RPF0674-Friday_QA-Sabbaticals_Home-Schooling_Modern_Portfolio_Theory
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00:00:14.720 | It's Friday and today live Q&A.
00:00:18.320 | [Music]
00:00:34.640 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:37.520 | skills, insight, and encouragement you need to live a rich and meaningful life now while building
00:00:42.080 | a plan for financial freedom in 10 years or less. My name is Joshua, I am your host, and today we do
00:00:46.960 | a live Q&A. Works just like call-in talk radio. I publish a phone number and a time for my listeners
00:00:53.120 | to call in. I publish that to patrons of the show, those who support me on patreon.com/radicalpersonalfinance.
00:00:59.120 | They call in and we chat.
00:01:00.560 | [Music]
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00:01:14.880 | I don't understand why more people don't take action to join and have these chats with me.
00:01:20.320 | As you know from being a listener, sometimes I give five, ten minutes, but sometimes I give an
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00:01:30.800 | their personal details out on the internet, which I get. Of course, I affirm that, which is why you
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00:01:59.440 | able to chat with me on a Q&A show like this. We begin today in Oregon, Hill in Oregon. Welcome
00:02:04.800 | to the show. How can I serve you today, please?
00:02:09.040 | Hi, thanks. I'm just calling to get some advice on a Roth conversion. I actually was able to take
00:02:16.240 | a recent year-long sabbatical, and so I'm still on that sabbatical and won't generate any income
00:02:22.240 | other than capital gains from general investment. And so I thought this might be the appropriate
00:02:27.200 | time to convert some of that stuff in the traditional IRA over to the Roth. Obviously,
00:02:34.800 | that's going to generate an income, and I've looked at the tax brackets, but of course,
00:02:39.440 | this is a temporary state for me with a pretty high income tax bracket. So any thoughts on other
00:02:46.480 | factors I should consider when doing the conversion and doing so now while I don't have any other
00:02:52.800 | income? So you're temporarily in another state, not your home state, is that right?
00:02:59.680 | Right. I mean, I'm here just on the sabbatical. I'm sure once I do find a new job, I probably
00:03:05.200 | won't be in this state. It'll be someplace I'll come considered a resident of this state,
00:03:08.800 | but no plans to stay here long term. Okay. Have you checked your state laws to see if you are
00:03:15.520 | indeed at this point considered a resident of that state? Yes, I am. Okay. Well, that's the
00:03:22.240 | first opportunity is, of course, no matter where you go, you're going to have to deal with the
00:03:27.120 | federal taxes, but if you can be thoughtful about how you establish or don't establish residency
00:03:32.800 | in a new state, then I think that can, for other people, that may be able to save some money.
00:03:37.840 | Each state has different rules that they apply for your being considered a resident of that state,
00:03:44.080 | but in general, it all comes down to first knowing what those rules are and adjusting your life and
00:03:50.720 | your decisions so that you can fit within those rules properly and honestly, and then just simply
00:03:57.440 | making sure that you don't make a big splash to bring focus and attention to what you're doing
00:04:01.760 | and where you are. But if you've already investigated that and you are a resident of
00:04:08.320 | that state, there's no way to get around it. Have you contacted your brokerage company and asked
00:04:13.840 | them for their advice and the process for doing what you're trying to do? No, that was actually
00:04:19.120 | my next step. Yeah, so that's going to be your best option is your brokerage company, whoever
00:04:23.840 | holds your retirement accounts, your IRAs, is going to be fairly familiar with the process at
00:04:31.440 | this point. I think they will have a checklist. They'll have the advice for what you need to do,
00:04:36.000 | and this is largely just simply a matter of paperwork. So they'll tell you how they want
00:04:40.880 | you to handle the accounts. They'll tell you how they want you to actually do the process,
00:04:48.240 | and so you need to rely on them for the actual process. You're definitely right. It is a good
00:04:53.360 | time for you to do it when you have no income. When you're on sabbatical, that's a good time
00:04:57.520 | for you to make the conversion. And it's basically as simple as simply calling up your broker and
00:05:03.040 | saying, "I want to convert this amount of money into a Roth IRA. How can I do that?" and then
00:05:08.640 | following their process. I don't have any unique insight or unique recommendations to you other
00:05:14.320 | than what you've already identified. So you're ahead of the game. You've done your homework and
00:05:17.440 | you know what you're doing. Do you have any specific questions? No, that's it. I just wanted
00:05:23.680 | to get your insight on that type of activity. Thank you. Yeah, my pleasure. What's your strategy for
00:05:28.640 | sabbatical? What are you doing? Actually, I'm somewhat of a long-time listener of your podcast
00:05:36.720 | and your newsletters and everything that's come along. So I had the opportunity to kind of step
00:05:41.600 | away from a career. I won't say I'm 100% fire, but if I wanted to cut back some expenses, I probably
00:05:48.800 | could be. So the first step was to really take a year off to really kind of reassess and do what
00:05:57.040 | I want to do. So still kind of figuring out what the next chapter is going to be, but feel very
00:06:02.400 | fortunate that all the hard work over the last 20 years has paid off and that I'm in a position to
00:06:08.560 | do this. How new into the sabbatical are you? How many months has it been now? It's been about 15
00:06:19.200 | months. And what have you experienced over those 15 months? Like what's been your emotional state?
00:06:24.400 | What have you learned over these 15 months so far? It's been great. I would say personally,
00:06:30.880 | it's just been a time to really, I think, live life the way it's really supposed to be. Instead
00:06:37.280 | of waiting until I'm 65 or 70 to really enjoy the fruits of my labor, I get to do it now,
00:06:42.000 | which is great. So I landed myself in a beautiful place where I can do all the type of outdoor
00:06:49.280 | activities that I like to do and really not having to answer to anybody but myself. So it's a really
00:06:56.960 | freeing and liberating experience and I recommend to everybody to do it if you can. If all your
00:07:03.600 | financial responsibilities are met, similar to some of the advice you've given over the years,
00:07:08.000 | it's, you know, you only live once and if you can do it, absolutely. I know a lot of people within
00:07:14.080 | my career industry, I'm long-term in tech, weren't so excited about the idea. Thought I was kind of
00:07:22.160 | crazy to step away, but I think it's one of the best decisions I've ever made. Even if I have to
00:07:27.440 | end up taking a job that's much lower or different than what I've done before, I'm completely okay
00:07:34.160 | with that. And I think five years ago, I would have said, "No way." So, yeah.
00:07:38.240 | Have you had along the past 15 months, has there been anything that you've looked at
00:07:44.160 | that you've thought, "You know, I would really enjoy doing that thing," or "I'm really inspired
00:07:48.880 | about this other thing." Has there been any career opportunities or job opportunities that
00:07:53.200 | you've thought, "I would really like to explore that," or has it been primarily just simply
00:07:57.600 | enjoying not having to report to work every day? Right. I would say both. Both. So, I have looked
00:08:04.880 | at some, you know, the heartfelt passions, right? We all have personal passions, things that
00:08:09.200 | we would get out of bed regardless of what the paycheck was. And I definitely have explored that.
00:08:14.960 | Most of it will reside in a non-profit space and/or a geographic location that I'm not super
00:08:21.200 | excited about. But, you know, I do find challenges as I start to dip my toes in the water for the
00:08:27.440 | next step of a career opportunity. I actually find a little bit of bias in the fact that I don't have
00:08:32.960 | non-profit experience, that people are kind of turning the other way. So, it's very interesting.
00:08:39.680 | It's kind of a catch-22 I didn't quite expect. I think, "Hey, I'm coming with all this corporate
00:08:44.160 | experience. A budget is a budget." You know, you make things work the best you can within your
00:08:49.680 | constraints. So, I'm a little surprised that people wouldn't just grab the opportunity. Because
00:08:56.000 | I'm saying, "Hey, I don't care what the title is. I don't care how many direct reports I have. I
00:09:00.480 | really don't care. I just want to come and make a difference and love what I do."
00:09:03.200 | And I'm finding a lot of people just don't, they don't believe it. They don't buy it.
