RPF0683-Friday

00:00:00.000 | It's Friday and that means live Q&A.

00:00:20.560 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:23.520 | skills, insight, and encouragement that you need to live a rich and meaningful life now

00:00:27.520 | while building a plan for financial freedom in 10 years or less.

00:00:31.160 | I didn't get it out in one breath.

00:00:32.960 | I'm losing my skill.

00:00:35.600 | Today it's Friday and that means live Q&A, just like talk radio.

00:00:40.240 | Any Friday that I can, which has not been as many as I wanted to, we do live Q&A.

00:00:52.520 | I open these shows up to any of the patrons of the show, which are people who sign up

00:00:56.480 | to support Radical Personal Finance on Patreon.

00:00:58.880 | If you would like to do that, you can go to patreon.com/radicalpersonalfinance.

00:01:01.400 | If you sign up on patreon.com/radicalpersonalfinance to support the show, then you get access to

00:01:08.040 | these call-in shows.

00:01:09.440 | It works just like call-in talk radio, where any listener can call in and we chat about

00:01:15.000 | whatever the listener wants.

00:01:17.120 | It can be comments on the show, it can be specific questions, it can be ideas, et cetera.

00:01:22.400 | We begin with Andy in Indiana.

00:01:25.120 | Andy, welcome to Radical Personal Finance.

00:01:27.760 | How can I serve you today, sir?

00:01:29.880 | Hi, Joshua.

00:01:30.880 | Thanks for taking my call.

00:01:33.760 | I am curious how you would encourage building career confidence when you don't have a lot

00:01:41.600 | of time to spend building a successful side job and/or don't want to make the costly decision

00:01:49.920 | of lowering your income by switching to a near career field that I'm not qualified in

00:01:54.600 | yet.

00:01:57.600 | You are in a career currently.

00:02:00.000 | You are gainfully employed, but in your current career, you don't feel like there's much potential?

00:02:06.240 | What's the problem you're facing?

00:02:09.720 | I get the impression from you and other people that I feel like you feel as though you could

00:02:15.240 | lose everything, walk out and in a year be making the same money you're making now and

00:02:20.960 | very confident that you have marketable skills that you could use in lots of different places

00:02:25.680 | and always be able to earn an income doing what you're doing.

00:02:30.360 | My job, I make good money.

00:02:32.360 | I'm in a union, so I feel like probably making more than my skills and services are necessarily

00:02:40.000 | worth.

00:02:41.120 | I would like to not feel that way and have more backup plans and confidence that I could

00:02:47.240 | get a good job anywhere making the kind of money I would like to make.

00:02:52.080 | I don't want to just quit my job and go cut my income in half and do that to my family.

00:02:56.760 | I also don't want to get two jobs and work 90 hours a week and never see my family.

00:03:02.720 | Right.

00:03:03.720 | Yeah.

00:03:04.720 | Okay.

00:03:05.720 | I understand a little bit more.

00:03:06.720 | I think one of the differences would be the kind of skills that one person has versus

00:03:15.760 | another.

00:03:17.040 | So it sounds like your primary work is in kind of a skilled trade.

00:03:21.480 | Is that right?

00:03:22.480 | Yes.

00:03:23.480 | I kind of on the less skilled end of the skilled trade, but yes.

00:03:29.760 | Okay.

00:03:30.760 | So that's a big difference versus the kind of skills that I usually think of that come

00:03:34.440 | from my personal skill set.

00:03:36.280 | So I've always been interested in business.

00:03:39.400 | And the thing about business in and of itself is that every business works about the same.

00:03:50.000 | There's just different kinds of products or different kinds of services that's actually

00:03:54.380 | being sold.

00:03:55.740 | But at its core, Google is exactly the same as Hewlett Packard is exactly the same as

00:04:02.680 | a big steel company.

00:04:04.600 | In the fact that there's a product that's being sold to a customer for a profit.

00:04:10.320 | And then there are various business functions that can be applied along the way.

00:04:14.960 | A business is in terms of its definition, a business is a repeatable process that creates

00:04:21.920 | and delivers something of value that other people want or need at a price they're willing

00:04:27.260 | to pay in a way that satisfies the customer's needs and expectations so that the business

00:04:32.460 | brings in sufficient profit to make it worthwhile for the owners to continue operation.

00:04:37.340 | Credit to Josh Kaufman for his excellent definition of business that I have just told to you.

00:04:44.800 | So that's the definition of a business.

00:04:46.840 | I'll repeat, a business is a repeatable process that creates and delivers something of value

00:04:52.640 | that other people want or need at a price they're willing to pay in a way that satisfies

00:04:57.460 | the customer's needs and expectations so that the business brings in sufficient profit to

00:05:01.960 | make it worthwhile for the owners to continue operation.

00:05:05.700 | So I consider myself to be competent in business.

00:05:09.840 | And when I think about skills, I immediately go to those different aspects of the marketplace.

00:05:16.820 | And so, and just to kind of continue Kaufman's way of analyzing it, he defines those as being

00:05:23.640 | the five basic parts of a business.

00:05:26.440 | There's value creation, which is discovering what people need, want, or could be encouraged

00:05:31.540 | to want, and then creating it.

00:05:33.700 | That's the process of value creation.

00:05:35.180 | Again, discovering what people need, want, or could be encouraged to want, and then creating

00:05:40.900 | it.

00:05:41.900 | The second function is marketing.

00:05:43.600 | Marketing is attracting attention and building demand for what you've created.

00:05:48.540 | Then the third function of business is sales, turning prospective customers into paying

00:05:52.580 | customers by completing a transaction.

00:05:55.360 | The fourth function is value delivery, which is giving your customers what you've promised

00:06:00.180 | and then ensuring they're satisfied with the transaction.

00:06:03.380 | And then the fifth function is finance.

00:06:05.340 | And finance is making sure that a business is bringing in enough money to keep it going

00:06:08.580 | and then to make the effort worthwhile.

00:06:10.060 | It's got to be profitable enough for the owners to want to actually continue being involved

00:06:13.900 | in the business.

00:06:15.300 | So if you understand those five basic functions of every single business, then you now have

00:06:21.740 | a blueprint to drive on.

00:06:24.500 | And so one of the things that I teach when I'm teaching career planning is I teach that

00:06:29.460 | you want to develop economically valuable skills.

00:06:32.660 | So economically valuable skills are going to be skills that are tightly related to one

00:06:36.960 | of those five areas of a business, most likely.

00:06:41.580 | And so when you develop those skill sets and you understand how a business operates, then

00:06:46.060 | it gives you the personal confidence to be able to move out of one business and move

00:06:50.380 | into another business.

00:06:52.100 | Simple example from my story.

00:06:54.600 | One of the reasons I went into insurance and investment product sales was I wanted to learn

00:06:59.440 | how to sell.

00:07:00.840 | Because once you know how to sell and you understand the process and the dynamics and

00:07:04.820 | the tools and the techniques of selling, that's now a skill set that can be applied to any

00:07:10.020 | business.

00:07:11.020 | So today, since once I learned how to sell, once I learned how to deal with the emotions

00:07:14.860 | of being a salesman, once I learned how to deal with how the funnel works and how you

00:07:19.580 | develop leads, how you solve needs, the core functions of selling, which are really well

00:07:25.260 | defined at this point in time, that's a skill set that I could take from selling life insurance

00:07:30.580 | and I could move it to selling property and casualty insurance.

00:07:33.420 | Or I could move it to selling mutual funds, or I can move it to selling real estate, or

00:07:37.860 | I can move it to selling yachts, or I could move it to selling rural farmland, or I could

00:07:42.500 | move it to selling high-end watches, or I could move it to selling anything, you know,

00:07:48.900 | giant 747s, they don't make those, 787s for Boeing.

00:07:53.500 | It's all sales and it's the same basic process, you just have a slightly different marketplace.

00:07:58.780 | And so once you learn those skills in one place, you can now go and take those to another

00:08:04.980 | place.

00:08:05.980 | Now, one of the things that I have done over the last few years is I've been building digital

00:08:11.020 | sales skills, which are every bit as translatable, if not more so than those other sales skills.

00:08:17.220 | And so if you break down the sales process of a digital business, an internet business

00:08:21.260 | like I'm engaged in right now, you can break it down into attracting an audience, building

00:08:27.340 | products and services, developing sales funnels.

00:08:30.980 | It's broken down into specific tangible skills, such as copywriting or media production.

00:08:36.100 | And that can be as technical as how to edit an audio file, or how to create a website,

00:08:42.660 | or how to edit a video file, or it can be on the sales side, how to develop marketing

00:08:47.380 | copy and sales speech that effectively conveys the point.

00:08:52.420 | Or it can be research, how to research what people want to buy so that you can create

00:08:56.060 | what people want to buy.

00:08:57.940 | So these are, as I consider the basic skills of business.

00:09:00.820 | So I could, in fact, I have tons of domain names of other brands.

00:09:03.980 | I think constantly, okay, if radical personal finance fails, or if I don't want to do it

00:09:08.660 | anymore, what would be the other brand that I would develop?

00:09:11.700 | And where would I, how would I, what else would I sell?

00:09:14.460 | And what other market would I work in?

00:09:16.220 | And why?

00:09:17.220 | What are the benefits of those other markets?

00:09:19.220 | So the reason why I have that confidence and why many people have that self, that confidence

00:09:23.700 | is because those skills are more skills in the area of business where they can be picked

00:09:29.460 | up and plunked from one place to another.

00:09:32.920 | Now when you're dealing with manual skills, instead of those business skills, and you

00:09:37.200 | are a craftsman at the high end, or you're a laborer at the entry level, it's much more

00:09:44.140 | limited because it's not as transferable.

00:09:47.860 | So the first, your career path is different.

00:09:50.500 | It has to look different than because it's not as immediately translatable over.

00:09:55.300 | So your first goal is to go from a commodity to a specialty.

00:10:00.860 | If you had no skills whatsoever on the job site, you just simply had your physical strength,

00:10:06.100 | right?

00:10:07.100 | Well, that in and of itself is a skill that some people don't have, but you have physical

00:10:09.500 | strength, you have good health, you can show up on the job site at 7 a.m., you can work

00:10:13.580 | till 5 and you can give an honest day's work.

00:10:16.180 | Well that's good and it can be directed, but there are lots of people who have that.

00:10:20.100 | So the first thing that you've got to work for is to develop specialized skills, and

00:10:24.940 | that's what starts to take you up the wage marketplace.

00:10:27.980 | Once you develop specialized skills, you'll have more career resiliency and more confidence

00:10:33.080 | that you could transfer.

00:10:34.080 | Andy, are you willing to share with me what industry you work in, in general or specific?

00:10:39.380 | Yeah, so I'm a certified diesel test technician, so I do engine testing.

00:10:48.580 | And so I guess I would be relatively confident, I mean, there's, I don't know, probably five

00:10:54.900 | or six places in the country that do what I do and I could probably move to one of those

00:11:00.540 | places in another state and get another union job making similar to what I do.

00:11:07.180 | But if I were to want to stay in the same area, I would basically either have to work

00:11:13.500 | for the company I work for now or go to work as a shop tech, which would be probably a

00:11:19.060 | 50% pay cut, even with the certifications and skills that I have now.

00:11:25.260 | And I probably could never max out making what I make today in that career, unless I

00:11:30.700 | own my own shop or something.

00:11:33.220 | And so the reason for that in your career is simply the skill that you've developed

00:11:40.220 | is very specialized, but there's only a small handful of places where you could get that

00:11:45.740 | job.

00:11:46.740 | There's a half a dozen places across the United States.

00:11:48.780 | Now if you compare that from what I just talked about with regard to business skills, business

00:11:54.300 | skills are transferable.

00:11:55.620 | There are 100,000 businesses right within a 10 mile radius of your house.

00:12:00.540 | And business skills can be applied to any one of those businesses.

00:12:05.180 | And so the problem is that you don't have a big enough market for your diesel engine

00:12:11.540 | test and certification skills, because there's only six companies that are doing that in

00:12:17.340 | the United States.

00:12:18.980 | So if you're going to build career resilience and you're going to build that confidence,

00:12:23.600 | the first thing you're going to have to do is you're going to have to move into a market

00:12:26.380 | where there's more opportunity, if you care, right?

00:12:29.100 | Some people, it's fine to have six companies, and if you'd be willing to move, et cetera.

00:12:33.620 | But if you were to compare your personal expertise versus being a heavy diesel engine mechanic,

00:12:42.100 | wouldn't you think that there'd be a lot more confidence if you were working as a heavy

00:12:46.460 | diesel engine mechanic and a lot more opportunity right in your local area than what you're

00:12:49.500 | doing right now?

00:12:50.500 | Yes, probably.

00:12:51.500 | Right.

00:12:52.500 | So in that context, if you move to just simply being a heavy diesel engine mechanic, and

00:12:58.060 | that was the field that you were working in, you could translate that, whether it's working

00:13:02.660 | on big Caterpillar front end, big bulldozers, or working on combines, or working on diesel

00:13:09.780 | pickup trucks, or working on diesel tugboat engines, there's tremendous applicability

00:13:14.500 | of that.

00:13:15.500 | And so in your situation, further specialization with a piece of equipment is probably unwarranted.

00:13:21.340 | And rather, you should probably go back to generalize, something that's going to have

00:13:24.820 | a broader application for you to build that resiliency.

00:13:29.620 | And what I would be doing if I were you is I would at least be understanding how to do

00:13:34.860 | that in case you did get fired.

00:13:36.660 | Just because you get fired doesn't mean you want to go across the country.

00:13:42.340 | So excuse me, I've been talking too much today.

00:13:45.980 | What I would do is I would lay out a career path.

