities.

01:09:45.460 | So to your point, let's go with the facts outlined

01:09:50.460 | with that previous caller.

01:09:52.060 | If that previous caller is seeking to establish

01:09:54.540 | a local community organization

01:10:01.260 | that is going to be helping young men in the community

01:10:06.260 | to establish businesses, et cetera,

01:10:08.420 | I see no reason at all not to take advantage

01:10:12.580 | of the tax structure and do that

01:10:14.700 | through a family foundation.

01:10:16.420 | When you establish a private not-for-profit organization

01:10:21.380 | or a foundation, you have the ability to direct

01:10:23.540 | that document exactly as you want.

01:10:25.220 | And so you can establish the purpose

01:10:27.140 | just how you want it to be.

01:10:29.020 | And that's exactly what you should be doing

01:10:31.260 | in that circumstance.

01:10:32.300 | And so even in that previous caller,

01:10:37.300 | what I would do is sit down and figure out

01:10:40.540 | if he's got a team of people that can work

01:10:42.140 | as a board of directors,

01:10:43.140 | does he have the willingness to do it,

01:10:45.620 | but establish the foundation.

01:10:47.020 | And in his situation, I would keep the money

01:10:48.700 | in the ERAs or the 401ks for the asset protection standpoint

01:10:52.100 | but I would refinance one of the rental properties

01:10:54.100 | and then put that money into the private foundation.

01:10:56.500 | That gives additional asset protection,

01:10:58.660 | gives him a nice tax deduction on the contributions,

01:11:02.140 | gives him the ability, maybe he goes ahead

01:11:03.620 | and hires his wife inside the private foundation,

01:11:06.020 | works together there,

01:11:08.140 | maybe there are other people in the community.

01:11:09.860 | Absolutely, that is the way to go.

01:11:13.380 | Now, beyond the concept, I'm not confident enough

01:11:18.140 | in all the details to give good advice on that.

01:11:20.260 | So I would need to become much more competent

01:11:22.100 | on the details.

01:11:22.940 | If any of you are attorneys who are actively practicing

01:11:24.860 | in this or if you wanna recommend a good attorney,

01:11:27.540 | this is one that I would enjoy having a conversation

01:11:29.940 | with an interview person.

01:11:32.260 | So go ahead and email me, joshua@radicalpersonalfinance.com

01:11:34.460 | and put me in touch with somebody.

01:11:35.700 | And as soon as I can schedule some more interviews,

01:11:37.460 | I would be happy to do that.

01:11:38.940 | But we need to take advantage of these things.

01:11:43.940 | And it's a good example of just, I say all the time,

01:11:46.820 | there's not two tax codes, there's one tax code.

01:11:49.860 | There's not a tax code for the rich

01:11:51.140 | and a tax code for the poor, there's one tax code.

01:11:53.140 | And you can align your activities in such a way

01:11:55.740 | that it works for whatever you're trying to do.

01:11:58.660 | And definitely, this is something

01:12:00.780 | that I should give more discussion to, more research to.

01:12:03.860 | I should think through exploiting it more.

01:12:06.300 | It's not been at the stage of my own wealth

01:12:08.260 | where it has made sense,

01:12:10.500 | given the other opportunities that I have,

01:12:12.220 | which is why I haven't dedicated as much time to it.

01:12:14.620 | But I definitely think I will in the future.

01:12:16.980 | Thank you for listening to today's show.

01:12:18.200 | Remember that I am doing a pre-launch right now,

01:12:20.600 | pre-order system right now for the newest course,

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01:12:36.540 | I'll talk more about that as we get into it.

01:12:38.940 | But it's great, I think you'll really like it.

01:12:41.100 | Go to radicalpersonalfinance.com/store,

01:12:43.400 | use code pre-launch discount for 25% on my newest course.

01:12:46.820 | And I look forward to sharing more with you

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01:12:49.580 | Have a great day.

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