00:09:08.320 | Are they freezing you out of volunteering or are they simply not being receptive to
00:09:12.480 | offering you a paid position? It's the paid position. Because I've
00:09:16.960 | already done a lot of volunteer work over the last year, year and a half, actually all my life.
00:09:22.080 | And I've done some informational interviews with people pretty high up in non-profits.
00:09:26.960 | And very interesting within Silicon Valley, they've got a lot of retirees or a lot of people
00:09:32.480 | within the FIRE community that will just go and volunteer in what used to be formally paid
00:09:38.240 | positions. And so, they're like, "Well, we actually don't have to hire people anymore because we have
00:09:43.040 | all these other people with all the free time and they're willing to do it for free."
00:09:46.080 | Right. Interesting.
00:09:47.360 | So, interesting, interesting as well. I just didn't expect that. So,
00:09:51.840 | definitely some lessons learned, but at this point, no regrets.
00:09:56.000 | Good.
00:09:57.040 | I planned this. I did it well. And again, anybody who has the opportunity to do it,
00:10:02.560 | do it as soon as you can because you only live once. Life is so short.
00:10:08.000 | Yeah, absolutely.
00:10:08.880 | So, enjoy it.
00:10:09.840 | Yeah. Thank you for sharing your experience. I want to just share a few minutes of monologue
00:10:14.640 | for my listeners, new listeners especially. I think that the strategy that Hill is talking about
00:10:20.640 | with regard to taking a sabbatical is something that we should all have in the back of our head.
00:10:26.400 | It doesn't have to be something that you say, "I'm absolutely going to do it now." But it's
00:10:29.440 | one of the best strategies to accomplish some kind of life change, life transition,
00:10:34.640 | and to try different ideas, different lifestyles without making a major commitment.
00:10:39.440 | One of the big errors that I see people make is they work at a job, live in a place, and do that
00:10:44.960 | job for many decades, at least traditionally, looking forward to a day of retirement when
00:10:50.400 | they're just ready to quit and enjoy the fruit of their retirement. And there are many people
00:10:54.960 | who have done that. But if you look at the experiences that many of those people report,
00:10:59.280 | it's all across the board. And in general, the people who retire successfully are the ones who
00:11:04.640 | don't just simply quit work, quit a job they don't like, but rather they are ones who are
00:11:09.280 | retiring to something. So the traditional model of years and decades in a certain industry or
00:11:14.000 | a certain company can work very well. But it also puts a lot of pressure on a person to get it
00:11:19.520 | exactly right. Now, some people, they're thrilled with their decision. But I think a lot of people
00:11:25.440 | would be better served with pursuing some kind of sabbatical strategy, some kind of testing strategy.
00:11:30.640 | And one of the big mistakes that you can make with any aspect of business development or
00:11:35.200 | financial planning is to commit yourself too deeply unnecessarily. You wouldn't,
00:11:39.920 | you'd be unwise, for example, if you've never lived in Dallas, Texas, you would be unwise if
00:11:44.800 | you're living in Washington, DC, to buy a house in Dallas, Texas, to move to your house when you
00:11:49.440 | haven't actually been there. That's why we generally advise if you're going to move to a new place,
00:11:53.120 | just go rent a place till you figure out what neighborhoods you like and what part of the city
00:11:56.880 | is has the better traffic and where are the kind of people that you like to be with, where do they
00:12:01.680 | hang out. So you go and you test, you rent a house for a year, then if you want to buy a house,
00:12:06.720 | you buy a house. Well, a similar thing can happen with jobs and career changes. If you're interested,
00:12:11.440 | for example, I've always said if I were going to start a restaurant, I wouldn't go and spend
00:12:15.600 | the hens or hundreds of thousands of dollars leasing a building, buying all the equipment,
00:12:19.600 | etc. I would go and get some jobs in a restaurant because it's a lot cheaper for you and easier and
00:12:24.800 | more effective for you to go and learn on somebody else's dime for six months or a year and get the
00:12:31.520 | inside view. You will never get the actual inside view on something as well from simple research as
00:12:38.240 | you do from going and being involved. So a similar thing can come in with something like trying out
00:12:43.520 | a retirement lifestyle or trying out a move. And so a sabbatical is a word, it's of course an
00:12:48.880 | honored word that comes primarily from academia, but it's a word that people understand and it's
00:12:53.520 | a neat way for you to position yourself tentatively into some kind of life change without making a
00:12:59.360 | full and deep commitment. And a sabbatical strategy can have a number of interesting
00:13:04.800 | benefits for you, especially interesting financial benefits. You heard Hill talk about making a Roth
00:13:10.400 | IRA conversion. If you have enough money saved that you can live on, then you can safely and
00:13:16.480 | effectively go to a place, you can even go to a place that has high income taxes. And if you're
00:13:21.040 | just living on savings, you won't wind up paying high income taxes in that scenario. Or you can do
00:13:25.920 | a strategy of converting some of your IRA dollars to Roth IRA dollars because you don't have a high
00:13:30.240 | earned income. And so you're at the very lowest tax bracket to make that conversion depending on
00:13:34.800 | the specific details. And now that can be a very financially effective thing for you to do. Or you
00:13:40.640 | can do it as a strategy. Let's say that you're going to go and get some additional schooling.
00:13:44.160 | Well, if you go to school while you're working and apply for need-based financial aid, you have
00:13:49.440 | to report a high income. It's a lot easier if you can simply report a low income or non-existent
00:13:54.080 | income, then you can qualify for more financial aid. So whether it's moving to a place, trying a
00:13:59.840 | place out, financially, there are lots of little wrinkles that you can use to enjoy a certain
00:14:04.800 | lifestyle without making a long-term commitment. Another way that you could use a sabbatical is as
00:14:09.600 | an opportunity to adjust your lifestyle. For example, let's say you've always been intrigued
00:14:15.440 | with the idea of being a hardcore minimalist, living out of a backpack, but you're not quite
00:14:21.120 | ready to tell everyone, "You know what? I'm going to sell my house. I'm going to sell my car,
00:14:25.920 | and I'm going to go and live out of a backpack." But you can solve that problem if you say,
00:14:29.760 | "I'm going to go on sabbatical, and I'm going to go and live here for a time. I'm going to go and
00:14:34.160 | do this travel thing. I'm on sabbatical." People understand the word. And so now you can rent out
00:14:38.320 | your house. You can put your car in storage or lend it to somebody, and you can try the lifestyle
00:14:44.240 | out without being fully committed. And so by making the social pressure a little bit simpler,
00:14:48.880 | you may be able to do something that otherwise you wouldn't have the courage to do. In addition,
00:14:53.440 | financially, there can be neat ways to do it. So if you watch markets and you try to get a
00:14:58.480 | sense of moving in time with the market, let's say that you bought a house five years ago,
00:15:02.560 | and the house has served your needs well for the last five years, but you think you'd like
00:15:06.160 | to do something different. Well, think of it like a sabbatical. Sell the house, take the tax-free
00:15:11.200 | gain, if you have some, sell the house. But instead of immediately jumping into the marketplace,
00:15:15.920 | go and take a sabbatical. Go to the other side of the world or go to another state and rent a little
00:15:19.680 | apartment somewhere, and then come back to your home community in a year or two, maybe the real
00:15:24.240 | estate market has had a correction, and buy something else or change your situation. Similar
00:15:28.720 | things with jobs. It's very... and especially if you'll just simply build a good story so that you
00:15:34.560 | can explain a gap in your work experience. I took a sabbatical, and I went to Italy, and I studied
00:15:40.240 | wine in Italy. Or I took a sabbatical, and I went and I volunteered with this not-for-profit
00:15:46.400 | organization that's saving the trees. And the great thing about that is when you can explain
00:15:52.320 | what you're doing, you don't have to have all the details. So let's say that you got laid off,
00:15:56.720 | right? Or you think you're going to get laid off. Like, it being laid off can be its own unique
00:16:00.240 | financial strategy to try to take advantage of the severance pay. But if you'll go and just simply
00:16:04.560 | say, "I'm quitting this job," and you go and you volunteer a few hours a week for the saving the
00:16:09.440 | trees organization. Meanwhile, you're spending your time studying and positioning and building
00:16:14.320 | your brand so that you can transition into another career. You can honestly say, "I was volunteering
00:16:20.160 | with a Save the Trees organization and taking a sabbatical." And now you don't have that same
00:16:24.320 | problem with a hiring interview of defending, "Why were you unemployed for a year?" And then
00:16:29.200 | finally, from the perspective of early retirement, getting a sense of what the lifestyle can be like
00:16:34.240 | in the same way that Hill talked about. Getting the sense of what it's like to own your time
00:16:37.920 | can help you to get some insight into the best plan forward for you. I know for me, I can't imagine
00:16:45.840 | wanting to not be productive. But what I seem to find is that three, four, five, six, seven,
00:16:52.640 | something in that range, like the five-year range, is a really nice amount of time for me to engage
00:16:57.280 | in an industry and engage in a topic. Then I feel like, "Okay, I've got the hang of this." And then
00:17:03.120 | a break would be nice. And then I can move on to something else because I enjoy the process of
00:17:06.640 | learning. And so you can go and say, "Well, I'm not sure I want to quit, but I'm just going to
00:17:10.880 | take a year." And along the way, you might find a creative opportunity. You might find the right
00:17:15.920 | organization that you want to work for or the right kind of job that you would actually really
00:17:19.520 | enjoy that would give you a nice lifestyle. Or you decide, "No, I actually want to just cut my
00:17:24.000 | expenses a little bit and live on my savings." So a sabbatical strategy, I think, is an incredibly
00:17:29.040 | valuable strategy for you to always have in the back of your head. And whether you do it proactively
00:17:34.560 | because, "Hey, I'm going to do it this year," or whether you do it reactively, such as, "I just
00:17:39.120 | got laid off. I'm going to take a sabbatical now." That's up to you. But if you at least have it
00:17:43.440 | there as an idea and you think about what you would do in a sabbatical, you're more likely,
00:17:49.440 | I think, to make a good decision when the opportunity presents itself. So thank you,
00:17:53.120 | Hill, for calling in. We go now to Illinois. Welcome to Radical Personal Finance. How can
00:17:56.640 | I serve you today? Yeah. Can you hear me? Yes. Go ahead, sir. Okay. Yeah. Great. Thanks.