00:13:49.460 | So let's say you lost your job or wanted to leave your job.

00:13:52.960 | Maybe you take a job as an entry level grunt, but I would very quickly line myself up with

00:13:59.220 | how I would move into a higher end position as a highly qualified diesel, heavy diesel

00:14:05.220 | engine mechanic, and lay out the education path at the very minimum.

00:14:09.700 | And then even better would be to at least start the process of gaining the knowledge

00:14:14.860 | or the certification.

00:14:16.480 | So you could move quickly into a career that has a broader range of draw.

00:14:24.900 | That's how I would develop more confidence.

00:14:26.700 | >>Jeremy: And I guess part of that, I'm not super wedded to my career.

00:14:31.660 | I don't think I really want to do this long term.

00:14:34.900 | So I would be totally open to learning business skills or another trade or all sorts of other

00:14:42.180 | things.

00:14:45.180 | And then I guess it seems like I can think of lots of ways to do that, but they're all

00:14:49.260 | relatively costly in the sense of lost income and my current job by switching or significant

00:14:56.420 | time investment.

00:14:57.420 | So I'm curious if you had any sort of, I hesitate to say quick and easy, but like simple things

00:15:04.020 | that I could be doing beyond just, well, this is what I would do if I got fired.

00:15:08.140 | >>Trey: Right.

00:15:09.140 | Doable.

00:15:10.140 | Well, I like the word doable.

00:15:11.140 | Do you have some ideas that are doable?

00:15:13.220 | Not quick and easy, but doable.

00:15:15.940 | So you're working 40 hours a week and are you single, married, have children?

00:15:20.500 | >>Jeremy: So I actually, I have just transitioned to pretty much an ideal work and situation.

00:15:28.180 | I work 36 hours a week, three 12 hour shifts, weekend nights, and then I'm free during the

00:15:33.900 | week.

00:15:34.900 | But I have a wife and a couple young children, similar age to yours, and we're trying to

00:15:40.500 | just develop, like we've bought a large piece of property and want to have animals and that's

00:15:46.860 | kind of what the family lifestyle goal is, which is in and of itself somewhat time consuming.

00:15:53.500 | >>Trey: Right.

00:15:54.500 | Right.

00:15:55.500 | Yeah.

00:15:56.500 | So you can kind of think through what you're trying to do.

00:15:58.740 | So if you're looking for business skills, business skills are present in every business

00:16:03.540 | where you're not, and you can learn them at any business where you're not solely a technician.

00:16:08.780 | So if you've just bought land and you want to raise animals, build your side business

00:16:13.180 | with land.

00:16:15.660 | How much land do you have?

00:16:16.660 | >>Jeremy: 26 acres.

00:16:17.660 | >>Trey: So with 26 acres in your market, you can start doing pastured poultry, selling

00:16:25.460 | chickens.

00:16:26.460 | I don't know what area of interest you're most interested in, but you could start, again,

00:16:32.780 | pastured poultry is probably your fastest solution.

00:16:35.460 | You start building out fruit crops, perennial crops.

00:16:39.620 | You might do a little bit of truck farming if there's a market in your local area for

00:16:43.820 | that.

00:16:44.820 | You start putting some hogs on the back 10 acres, maybe get a couple of cows.

00:16:48.420 | You think through the market, I don't know, raise tilapia, raise micro greens, whatever

00:16:52.740 | the particular area of interest is.

00:16:56.380 | If you have young children, you're trying to build that with something like you're describing

00:17:00.340 | where you're only working three days per week, but in 12 hour shifts, that's probably your

00:17:05.740 | best solution.

00:17:07.180 | And it will allow you to put into practice your, allow you to use the resources that

00:17:15.100 | you have, the labor of your children.

00:17:18.100 | It'll allow you to do it in a way that won't be harmful to other components of your life

00:17:22.500 | because you can be at home, you can be working on the farm.

00:17:25.020 | That'll be really, really valuable.

00:17:26.660 | And it can be highly profitable as a source of extra income, but also highly profitable

00:17:32.340 | as a way to develop skills.

00:17:34.020 | So I'm going to riff on, are you familiar with Joel Salatin's pastured poultry systems?

00:17:39.220 | So let's riff on pastured poultry.

00:17:41.820 | Pastured poultry, and for the uninitiated, is basically the idea of bringing in and raising

00:17:47.940 | very high quality pastured meat chickens on your property.

00:17:53.300 | And the benefits of pastured poultry is it's very, it can sell in a local area.

00:17:59.620 | It can sell for a very high price.

00:18:02.460 | You get maybe 15 to $20 for a dressed out chicken instead of three or $4 for a conventional

00:18:08.240 | Tyson chicken at the supermarket.

00:18:10.620 | It can be done very quickly because the type of bird that is used for this, I'm blanking

00:18:17.380 | on the name, the fat ones, the big fat ones.

00:18:21.580 | - Cornish cross.

00:18:22.580 | - There we go, Cornish cross, yeah.

00:18:23.580 | And basically all they do is they sit around and eat.

00:18:26.500 | And so what you do is you take them out and you put them on pasture.

00:18:29.060 | You build a very simple infrastructure.

00:18:30.700 | You don't need a barn.

00:18:31.700 | You don't need anything except some very simple cages that get moved across the pasture.

00:18:38.340 | And they eat grass and then supplemental feed.

00:18:40.760 | They get pretty fat pretty quick.

00:18:42.140 | I don't remember, three months or so, 12 weeks-ish.

00:18:44.640 | And then you butcher them and sell them.

00:18:46.260 | So in and of itself, you have a micro business.

00:18:48.700 | And all you need for that is a place to put the birds.

00:18:51.220 | You don't actually have to own land.

00:18:52.740 | You can just borrow land, rent land, use whatever land you can get your hands across.

00:18:57.380 | But you do need some land to put them on a pasture.

00:19:00.340 | But in that business, if you start that, what you actually have is in microcosm the need

00:19:05.940 | to develop all of the basic functions of business.

00:19:09.580 | So the constraint in a pasture poultry operation is not with the ability to raise chickens.

00:19:16.140 | It's pretty simple.

00:19:17.140 | You put some chicken wire and you build some cages and you drag them across the pasture

00:19:20.220 | every day.

00:19:21.220 | The constraint is in the ability to develop a market.

00:19:24.900 | So then you have to figure out, well, who wants my stuff and how do I reach those people

00:19:28.900 | with my advertising message?

00:19:30.900 | And how do I reach out to those people?

00:19:32.480 | So now you move into the world of learning something like social media marketing or internet

00:19:37.340 | marketing.

00:19:38.340 | How do you get discovered as the high quality meat producer in your area?

00:19:43.060 | How do you get people to be interested in what you're doing so that they search you

00:19:46.020 | out and follow you so they're willing to come out to your farm on butchering day and pay

00:19:50.180 | you $15 or $20 per bird?

00:19:52.540 | And so something like that in and of itself starts to put you in the situation where you're

00:19:57.340 | developing those basic skills.

00:19:59.980 | Value creation.

00:20:00.980 | You're discovering what people need or want or could be encouraged to want.

00:20:06.380 | We're going with a concept, pastured poultry.

00:20:08.440 | Some people want it, but the number of people who currently want it versus the number of

00:20:11.820 | people who could want it is very small.

00:20:14.460 | So you learn how to articulate the benefits of buying pastured chickens for $20 a chicken

00:20:19.860 | instead of Tyson chicken for $3 a chicken.

00:20:23.300 | And then you create it.

00:20:24.300 | So there's a basic skill of running the actual business.

00:20:27.460 | Then the marketing.

00:20:28.460 | How do you build demand?

00:20:29.460 | And where those types of businesses fall down is where they don't build enough demand for

00:20:33.980 | their product.

00:20:34.980 | And so they can't get beyond making $100 a week of profit to making $1,000 a week of

00:20:38.420 | profit because they can't build demand.

00:20:40.260 | So as you figure out how do I build demand, how do I bring in more customers, how do I

00:20:44.140 | convert those interested customers through sales, turn those prospective customers into

00:20:48.340 | paying customers by completing a transaction?

00:20:50.980 | Then value delivery.

00:20:51.980 | How do I make sure that they're satisfied?

00:20:53.940 | Then you look at on the back end as you're studying the finance, managing the books,

00:20:57.700 | handling all the details there.

00:20:59.180 | Then you look on the back end and you learn about back end value creation.

00:21:02.060 | So once somebody comes out to buy the $20 chicken, how do I make sure that instead of

00:21:05.660 | just them bringing $20 out, that when they leave they've actually put $60 in my pocket?

00:21:10.420 | And you learn the back end creation.

00:21:12.140 | And so you can learn those business skills with a tiny little business that you do with

00:21:17.260 | your children starting with pastured poultry.

00:21:20.140 | And then those business skills are now transferable.

00:21:23.180 | And so you start by transferring them from poultry to duck eggs or from poultry to a

00:21:28.740 | rabbitry or to raising some beef cattle or milk cattle or whatever you do.

00:21:34.060 | And you keep transitioning.

00:21:35.060 | And all along the way you're practicing those business skills.

00:21:38.500 | Now if you did that for a few years, you would now have the confidence from having done it

00:21:42.420 | that you could be plucked up from the middle of Indiana and plop down in the middle of

00:21:45.900 | Wisconsin and do exactly the same thing because you've done it once.

00:21:49.460 | And then you could have the confidence that you could be plucked up out of a food operation

00:21:54.300 | and you could be put into an artisan handicrafts operation or a bee operation or anything because

00:22:00.180 | those skills are now generalized business skills that every business has.

00:22:04.740 | So that would be my thought, Andy, is that since you're already on this path, just while

00:22:09.540 | you're doing it, study it intentionally and pay attention to how you're doing it.

00:22:15.660 | And learn those lessons and you'll develop incredible resilience in your career.

00:22:20.500 | I know you really like blogs as a way to kind of show your qualifications.

00:22:26.060 | Do you think that would be the most, I mean, because I picture if I get laid off as a diesel

00:22:32.500 | technician, I want to go become a salesperson, at least at the large company I work for,

00:22:38.780 | I have trouble walking and saying like I should, you know, qualify for this good salary job

00:22:45.060 | because I sold $5,000 a year worth of chickens.

00:22:49.340 | Would a blog kind of demonstrating that, do you think there's a better way to sort of

00:22:52.820 | demonstrate that value for potential employers?

00:22:57.660 | Maybe that one's hard because if you're trying to prepare yourself for a career change that

00:23:02.020 | you're not actively moving into or that you're not currently working in, it's a little bit

00:23:06.500 | harder to build that kind of thing, especially to make it worth the time.

00:23:09.780 | So I think everybody needs a career website that's related to themselves, their career

00:23:14.380 | and their business.

00:23:16.060 | The trick is with a career website, it should be related to either what you're doing or

00:23:20.380 | what you actively want to do.

00:23:22.620 | So do you actually want to transition out of your technician role to a sales role?

00:23:27.100 | I don't know if I want to transition to a sales role, but I do eventually want to transition

00:23:32.780 | out of the technician role.

00:23:34.780 | Okay.

00:23:35.780 | So the way that I would see a blog or a career website, because a blog is just one function

00:23:41.180 | of it, fitting into that, is you develop a website for the particular career that you

00:23:46.460 | want to pursue.

00:23:47.960 | You develop it for that specific thing, and then you market your way into that career

00:23:53.620 | with that website.

00:23:54.900 | But it should be done, you know, you don't have to commit to a specific time, but if

00:23:59.220 | you're going to start doing that work and laying the groundwork for it, you should have

00:24:02.220 | a specific goal of a specific career or a specific company that you want to work for.

00:24:08.580 | And then you need to make sure that you're actually working towards it.

00:24:12.220 | It might take you a year, it might take you two years to make that transition, but it

00:24:14.980 | needs to be something that you are actually pursuing, not just, "Well, maybe someday I

00:24:18.860 | might want this."

00:24:20.260 | Okay.

00:24:21.260 | That makes sense.

00:24:22.260 | Yeah.

00:24:23.260 | I'm going to just, I could, of course, go on.

00:24:27.380 | I have a whole section in my career and income course on a career website, and I'm actually

00:24:30.740 | redoing that one and re-releasing that as we speak.

00:24:34.220 | So check that out at some point in case it solves a problem.

00:24:37.700 | I would just say that probably you're at a phase of your life where it makes sense for

00:24:45.780 | you to focus on the things that are going to be connected with your children and then

00:24:52.580 | working there.

00:24:53.820 | Because if I were in your situation, you probably have much more opportunity with an on-property

00:24:59.580 | business than you do with trying to just move into a sales job.

00:25:05.660 | There's no reason why you couldn't make $50, $100, $150,000 per year with the property

00:25:10.700 | that you have bought.

00:25:12.060 | There are so many ways that you could do that, that I think it makes a lot more sense for

00:25:15.540 | you to focus on that first before you start trying to transition to something else in

00:25:19.820 | the corporate world.

00:25:20.820 | Good to go, Andy?

00:25:21.820 | Okay.

00:25:22.820 | So that would be, your suggestion would be more look for resiliency in the property we

00:25:28.500 | own and having a family business to fall back on.

00:25:31.980 | Yeah.

00:25:32.980 | That's what I would do if I were in your shoes.

00:25:33.980 | Because I think it'll make a better fit for your family, for the phase of life that you're

00:25:37.260 | at.

00:25:38.260 | And the great thing about sales jobs is this, sales skills are transferable, even if you

00:25:41.980 | don't have a website.

00:25:44.180 | Because they don't usually pay sales people unless they actually produce, you can go and

00:25:51.820 | you can get sales jobs.

00:25:53.100 | So I'm not worried about your ability to get a sales job.

