Career Advice from Downtown Josh Brown

00:00:00.000 | - Welcome back to Ask the Compound, where each week we go through dozens and dozens

00:00:23.480 | of questions from you, the viewer, to figure out what to answer.

00:00:26.540 | On today's show, we're answering questions about some career advice from young financial

00:00:29.940 | advisors, figuring out when you actually need an advisor heading into retirement, why tips

00:00:34.320 | have performed so poorly despite the highest inflation in four decades, when it makes sense

00:00:38.880 | to allocate to your taxable account instead of your 401(k), and then how to put cash to

00:00:42.900 | work into stocks at all-time highs.

00:00:45.440 | Remember our email here, askthecompoundshow@gmail.com.

00:00:49.940 | Today's show is sponsored by Rocket Money.

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00:01:53.600 | - Right.

00:01:54.600 | - All right.

00:01:55.600 | Let's get into a question.

00:01:56.600 | - All right.

00:01:57.600 | Up first today, we have a question from John.

00:01:58.600 | "I heard Josh on the Ryan Russillo podcast a few years ago talking about older advisors

00:02:03.160 | who promise their practice to younger advisors, but then never leave.

00:02:06.720 | I'm in that exact situation right now.

00:02:08.760 | I was promised a book of business by my senior advisor who said he was planning on retiring

00:02:13.040 | soon.

00:02:14.040 | Fast forward five years, and he's still around and showing no desire to let go.

00:02:18.180 | What do I do?

00:02:19.360 | I help out his clients so I can't exactly take them and leave.

00:02:22.360 | Do I wait him out?

00:02:23.720 | Feels like I'm stuck."

00:02:24.720 | - All right.

00:02:25.720 | Well, let's bring in Josh to help with those.

00:02:27.920 | I've heard Josh talk about this thing for years.

00:02:29.920 | - Same.

00:02:30.920 | Hey, Josh.

00:02:31.920 | - Josh, you predicted this.

00:02:32.920 | You said, "Listen, these guys that say they're going to retire, they never retire, especially

00:02:36.320 | in the wealth management business, because why do you need to?

00:02:39.120 | It's not like you're doing back-breaking work, and if these younger advisors are handling

00:02:42.260 | all the behind-the-scenes stuff for you, why do you need to?"

00:02:45.320 | So this is going to happen forever.

00:02:46.480 | - Why would you?

00:02:47.600 | Yeah, you're not a band-saw operator.

00:02:49.920 | You're not at physical risk.

00:02:52.120 | You're talking on the phone.

00:02:53.120 | You're playing golf.

00:02:54.120 | No one leaves.

00:02:55.120 | - And we know boomers are going to have a hard time letting go of their jobs, especially

00:02:57.840 | like this.

00:02:59.160 | So what do you tell young people like this?

00:03:01.200 | Because most of them are kind of stuck.

00:03:03.120 | - Well, all right.

00:03:05.000 | So this is not easy.

00:03:06.960 | And I feel very confident saying the things that I'm about to say and not offending people,

00:03:14.200 | because I'm always the first person to say how stupid my own career path was in my 20s

00:03:20.120 | and early 30s.

00:03:21.120 | So I don't mean this disrespectfully.

00:03:23.520 | I mean this as somebody who has all the battle scars.

00:03:29.600 | Never work for a family business if you're not part of the family.

00:03:32.080 | This is the number one thing.

00:03:34.240 | So many young guys, they end up as part of a team, but it's not really a team.

00:03:39.400 | They end up as the grunt working for somebody who is either at a large wire house or has

00:03:45.360 | left a large wire house and has their own independent practice.

00:03:48.560 | And then before you know it, like, oh, my son is graduating in two years and he's going

00:03:53.360 | to intern now.

00:03:54.640 | And then the guy's son's going to be your boss.

00:03:57.040 | What are you, stupid?

00:03:59.400 | How do you not see that coming from a mile away?

00:04:01.120 | What's wrong with you?

00:04:02.120 | And if it's not his son, it's whoever his daughter marries, his son-in-law might be

00:04:06.640 | your boss.

00:04:10.560 | So this is like, I mean, this is not, this is so universal, just beyond financial advisory.

00:04:16.520 | So that's one.

00:04:17.520 | Two, it's not a business that people retire from.