00:18:04.400 | Hey, I just wanted to... I have two questions that are very closely related, and I know you
00:18:08.960 | will have some insight because it's about schooling my children. We're done with public
00:18:14.720 | school. We're sick of it in Illinois. And we're trying to decide between a private Christian
00:18:21.120 | school. There's a couple of really good options. And then, of course, homeschooling. I think I
00:18:27.840 | prefer homeschooling, but the logistics of our life might make it... I'm not sure if it's totally
00:18:32.800 | doable. So one thing I wanted to ask you is just kind of maybe your thoughts on how to maybe make
00:18:39.040 | it doable. Then the secondary question would kind of be if we'd go that route, if you could provide
00:18:45.280 | some guidance to maybe help us cut through all the multiple choices of things that are out there
00:18:49.840 | as far as home education. Sure. Yeah. Absolutely. How old are your children?
00:18:55.040 | That's a quick summary. Yeah. They're currently eight and nine or eight. Sorry. They're currently
00:19:01.040 | six and eight, getting ready to be seven and nine. They're in first and third at public school,
00:19:06.240 | and next year, of course, will be second and fourth. Okay. So the first thing is you should
00:19:10.880 | feel very relaxed about this subject because your children are only six and eight. They're just
00:19:21.200 | finally at the age at which they should start to be engaging with academics. When I was younger,
00:19:27.920 | one of the things that I have changed my opinion on over the years through a little bit of
00:19:33.040 | experience, when I was younger, I had the same thing that I think all new parents have of saying
00:19:38.960 | I've got to be obsessed with education. I've got to be... Specifically academics. In the United
00:19:43.360 | States, we really have been an academically oriented society. I especially feel extra
00:19:48.400 | pressure being a proponent of home education, that my children have to be the best academics.
00:19:53.920 | I used to read people who would say you shouldn't start academics until seven years old.
00:19:57.920 | Here I was teaching my baby to read and trying to do academics with my three-year-old.
00:20:02.560 | I said, "Well, maybe they're right, but I'm not happy waiting." Well, at this point,
00:20:09.120 | my eldest is six. What my wife and I have just seen so obviously over the last year or two is
00:20:16.800 | just simply everything is what everyone told me, but I didn't believe it's easier if you wait until
00:20:22.400 | the child is ready. There is no such thing as being behind at these young ages. Our second child,
00:20:30.960 | who is four, one of the things that I watch is just simply that they don't have any
00:20:38.000 | proclivity towards academics. Where I would have been freaking out if that were my first child,
00:20:44.800 | at this point, I'm just relaxed about it. I know that everything will change between four,
00:20:48.080 | five, six, seven, and eight. When you're thinking about something like schooling, you should,
00:20:53.040 | at this point, with a six and eight-year-old, they don't need anything. They don't need anything,
00:20:56.720 | literally anything except mom and dad to read to them. That's pretty much enough. You don't have
00:21:02.240 | to fit into this curriculum that, "Okay, by first grade, I've got to learn these things." They could
00:21:06.800 | just simply be with you and hang out. If you read to them, they will learn everything they need to
00:21:10.720 | learn. The second thing that should release you from hopefully some pressure is that you don't
00:21:16.560 | have to make any long-term commitment whatsoever, especially if you're making a transition from
00:21:21.920 | government school to something else. You don't have to know what that right something else is
00:21:27.360 | right now, and you don't have to know what it's going to be two or three years from now.
00:21:31.600 | Most experienced homeschooled families, every year, they look and say, "Have a chat. Well,
00:21:38.000 | what's working? What's not working?" You can change everything out. You can change
00:21:41.760 | from homeschooling to private schooling to government schooling. You can go back and
00:21:45.360 | forth every which way you need to go. You can change on a year-by-year basis. You can change
00:21:49.520 | curriculum. You can change anything that you need to change. You should be relaxed about this. It's
00:21:55.040 | only in a hyperacademic world that causes parents to feel, "I got to get this figured out." You got
00:22:00.400 | a six-year-old and an eight-year-old, there should be no pressure whatsoever. Let's start on a tone
00:22:06.400 | of relaxed and think about what's in the best interest of our children, not on the tone of,
00:22:10.640 | "I've got to produce this academic superstar." What are the actual logistics that would make
00:22:18.160 | homeschooling difficult for your family that you were alluding to?
00:22:20.800 | Yeah. My wife and I both work full-time primarily is the main thing. The thing about it is that
00:22:30.160 | we have pretty great jobs that we really enjoy and that allow us a fair amount of free time.
00:22:37.200 | I'm a firefighter. I work every third day. Really, it's eight 24-hour shifts a month. I'm home a lot.
00:22:42.320 | Then my wife works four days a week. We've never really needed other people to watch our kids too
00:22:48.720 | much, maybe one or one and a half days a week. If we're doing homeschool, we'd have to either
00:22:54.880 | hire somebody, a nanny or a family member or something to take over on the day and a half
00:23:00.560 | we're not here, or my wife would have to quit working, which she doesn't totally want to do.
00:23:06.640 | It would mean the massive lifestyle change, moving, all that stuff that would be the opposite of what
00:23:13.760 | you just advised, which is, "Hey, take it slow one year at a time." I'd hate to totally uproot
00:23:18.160 | our family and cut our income in half and her in her career if we're like, "Oh, man,
00:23:23.200 | homeschooling is not for us." How much is your income and how much is her income?
00:23:29.440 | I make close to $80,000 and she's in the mid-60s and has really good benefits too. She works for
00:23:37.680 | the federal government. Okay. The first thing is, yes, there's no obvious path. If your wife were
00:23:45.840 | making $30,000 a year, then it would be obvious. It would be, of course, she should just simply
00:23:51.280 | quit. Now, at a higher income, there's a higher price to you and to your family and to your
00:23:57.840 | income goals based upon that. That's where you would have to have a deeper conviction that you
00:24:05.600 | know exactly the path to go forward in and see why that is a good option to be willing to walk away
00:24:13.040 | from a $65,000 income. I don't think that's necessarily necessary, but I'll just simply give
00:24:20.560 | you a couple of things what I have found to be helpful about it. Number one, for you as a husband,
00:24:28.720 | if your wife is a stay-at-home mom, that decision can be one of the most luxurious lifestyle
00:24:34.960 | decisions that you can personally enjoy. I don't understand. A lot of times, husbands put tons of
00:24:42.000 | pressure on their wives and say, "You've got to make more money." I used to do financial counseling
00:24:45.920 | with people and they would be like, "You've got to make more money because we need more income for
00:24:48.320 | the household." I find I have, ever since my wife quit her job, I have never regretted that a day.