00:25:55.780 | I would focus on building the lifestyle job first, which is probably related to the big

00:25:59.260 | property that you bought.

00:26:00.980 | And there should be enough profit there that you could learn the lessons and then apply

00:26:04.700 | those elsewhere.

00:26:06.040 | We move to Colorado Springs, Colorado.

00:26:08.220 | David, welcome to Radical Personal Finance.

00:26:10.100 | How can I serve you today, sir?

00:26:13.100 | Hi there.

00:26:14.580 | So I'd like to ask about, I've had a change in status this year, recently married.

00:26:22.180 | And because of that, we've been making some rough contributions on our own individually.

00:26:27.420 | But I think combined, our income is going to exceed the IRS limitation.

00:26:34.100 | So I guess part of my question is, my initial thought was to do a backdoor Roth, kind of

00:26:41.220 | recategorize it into a traditional IRA, I believe, and then move it back over into a

00:26:46.220 | Roth.

00:26:48.140 | But I thought I'd ask, so one, I'd like to ask either, is that the best option or should

00:26:53.180 | I look into something else?

00:26:54.700 | And then B, if it's the best option, is it just mechanically that, just having a traditional

00:27:00.260 | IRA and moving it into there and then moving it back over into the Roth, kind of get some

00:27:04.340 | of the details ironed out in my head about actually how to execute that?

00:27:07.980 | Or should I just see a CPA or something?

00:27:10.540 | You don't necessarily need a CPA.

00:27:12.400 | How much is your annual income for this year?

00:27:18.860 | I don't exactly know where I'm tracking that.

00:27:20.860 | It's probably close to right about a hundred thousand.

00:27:25.660 | And your wife's annual income for this year?

00:27:29.740 | She's going to be tracking around $130,000.

00:27:41.100 | So the first thing that you would look at is, if this would be your first year married,

00:27:44.140 | you always have the choice to file married filing jointly or married filing separately.

00:27:51.100 | Now married filing separately destroys your ability to contribute to a Roth.

00:27:58.500 | If you, I just think this is kind of a technical question, not sure if I can do it off the

00:28:02.740 | top of my head.

00:28:07.180 | Let's keep it simple.

00:28:08.180 | So you can always contribute to an IRA, you just may or may not be able to contribute

00:28:13.880 | to a Roth.

00:28:15.380 | And should you do the backdoor?

00:28:16.500 | Should you not?

00:28:19.740 | I'm flat footed because I don't know.

00:28:21.900 | That is a question for a CPA.

00:28:23.860 | My guess, what I don't, what I wonder if, is there, is there some, when did you get

00:28:28.460 | married?

00:28:29.460 | What date?

00:28:30.460 | In October.

00:28:31.460 | October.

00:28:32.460 | Yeah.

00:28:33.460 | I don't know.

00:28:34.460 | You stumped me.

00:28:38.700 | I'm wondering if there's some way to change status in the year.

00:28:41.660 | And my answer is I don't think there is.

00:28:44.780 | My brain is going down married filing jointly.

00:28:48.940 | And because if you're married filing jointly, income is, the range is less than $193,000.

00:28:55.280 | You contribute over $203,000.

00:28:56.840 | You can't contribute.

00:28:58.100 | But with $230,000, you're over that.

00:29:01.180 | Married filing separately, you can't contribute anything if you make more than $10,000.

00:29:05.380 | So that doesn't work.

00:29:08.020 | Singled, if you did not live with your spouse at any time of the year, you stumped me.

00:29:13.620 | So I get, my best guess is I would talk with a CPA and see, or you're an accountant, and

00:29:18.420 | that would be a good, good, a good question for a tax specialist.

00:29:22.740 | But my guess to your answer is you can't do a Roth IRA.

00:29:26.460 | So could you do a backdoor, a backdoor Roth?

00:29:28.740 | Yeah, you could do a backdoor Roth, where you just simply contribute to a non-deductible

00:29:32.900 | IRA and then convert it to a Roth IRA.

00:29:36.100 | Is that worth your time and worth the hassle with $230,000 of income?

00:29:41.100 | You be the one who decides on that, depending on the opportunities you have with your money.

00:29:44.980 | But I think that based upon your income, you're not going to be able to, because you're probably

00:29:51.180 | gonna be married filing jointly, you're not going to be able to contribute.

00:29:53.860 | The only thing I, what I don't know, since I'm not a tax preparer, I don't know if there's

00:29:59.300 | some way that you could do like a partial year return or something like that.

00:30:03.700 | I don't think there is.

00:30:04.700 | I've never heard of that, but I wonder if there's some bit of data that I don't have.

00:30:09.580 | But it's a good question.

00:30:10.580 | You stumped me.

00:30:11.580 | Okay.

00:30:12.580 | Thanks.

00:30:13.580 | Yeah, I'll definitely reach out, maybe find someone that I can trust and see about what

00:30:20.260 | the best steps are.

00:30:21.940 | It's a simple question for a tax preparer.

00:30:25.380 | Right, right.

00:30:27.140 | It should be pretty straightforward.

00:30:29.300 | I just don't want to run into any crazy, hairy stuff when I start preparing taxes.

00:30:34.220 | So I want to get it done.

00:30:36.820 | Well, thanks for that.

00:30:38.260 | And then I know I've heard you talk a little bit about this stuff in the past.

00:30:44.900 | In addition to getting married, decided to buy a house and sort of thinking long-term.

00:30:52.740 | Remind me again, some of your thoughts.

00:30:53.980 | I mean, I'm not going to, I think either way I've decided I don't want to use extra cash

00:30:58.180 | to just put in the home equity.

00:31:02.500 | But I have considered the idea of just slimming some of my maybe contributions to 401k, maybe

00:31:11.420 | IRA a little bit, maybe not completely eliminating it, but try to save up aggressively as possible

00:31:17.860 | to have a big lump sum to pay off the house as soon as possible to free up some options

00:31:23.780 | later on in the future.

00:31:26.660 | Whether it be one of us stay home with kids or however that maybe works out for us.

00:31:33.220 | What are your thoughts on that?

00:31:34.220 | I don't necessarily think that like mathematically might not be the most wise thing, but I think

00:31:38.220 | it has a lot of advantages.

00:31:39.780 | And so I'd like to get your opinion on that.

00:31:43.260 | How old are you and how old is your wife?

00:31:47.220 | I'm in about 37.

00:31:50.300 | She's in her younger 30s, 32.

00:31:53.540 | So you guys are, you're giving me all kinds of difficult things today.

00:31:58.660 | You guys are in that kind of like middle phase of maturity perspective.

00:32:02.860 | You're older, she's younger.

00:32:05.100 | You're kind of in that middle phase.

00:32:06.260 | Have either of you been homeowners previously?

00:32:08.580 | No.

00:32:09.580 | Okay.

00:32:10.580 | So just Joshua's quick list for buying a house, things that I think are wise to do first.

00:32:18.740 | I don't think you should buy houses with people you're not married to.

00:32:22.140 | When you are married, I think you should consider buying houses, but you should move slow.

00:32:25.700 | I think that there are a couple of reasons for it.

00:32:28.980 | Number one, when someone is newly married, I think your focus should be on enjoying your

00:32:38.060 | first year or years of marriage.

00:32:41.260 | Now this is a little bit strange in our culture where a lot of people get married, but nothing

00:32:45.540 | has changed because they lived together for many years prior to marriage.

00:32:50.780 | And so in that situation, the marriage ceremony, it doesn't really, it's kind of a legal formality.

00:32:56.600 | But when my wife and I married, we had both lived separately.

00:32:59.900 | And so when you first come together with somebody and you start taking up residence together,

00:33:04.780 | you start living together, you start being together constantly, it's a time of tremendous

00:33:10.140 | opportunity.

00:33:11.140 | It's really fun when you go from being separate to being together all the time, but it's also

00:33:15.820 | can be a time of challenge.

00:33:18.140 | And I've always liked the principle in the Mosaic Law in the Old Testament in the Bible,

00:33:23.220 | there was a law that when a man was newly married, he wasn't allowed to be sent away

00:33:27.140 | to war for the first year of his marriage, but he was to stay at home and learn how to

00:33:32.380 | please his wife.

00:33:33.380 | And I love that principle.

00:33:34.900 | And my wife and I did a lot of that.

00:33:36.520 | Looking back, I wish we had spent more time.

00:33:38.660 | So I don't, you know, my first year of marriage, I don't want to be starting a business.

00:33:42.140 | I don't want to be moving.

00:33:43.140 | I don't want to, I just want to be enjoying together.

00:33:45.580 | We treasure the time that we spent in those, in that first year of marriage.

00:33:50.460 | I'm really grateful for what we did.

00:33:52.640 | If I were to do it over again, I would spend even more time just with my wife.

00:33:55.900 | I wouldn't be working all the time.

00:33:57.060 | I wouldn't be dealing with all that hassle.

00:33:58.340 | Do the minimum and enjoy that flourishing of relationship.

00:34:03.600 | So that's the first thing.

00:34:05.540 | Another practical reason is it takes time to learn how to communicate with one another

00:34:09.580 | with regard to goals.

00:34:11.520 | And it takes time to try different things to see what you like and what you want.

00:34:16.640 | Now when people are older and or when people have owned houses before, they have a, generally

00:34:20.840 | have a tendency to have a greater understanding of what they like and what they don't like

00:34:25.120 | in houses.

00:34:26.280 | But houses, the way that most people buy and sell them are very expensive things to buy

00:34:30.420 | and sell.

00:34:31.420 | They're very illiquid.

00:34:33.440 | There's tremendous costs to get in, tremendous costs to get out.

00:34:37.700 | And because of all that friction, you want to minimize that as much as possible.

00:34:42.520 | And if it's an investment, it's a great investment, that's one thing.

00:34:45.680 | But if it's just a place to live, you want to live there as seamlessly as possible and

00:34:50.200 | as frugally as possible.

00:34:51.760 | So for most people, it makes sense just to buy a few houses and to try to take a lot

00:34:56.400 | of time buying the right houses so you're not constantly moving and changing and dealing

00:35:01.220 | with all the costs and the friction of those transactions.

00:35:05.000 | Well it takes time to learn what you want.

00:35:07.640 | Your wife, when she's getting, when she's first setting up her first house by herself

00:35:12.560 | as a married woman, does she want a one level house or a two level house?

00:35:16.440 | Or what kind of view does she want out of the front window?

00:35:19.200 | Or do you want to be in the suburbs or in the middle of the city?

00:35:21.880 | And those things are hard to figure out.

00:35:23.800 | It takes time and you probably don't even get it right the first time.

00:35:27.800 | You learn.

00:35:28.800 | I remember when we bought our first house, how I had thought excruciatingly, in a detailed,

00:35:34.520 | excruciatingly detailed way about everything that I thought we wanted.

00:35:38.360 | And I thought we bought the perfect house because Joshua is the king of over analysis

00:35:42.640 | and I thought we bought the perfect house.

00:35:44.120 | Well, turns out we didn't buy the perfect house and today, redoing that situation, there

00:35:48.520 | were a lot of things that I would do differently.

00:35:51.280 | Now we bought a better house than a lot of other people did because of that analysis,

00:35:54.840 | but it takes time to do that.

00:35:56.560 | So there's no rush.

00:35:57.560 | There's no hurry.

00:35:58.720 | You're going to buy a house that you're going to be for a long time.

00:36:01.140 | So take time.

00:36:02.140 | Enjoy being married.

00:36:03.140 | Go look through tours of houses.

00:36:05.440 | Go look at houses.

00:36:06.440 | Look at magazines.

00:36:07.520 | Make your dream list of the things that you want.

00:36:09.840 | Dream about your lifestyle.

00:36:11.440 | Get clear.

00:36:12.440 | Do you want to live a downtown lifestyle?

00:36:13.440 | Do you want to live out in the country?

00:36:14.880 | All that stuff.

00:36:15.880 | Make lists, et cetera.

00:36:17.080 | Then when you do buy a house, you're most likely to make a good decision.

00:36:21.600 | You're least likely to lose money and you can get there.

00:36:25.160 | Now, with regard to financing, I love being debt free.

00:36:29.000 | I love it when people can just pay cash.

00:36:31.600 | And if you're willing to buy a less house than most people of your income bracket would

00:36:37.880 | buy, you could pay cash.

00:36:39.720 | And I think that would be awesome.

00:36:41.600 | With a couple coming together with a $230,000 household income, if you guys just simply

00:36:46.520 | bought a $200,000 house and paid cash, I think that would be great.

00:36:51.120 | The challenge is that most people with a $230,000 income don't buy a $200,000 house.

00:36:57.120 | Most people with a $200,000 income buy a $600,000 house.

00:37:00.160 | I don't know whether most people don't know what your goals are, whether you want to live

00:37:03.720 | in a fancy house, whether you want to save more money.

00:37:05.880 | You guys got to work that out.

00:37:07.600 | But if you can see the way to, with the money that you have saved and the income that you

00:37:11.520 | have, if you can see the way to pay cash, I say go for it.

00:37:14.740 | Because when you own your house and you can completely, you have no mortgage, completely

00:37:20.640 | debt free, you get with that tremendous stability in life.

00:37:25.720 | And it gives you tremendous options.

00:37:27.880 | Because then if you want to quit your job and start a business, let's do it.

00:37:31.720 | We don't have any bills.

00:37:33.040 | If your wife wants to quit a job and start a business, let's do it.

00:37:35.840 | We don't have any bills.

00:37:36.840 | If we're going to have eight kids and your wife wants to stay at home and be a full time

00:37:40.360 | homeschooling mom, let's do it.

00:37:42.500 | We don't have any bills.

00:37:43.500 | Whereas meanwhile, if you bought a $700,000 house and you got a mortgage payment of $3,800

00:37:48.120 | a month, all of a sudden those decisions are pulled from you.