00:04:20.480 | I've seen people sell a firm, sit around for 18 months and then start a new firm and then

00:04:25.800 | call back all their old clients.

00:04:27.280 | Like nobody leaves, nobody stops working.

00:04:31.160 | And all of the research that advisors themselves use to talk with clients about the concept

00:04:37.040 | of retirement states, like literally the last thing you should do is stop working forever

00:04:42.200 | or stop doing everything.

00:04:43.800 | So more frequently, you'll see the candle slowly go out and not be blown out.

00:04:48.760 | So it's not like, oh, I'm 70, today's my retirement, where's my cake?

00:04:53.880 | It's like, oh, I'm going to slow down a little bit.

00:04:56.120 | And that process can play out for like 10 years and they're in Boca and you're in Pittsburgh

00:05:02.720 | grinding out, you know, financial planning, quarterly meetings.

00:05:06.940 | So the right answer, I think, is think in terms of like, what would be a better career

00:05:13.800 | for yourself?

00:05:14.840 | Be completely beholden to one Jedi master and hope that, you know, he or she honors

00:05:21.480 | their word or work at a firm that's got a career path where you don't have to wait somebody

00:05:27.320 | out.

00:05:28.320 | And, you know, I'm obviously talking our book because we are providing that career path

00:05:32.840 | for young advisors.

00:05:33.840 | Unfortunately, I can't take 10 of them.

00:05:36.320 | I don't, I don't have, but that type of firm, that type of opportunity is what you should

00:05:43.680 | be looking for when you're interviewing.

00:05:45.900 | And if it's like a, a situation where you're going to be backed into the corner or waiting

00:05:51.000 | on someone else's lifestyle to change, that's probably not your best bet to take that role.

00:05:56.760 | - Your point about the family business is so key.

00:06:00.480 | That was my situation.

00:06:01.480 | My very first job I worked for the guy had started the business, the consulting business,

00:06:05.840 | and all three of his kids worked for him.

00:06:07.760 | - Yeah, where'd you think that was going?

00:06:10.680 | - But he even laid it out.

00:06:11.800 | He said, listen, this is a three-year job for you.

00:06:14.800 | I'm going to teach you everything I know, and I'm going to help you find a new job,

00:06:17.520 | but you have an escape hatch.

00:06:19.380 | You don't want to stay here for more than three years.

00:06:20.840 | So I think you have to have that.

00:06:21.840 | Do you think it's even worth talking to these people?

00:06:24.160 | Like going back to the guy and saying, listen, you told me you're going to leave soon.

00:06:28.080 | What's the story?

00:06:29.080 | Is it even worth it having that conversation or do you look for your own escape hatch and

00:06:31.200 | just try to find something else?

00:06:32.520 | - Yeah.

00:06:33.520 | You know, I think, I think having that conversation is great the first or second time, but then

00:06:38.560 | it's like going to be dependent on the honor of the person involved.

00:06:42.000 | And by honor, I don't mean, oh, this guy really wants more opportunity.

00:06:45.640 | I better leave sooner because that ain't going to happen.

00:06:48.480 | You could end up talking to somebody that's like it secretly in the process of selling

00:06:52.680 | their firm to a private equity buyer or to a rollup or an aggregator.

00:06:58.120 | And then it's like, oh, he did retire, but you know how he did it?

00:07:02.880 | He sold the business out from under me.

00:07:05.480 | And now I have to go to whatever firm we were sold to.

00:07:08.960 | So I think if you're open, if, if I think it's each situation is going to be dependent

00:07:14.240 | on, on who that senior advisor is and how honest they are with, and you know, it's a

00:07:20.400 | whole spectrum.

00:07:21.400 | Everyone's different.

00:07:22.400 | - You want to have your own, you want to like be as independent as you can, even if you're

00:07:25.320 | working for someone else in terms of like having clients that are attached to you in

00:07:28.320 | some way.

00:07:29.320 | - Yeah.

00:07:30.320 | Look, the reality is that in some cases, the senior advisor does so little as the years

00:07:36.880 | go on and has such little contact day to day with these families, especially the younger

00:07:42.600 | generations within these families, that the apprentice advisor really ends up becoming

00:07:48.400 | de facto the actual advisor.

00:07:51.400 | And then in that case, there's some mobility.