00:24:54.480 | And I cannot imagine the amount of money that she would need to make why I would want anything
00:24:58.800 | different. Because life, when you have full control over your family lifestyle, and there
00:25:04.720 | are a few things. Number one, in your case, you'll obviously have the constraints of your job unless
00:25:11.600 | you go to something that provides you with more freedom. But when you only have one vacation time
00:25:16.320 | to schedule, when you only have one boss to report to, it leads to so much more relaxation in your
00:25:22.800 | family than when you're trying to juggle two. Juggling two jobs, juggling vacation, and lining
00:25:27.440 | it all up with that is a very stressful thing. And especially if you go to homeschooling. One
00:25:33.600 | of the things I love about homeschooling is that we don't have to report to anybody. Now, in our
00:25:37.760 | case, one of my highest priorities is freedom. And so we've been able to build a lifestyle of
00:25:42.800 | basically complete freedom where I have nobody that I'm accountable to on a daily basis, which
00:25:46.960 | is really nice. My wife has nobody that I'm accountable to, that she's accountable to on a
00:25:51.520 | daily basis. And my children have no fixed schedule or no fixed accountability on a daily basis. So
00:25:57.120 | that means that we have full control over what we do. Now, we're driven. And so we have a schedule,
00:26:04.480 | and we've got an hour by hour schedule. We're not unscheduled people. The kids are on a schedule,
00:26:08.800 | my wife is on a schedule, I work on a schedule, etc. But when the opportunity presents itself,
00:26:13.840 | we can pivot on a dime. And I can cancel work today, we can cancel school today,
00:26:18.160 | we can come and go. And that is an incredible luxury. And it's also a luxury with being able
00:26:24.320 | to enjoy all the little things together. You know, my wife and I go together to so many events. And
00:26:30.560 | so instead of it being this constant juggling of, okay, you got to do this, and I got to do that,
00:26:36.480 | because I got an hour off here and another hour there, etc. It's just, it's awesome. It's so nice
00:26:42.320 | to have that life freedom. That is really, really nice. The other thing is simply that when you are
00:26:49.680 | freed up to focus on the children, and when you're freed up, especially if your wife is freed up from
00:26:57.440 | the stress of the job, having that always in the back of her head, it can change her ability to
00:27:02.400 | mother effectively. Where instead of having to worry about keeping current, keeping at the cutting
00:27:07.840 | edge of her industry, and also being a mom, which is the situation that most working mothers are in,
00:27:13.440 | she can just simply focus on the things that are right for the children. And she never has to think
00:27:18.000 | and worry about what her schedule is like, etc. Now, those are the two things that I find really
00:27:22.640 | compelling. And then also the cost savings. If you're going to get a high quality education in
00:27:27.920 | a private school, maybe a private Christian school, private school, whatever, it's going to
00:27:31.680 | be minimum... Well, let me ask you, what have you guessed as far as the schools that you've thought
00:27:36.080 | about? What's their tuition? Yeah, we've looked into it, and it would be about $800 a month.
00:27:43.040 | Right. So that's not an insubstantial cost. Now, she'd still be ahead in terms of income if you're
00:27:49.840 | paying for the private school, but it's not an insubstantial cost. So that's what I like about
00:27:55.520 | making the decision to prioritize home life. It's the best freeing decision possible, and I think
00:28:02.080 | it's incredibly important, especially for younger children. Now, eight and six, you're starting to
00:28:06.720 | make a transition now where it can be different. That said, I would be, especially if you haven't
00:28:12.160 | homeschooled, I wouldn't see any reason to make that kind of big jump. Your wife likes her job,
00:28:15.840 | she wants to be involved in it. What I would just do is do the schedule you've done, and then recruit
00:28:20.480 | a family member or hire a caretaker for the children for that day per week, or try to negotiate
00:28:27.840 | it with some kind of co-op arrangement. As we talk in just a moment about the choices for school and
00:28:33.040 | how you work through them, what I think works the best for most people is to be involved in some
00:28:38.160 | kind of community organization as well. So we often draw this dichotomy between, well, you either go
00:28:45.040 | to a traditional classroom school every day, and you're there five days a week, or you do everything
00:28:50.400 | at home, homeschooled. Well, that's not the actual experience of most homeschoolers. Most
00:28:54.560 | homeschoolers are involved in some kind of community group, some kind of co-op, some kind
00:28:59.760 | of two-day-a-week school, something like that. And that seems to be a really ideal structure,
00:29:04.720 | I think, for most people, because they get the benefits of home education while also having some
00:29:12.240 | of those benefits of classes with others, the social contact, et cetera, without it being so
00:29:16.800 | extreme as the full-time model. And so in a situation like yours, if you were to get involved
00:29:22.960 | in some local community, in time it would probably be fairly easy for you to find another family,
00:29:28.320 | and on that day your children go to the house of another family on the day that one of you is not
00:29:34.880 | available for them, and/or hire somebody to come to your home, or a family member, et cetera. And
00:29:40.480 | since you're not sure if you're going to like it long-term, I definitely think that you shouldn't
00:29:44.000 | burn any bridges career-wise, but you should start by testing it and seeing what you prefer.
00:29:49.120 | Right. Yeah, that makes a lot of sense. And we live in a thriving homeschool community
00:29:56.000 | where there's multiple co-op groups, and they're all mostly conservative, Protestant families and
00:30:01.520 | stuff, so I think we'd have a lot of resources there, too. So yeah, that makes a lot of sense.
00:30:06.080 | And I think that also, especially if you are willing to pay, if you have that strong community
00:30:13.360 | of people you know, you like, you respect, you trust, et cetera, first, of course, you can just
00:30:17.840 | simply swap help. I think it's such a relief, especially on a mom, a full-time mom, to have a
00:30:23.520 | day where she can take her children to so-and-so's house and they stay there. That's such a relief
00:30:27.680 | for her. And so you could find somebody that you guys just simply swap some kind of child care,
00:30:33.200 | and/or if you pay and you're willing to pay for somebody to do that, it should be easy for you
00:30:40.000 | in a large, thriving homeschool community to find somebody who's effective, who's competent,
00:30:44.400 | and to say, "Hey, listen, we want to homeschool the children, but one or two days every week or
00:30:49.200 | two, or however the schedule works out, we can't do it ourselves. And so what we need is, would
00:30:55.040 | you be willing for X number of dollars to care for our children on that day?" And there should
00:31:00.400 | be a family that would be happy for that, because there are lots of families who would be really
00:31:05.040 | grateful for a chance to relatively easily earn a little bit of extra money. And your children
00:31:09.680 | would get other benefits, other educational benefits, the input of somebody else, etc.,
00:31:14.000 | into their life. I think that's actually really helpful also in terms of having other authority
00:31:20.000 | figures. One of the challenges that my wife and I have had with our children is teaching our
00:31:25.840 | children to respond effectively to authority that's not simply her and me. And so I've actually
00:31:32.960 | actively sought out other people because of recognizing that my children are not responding
00:31:37.920 | well to other people. I've sought out other teachers and tried to bring them in so that
00:31:42.240 | they understand that you're not the king of the world. You do need to respond to other authorities,
00:31:46.400 | not just dad and mom. And so if you have a family or a couple families that you trust,
00:31:50.480 | I think you would very easily be able to find a solution there.
00:31:54.960 | Yeah, that's good. Well, we've budgeted at least $800 a month for private schools.
00:32:00.640 | Exactly.
00:32:00.720 | So we have that available for that too.
00:32:03.200 | Exactly. Especially also then, let's talk about other logistics of that.