00:37:52.680 | So I love it when you want to pay cash for a house.

00:37:55.320 | I love it when you want to be completely debt free.

00:37:58.320 | I think that's awesome.

00:38:00.360 | Now if you're going to put a mortgage on a house, my question is what's the most sensible

00:38:05.420 | way to put a mortgage on the house?

00:38:07.640 | And my answer to that is from a safety perspective.

00:38:12.620 | You are very, very safe if you have a mortgage balance of $0.

00:38:18.820 | Because you have no monthly payment required.

00:38:20.660 | You just have to make your taxes and your insurance.

00:38:22.760 | But beyond that, you have no monthly payment required.

00:38:25.200 | So thus you have great safety of having a debt free house.

00:38:29.440 | But what if you buy a $300,000 house and you put down $100,000 and you have a $200,000

00:38:36.120 | mortgage?

00:38:37.120 | Do you have a lot of safety?

00:38:38.120 | Well, my answer is no.

00:38:39.760 | And in fact, you actually have a lot of risk.

00:38:41.680 | Now incidentally, that was what I did when I bought my first house.

00:38:45.360 | And I came to regret it because I was stuck with a lot of equity in my house that I could

00:38:50.640 | only pull out with an additional home equity line of credit, which wasn't the most efficient

00:38:56.080 | way to borrow money out, nor did I really want to take out a home equity line of credit.

00:39:00.520 | But I had to make a mortgage payment every month.

00:39:02.280 | So I didn't have any safety.

00:39:03.760 | And what I came to the conclusion was, if I weren't going to pay cash for a house, I

00:39:07.760 | was going to put a mortgage on it, that the next time I bought a house, if I were buying

00:39:11.080 | a house with a $300,000 purchase price, I would put as close to a $300,000 mortgage

00:39:17.360 | on that property as I could get with a good interest rate.

00:39:20.680 | And I would keep all the rest of the money in a separate bank account.

00:39:23.920 | Because if I had $100,000 to put down, and instead of putting it all down and being left

00:39:28.920 | with no money, I just put down $30,000 and I had $70,000 set aside.

00:39:34.720 | If my monthly mortgage payment were $1,500 per month, but I had $70,000 set aside, then

00:39:40.280 | in that situation, I had, what, almost five years of payments, right?

00:39:45.440 | I think $70,000, $1,500 is 46 months divided by 12, sorry, almost four years of payments.

00:39:56.320 | Now I'm very safe because now if I lose my job, or now if I want to start a business,

00:40:00.080 | I've got four years of mortgage payments in the bank.

00:40:02.440 | Nobody's going to come and take my house away from me.

00:40:04.720 | Whereas if I had all that money in equity, the only way I'd be able to get it out would

00:40:08.600 | be to refinance the house, new costs, et cetera.

00:40:11.520 | So that was basically the conclusion I came to.

00:40:14.800 | When I buy a house, either I pay cash, which is awesome, or I finance as much as possible

00:40:21.000 | and keep the money set aside for safety until I can get within striking range of paying

00:40:25.400 | cash or paying it off, in which case I'm going to pay the thing off.

00:40:29.560 | And with mortgage prices, the cheapest mortgage, the cheapest debt rates you ever get are on

00:40:36.680 | a primary mortgage on your house that you live in.

00:40:40.000 | And so when you're looking at all the different things you're going to finance, if you're

00:40:42.400 | going to buy rental properties, if you're going to do any kind of financing, use any

00:40:44.920 | kind of debt, it makes a lot of sense to maximize the debt that's on your house and minimize

00:40:49.880 | debt that's in other places.

00:40:51.440 | In addition, you get the strongest debtor laws that are going to apply to your personal

00:40:56.520 | house.

00:40:57.520 | If you wind up in a disaster, much rather have the mortgage on my personal house and

00:41:02.720 | be able to take advantage of the debtor laws there versus having the debt on something

00:41:08.960 | else.

00:41:09.960 | So those are basically my arguments.

00:41:11.800 | I would love it if you paid cash for a house.

00:41:13.560 | I think that's great.

00:41:14.880 | Just don't make the mistake of thinking that by putting 50% down, you're safer.

00:41:18.880 | You're not.

00:41:19.880 | You're safer to put 10% down, keep the other 40% in cash, and then wait until you can pay

00:41:24.920 | it off 100%, then make the payments and pay it off 100%.

00:41:28.240 | Okay, thank you.

00:41:30.880 | My pleasure.

00:41:31.880 | Hope that made sense.

00:41:32.880 | Joshua's speech on home ownership.

00:41:35.500 | We go now to Portland, Oregon.

00:41:37.360 | Welcome to Radical Personal Finance.

00:41:38.360 | How can I serve you today?

00:41:39.360 | Oh, hi.

00:41:40.360 | Am I on?

00:41:42.560 | You're on.

00:41:43.560 | Tell me your name and let's go.

00:41:44.560 | Oh, hi.

00:41:45.560 | Oh, hi, Joshua.

00:41:46.560 | This is Chris from Portland.

00:41:48.880 | I'm a huge fan.

00:41:51.200 | My question is pertaining to my 401(k) that I'm participating with my employer.

00:41:57.520 | And basically I'm rather concerned about the economy.

00:42:01.360 | And so I thought I was going to be clever and try to take some money off the table.

00:42:06.660 | My plan was to try to put all my funds in a money market account while it's still within

00:42:13.520 | the 401(k).

00:42:15.260 | And I just realized that their only option or their equivalent to a money market account

00:42:21.840 | was a, I'm guessing it's a Wells Fargo stable fund fee.

00:42:29.020 | And it seems like it's considered a bond investment.

00:42:32.680 | And I'm wondering if I pretty much have sabotaged myself.

00:42:37.000 | Is it in treasury bonds, corporate bonds?

00:42:39.360 | What kind of bond portfolio?

00:42:42.680 | It seems like it's a mix, but it's definitely under the category of a bond investment.

00:42:50.640 | And honestly, even when I've talked to representatives of this financial institution, even the representatives

00:42:58.360 | didn't have a very clear idea as to what exactly is all in that fund, which made me really

00:43:04.000 | nervous.

00:43:05.000 | I was going to say, doesn't that make you feel good?

00:43:06.480 | Yeah.

00:43:07.480 | And so I'm wondering if I was better off just kind of just being in the market versus now

00:43:13.920 | being stuck in the bond, which bond investment, which I think might even be a lot more riskier

00:43:20.760 | than the normal equities.

00:43:23.900 | Did you read the prospectus for the fund?

00:43:28.640 | I did not.

00:43:31.600 | It was one of those where I felt that if I had something equivalent to a money market,

00:43:36.680 | I thought that was going to be safer.

00:43:38.440 | And so now I'm trying to do more research and trust you, I might have to backtrack.

00:43:44.040 | Right.

00:43:45.040 | So short answer is the first thing you do is read the prospectus.

00:43:50.560 | Believe it or not, all the mutual fund companies actually had to put all kinds of detail to

00:43:53.880 | information in the prospectus and they're actually quite illuminating.

00:43:58.520 | They put many people to sleep, but if you want an answer, you go to the prospectus.

00:44:04.680 | If I'm answering this question specifically to the specific fund, all I do is I go to

00:44:08.680 | the prospectus and I read the prospectus and I say, and you just read the summary, the

00:44:13.120 | first few pages and you probably have your answer, but read the prospectus, see what

00:44:16.920 | it says and that will answer your question.

00:44:18.720 | Now if this is the fund that your 401k administrator is offering to you, which is supposed to provide

00:44:28.000 | for you the ability to have safe money, if this is what they're saying is the safe money,

00:44:35.360 | then it is probably not a long-term corporate bond fund.

00:44:39.480 | It's probably a short-term treasury bill fund of some kind and it's probably designed for

00:44:47.680 | the stability of money.

00:44:48.680 | Now the prospectus is going to tell you, but let's talk through what some of these words

00:44:52.320 | mean and how they would be affected by volatility.

00:44:55.120 | So if I'm understanding your line of thought, you are concerned about potential volatility

00:45:02.720 | in the broader stock market, ups and downs, and you want to protect the money that you've

00:45:07.600 | saved in your 401k from the potential downs from that volatility.

00:45:12.080 | And so you're trying to find a more stable place to park the cash.

00:45:15.240 | If you could park the money in cash, you would be happy, but now you've got a fund.

00:45:20.440 | So you say, well, it's bonds.

00:45:22.880 | And you know that bonds, just because something is made a bond, doesn't mean that there's

00:45:27.560 | not volatility.

00:45:29.140 | And because you're concerned about volatility, you understand that bond prices are influenced

00:45:34.920 | by interest rates in an inverse way.

00:45:38.200 | So if interest rates were to fall on a bond fund, then the value of the bonds would increase.

00:45:45.840 | Whereas if interest rates were to rise, then the value of your current bond portfolio would

00:45:50.520 | decrease.

00:45:51.840 | And you know that in a bond mutual fund, this effect is especially pronounced because the

00:45:59.360 | duration of a bond mutual fund never reaches zero.

00:46:03.600 | So bond mutual funds experience significant volatility when interest rates go up and interest

00:46:08.600 | rates go down.

00:46:09.600 | In addition, then, I don't mean this to sound patronizing, I'm just trying to tell the story

00:46:13.680 | so that other listeners can follow through.

00:46:17.640 | So forgive me, this is not meant to sound patronizing.

00:46:20.120 | But you know that in a bond mutual fund, your duration never reaches zero.

00:46:26.240 | And so you're infinitely exposed to the ups and downs of the value of the bond based upon

00:46:32.240 | the interest rate environment.

00:46:33.720 | Additionally, you're looking around at interest rates and you're saying, in the span of history

00:46:38.520 | of recorded interest rates, all things considered, we're in a fairly low interest rate environment.

00:46:43.560 | And we've been in a low interest rate environment for a long time.

00:46:46.840 | And because of that, you're concerned that interest rates could rise, they could rise

00:46:50.880 | substantially.

00:46:51.880 | And if interest rates were to rise and rise substantially, that could lead to a major

00:46:56.560 | decrease in the value of your bond portfolio.

00:46:58.920 | So here are the factors that you need to identify.

00:47:01.980 | The first thing you need to identify is what kind of bonds are present in your portfolio.

00:47:09.120 | Is it government debt?

00:47:10.280 | Is it treasuries?

00:47:11.840 | Or is it corporate debt?

00:47:13.080 | Is it municipal debt, et cetera?

00:47:14.320 | Because the word bond doesn't give us enough information.

00:47:17.000 | So you want to read about that.

00:47:19.080 | And my guess would be that if this is what you were steered to, there's probably government

00:47:25.160 | debt in it, possibly just treasuries.

00:47:28.900 | The second thing that you need to read the prospectus and find out is the technical word

00:47:33.400 | is duration.

00:47:34.400 | What's the duration of the portfolio?

00:47:36.440 | There will be a calculation.

00:47:37.440 | If you just do a web search for the ticker symbol for this portfolio, you'll be able

00:47:46.200 | to find the duration listed.

00:47:48.000 | Morningstar or something will list the duration calculation of the bond portfolio.

00:47:51.960 | And duration is simply a measurement of when do these bonds come due.

00:47:55.200 | And that'll tell you if this is a short-term bond fund or a long-term bond fund.

00:47:59.080 | The prospectus itself will also tell you are we investing in short-term bonds or longer-term

00:48:03.320 | bonds.

00:48:04.320 | And the difference here is, let's use the perspective of government debt.

00:48:08.620 | If you said, Joshua, I've got a million dollars and I want to just put this million dollars

00:48:11.740 | aside and have it be absolutely stable, if you put that in T-bills, which are 30-day

00:48:16.920 | treasuries, you've got no risk whatsoever.

00:48:22.240 | Your portfolio values are going to be totally stable.

00:48:25.040 | But if you put it into 30-year treasuries, you've got major problems because the value

00:48:30.260 | of those treasuries are going to go massively up and down based upon interest rates.

00:48:35.000 | So my guess is you probably don't have anything to worry about because I think your portfolio

00:48:40.080 | is probably made up of short-term government treasuries.

00:48:43.800 | And in that situation, it'll probably be fairly stable.

00:48:47.040 | It won't be subject to significant amounts of interest rate risk.

00:48:50.840 | And that's probably the safest option that they've got that'll give you stability in

00:48:54.720 | your 401(k) because every 401(k) administrator is going to have some kind of stable value

00:48:59.880 | fund.

00:49:00.880 | So if this is what you were pointed to, I think that's the story that you're going to

00:49:03.640 | find when you read the prospectus.

00:49:05.000 | But don't take my word for it.

00:49:06.440 | Read the prospectus and get your own answer.

00:49:08.000 | >>Joshua: Great.

00:49:09.000 | Excellent.

00:49:10.000 | No, that's super helpful.

00:49:11.000 | Thank you.

00:49:12.000 | That makes me feel a little bit less stressier thinking I might have sabotaged myself there.

00:49:18.640 | >>Steve: No, you didn't sabotage yourself.

00:49:20.600 | Just, I mean, read the prospectus and find out.

00:49:22.400 | But that's where your answers are.

00:49:23.760 | And what you're looking for is you're looking for short-term on the portfolio duration.

00:49:28.360 | And you're looking for high-quality government debt, which is as close to bulletproof, as

00:49:34.560 | close to risk-free as we have the ability to achieve.

00:49:37.480 | Now, another day we can talk about whether it's actually risk-free, but that's not for

00:49:40.880 | today.

00:49:41.880 | >>Joshua: I gotcha.

00:49:42.880 | Do you have time for one more question?

00:49:44.880 | >>Steve: Go ahead.