00:32:07.520 | With the logistics of homeschool, and we'll go to philosophies in a minute, but one of the things
00:32:13.600 | that I think is important to focus on and to emphasize is, I'll just speak for me, one of my
00:32:21.040 | goals as a homeschool dad is not to be my child's teacher, but to teach my child how to teach
00:32:29.040 | themselves. Now that's really hard at four, right? Because they can't sit still and they need
00:32:33.680 | somebody to teach them ABCs. But at eight, your eight-year-old is at a point where your eight-year-old
00:32:39.840 | should be able to, at this point, pretty much be able to work their own work. And so depending on
00:32:46.480 | the curriculum that you would choose, let's say that you chose something simple, like a curriculum
00:32:51.120 | that has workbooks, you give your child and you say, "Here is the work that you're required to do."
00:32:56.480 | And the eight-year-old says, "I need to complete my math workbook. I need to complete my reading
00:33:00.480 | workbook. I need to complete this other, whatever you're doing, a writing assignment or a writing
00:33:05.120 | workbook as well." And you know the expectation is that each day you need to do eight pages.
00:33:10.000 | And so what you're doing is basically, you transition the child to say, "You're responsible
00:33:16.240 | just to bring me the eight pages. We're not going to sit and hold your hand. You sit down and you do
00:33:21.120 | work and you do the pages. And when you're done, you're done." And that I think is one of the most
00:33:25.760 | valuable lessons for a child to learn. So even if you are recruiting somebody to be a caretaker for
00:33:31.760 | your child, that person doesn't necessarily have to teach your child, especially your older one.
00:33:35.440 | Your six-year-old may be different, but that person doesn't necessarily have to be a qualified
00:33:39.200 | teacher. They just simply need to be a caretaker. And it's your child's responsibility to do their
00:33:43.520 | work. Once your child can effectively read, there should be diminishing need for a teacher.
00:33:51.680 | Once your child can read and write, their basic need of a teacher is to help guide the materials,
00:33:58.560 | to make sure that they're having materials that are going to stimulate them, that are going to
00:34:02.320 | help achieve their educational goals, sorting through curriculum, seeing what's working,
00:34:06.560 | where they're hitting their head against the wall and making any changes there, and then correcting
00:34:10.240 | some of their work, correcting their written work, correcting their essays. But as far as the actual
00:34:15.360 | teaching, my goal is that they learn how to teach themselves. So you don't need a great teacher. You
00:34:21.520 | just need a safe environment where the child is going to be cared for, protected, have contact
00:34:26.640 | with other people, someone to serve them lunch, and then they can teach themselves on that day.
00:34:31.680 | Make sense?
00:34:32.240 | Does that make sense to you?
00:34:38.640 | Oh, yeah. Sorry, I didn't hear that. Yeah, that makes sense.
00:34:42.480 | Okay. So as far as philosophy, I think there are good arguments to be made in favor of a private
00:34:49.520 | school, a private Christian school, versus a home school. I don't think that homeschooling is always
00:34:55.520 | necessarily a slam dunk. There are opportunities, so there are opportunities that a child can
00:35:00.960 | receive in their education that can be provided by a school that they can't get in homeschool.
00:35:07.280 | You probably are not going to have the same extensive lab equipment for a chemistry lab
00:35:13.360 | in your home as you might at a larger school. Your child is probably going to have a harder
00:35:19.920 | time learning Latin when they're studying it themselves at home versus part of a school.
00:35:25.440 | And so I'm not opposed to private schools. I think they have benefits. My biggest opposition
00:35:31.440 | to private schools is that most of them take the same system as the government school and then just
00:35:37.200 | simply say, "Well, we do it in a slightly safer environment. We have fewer stabbings in class."
00:35:42.080 | Or if it's a Christian school, "We just toss in a little bit of creationism alongside evolution,"
00:35:48.080 | or "We baptize this and we talk about God doing this thing here." But it's very challenging to
00:35:54.000 | find an actual private Christian school that's thoroughly and authentically Christian. And so
00:36:00.720 | I don't—I get very suspicious. I think they exist. But a lot of times you struggle to see
00:36:08.720 | the—I struggle to see the benefit of most private schools. For example, one of the biggest problems
00:36:15.200 | of government schooling is the one-size-fits-all curriculum where children are not treated based
00:36:21.600 | upon their personal interests. They're not treated based upon their personal abilities,
00:36:26.560 | nor is their educational path timed according to their own personal capabilities. They're part of
00:36:32.400 | a class of 20 people. This is the curriculum that we study. Everybody has to do it. And if they're
00:36:38.160 | bright, they're bored, or if they're slow, they're overwhelmed. And so that doesn't—especially in
00:36:43.920 | the early years—I think that that's not a great thing to do. School should be tailored to the
00:36:50.240 | individual needs of the child to the greatest degree possible. Now, can you find teachers
00:36:55.200 | who are going to care for the child and seek to stimulate the bright child, etc.? Of course you
00:36:59.600 | can. But I think the personalized model of education is going to be one of the best.
00:37:05.760 | I've already spoken about self-direction. One of the—as far as I see it—one of my basic goals for
00:37:11.440 | my children's education is that they learn how to learn and that they never have the idea that
00:37:17.360 | learning is something that happens to you. That they never have the idea that my only role is to
00:37:21.760 | go to class, sit in a chair, and listen to a teacher, and then whatever they say, I have to
00:37:26.560 | have that teacher. Children do need good teachers. And even if you homeschool in time, you'll hire
00:37:33.280 | great teachers. You'll hire world-class tutors. You'll hire the people that they need.
00:37:37.840 | But the basic model of schooling—the most important thing—is that a child learns
00:37:42.240 | that anything in the world that someone else has learned, I can learn too,
00:37:45.840 | and that they develop the skill and confidence of being able to teach themselves.
00:37:49.760 | So that doesn't work well in the context of a private school. In addition, the private school
00:37:57.920 | doesn't facilitate the same kind of relationship with mom and dad, especially in the early years,
00:38:02.720 | the most important lessons for a child to learn are not academic. They're character and moral
00:38:07.520 | lessons. So you can adjust and control the moral environment to a high degree by choosing a private
00:38:12.880 | school. So now at least you know that this school is going to maintain these standards. This is
00:38:18.400 | their statement of faith. This is what they believe in. This is what they think is right and
00:38:22.080 | wrong. And so now you can have greater confidence that you can in a government school where you,
00:38:27.120 | your only choice is simply what zip code to live in, and somebody else, without any reference to
00:38:32.160 | you, your desire, your individual beliefs as a family, your moral stance, etc., hires a bunch
00:38:36.560 | of people to indoctrinate your children. You can have a little bit more control, but you still
00:38:40.480 | don't have nearly the same control and the same opportunity to influence morally and character-wise
00:38:46.480 | your children as you do with homeschooling. And I think that in general, I think that another
00:38:53.200 | major problem of many private schools is they're too academically oriented. In my opinion,
00:39:01.440 | we have too much of a focus on academics in the modern American school system and too little of
00:39:07.120 | a focus on practical skills. People say all the time, "Why didn't they teach us about money in
00:39:11.520 | high school?" Well, we could talk about it, but I don't know why, except that they don't. And so
00:39:19.920 | used to be that when you went to school, you would have a shop class or a home economics class,
00:39:24.080 | and I had a great economics teacher who taught about personal finance. But the average student
00:39:29.280 | doesn't go through any kind of mainstream school and come out with any kind of practical skills.
00:39:36.800 | The average student doesn't come out with the ability to earn money. They don't come out with
00:39:40.560 | any kind of real qualification for a job or a business. They simply have a diploma. And the
00:39:45.680 | diploma is so academically oriented that if they're academically inclined, they had a great time. But
00:39:50.960 | if they're not academically inclined, they didn't do much. And so one of the biggest reasons that I
00:39:55.680 | have, why I think that my guess would be that we will homeschool all the way through, although I
00:39:59.840 | reserve the right to change my opinion on that as we see how our children are developing. But one of
00:40:04.400 | the biggest things that I observe is I don't want my children to just have this single-sided focus
00:40:10.160 | on academics. So schooling is such a waste of time because of all of the stuff associated with it
00:40:17.760 | that the child has many more opportunities in homeschooling to develop a diverse array of skills.