00:49:45.880 | We'll do it quickly.

00:49:46.880 | >>Joshua: Oh, yes.

00:49:48.880 | So, I was considering taking, cashing out my Roth 401, I'm sorry, my Roth IRA just to

00:49:57.440 | have some, I guess, dry powder on the side.

00:50:03.320 | Just in general, I was wondering what your thoughts on that.

00:50:07.200 | Because currently my cash flow is pretty low.

00:50:11.560 | So, I was thinking if I cash out the Roth IRA, I may have more resources for later if

00:50:20.760 | there is a turn in the economy.

00:50:22.600 | >>Steve: Right.

00:50:23.600 | So, when you use the term cash out your Roth IRA, do you mean you want to sell the stocks

00:50:29.680 | and move them to a cash account and leave them in the Roth IRA?

00:50:33.680 | Or do you mean you want to sell the stocks, take the money out of the Roth IRA and put

00:50:37.120 | it into your personal checking account?

00:50:38.480 | >>Joshua: Yeah, I'd take it into my personal account.

00:50:42.160 | >>Steve: Yeah.

00:50:43.160 | So, I don't see any reason why you would ever do that if you didn't absolutely have to.

00:50:48.640 | It's very hard to imagine why you would ever do that.

00:50:51.320 | If you're worried about volatility in your investments, sure, it's your money.

00:50:54.520 | Move it to a stable cash equivalent, a savings account, whatever you can find with your custodian.

00:51:01.840 | But there's no benefit of moving the money to your personal checking account.

00:51:05.120 | And in fact, I would say there are major disadvantages.

00:51:09.040 | For example, one of my big pet peeves is when people do this, they often take the money

00:51:13.640 | out of an account that's protected by bankruptcy laws and move it into an account that's not

00:51:19.080 | protected by bankruptcy laws.

00:51:20.960 | And if you're worried about problems in the economy, the very first thing you do is you

00:51:24.320 | do bankruptcy planning.

00:51:25.520 | That's always what you do, is you sit down and say, "What if I got forced into bankruptcy?"

00:51:30.440 | And I use that because most people who go bankrupt don't intend to be there.

00:51:33.920 | And there is this thing where in theory you can be, very rarely, but you can be forced

00:51:37.920 | into bankruptcy by a creditor.

00:51:39.680 | So I think that's a good place to start.

00:51:40.960 | You say, "Let's pretend that I was forced into involuntary bankruptcy.

00:51:43.800 | What would happen with my money?"

00:51:44.960 | Well, if you've got $30,000 in your Roth IRA, read the laws of your state.

00:51:49.760 | I don't know what Oregon bankruptcy laws are, so let me just give you Florida laws because

00:51:53.560 | I know Florida laws.

00:51:55.280 | If I have $30,000 in my Roth IRA in Florida, and then I get forced into bankruptcy because

00:52:00.520 | I lose my job, I get cancer, I wind up with $15 million of debt, and my creditors force

00:52:06.800 | me into bankruptcy, if that $30,000 were still in my Roth IRA, then at least on the other

00:52:14.400 | side of my bankruptcy proceedings, I would have that $30,000 available to build from,

00:52:19.520 | and all the rest of my debts would be discharged, and my creditors would get nothing, and I

00:52:23.120 | would have my $30,000 to start again with.

00:52:26.240 | But if I had taken that $30,000 and put it in my checking account, then that $30,000

00:52:31.400 | would all go to pay my $15 million debt to my creditors.

00:52:34.280 | I would go through bankruptcy court, my debts would be discharged, but now I got nothing

00:52:37.960 | to rebuild from.

00:52:39.440 | So I get very, very nervous about moving money out of 401(k)s, which are even better than

00:52:44.280 | Roth IRAs from a bankruptcy perspective, or moving them out of Roth IRAs.

00:52:48.680 | I don't want that to happen unless it's intentional, and there's a very, very strong argument,

00:52:54.680 | just from a bankruptcy and a creditor protection perspective.

00:52:57.720 | So absolutely not.

00:52:59.680 | I also get very nervous about spending investments because you're worried about turmoil, because

00:53:04.120 | most of the time, if you will just simply go and work more, or build a higher income,

00:53:08.880 | you can survive economic crises pretty well.

00:53:11.660 | No matter the crisis, almost any crisis can be solved by earning more money, by making

00:53:19.040 | money.

00:53:20.040 | So better for you, leave the money alone, and go and get well-employed, stay well-employed,

00:53:24.600 | have redundancy, resiliency in your income, build a side business, have a career plan,

00:53:28.840 | know what you would build if you did get fired, do all the stuff I've talked about extensively

00:53:32.960 | to prepare to keep your career, because as long as you can keep your income, you can

00:53:36.320 | weather almost any financial crisis well.

00:53:38.600 | It's only if you lose your income that things fall apart.

00:53:41.520 | And now, if you lose your income, that's where we go back to bankruptcy protection.

00:53:45.320 | I still want the money stashed aside in an account until a time that I decide I want

00:53:50.900 | to take it out and expose it to the potential claims of creditors.

00:53:53.680 | Make sense?

00:53:54.680 | That was fantastic.

00:53:55.680 | Thank you for your sound advice.

00:53:56.680 | My pleasure.

00:53:57.680 | Good questions.

00:53:58.680 | All right, two more callers on the line.

00:54:02.960 | We move to Fayetteville, Arkansas.

00:54:05.120 | Welcome to Radical Personal Finance.

00:54:06.120 | Tell me your name and how I can serve you today, please.

00:54:08.920 | Hi, Josh.

00:54:10.400 | This is Walter.

00:54:12.200 | Can you hear me okay?

00:54:14.160 | Walter sounds good.

00:54:15.160 | Go with your question, please.

00:54:16.160 | Okay.

00:54:17.160 | And this might be something that is really brief.

00:54:21.360 | I'm interested in hearing a little bit more of your perspective on investing locally.

00:54:29.160 | I know in previous episodes, you talked about, of course, being involved in personal finance,

00:54:37.160 | joining the industry, leaving the industry.

00:54:40.560 | And then I think at one point, maybe you had mentioned maybe pulling your investments out

00:54:45.560 | of the stock market.

00:54:46.560 | Right.

00:54:47.560 | And so I'm interested in hearing a little bit more about your perspective on that.

00:54:51.120 | And then this might be something best covered in a future episode that whatever you could

00:54:55.040 | provide today would be great.

00:54:57.280 | I'll give you just a couple of big ideas to consider because this is a process that I'm

00:55:03.560 | still working through.

00:55:05.040 | And I've thought about it conceptually.

00:55:09.040 | I'm working on learning by experience everything that I can, but I still don't want to teach

00:55:16.440 | from it comprehensively.

00:55:17.840 | So at some point I'll do standalone episodes on it, I'm sure, but here I'll just give you

00:55:21.960 | the big picture.

00:55:22.960 | So you're right.

00:55:23.960 | At the moment, I don't currently own any publicly traded stocks.

00:55:33.040 | And I'm not particularly, although I don't own any mutual funds, and I'm not opposed

00:55:40.360 | to some.

00:55:42.040 | So there are certain mutual fund companies that I could buy ethical funds from that I

00:55:46.880 | could feel good about.

00:55:48.240 | There are some stocks that I could choose that I could feel good about.

00:55:53.920 | I really have a deep frustration, especially with the American stock market, I have a deep

00:55:59.280 | frustration with the intense corruption with the crony capitalism that the vast majority

00:56:07.480 | of the large publicly traded companies are engaged in.

00:56:11.280 | And I don't have the interest in going and digging through small cap stocks to try to

00:56:16.760 | figure out where my play is there.

00:56:18.680 | That's not my interest.

00:56:20.240 | One of my biggest annoyances, one of the biggest values of stocks, publicly traded stocks especially,

00:56:27.760 | is you get access to professional management.

00:56:30.360 | You get very low involvement investments.

00:56:33.200 | You get very, you know, the only true passive income that I think is actually truly passive

00:56:39.800 | is if you can live on the dividends from publicly traded companies.

00:56:42.880 | I think that's actually passive income.

00:56:45.200 | I don't think there's much passive income that's truly passive other than dividends

00:56:50.600 | from publicly traded companies.

00:56:52.100 | But if you've got $10 million and you can sit back and you can just simply live on the

00:56:56.320 | dividends from those investments, then you truly can sit back and just enjoy that passive

00:57:01.840 | income.

00:57:02.840 | The problem is at this stage of my life, I don't need passive income.

00:57:05.520 | I want active income.

00:57:07.200 | And because of that passive nature and because of the intense scrutiny that those markets

00:57:11.240 | get, I think that's probably some of the lowest returning investment possibilities.

00:57:17.120 | And so at my stage of wealth, I believe there are much bigger options and opportunities

00:57:22.240 | available to me.

00:57:23.800 | And I have experienced that, found that, etc.

00:57:26.240 | There are much bigger options that are just so much more profitable.

00:57:30.060 | When you're dealing with smaller amounts of wealth, it's very feasible for you to

00:57:33.920 | double your capital on a single deal.

00:57:37.560 | I was talking about a deal with a friend of mine, an export-import deal.

00:57:43.520 | And he'd run the numbers.

00:57:45.160 | He was thinking about this deal where if he bought in the United States a container load

00:57:51.320 | of something and then shipped it to a foreign country, that he could sell it for triple

00:57:57.280 | what he would buy it for in the United States.

00:58:00.360 | That was his investment idea.

00:58:01.880 | Now I don't know if it's true or not, but those kinds of deals are frequently available

00:58:06.400 | when you can do an export-import deal, or you can buy and sell something, you can flip

00:58:10.600 | something.

00:58:11.600 | You know, with my children, I'll teach them, way back in the archives, I interviewed a

00:58:15.240 | guy, I forget the name now, it was a great blog, just blanking on it right now.

00:58:21.600 | But his deal was he built a business, he was deep in debt, he was a contractor, and he

00:58:26.480 | was deep in debt, and he got himself out of debt and accomplished financial independence

00:58:31.920 | by buying and selling stuff on Craigslist.

00:58:35.080 | And it wound up being buying, primarily, buying old appliances, washers and dryers, fixing

00:58:40.600 | them up, painting them, fixing the motors, and then reselling them on Craigslist.

00:58:44.120 | And the profit margin in a business like that is absolutely massive.

00:58:48.040 | The challenge is it's hard to invest a million dollars into that, whereas $10,000, you can

00:58:52.960 | easily put $10,000 to work in a Craigslist flipping operation, buying stuff cheap on

00:58:58.000 | Facebook Marketplace and then marketing it again.

00:59:01.560 | So the profit potential, at least with smaller amounts of money, is so much higher.

00:59:07.520 | And that profit potential, especially in the early phases of wealth building, is really,

00:59:12.520 | really important.

00:59:13.800 | What annoys me about the stock market, and the way that investment advice is often given,

00:59:20.320 | is people talk about the time value of money, right?

00:59:22.440 | And I think you should, right?

00:59:23.600 | We need to teach our kids about the time value of money, starting at 15 years old.

00:59:26.840 | And look, what if you put your money in a Roth IRA, starting at 15 years old, and you

00:59:30.720 | leave it alone for 65 years?

00:59:33.360 | And you can do the classic chart.

00:59:34.360 | Look, you put $2,000 in for 10 years, and then you don't put any more money in, and

00:59:37.880 | you have way more money down the road.

00:59:40.320 | And look, the stocks are great, and the market is great, and you get 7% interest, et cetera.

00:59:45.200 | That's powerful.

00:59:46.200 | It's really good.

00:59:48.480 | But what's always the case is the person who's teaching that doesn't present the full range

00:59:55.960 | of alternatives.

00:59:57.640 | And what that's usually compared to is, well, you could put $2,000 in your Roth IRA, or

01:00:03.200 | you could spend the money.

01:00:04.200 | So we're trying to get you to not spend the money.

01:00:05.440 | We're trying to get you to save it.

01:00:06.440 | Yeah, that's true.

01:00:07.720 | But what if you took the $2,000, and you taught that same 15-year-old, instead of going and

01:00:13.560 | putting it in a Roth IRA, what if you teach them to go and buy a car that's wrecked at

01:00:18.760 | -- they buy the auction, that something's wrong with it, and they pay $2,000 for it.

01:00:25.320 | They invest 30 hours of work fixing the things that are working, and they flip it for $5,000.

01:00:30.280 | And what if you teach them how to do that four times per year, starting with the same

01:00:33.480 | $2,000 of starting capital?

01:00:36.000 | And now they've turned their $2,000 into $20,000 by the end of the year.

01:00:39.460 | And what if you teach them the next year how to take that $20,000 and to buy three broken

01:00:44.080 | down boats that they got from the side of the road, spruce them up, fix them up, modernize

01:00:48.880 | them, and flip them on Craigslist?

01:00:50.520 | And then what if the next year you taught them how to go and open a local car sales

01:00:55.480 | lot, and here they are at -- I forget my age -- 18 years old, and they've been able to

01:01:00.020 | accumulate $40,000, and they go and they turn that $40,000 into inventory of 10 or 15 inexpensive

01:01:07.240 | cars that they then flip for, and they double.

01:01:10.360 | It's very reasonable in a used car business to double your sales price.

01:01:15.880 | So now, instead of dealing with a 7% market return, we are dealing with tremendously higher.

01:01:24.920 | And so where I feel gypped is when I was a kid, people told me about -- I read the books

01:01:31.420 | about investing in the stock market -- but I didn't have somebody come along and teach

01:01:35.880 | me how to put my money into flipping and flipping stuff.

01:01:39.600 | And I was wrong.

01:01:40.840 | I wish I had flipped cars.

01:01:42.240 | I wish I had flipped websites.