00:40:24.080 | If you take the average school day, you know, the child rides a bus, 30 minutes on the bus,
00:40:29.440 | 15 minutes waiting for the bus, they go, you put together all the subjects. There is such an
00:40:34.480 | absolute catastrophic waste of time when the child is waiting on other students,
00:40:38.000 | waiting in all the stuff, being held back, having a study hall here, etc.
00:40:42.560 | Home education is so much more efficient. The average homeschool student probably spends three
00:40:49.760 | hours a day on schooling. And you can do what's done in a government school or even a good private
00:40:56.080 | school in three to four hours a day. And so what I look at it is I say, I want my children to have
00:41:01.280 | time to play. I believe that play is really important. I want my children to have time to
00:41:05.920 | create. And how are they going to have that if they're spending eight hours a day in class doing
00:41:10.640 | work they could finish in three or four? So the better plan, I think, is school at home, get up,
00:41:17.120 | they start school at eight o'clock, by noon they're done with all of the academics. And then
00:41:22.320 | let's take the additional time and focus that on something that's going to be more profitable for
00:41:27.440 | them. So whether that's they're building a tree house in the afternoon, learning how to work with
00:41:31.600 | tools and do construction, whether they're learning how to do accounting and they're
00:41:35.200 | building up a little sideline accounting business, whether they're learning how to,
00:41:38.720 | they got a backyard forge and they're learning how to make blacksmithing stuff and knives,
00:41:43.840 | whether they're learning how to write and they're writing short stories or novels or writing magazine
00:41:48.000 | articles, whether they're writing a blog, whether they're shooting YouTube videos, I don't know.
00:41:52.240 | But there are so many opportunities that it's far better, especially for a nine-year-old,
00:41:57.120 | a 10-year-old, 11-year-old, 12-year-old, it's better to have from 12.30 to 5.30 available for
00:42:03.680 | the development of those practical skills than to spend 12.30 to 5.30 sitting in a class listening
00:42:08.560 | to a teacher drone on and on when they could have just read the book and taught themselves the
00:42:12.720 | subject matter. And so those are some of the reasons why I'm really optimistic about homeschooling
00:42:20.560 | because it just seems much more efficient. And I would just add one more thing.
00:42:23.520 | One of the big benefits of homeschooling also is you get to control the annual calendar. Now,
00:42:29.920 | many homeschool students take summers off and I'm not sure if we'll ever take summers off or not.
00:42:35.680 | People argue that it's a good idea. People argue that you should. But I personally don't see at the
00:42:42.480 | moment why it's of any help to have only 183 days of academic schooling per year. Many teachers,
00:42:52.320 | the counter arguments, people say they should take time off so there's a break for the child.
00:42:56.160 | They should take time off for the refreshment of the family, have a chance to do other things as
00:43:04.720 | well. And I'm fine with those things. But at the moment, I don't currently have any plans to ever
00:43:09.920 | take summers off with the children. And so if you take, and instead of having 180 days of school per
00:43:17.680 | year, you have 230 days of school per year because you don't have that summer break. So you don't
00:43:22.960 | have all the time wasted of pulling down to summer and then all the time of getting the kids going
00:43:28.000 | again. But you just do school year round mixed with vacations, breaks, etc., whatever's necessary.
00:43:34.000 | You can put the child significantly ahead as well. That's another undersung benefit.
00:43:38.400 | So when you take a much more concentrated, focused study time, when you take a personalized
00:43:45.280 | curriculum for the child to have their parents and skilled teachers involved, helping them to
00:43:51.280 | develop a curriculum that's best for them, you take the ability to focus, learning how to teach
00:43:56.080 | themselves, learning how to work day by day, you take the ability to have more time. You know,
00:44:01.920 | if your family works five days a week, fine, have the child do five days a week. In your case,
00:44:04.880 | when it's probably a little bit squirrely, have the child do six days a week. Six days a week is
00:44:09.440 | better than five days a week, especially with your schedules, so that there's more consistency.
00:44:16.800 | And then do it year round with some time for family vacations, a week or two off at the holiday.
00:44:22.480 | And now your opportunity to do academic learning is far beyond what it is in most schools. And then
00:44:29.600 | you add on to it the practical skills, the developing career skills and personal skills
00:44:33.920 | and business skills, etc. With the goal of turning out an 18-year-old who is earning a full-time
00:44:39.760 | income, you have many more options. Final point, I guess I'll make my final argument. I don't know,
00:44:47.040 | because I haven't raised a high school student yet, what this will actually be like when we get
00:44:52.080 | there. I expect to change many things based upon experience. But in my current thinking and my
00:44:57.520 | current seeing and working with some high school students, I don't see any reason why an academically
00:45:02.800 | inclined 18-year-old in today's world shouldn't simply graduate simultaneously with their high
00:45:08.000 | school diploma and a college degree. And when you look at the power of that, with them being able to
00:45:13.920 | do distance learning, to clip out of dozens of classes, to mix it up with an online degree that
00:45:20.320 | gives them a fully accredited bachelor's degree, I think that if you have a child who is good at
00:45:25.840 | academics, that's also something that's well worth considering, whether it's by 18 or 19 or 20. I
00:45:31.440 | don't see any reason why a bright 18, 19 or 20-year-old shouldn't have their college degree
00:45:35.920 | by the time they're 18, 19 or 20. Then if they want to go on and get a master's degree, PhD, great,
00:45:40.800 | they're ahead. If they don't want to go on, they're ahead. And when you bring in, in your case,
00:45:46.480 | you're both working jobs, but when you bring in the context of a family business, when you bring
00:45:51.040 | in the context of helping them to earn income, the arguments are so powerful on the side of
00:45:56.640 | homeschooling that I think it's a real cost to put a child, not just a financial cost, it's a real
00:46:01.680 | cost of worse results and outcomes to put a child into a schooling environment that isn't tailored
00:46:07.680 | to them versus the opportunities of individualized education. So that's my monologue for you.
00:46:13.760 | No, that's good. And obviously I've heard some of your arguments before and
00:46:19.840 | yeah, I think, so we're actually already having our kids work in, I've got a little bit of a
00:46:25.360 | real estate business too, and they're already working in that.
00:46:29.200 | Great. Awesome.
00:46:30.160 | But yeah, so anyway, that just would allow us even more opportunities for that sort of thing,
00:46:35.760 | I think. So that's good too. So, all right. I appreciate it.
00:46:40.320 | My pleasure. Thank you for calling in and may you know God's wisdom as you seek to look at
00:46:45.360 | your family, consider the needs and the interests of everyone involved and the individual needs of
00:46:51.280 | your children. May you know God's wisdom in all of that. We go now to New York, Peter in New York.
00:46:55.680 | Welcome to the show. How can I serve you today? Hi, Josh. How are you?
00:46:59.680 | My pleasure. Doing well, sir. Welcome.
00:47:01.440 | I have a question about modern portfolio theory.
00:47:06.000 | Okay. Is it safe to say if you try to get
00:47:11.920 | investment advice from most CFPs or people working at a wire house or registered investment advisors,
00:47:21.760 | is it safe to say almost all of them are going to give you advice based on your risk tolerance
00:47:28.000 | in accordance with modern portfolio theory? Yes, it is absolutely safe to say that.
00:47:32.160 | And they cannot, they will not be allowed by their firm to give you advice based upon any other
00:47:39.840 | financial theory. Got it. So is it, I don't know if it's worth talking about how that even modern
00:47:48.720 | portfolio theory even came around, but I mean, is it basically safe to say it provides the standard
00:47:55.680 | of care and legal defense for the investment industry when they provide the investment advice?
00:48:00.400 | Yes. And remember that it's all about, basically it's all about not being wrong. Now let's ignore
00:48:07.360 | motivation. Let's assume the best of intentions of everybody and ignore some, ignore motivation.