01:01:43.580 | I wish I had flipped houses.

01:01:46.080 | And because the profit margins are so much higher.

01:01:49.240 | Because now, instead of an efficient market out there where you've got 58 bazillion mutual

01:01:54.880 | fund analysts who've got it done, I've got a very inefficient market.

01:01:58.520 | I'm going to buy this Ford Fusion and repaint this thing or swap out this body panel.

01:02:04.420 | You get the point.

01:02:05.740 | So investing in the local market, especially with smaller amounts of money, has the potential

01:02:12.120 | to be much more profitable than investing in the big public and trade of stock market

01:02:16.880 | because of the additional work or expertise required, the specialized inside knowledge.

01:02:22.920 | Now let's add on to that tax efficiency.

01:02:25.780 | When you're dealing in your local market, you're much more likely to be doing business

01:02:29.640 | in doing your work as an investor in the context of a business structure, which just dramatically

01:02:37.020 | transforms your tax efficiency.

01:02:39.440 | Where instead of dealing with the capital gains market and very modest ability to deduct

01:02:46.080 | expenses associated with your investment activities, you're now dealing in the business market,

01:02:50.040 | which has just a totally different tax code, many, many more options available in it.

01:02:55.880 | And now add on number three, add on the ability to work in the local community.

01:03:00.820 | And one of the biggest constraints that I am under, due to my worldview, Jesus said,

01:03:08.420 | do not lay up for yourselves treasures on earth where moth and rust corrupt and where

01:03:13.240 | thieves break in and steal, but lay up for yourselves treasures in heaven where moth

01:03:17.360 | and rust do not corrupt and where thieves cannot break in and steal.

01:03:20.740 | For where your treasure is there, your heart will be also.

01:03:23.740 | And I've pondered that verse for decades and I think about how do you lay up for yourselves

01:03:27.140 | treasures in heaven?

01:03:28.140 | Well, if you think about it, the only thing that exists in heaven are souls.

01:03:33.180 | That's it.

01:03:34.180 | People.

01:03:35.180 | You know, there's no rust because there's no physical objects in heaven.

01:03:40.060 | But rather are dealing with the immaterial eternal souls of people.

01:03:44.840 | So if I'm going to invest and lay up for myself treasures in heaven, the only way I know how

01:03:49.240 | to actually do that is to invest into the souls of people.

01:03:53.560 | Now that can of course have all kinds of application, but one of the biggest opportunities I see

01:03:59.560 | with investments is the ability to invest into people.

01:04:06.160 | And those of us who are skilled, those of us who are knowledgeable, those of us who

01:04:10.300 | are intelligent, those of us who are thoughtful, those of us who've been blessed with the character,

01:04:15.720 | the self-discipline, the intelligence, just the natural cognitive ability, et cetera,

01:04:22.480 | to accumulate wealth and make good investment decisions, I believe we have a responsibility

01:04:27.420 | to use that in a productive way.

01:04:31.260 | And one of the things that always bothers me is if I see somebody in need and I don't

01:04:36.760 | have the ability to help them with anything except money, and so now we get into the world

01:04:40.640 | of jobs, right?

01:04:41.840 | I have friends who need work.

01:04:44.280 | And so let's say that I've got a million dollars.

01:04:47.900 | Let's just change it.

01:04:48.900 | Let's say I've got $10,000 and I've got $10,000 that I own in mutual funds.

01:04:55.860 | I buy Vanguard Total Stock Market Index Fund.

01:04:59.140 | And now I see my neighbor boy in my neighborhood is really struggling and would like work,

01:05:06.680 | but he's being raised by a single mom, doesn't have, let's paint the story bad.

01:05:10.220 | He's in a tough spot.

01:05:11.220 | Well, if I got $10,000 of the Vanguard Total Stock Market Index Fund, I'm a Roth IRA, great,

01:05:16.340 | big whoop.

01:05:17.340 | All I can do for the kid next door is maybe give him money, but what does he need?

01:05:22.180 | He needs work and he needs a job.

01:05:25.020 | So now let's say I take that $10,000 and I go and I buy a $3,000 pickup truck and I buy

01:05:30.100 | $7,000 worth of lawn equipment.

01:05:32.900 | I buy a big commercial mower and some weed eaters, et cetera, and I print up some flyers

01:05:37.940 | and I go and start bringing on customers for that.

01:05:42.300 | Well, now I go to the 16-year-old kid next door and I say, "Listen, come and work for

01:05:46.300 | me.

01:05:47.300 | Let's get a job.

01:05:48.300 | Let's work on Saturdays."

01:05:49.300 | And I give him a job.

01:05:50.300 | Now I have the opportunity to spend 10 hours with him on Saturday doing hard, heavy work

01:05:54.220 | and we can talk in the truck and I can step in and I can encourage him and I can love

01:05:58.220 | him and I can maybe be the father figure that he didn't have.

01:06:02.260 | And every single bit of my $10,000 is a business write-off and now within that I can use our

01:06:08.580 | services and our labor and I can turn that into a bigger profit, which means that next

01:06:12.860 | weekend I can go out and I can hire two guys like that.

01:06:15.500 | Then I can hire three guys like that.

01:06:17.020 | Now I see the guy on the side of the street who's begging for money, doesn't have any

01:06:19.780 | money, and I can say, "Listen, buddy, come and work with us today."

01:06:22.700 | Or I can see the illegal Guatemalan next door who's struggling because he can't get a job

01:06:28.700 | and I can say, "Listen, buddy, come and work for me for today."

01:06:31.020 | And I can now start to invest into the souls of people.

01:06:33.700 | Well, $10,000 of lawn equipment has the ability to turn into eternal wealth in a way that

01:06:39.540 | $10,000 in the Vanguard Total Stock Market Index just simply can't do.

01:06:44.100 | So this is what I am now convinced of with regard to – this is what I'm convinced

01:06:51.700 | of.

01:06:52.820 | And so is that there's much higher financial profit available.

01:06:58.180 | I sat in a hot tub with a guy one time who was a multimillionaire off of a simple lawn

01:07:03.660 | business because he had business acumen.

01:07:07.300 | And if the people – you got me going, good question, Walter – if the people who spend

01:07:14.240 | their time – so many people go into areas where they compete with the brightest people.

01:07:23.440 | If I were to go and become a Wall Street guy, I have the most brutal of competition in the

01:07:28.740 | world.

01:07:29.740 | The smartest, the most driven, most motivated, most self-disciplined people who are willing

01:07:34.220 | to work 80 hours per week are my competition there.

01:07:38.660 | That's a tough business.

01:07:39.900 | I could do it.

01:07:41.140 | I could do it.

01:07:42.380 | But if I take that same exact skill, knowledge, intelligence, analytical ability, and I go

01:07:48.900 | and I apply it to my local lawn business, I could probably just completely wipe away

01:07:54.700 | the competition because the average local lawn guy is a guy who just tosses a mower

01:07:59.180 | in the back of his truck.

01:08:01.140 | And you see this in every single industry.

01:08:02.860 | So simply as a competitive strategy, you get higher returns, potentially, potentially higher

01:08:09.940 | returns because you get less competition.

01:08:15.100 | If the guy – I remember years ago when I was still a teenager, I read Stanley's book

01:08:19.140 | Millionaire Next Door and it convinced me that if the people who go and compete for

01:08:24.060 | law jobs or for doctor jobs, etc., would go and start businesses and deal in a blue-collar

01:08:29.900 | market, they could just sweep the floor with the competition.

01:08:32.760 | And then now moving on to kind of the last phase, and I'll quit.

01:08:37.980 | When I think about my children and my goals for my children, I need work for my children

01:08:42.820 | to do.

01:08:43.820 | I need businesses that they can be involved in so that they learn the lessons of business

01:08:47.540 | in the same way that the 16-year-old fatherless troubled young man next door needs help.

01:08:57.420 | My children need the same thing.

01:08:59.420 | And I want to create opportunities for them to learn.

01:09:06.720 | And so now when we can build up a family business, and the family business has the ability to

01:09:11.640 | make very nice profits and also to fund very nice lifestyles.

01:09:15.140 | The thing that drives me nuts, you got all these people, many people – let me not be

01:09:20.040 | hyperbolic here – many people who their idea of getting wealthy, they want to retire,

01:09:26.360 | right?

01:09:27.360 | Going to retire.

01:09:28.480 | So my goal is to build enough wealth and put it all into mutual funds so I can retire and

01:09:34.200 | travel to London.

01:09:36.040 | The problem is then you're stuck with living on whatever the wealth is that your mutual

01:09:39.380 | funds can create, and you're living in everything in a post-tax world.

01:09:42.920 | Meanwhile, why don't you just build a business that will send you to London, put you up in

01:09:48.600 | a hotel, make sure you're working while you're there – one, two, three, four, five hours

01:09:53.640 | per day.

01:09:54.960 | And if you're doing work that you're engaged with, now you have a legit business trip.

01:09:59.280 | Now you can go to all the nicest things, you can move all your London things over to the

01:10:03.400 | meals and entertainment column, you can move your hotel over to the business credit card.

01:10:08.080 | You can do all of that, and it all becomes executive perks.

01:10:11.180 | Why would anybody give up a business just for the simple tax efficiency of owning a

01:10:17.680 | business?

01:10:18.680 | Why would you ever give that up and go to the world where you just live on mutual funds?

01:10:21.960 | So I'm not trying to preach to other people about what they should do with mutual funds.

01:10:29.240 | I just, at this point in time, seeing the financial opportunities that are on every

01:10:35.080 | hand, and then especially given my worldview with the fact that I want to buy up treasures

01:10:39.600 | in heaven, which means investing in people, and I don't particularly care for how the

01:10:47.000 | decisions that many of the Fortune 100 make.

01:10:51.120 | I don't particularly care for some of the ways that they treat their people.

01:10:53.840 | I don't particularly care for the bribery and the corruption that they're involved in.

01:10:57.160 | I don't care for the markets they're in.

01:10:58.480 | I don't care for their marketing.

01:11:00.120 | So how on earth, why should I ever put money with that when the opportunity is at hand

01:11:06.040 | where I can impact my community, where I can quadruple money and make way higher returns

01:11:10.840 | than the few percentage points that the great honored mutual fund investors are willing

01:11:15.860 | to pass out?

01:11:16.860 | So you triggered me, Walter.

01:11:19.760 | That's where I'm at in it.

01:11:20.760 | Great.

01:11:21.760 | No, that's exactly what I wanted to hear.

01:11:22.760 | And I think there's a lot of interest in that.

01:11:28.000 | So as you have time and think about it, I'd love to hear even more about this on regular

01:11:33.840 | episodes.

01:11:34.840 | So just a suggestion for you.

01:11:36.480 | No, thank you.

01:11:37.480 | I want to speak from a place of experience when I do that.

01:11:41.800 | And by the way, the thing I didn't even talk about was self-directing, self-directing your

01:11:45.660 | retirement accounts.

01:11:46.660 | I mean, there's no reason why I can't run that business that sends me to London and

01:11:51.340 | then simultaneously run a self-directed 401k that I use to do real estate investment businesses.

01:11:58.380 | And I got to be careful.

01:11:59.380 | There's a bunch of rules, but I can run a self-directed 401k with a giant property portfolio

01:12:04.780 | in it.

01:12:06.020 | And as long as I am careful to follow the rules about me being involved in the work,

01:12:13.940 | and I can do it all ethically, but then all of a sudden now I can contract the services

01:12:19.400 | of other companies and other people in my community that make a difference.

01:12:24.280 | And that's always how communities run, right?

01:12:26.580 | The good old boys network.

01:12:28.800 | It's not going away.

01:12:29.880 | It's important.

01:12:31.000 | And it's a major component of everything we do.

01:12:34.180 | So that's what I got.

01:12:35.180 | All right.

01:12:36.180 | We finally go stay in the South and we go to Alabama.

01:12:39.040 | Mr. Tim, welcome to the show.

01:12:40.040 | How can I serve you today, sir?

01:12:41.040 | Hi.

01:12:42.040 | I have a question about financial planners.

01:12:48.040 | You said before that you don't know why people balk at paying 1%.

01:12:52.800 | And I was curious your thoughts about that.

01:12:56.600 | I'd always thought I was going to just put money into a total stock market index fund.

01:13:04.360 | But my stepfather's a financial planner and says that, you know, he makes the argument

01:13:10.320 | about the behavioral economics.

01:13:13.720 | And I don't know that I buy that if you're disciplined.

01:13:18.400 | But I was curious if the benefit you see in that and what your thoughts are about whether

01:13:23.740 | you can do it yourself or if everyone needs a financial planner.

01:13:28.720 | So I want to be careful.

01:13:30.800 | Did I actually state that in your understanding of my words, did I actually say I don't know

01:13:36.640 | why people balk at 1%?

01:13:39.020 | Was that actually what I said or was that just like I can't imagine myself saying that.

01:13:43.200 | But maybe I did.

01:13:44.200 | I talk a lot.

01:13:45.200 | I thought in some episode you said that people balk at the 1% asset under management.

01:13:51.600 | Right.

01:13:52.600 | Right.

01:13:53.600 | I don't want to misremember you.

01:13:54.600 | No, you do.

01:13:55.600 | It's just that so I'm kind of stuck in the middle.

01:13:57.600 | And over the years, my loyalty to when I first left the financial services, the professional

01:14:02.680 | financial services, I think I was probably still in terms of my perspective, my objectivity

01:14:08.560 | was probably a little bit clouded by the fact that I wanted to defend everything that the

01:14:13.840 | financial services industry did.

01:14:15.120 | I think we all have that natural tendency.

01:14:17.280 | Over the years, I don't have any ties with the financial services industry.

01:14:20.640 | And I probably am more objective today than I once was.

01:14:26.360 | So here's what my current opinions are on it.

01:14:30.840 | I don't think everybody needs a financial advisor who's managing their portfolio.

01:14:40.400 | I don't.

01:14:41.400 | I think there are people who have the self-discipline and the knowledge and the skill and the expertise

01:14:47.840 | to manage their own portfolio and to do very well at it.

01:14:52.280 | And they have the skill to do it.

01:14:55.080 | What the percentage of people is that has that skill, I don't know.

01:14:59.160 | But I don't think that everybody needs a financial advisor who's going to manage their portfolio.

01:15:06.040 | In many cases, the value proposition that some financial advisors offer is very thin.

01:15:13.820 | And in that situation, one wonders if it's really worth it.

01:15:18.120 | At this point in time, financial management is basically a commodity across most mainstream

01:15:24.160 | firms.

01:15:25.360 | It's built on a set of industry expectations.

01:15:28.720 | And it's a fairly basic commodity.

01:15:33.400 | And this is where the argument of, listen, just take all the money out of the managed

01:15:37.060 | mutual fund portfolio, cut your expenses by 150 basis points by moving it to an index

01:15:42.580 | fund at whatever custodian you want.

01:15:46.400 | It's a good argument.

01:15:48.000 | So in order for a financial advisor to be worth the money, they should be returning

01:15:54.020 | a lot more.

01:15:55.020 | Where are the customer's yachts?

01:15:56.020 | The customer should have more yachts than the financial advisor does.

01:15:59.440 | And unfortunately, that's not the reputation that the industry has.

01:16:02.700 | So where can a financial advisor offer value?

01:16:06.600 | Well, the first place that a financial advisor might be able to offer value is in alpha,

01:16:13.360 | the outperformance of one investment portfolio versus another.

01:16:18.280 | And that's what all of the academic studies focus on.

01:16:21.360 | And that's the hardest proposition to make.

01:16:23.940 | Because alpha is not easy to achieve.

01:16:26.060 | And it's not easy to predict that I'm going to be able to achieve it in the future.

01:16:30.060 | And delivering alpha doesn't really pay off in the retail financial advisor space.

01:16:36.080 | In the financial advice industry, when I used to work in it professionally, I was with clients.

01:16:40.580 | In the same way that I've been on this phone call for the last hour and 16 minutes, I have

01:16:44.780 | no idea what the market is doing.

01:16:46.500 | And that was the same way that I was with clients.

01:16:48.380 | I was talking with clients constantly.

01:16:50.620 | And I had no ability to be confident about what was happening in the market.

01:16:55.540 | That wasn't my scenario.

01:16:57.120 | So me as an individual advisor in that scenario, I couldn't deliver alpha to a client.

01:17:01.960 | There was no way in the world that I could say with a straight face, "Well, Mr. Client,

01:17:06.060 | I'm going to deliver alpha to you."

01:17:08.140 | So maybe there's a way in some firm, right?

01:17:10.640 | Some firms, boutique firms, or firms that are very focused on investment management,

01:17:15.300 | they have a theory and they want to say, "We can deliver alpha."

01:17:17.940 | Is it possible?

01:17:18.940 | I believe alpha is possible.

01:17:19.940 | Do I know how to say to somebody, "Find it?"

01:17:21.900 | I don't.

01:17:22.980 | So alpha is the hardest value proposition to make.

01:17:27.600 | So where else can a financial advisor offer value?

01:17:31.500 | Well, generally the behavioral model, basically the behavioral sales pitch was what I settled

01:17:37.460 | on when I was in that business.

01:17:39.100 | I came to the perspective and I said, "Listen, I may not be able to deliver alpha.

01:17:43.820 | I'm not promising you that I can.

01:17:45.860 | But what I can prove to you is the majority of investors underperform their own investments

01:17:52.060 | by about half because of bad behavioral decisions."

01:17:57.180 | Earlier we had, I can't remember if it was Chris, was talking in today's call.

01:18:02.340 | He says, "I'm moving my money out of the investment and I moved it into a cash account to protect

01:18:10.460 | it."

01:18:11.460 | Now, I believe that that caller, if it was Chris or whoever it was, I believe that that

01:18:15.980 | caller should do that if that's what he thinks that he needs to do.

01:18:22.180 | The data indicates that very likely Chris is going to get that wrong and very likely

01:18:27.700 | Chris is going to miss out on the growth of the market and very likely Chris is going

01:18:32.060 | to, he's probably selling at the wrong time.

01:18:34.380 | Now I don't think that Chris has to do that.

01:18:36.420 | Chris might have studied his position.

01:18:37.780 | He might have really dug into it and he might be really confident.

01:18:40.380 | But the data would indicate that on the average, if we deal out 100 Chris's who said, "I'm

01:18:43.700 | going to do what Chris did," most of them are going to get it wrong.

01:18:47.140 | So we know that the average investor, Dalbar I think is the person who used to do it, I'm

01:18:50.780 | not aware of it changing.

01:18:51.780 | But the average investor underperforms their own fund by about 50%.

01:18:56.580 | So if the average fund gets eight, the average investor gets four.

01:18:59.580 | So there's your first kind of discussion of value proposition.

01:19:03.140 | Mr. Prospective Client, if I can do nothing else but keep you invested, and this math

01:19:08.540 | is a little bit fuzzy but it's driving the point home.

01:19:10.980 | If I can do nothing else but keep you invested and I can keep you in your own funds by preparing

01:19:20.500 | you or by through some mechanism and I can keep you invested through the good times and

01:19:24.380 | the bad, then at least I can keep you in those investments that are going to make you eight.

01:19:29.980 | And then if you're charging one, you're going to get seven versus four.

01:19:33.620 | That's kind of the first volley.

01:19:36.140 | Now the investor I think could turn around and say, "Well, why do I need you to keep

01:19:39.740 | me in my investments?

01:19:41.340 | Can't I just buy the investments and put them in a vault and never look at them again and

01:19:45.340 | stay invested?"

01:19:46.340 | Yeah, you can.

01:19:47.700 | Are most people going to do it?

01:19:49.340 | No.

01:19:50.340 | How do we get to the next function?

01:19:51.540 | How can I do that?

01:19:52.620 | Well, it's not necessarily just a matter of yelling at the advisor and saying, sorry,

01:20:00.580 | yelling at the client and saying, "You've got to stay invested."

01:20:02.900 | Hopefully there's some techniques that I can build in place.

01:20:05.340 | What I relied on was financial planning.

01:20:07.300 | I believe that with the right financial plan, the right allocation of money into the right

01:20:11.460 | resources towards the right goals gives me the track to run on.

01:20:15.500 | So now if a client is in a situation and they say, "I've got to get out of this investment.

01:20:18.980 | The market's just collapsing," I can look at them and say, "No, listen.

01:20:22.500 | Listen, we've planned for this.

01:20:24.300 | What I've done is we've worked over here.

01:20:26.460 | We've adjusted your outflow.

01:20:27.960 | You don't have any debt or we've adjusted your debt payment.

01:20:30.540 | So you don't actually have a lot of money to spend right now.

01:20:33.260 | Look over here.

01:20:34.260 | We've set aside this cash.

01:20:35.380 | This cash will get you through the next two years.

01:20:37.580 | You're in good shape.

01:20:38.580 | You don't have to sell.

01:20:39.580 | Look, let's look at the market returns.

01:20:41.100 | When the market has gone down, it's often come back.

01:20:43.520 | We have good reason to believe that things are going to come back.

01:20:46.380 | So let's just sit tight."

01:20:47.380 | Now, if you go back to a time like the fall of 2008 and when people are just falling apart,

01:20:53.740 | two years got people through a lot of things.

01:20:56.140 | So if you could, as an advisor, if you could just get your clients through two years, their

01:21:00.060 | portfolios could recover, etc.

01:21:01.820 | I think that's worth money.

01:21:02.820 | Is it worth money for everybody?

01:21:04.180 | I don't know.

01:21:05.180 | I don't think so.

01:21:06.240 | But is it worth money for some people?

01:21:07.940 | Absolutely.

01:21:08.940 | Now let's move into the world of financial planning.

01:21:10.660 | Every day on this show in public, I do financial planning in public and I try to point out

01:21:14.380 | the efficiencies.

01:21:15.380 | Just a moment ago, I made this long speech about business stuff.

01:21:18.900 | If a good financial advisor can come in and can start readjusting the assets, readjusting

01:21:23.340 | where the debts are, moving things over to the deductible side, moving things intelligently,

01:21:28.740 | there's a lot of benefit there from that as well.

01:21:31.500 | And then maybe there's other things.

01:21:32.500 | So for example, I always, after I read Networking with the Affluent, my goal was always, "How

01:21:36.420 | can I bring my clients lots of money?"

01:21:38.460 | So in addition to working with me on their money management, they get other benefits,

01:21:42.340 | whether it's more business to them or jobs for their teenagers or whatever it is.

01:21:46.580 | How can I be a connector?

01:21:48.420 | I've paid lots of money to people just to be connected to them.

01:21:51.620 | So why shouldn't I go ahead and bill my client's taxable account with their investment advice

01:21:57.020 | fees so now they can deduct those fees against their profits and that be the method of them

01:22:01.180 | transferring money from their pocket into mine for the comprehensive services that I

01:22:05.140 | offer?

01:22:06.340 | So that's just kind of scratching the surface.

01:22:10.200 | And I think that there is enough value there that good advisors would be able to still

01:22:16.420 | make a good value proposition to their clients.

01:22:20.580 | Can all advisors do that?

01:22:22.180 | No.

01:22:23.180 | But can good advisors make it in that place?

01:22:24.740 | I think they can.

01:22:25.740 | And I just say this.

01:22:28.540 | I would never work as a financial advisor.

01:22:31.500 | The big Ballyhoo thing these days is basically this.

01:22:35.060 | Well we recognize that there's a specialty of financial planning and advice that has

01:22:47.540 | value and maybe it's just technical knowledge or maybe it's a budget analysis, but it's

01:22:51.500 | certainly not investments.

01:22:52.900 | So what you should always do is you should go and put all your money into index funds

01:22:58.020 | and then if you need an advisor, you should go and hire an hourly fee advisor.

01:23:02.820 | That's a common piece of advice.

01:23:05.140 | I've never hired one of those hourly fee advisors myself.

01:23:08.540 | I can't comment on the competence of those people.

01:23:12.100 | I'm sure many of them are competent and many of them are incompetent.

01:23:15.700 | All I know is for me and for some of the good advisors that I know, I would never work in

01:23:20.900 | that business because with the skills that a good financial advisor has, if you don't

01:23:26.380 | have the profitability to make at least a few hundred thousand dollars a year if not

01:23:29.960 | half a million or a million bucks, it's just not worth it.

01:23:32.560 | Why would I go and work for a flat fee of $200 an hour?

01:23:35.900 | I've constantly got to go and develop more clients.

01:23:41.020 | Why would I do that when I can go and serve people in other formats and in other ways?

01:23:45.700 | So that's the honest truth.

01:23:48.620 | It sounds probably a little bit crass, but at the end of the day, I'm convinced there

01:23:54.060 | will always be a market for good advisors and that those markets, those advisors should

01:23:58.720 | work really hard to make sure that they can actually deliver on their value proposition

01:24:05.080 | and it's up to individual advisors and individual clients to work it out.

01:24:08.180 | I had clients, I had prospective clients that I was very good friends with that never hired

01:24:13.100 | me because they just said, "Joshua, I love working with you.

01:24:16.140 | I want to be friends with you, but I'm not going to pay you this."

01:24:18.500 | On the other hand, I had clients that did and they were very happy and cried when I

01:24:21.980 | left.

01:24:22.980 | But that's the best I can get to with kind of having an honest, objective discussion

01:24:27.500 | of the different scenarios and all I know to do is to leave it up to the individuals

01:24:33.220 | to say, "It's my money.

01:24:34.460 | Nobody cares about your money more than you do.

01:24:35.980 | I'm going to make sure that I get value from an advisor if I'm going to hire one."

01:24:43.060 | That makes a lot of sense.

01:24:44.060 | If you have time, do you have any suggestions on finding that quality advisor?

01:24:50.420 | I have no idea.

01:24:51.420 | You know, I've had an advisor-

01:24:52.420 | Interviewing people?

01:24:53.420 | Interviewing people?

01:24:54.420 | Yeah, I had an advisor for a long time, which I hate it when my brain stops working.

01:25:02.380 | Sometimes that happens after I do Q&A for a long time.

01:25:05.380 | I can't remember the name of my own advertiser.

01:25:10.660 | The planning network that I used to advertise for on the show all the time was the best

01:25:14.740 | that I got.

01:25:15.740 | I struggled with-

01:25:16.740 | Oh, Paladin?

01:25:17.740 | Yeah, Paladin.

01:25:18.740 | Paladin, that was who it was.

01:25:19.740 | Paladin, yeah, yeah.

01:25:20.740 | I didn't have any kind of falling out with them.

01:25:25.780 | I had a lot of good stories.

01:25:27.340 | I would say the clients who went to them and hired one of their advisors or met with one

01:25:32.940 | of their advisors, about 80% of the time I got a great story.

01:25:39.460 | There were a handful of kind of, "Eh, this was okay."

01:25:43.260 | I didn't ever get any disastrous stories of, "Oh, this was terrible," but I got a few bits

01:25:48.680 | of feedback with people just saying, "Well, it was okay.

01:25:51.220 | It was fine, but it wasn't anything special."

01:25:54.400 | That was the best that I could come up with for a while on ways to refer it.

01:26:00.420 | The problem is, I think my guess is right now, I think Garrett Gunderson, who runs The

01:26:06.500 | Wealth Factory, is probably doing a good job.