00:48:14.000 | But when you're dealing with any kind of mainstream large investment firm,
00:48:18.000 | can be a big investment company, big brokerage, big insurance company, any kind of mainstream
00:48:25.040 | brand recognized name, the biggest thing is don't mess it up. Don't mess it up. Because
00:48:31.680 | when a financial advisor is managing assets, there's very little incentive for the financial
00:48:38.800 | advisor to grow assets beyond what the market returns. The number one goal of a financial
00:48:45.200 | advisor is to accumulate assets under management so that they can earn fees on those assets under
00:48:51.040 | management. But there's very little difference of the actual net income of the advisor based
00:48:57.200 | upon whether the assets grow by 4% or decline by 4%. It's just important to keep the client happy.
00:49:03.200 | And the number one way to keep the client happy is to make sure that their returns line up with
00:49:07.680 | everybody else's returns. So what you have in the financial space is you have everybody basically
00:49:14.160 | pursuing the same strategy. The only exceptions to that would be an independent advisor who is
00:49:20.880 | marketing themselves as having some different philosophy. There are plenty of them out there.
00:49:27.040 | But they're not going to be employed at a big mainstream company, a big wire house or a big
00:49:30.480 | company you would know. They're going to have their own independent RIA and/or somebody who's
00:49:35.120 | running a hedge fund. And they're doing their own strategy in some way. But all of the mainstream
00:49:42.560 | stuff is all going to be based upon how do we make sure that we keep the client and basically
00:49:48.640 | getting the market return so that we can keep the client. Now, legally speaking, the standard
00:49:56.240 | of legal duty that the financial advisor owes their client is what's referred to as the prudent
00:50:02.560 | man rule. Now, we can argue about fiduciary standard versus non-fiduciary standard. That's
00:50:07.840 | largely immaterial here. I don't think most advisors, a lot of people disagree with me.
00:50:12.320 | I'm not convinced that most advisors care much about fiduciary standard versus
00:50:16.800 | non-fiduciary standard. I think they just worry about not doing something that's totally wrong.
00:50:22.160 | And today, the prudent man defense is simply going to be I followed the best recognized
00:50:27.360 | portfolio theory and modern portfolio theory is that standard. If you have somebody that deviates
00:50:34.320 | from that and they say, "No, I don't think modern portfolio theory is right. I don't think that this
00:50:38.560 | diversified portfolio of all the asset classes is right. And I'm going to put all my clients into
00:50:43.520 | this thing over here." And then you lose money. Then the client has now a legal case against the
00:50:48.960 | advisor and against the firm. And so they want to minimize that legal risk. And so, especially when
00:50:56.160 | you get into a large firm, the individual advisor has almost no wiggle room for recommending a
00:51:02.000 | portfolio. Now, maybe they can sell a client a stock and say, the client says, "I want to buy
00:51:06.800 | numbers of these shares." Maybe that's still done. But generally, they're just saying, "This is what
00:51:13.680 | our company is doing. And let me tell you how it works in terms of insight. When I was a financial
00:51:19.040 | advisor, I was a fully licensed fiduciary financial advisor representing portfolios for my clients.
00:51:25.840 | And so the process works like this. The first thing you do is you bring the client in and you
00:51:30.960 | conduct a needs analysis of the client's needs and goals. Then you prepare a financial plan
00:51:36.480 | that illustrates to the client what their needs and goals are. Now, a good advisor is going to
00:51:41.760 | look at that financial plan and say, "Is there a way that we can get what the client needs? Is the
00:51:50.320 | portfolio going to get this?" But you cannot play with investment return rates. Your software
00:51:55.520 | basically doesn't even allow it. You can say the person is an aggressive investor, and it'll allow
00:52:00.400 | you to put in 6.8% rate of return instead of 6.3. But you can't say, "I'm going to earn 12% here."
00:52:06.720 | The software is constrained by your firm to do what the firm's actuaries think the portfolio will
00:52:15.680 | do. So you present a financial plan, and then you give an idea of whether or not the results are
00:52:20.960 | feasible. Then the client says, "Okay, I'll move my money over to you." You make your sales pitch
00:52:27.040 | as to why you think that client should work with you. Well, the first step is you create, you do a
00:52:34.800 | risk profile questionnaire. The risk profile questionnaires are all the same across every
00:52:39.120 | industry. It's the same that you do online with your online brokerage as you do in person. Some
00:52:44.560 | have 10 questions, some have 12. At the end of the day, it's going to spit out for you based upon
00:52:49.760 | how the client answers the up and down volatility questions, and largely based upon the time horizon.
00:52:56.240 | How many years are you before you need this portfolio? And how many years are you going to
00:53:00.640 | be taking distributions from the portfolio? It's going to spit out about the same answer,
00:53:04.720 | and just about everybody is going to be a balanced or a moderately aggressive or a moderately
00:53:08.960 | conservative. The questionnaires generally don't allow somebody to be aggressive, and they generally
00:53:14.240 | don't allow somebody to be very conservative, unless the person is intentionally answering the
00:53:20.160 | questions to force that. So I could force a questionnaire to give me an aggressive portfolio,
00:53:25.920 | but if you're just answering honestly, they're always going to come out in the middle.
00:53:29.760 | So you create the portfolio, you match it up, the firm gives you a set of portfolios, and they say
00:53:34.480 | here's a portfolio that works for an investor who is interested in this particular risk profile.
00:53:43.120 | And you choose your portfolio based upon the platform that you want to use. So if you want
00:53:48.080 | to use a certain mutual fund company, and you want to use class A shares of a mutual fund,
00:53:53.280 | you have your model portfolio for that mutual fund company and for that share class. If you're going
00:53:59.200 | to do a managed portfolio, then you have your various managed portfolios based upon which one,
00:54:04.720 | what benefit you're trying to get. If you're going to use a variable annuity, you have your model
00:54:10.960 | portfolios and your variable annuity. Every single different product just simply has the model
00:54:15.200 | portfolios. And so you as an advisor, you're not a daily portfolio manager, you're a financial
00:54:20.720 | advisor, you're not a portfolio manager. So you choose the portfolio that's going to match up with
00:54:27.120 | the investor's risk tolerance. Then you submit the paperwork through to your firm, and your
00:54:33.440 | compliance officer looks at it very carefully. They look at the application, they look at the
00:54:38.240 | risk profile questionnaire, and they make sure that the portfolio that you are assigning to the client
00:54:43.600 | is going to be lined up with that risk profile questionnaire. Because if the client has
00:54:50.240 | completed a risk profile questionnaire, and if the portfolio that's offered has been reviewed by the
00:54:56.160 | portfolio managers, and it comes to it's a good portfolio, it follows all of the rules of
00:55:01.920 | modern portfolio theory, it's been looked at, understood, considered, etc. They'll let it go.
00:55:07.680 | And there's no legal liability. There's no legal liability in that case for the advisor or for the
00:55:13.680 | firm, because they're recommending what's the current professional standard. If your portfolio
00:55:19.920 | doesn't match the risk profile questionnaire, at least by within one, you get a call from your
00:55:25.200 | compliance officer. So you can't have a person that has a risk profile questionnaire of moderately
00:55:30.720 | conservative, and then put them in aggressive portfolio. You have to go back and fit in. No,
00:55:35.200 | it's just not even going to be allowed. And so that's the process. And if it goes through, then
00:55:41.520 | you put the portfolio in place. And then hopefully, if you're a good financial advisor, you're working
00:55:45.920 | really hard to serve the client, to help them to earn your money by helping to control their
00:55:50.560 | behavior, keeping them invested, making sure that things are doing well. But at the end of the day,
00:55:55.120 | you're going to get basically the same portfolio from any mainstream financial advisor with any
00:56:02.240 | mainstream company, because that is the current standard. >> Got it. Yeah, I've been getting some
00:56:13.680 | sort of second opinions on what I'm invested in. And I'm realizing very quickly that everyone I get
00:56:20.720 | a second opinion from, it's all going to be the same thing. And that's not the advice I was looking
00:56:26.000 | for. >> Right. Yeah, you're not going to get a second opinion on your portfolio that's any
00:56:33.360 | different from any large company of one company versus another. Now, that's not to say that
00:56:38.800 | they're wrong, right? There's good arguments in favor of this approach to investing. There are
00:56:44.400 | good arguments. And I'm not sure they're wrong. I'm not sure they're right. But you're not going
00:56:49.280 | to get any major difference from one company to the next. Because the key thing is for you to know
00:56:54.640 | that those financial advisors are not investment experts. They may have experience, but they've
00:57:00.480 | read the same books that you can read. They've just simply taken a test. And when you take the
00:57:04.400 | licensing exam, you're taught modern portfolio theory. You have to understand that because
00:57:08.320 | that's the current standard. The only way you're going to get a different answer is if you're
00:57:13.280 | talking to somebody who has their own investment philosophy, and they're passionate about their
00:57:19.520 | investment philosophy. And that person is not going to be at a big company. They're going to
00:57:24.960 | be at a registered investment advisor running their own, or they're going to be part of a small
00:57:29.200 | investment firm somewhere. But they have their own opinion, their own ideas. And they're willing to
00:57:34.640 | say, "This is how I run a portfolio, and this is why it's different." And they'll lay out their
00:57:39.440 | story for you as to what they think. You would have to assess their story and say, "Do I believe
00:57:45.200 | that this is the right story for me?" But they're not going to be at a big mainstream company.