01:26:08.780 | I have not met Garrett.

01:26:09.860 | I have not talked to him.

01:26:12.100 | All I know is when I see his media that he's creating, he's doing the right job of focusing

01:26:17.580 | on the right factors.

01:26:19.100 | The big thing is he's working with entrepreneurs primarily.

01:26:22.140 | Again, when I come down to it, I think delivering on alpha is the hardest sales proposition,

01:26:28.900 | but yet there's tremendous opportunity to deliver on, first of all, to deliver beta

01:26:36.780 | is one possibility.

01:26:38.380 | Then with behavioral management, with personal finance management, with good financial planning,

01:26:47.060 | with good asset protection planning, et cetera, I think the value proposition there for wealthy

01:26:50.660 | people is huge.

01:26:52.220 | I've wrestled with this because one of the things I've thought about, I want to serve

01:26:56.140 | this market because I'm convinced that, and I try to prove it in public every day, I'm

01:27:00.060 | convinced that I could give me the average six-figure earner.

01:27:04.460 | I'm convinced that I could deliver, I don't know how to put the right numbers on it, I

01:27:09.380 | can deliver millions of dollars of value if you give me the right circumstances and you

01:27:13.860 | give me the ability to work with somebody for a period of time.

01:27:17.900 | What the right way to do that is, is hard to figure out.

01:27:22.620 | I've thought, "Well, maybe I should go ahead and start a financial planning firm."

01:27:26.740 | When I originally started Radical Personal Finance, I started a firm and then I shattered

01:27:32.180 | it before it got approved by FINRA.

01:27:34.540 | At this point in time, I never want to be involved with FINRA again.

01:27:37.780 | In the United States, the money management business has gotten so regulated that basically,

01:27:44.020 | as I see it in terms of legally and otherwise, you can't do anything at all interesting.

01:27:50.620 | If you're going to do business in the United States, basically you become an unpaid spy

01:27:56.260 | for the federal government.

01:27:57.260 | I have no interest in wasting my time as an unpaid spy.

01:28:00.580 | That's not my interest.

01:28:01.780 | I'm not interested in that business and I think it's utterly wrong what the United States

01:28:07.580 | is doing to people.

01:28:10.580 | Many financial advisor commentators, all they want to do is keep on cheerleading.

01:28:14.700 | At this point, although if I went broke, I would probably go back to that business just

01:28:20.020 | because I don't know of a place where I could make more money faster than going back to

01:28:24.220 | what I know and doing that and feel good about it.

01:28:27.400 | In the middle of that, there are lots of ethical, competent advisors who are willing to work

01:28:35.100 | in that market and they can do what's best for their clients in the constraints of that.

01:28:38.780 | But I don't ever have any interest in going back to the United States and going into that

01:28:42.460 | kind of market.

01:28:43.460 | I see nothing but doom for that.

01:28:45.860 | You see it reflected.

01:28:46.900 | You see that the advisors are so scared and all the firms, the lawyers run the firms.

01:28:53.420 | Because of that, you have almost no ability to do something that actually interests people.

01:28:57.860 | I used to push the boundaries, but I never pushed the boundaries as much as I do now.

01:29:02.220 | I never pushed them legally or ethically, but what I mean by push the boundaries is

01:29:06.340 | you push the boundaries in terms of the things that you tell your clients to do.

01:29:09.260 | But why am I going to sit around?

01:29:11.100 | If I know that I can't make any difference in this client's life by delivering alpha

01:29:17.820 | and I know that that's a lost proposition, why am I not going to spend time consulting

01:29:21.940 | with them on the marketing their business?

01:29:24.660 | I know that if I bring my marketing skill to them, we can double their business and

01:29:29.340 | now all of a sudden it's really good, but that was where I was always stuck.

01:29:32.460 | I'm supposed to be a financial advisor.

01:29:33.940 | I'm supposed to talk about stocks.

01:29:35.060 | I don't care about stocks.

01:29:36.060 | I care about doubling your business because if you double your business, double your income,

01:29:39.060 | even if you put the money in cash, you wind up wealthier than trying to figure out how

01:29:42.140 | to get another 23 basis points of alpha.

01:29:45.420 | I've given up on the wealth advisory business in the United States.

01:29:49.860 | I have seriously considered starting some kind of formal firm offshore.

01:29:55.380 | I think that there's a possibility there.

01:29:56.860 | The problem is that that structure gives you more freedom as an advisor, I think, but most

01:30:03.340 | Americans, which is where the primary market that I would do in, are so scared of moving

01:30:07.700 | offshore and perhaps rightly so.

01:30:10.820 | I don't know, but most Americans are so scared of moving offshore that that would be really

01:30:15.260 | a tough value proposition to make.

01:30:17.340 | Then finally, as a way of earning money, the friction of paying advisory fees, sorry, when

01:30:25.380 | you take fees off of the management of assets, it's a very low friction event for the client,

01:30:32.060 | which is why most people don't mind paying fees because it's low friction.

01:30:36.020 | It has a low saliency.

01:30:37.700 | I know my advisor deducts the quarterly fees, but whatever.

01:30:41.780 | It's just coming off my portfolio.

01:30:43.180 | Now, when somebody looks at it and says, "Well, what would happen if you get 1% underperformance

01:30:49.300 | over the course of 40 years?"

01:30:50.660 | It's a big number, which is why you better be, if you're going to be doing that business,

01:30:54.300 | you better be confident that you're doing everything you can to deliver far bigger than

01:30:57.020 | that number, which is, for most people, for most advisors at least, probably a hard thing

01:31:01.420 | to answer.

01:31:03.340 | But in terms of getting paid from a business owner perspective, there's no, I don't know

01:31:08.660 | of any lower friction way to get paid where your business model works other than managing

01:31:14.780 | assets.

01:31:15.780 | When you take the custodianship of assets away, you get very high salient fees, and

01:31:20.620 | now it becomes a much harder business to pursue.

01:31:23.700 | For now, here's one of the complaints of the financial advisor business.

01:31:31.140 | People say, "I've got a net worth of, let's just say $5 million, wealthy guys.

01:31:35.460 | We're going to deal in the world of wealthy people.

01:31:37.260 | I got a net worth of $5 million, but $2 million of that is in real estate, $2 million is in

01:31:44.020 | my business, and $1 million of that is in my 401(k).

01:31:46.820 | So Mr. Financial Advisor, here's $1 million."

01:31:49.060 | Well, financial advisor says, "All right, well, I'll charge you 150 basis points on

01:31:55.220 | that.

01:31:56.220 | So I'm going to get $15,000 off your million dollars."

01:31:58.260 | And now all of a sudden, you're in a situation where, wait, how much value are you adding

01:32:02.860 | on a million dollar portfolio for $15,000 a year?

01:32:06.060 | Well, maybe some, maybe not some.

01:32:08.140 | So some advisors charge fees based upon a percentage of net worth.

01:32:12.260 | And they try to do this because they're trying to relieve the frustration that clients say

01:32:17.020 | have, "You always want to get me to buy more stocks, or you always want to get me to buy

01:32:19.780 | more insurance.

01:32:21.140 | And should I go and pay off this debt over here that I have on my business of a million

01:32:26.980 | dollars, or should I invest another million dollars with you?"

01:32:29.220 | Well, the complaint is that due to conflict of interest, the advisor is just going to

01:32:32.100 | say, "Put a million dollars with me, because if you put a million dollars with me, then

01:32:35.420 | I'll make you more money, so don't pay off that debt."

01:32:37.700 | But I really think I should pay off the debt.

01:32:39.240 | So some advisors charge their fees based upon, not based upon assets under management, but

01:32:44.660 | based upon net worth.

01:32:46.460 | I've not met many clients who like that.

01:32:48.680 | Even though the client might understand, "Well, maybe that's going to release a conflict of

01:32:56.940 | interest and smooth things out a little bit, I don't see what impact you're going to make

01:33:01.400 | on my $2 million of real estate.

01:33:03.140 | That's not your deal.

01:33:04.140 | I don't see what impact you're going to make on my business, $2 million.

01:33:06.020 | I'm just going to pay you on the million dollars over here."

01:33:08.340 | And so advisors are constantly stuck.

01:33:10.440 | And then when you move into a world where you've got to pay, you're going to write me

01:33:14.340 | a check for $15,000 every year or $3,000 per quarter, it becomes more difficult.

01:33:21.980 | So I think as an advisor, the business is broken.

01:33:26.820 | Because as an advisor, you've got to really believe in what you're doing in order to go

01:33:35.140 | that model instead of the model where the fees are less salient, the clients are easier,

01:33:41.380 | et cetera.

01:33:42.380 | And there are still enough people who are willing to pay those fees that that other

01:33:45.500 | model still works.

01:33:46.740 | Now, will it not work 10 years from now?

01:33:48.460 | I don't know.

01:33:49.900 | All I know is that if you don't custodian assets, but you try to work with the wealthy,

01:33:55.100 | that's a tough scenario.

01:33:56.100 | So what I've basically done is I don't think I'll ever start a firm.

01:33:59.460 | Just because dealing with the offshore, I don't want to deal with the United States,

01:34:03.100 | but yet dealing with the offshore stigma is difficult.

01:34:05.620 | Some people are doing it.

01:34:07.200 | Maybe you can do it if you start a bank or something.

01:34:11.540 | There are ways to do it.

01:34:12.900 | But I don't want to deal with the US government, and yet going offshore just seems too difficult.

01:34:17.340 | And it is a big significant thing.

01:34:19.700 | So what you see is that a lot of people do is they go to a combination of information

01:34:24.900 | and classes and education mixed with sometimes commissions or some other compensation model

01:34:33.340 | on investment placements, et cetera.

01:34:36.700 | And the reason financial people do that is because it allows you to deliver the knowledge

01:34:41.500 | that's helpful.

01:34:42.860 | And as long as you get your product mix right, it allows you to earn enough money and to

01:34:51.100 | do it in a way that's efficient enough where you can make a lot of profit.

01:34:54.780 | And then if you work out the deals on the back end and you do it properly, do it ethically,

01:34:59.460 | disclose it, et cetera, you can put together enough profit without dealing with the formal

01:35:03.600 | custodianship of assets.

01:35:05.740 | So that's why you kind of have these competing industries.

01:35:07.980 | You have the newsletter industry versus the money management industry.

01:35:14.940 | There are some sweet spots.

01:35:16.700 | There are some sweet spots in trust services.

01:35:20.020 | There's perhaps a sweet spot in family office management.

01:35:24.660 | But just speaking very broadly, those are the models that I see and why I think the

01:35:28.760 | different models work.

01:35:30.260 | >>Steve: That's great.

01:35:32.620 | Thank you very much.

01:35:35.300 | Good questions, guys.

01:35:37.140 | Anything else, Tim?

01:35:38.140 | Go ahead.

01:35:39.140 | Yeah, go ahead.

01:35:40.140 | >>Tim: Do you know anybody who's used Garrett Gunderson?

01:35:41.700 | Yeah, I agree with you.

01:35:43.460 | His model is very interesting.

01:35:45.460 | >>Steve: I don't know of anybody who's gone through it.

01:35:49.100 | And I need to, I've been meaning to, over the next year, I'm going to build a bunch

01:35:53.420 | more relationships with some of the guys I respect.

01:35:58.860 | I had people ask me about him.

01:36:00.180 | That's when I started researching him.

01:36:01.540 | I had listeners wrote to me and said, "What do you think of what he's doing?"

01:36:04.060 | I need to reach out to him and go talk to him and see.

01:36:07.780 | Because probably, just for me, what I need to probably do is collaborate with guys that

01:36:12.740 | I respect, like what he's doing.

01:36:16.940 | So I haven't met him.

01:36:17.940 | I don't know him, nor have I gone through any client services.

01:36:20.180 | All I know is that when you watch his free marketing materials, he's focusing on the

01:36:24.700 | right things, which is financial planning and behavior management.

01:36:29.800 | So he's focusing on the right things.

01:36:31.260 | And because he's focusing on the right things, I have a feeling that he's probably put in

01:36:35.500 | place the proper back end.

01:36:37.420 | But he's not marketing Alpha.

01:36:40.260 | That's the key.

01:36:41.260 | He's not marketing Alpha.

01:36:42.260 | He's marketing the rest of it.

01:36:44.540 | I need to dig into his product mix and buy some of his stuff and see how he structures

01:36:49.180 | stuff.

01:36:50.180 | I haven't done it.

01:36:51.180 | I've been too busy.

01:36:52.180 | My own fault.

01:36:53.180 | But if any clients have gone through his stuff, or if any of you know Garrett, or Garrett

01:36:55.460 | if you're listening, reach out to me.

01:36:57.500 | I'm sure radicalpersonalfinance.com because I like the free stuff that he's doing.

01:37:01.820 | I think he's doing a great job, and I want to learn more.

01:37:04.980 | Thank you very much.

01:37:08.020 | My pleasure.

01:37:09.020 | That is it for our Friday Q&A show.

01:37:12.100 | Today was an epic, but man, we got some good topics.

01:37:16.100 | Thank you so much for listening.

01:37:17.220 | Thank you so much for calling in.

01:37:18.220 | If you would like to join me on next week's Friday Q&A show, as you can see from today,

01:37:22.500 | you can talk to me about anything in the world you want, and I don't hold back.

01:37:26.620 | So I'm not too great in the world of nuclear physics.

01:37:29.140 | I hope it relates to money, but I don't hold back.

01:37:31.300 | So if you'd like to join me for next week's show, go to patreon.com/radicalpersonalfinance,

01:37:36.740 | sign up there, and you will get access to the calls.

01:37:39.820 | Until soon, I wish you well.

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