00:57:50.080 | The only thing that you can expect from differentiation from a big mainstream company
00:57:54.160 | is, first, is there a difference in the basic costs of the platform? For example,
00:58:01.760 | if the obvious thing is if you are working with an advisor who is recommending passive mutual
00:58:07.600 | funds instead of active mutual funds, there's going to be a major cost difference of the
00:58:10.720 | underlying expenses and fees. Or if you're working with a wealth management company that will allow
00:58:16.960 | you with your $5 million portfolio to own individual stocks, and they'll model the portfolio,
00:58:22.160 | they'll model an index on individual stocks, how much is that worth to you? And then the
00:58:27.120 | individual financial planning advice of the advisor is also going to change. The product
00:58:31.520 | suite that they like and that they're comfortable with, you talk with somebody at an insurance
00:58:35.200 | company, you're going to have more insurance products in your plan than somebody who doesn't
00:58:39.440 | do insurance. If you talk to somebody who is an expert tax planner, you may get more tax ideas
00:58:47.920 | than you would with somebody else. If I went back into mainstream financial advice, I would do what
00:58:53.120 | I do on the show here every day, but I still wouldn't be able to control somebody's portfolio.
00:58:57.760 | That's just not me. So somebody would get much higher level of advice from me because of my
00:59:03.600 | interest in financial planning, but their portfolio is going to be the same because
00:59:06.880 | there's not an answer to that in the modern mainstream financial space that I'm aware of anyway.
00:59:12.320 | Got it. Got it. Can I ask you one very quick follow-up question to that?
00:59:20.000 | Yes, go ahead.
00:59:20.560 | Is it safe to say that most of what they're trying to do with modern portfolio theory
00:59:28.480 | is keep people from selling out of their equity positions when the market tanks?
00:59:33.440 | And by that, I mean, if the money's in there for the long term and you've got equity positions,
00:59:39.120 | and you're not going to freak if 2008 happens again, and you don't want a bond allocation,
00:59:43.680 | is that really all they're trying to mitigate is the emotional aspects of the investor selling low?
00:59:50.640 | I'm not sure that it's so much the emotional aspects, but rather trying to say that...
00:59:57.200 | So the basic theory of modern portfolio theory is going to be based upon that investment curve
01:00:03.600 | to say that if we get together the right asset classes in the right proportion, we can have the
01:00:10.000 | lowest volatility as measured by the up and down, the standard deviation of the portfolio,
01:00:14.480 | and the highest cumulative return. And so by putting these classes together and scientifically
01:00:21.280 | analyzing them, we're getting the very best. For every bit of volatility that you as an investor
01:00:28.320 | are willing to sit with, we're going to give you the maximum return by adjusting our portfolio
01:00:34.080 | of stocks versus bonds, large cap, medium cap, small cap, international versus different bond
01:00:39.760 | portfolios, bring in some precious metals, bring in some real estate, etc. And so we're giving you
01:00:44.720 | the best possible return that you can get with the lowest volatility. And it's not so much managing
01:00:50.400 | emotions. It's a provable concept that if you have the right asset classes and the right
01:00:55.760 | mixture of those asset classes, you can get with modern portfolio theory a portfolio that has the
01:01:02.800 | highest historical probability of delivering the return that you want with the lowest volatility
01:01:10.160 | that you can handle. And I think that makes sense. That's where modern portfolio theory
01:01:14.080 | makes a lot of sense. That said, you're hitting the nail on the head to say that,
01:01:20.000 | but I'm not sure that I necessarily want to have my conservative portfolio. And this is one of the
01:01:26.400 | things that I think that a good advisor can do a good job at. I have convinced many people
01:01:32.240 | to keep their investments invested very so-called aggressively, because I point out to them that
01:01:37.920 | you don't need these investments right now. You're working, you have a business, you're not going to
01:01:41.360 | spend the money. So if you can just discipline yourself to sit tight, go ahead, invest for a
01:01:48.000 | higher long-term return. And then with good financial planning, you put in place savings,
01:01:52.160 | you put in place an income portfolio, you should be able to get more long-term growth.
01:01:59.360 | And then when you get down to it, at the end of the day, it all comes down to what your plan
01:02:07.600 | offers you in terms of what story you think the world is going to tell in the future,
01:02:13.440 | and then how that fits up with your personal income needs. So if you're investing and you're
01:02:18.320 | saying, "I'm going to retire today and I'm going to live on my portfolio," you can't handle nearly
01:02:23.280 | as much volatility as somebody who's working, who's planning to always create income, and who's
01:02:27.760 | investing for the benefit of their great-grandchildren. And so if you understand modern portfolio theory,
01:02:34.080 | then you can go back to the individual investor and you can try to coach the investor to a different
01:02:38.240 | choice. Got it. Anything else? That's it. That'll do it. Thanks so much. All right,
01:02:49.200 | thank you for calling in. That is our last call for today's podcast. I would simply say that
01:02:54.880 | it behooves you to become an expert at your money and to use professionals for the things
01:03:03.200 | that professionals are good at, but not to expect professionals to be good at the things that they
01:03:08.000 | don't do. And so one of the things that I've always tried to do is, especially with my experience in
01:03:13.600 | the financial industry, is be very honest about where financial advisors bring a lot of value
01:03:19.920 | and where they don't. Don't take what I said—I believe that financial advisors bring a lot of
01:03:25.360 | value or can bring a lot of value. So don't take my comments about the portfolio selection to say
01:03:31.920 | that you should become an anti-financial advisor person, that I'm just going to be a do-it-yourselfer
01:03:36.480 | and advisors have nothing to add. But don't expect an advisor to add value in a place where it's
01:03:43.680 | clear from conversations or from their firm structure, etc., that they can't add value. Don't
01:03:49.520 | expect that. It's not going to happen. So take advisors for where they're good and then fill in
01:03:55.040 | the areas with your own personal knowledge and study for where your particular advisor is weak.
01:04:00.960 | As I close today's show on the topic of education, I want to invite you to come and take a look at my
01:04:07.840 | recommended reading list. I've put together a book list. It's called Joshua's Financial Freedom
01:04:12.240 | Book List. There are 12 books on that list, but I think that if you read through my list of 12 books,
01:04:18.560 | you will have an incredibly strong understanding of the different aspects of finance and a really
01:04:24.720 | good foundation to build on. It is impossible to put together a book list that would answer
01:04:28.720 | every question. There's so many good books that I left off the list. What I try to do is create a
01:04:33.280 | list that for an individual who doesn't know where to start, doesn't know what they've got,
01:04:38.080 | they could come and could start reading, go in the order that I recommended to you, and you could
01:04:43.600 | educate yourself about what you need to know in the financial space to put yourself on a plan
01:04:48.240 | towards financial freedom in 10 years or less. If you are interested in that book list, go to
01:04:53.440 | radicalbooklist.com. Again, radicalbooklist.com, enter your name and email, and I will send you
01:05:01.600 | that book list. Radicalbooklist.com. Radicalbooklist.com. Thank you.
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