00:07:53.600 | It's like, look, I'm not going to like try to recruit your whole business away, but I'm

00:07:58.480 | doing all the work and I'm going to leave and we'll see where they, we'll see where

00:08:02.240 | this shakes out.

00:08:03.240 | I'm glad you played golf with this dude's grandfather, but I'm the one in their lives

00:08:07.120 | really helping them and answering questions.

00:08:09.000 | So, you know, it is what it is.

00:08:11.640 | I wouldn't be afraid to make that leap.

00:08:15.000 | Understand that you're probably not going to leave retaining most of the clients if

00:08:18.880 | they weren't yours to begin with, but do what you got to do if that's what it takes to get

00:08:23.240 | yourself up and running.

00:08:24.520 | But I have to reiterate this, I think it's really important.

00:08:28.280 | There's like this mental illness in our industry amongst young people and it's not their fault.

00:08:34.160 | They're being sold this idea that like they could graduate from CFP track in college and

00:08:41.080 | within two years be running their own firm.

00:08:44.120 | Yeah, maybe, but most of you can't because most businesses don't succeed in any endeavor.

00:08:50.120 | And this is even harder than most businesses.

00:08:52.560 | Think about what you're trying to do.

00:08:54.320 | You're trying to get people in their fifties and sixties to entrust somebody that's the

00:08:58.960 | age of their son or grandson with their life savings.

00:09:03.640 | Why would they do that?

00:09:05.160 | So now you have to deal with younger clients who have less assets and are less willing

00:09:09.140 | to pay for advice because their lives are less complex.

00:09:11.680 | That's really, really hard.

00:09:15.520 | So I think like focus on career path, where do I really learn how to be an advisor?

00:09:23.640 | And in some cases it might be sitting side by side with a solo practitioner who runs

00:09:29.440 | their own show independently somewhere.

00:09:31.400 | But for most people, that's not great.

00:09:33.400 | Like you want to look for an enterprise that's willing to teach you, even if it's not where

00:09:38.880 | you want to end your career.

00:09:41.160 | Look, manning the desk at Schwab or Fidelity is a way better path in my opinion, than sitting

00:09:48.600 | next to a 55 year old.

00:09:50.640 | Because over the next five years, you know, for a fact, the 55 year old's not retiring.

00:09:55.960 | But if you do that time at Vanguard or Schwab, you know, for a fact, you're talking to thousands

00:10:01.480 | of clients.

00:10:03.000 | You're honing your chops, you're getting reps, and you're actually delivering advice, helping

00:10:08.120 | people.

00:10:09.400 | None of those may end up being your future clients, but you're learning how to do this.

00:10:14.600 | And you're giving yourself the experience to become valuable for wherever your next

00:10:18.480 | stop is going to be.

00:10:20.040 | Even if that ends up being your own firm.

00:10:21.600 | Yeah, the delusion of young people you're talking about is, it's so much easier for

00:10:24.600 | them to research their career path these days.

00:10:26.720 | And people come out of school saying, I want to work for an RIA, which is really hard as

00:10:30.080 | an entry level position.

00:10:31.280 | So I agree, you go to that big firm first, you learn a bunch of stuff, you put the reps,

00:10:34.960 | and then you move on to an RIA.

00:10:36.920 | We've trained a couple of young people right out of school.

00:10:40.760 | That's not what we want to do in general.

00:10:44.260 | We happen to have met a couple of superstars.

00:10:48.020 | But I don't think we're a great first firm for students coming out of school.

00:10:55.740 | Because I think when they come to us, it's such a long period of time before we're going

00:11:02.080 | to be, from a quality control standpoint, it's going to take so long before we can actually

00:11:08.200 | put them in a seat where they can alter their own trajectory of their career.

00:11:14.160 | They're going to learn so much from us.

00:11:15.580 | But for a lot of young people, there's impatience.

00:11:18.040 | And I totally understand it.

00:11:20.080 | I also think they don't even realize our young advisors, if they've been to two or three

00:11:26.000 | firms before they come to us, they realize why what we're doing is so special, in my

00:11:30.280 | opinion.

00:11:31.280 | I think if you first come to me, you don't even understand what goes on out there, and

00:11:35.640 | you don't even understand why what we're doing is special.

00:11:38.160 | So I just spoke to a group of college kids last week, and shout to Nate Jefferson, who

00:11:44.420 | is one of our superstar young advisors, a Michigan State.

00:11:50.320 | And I'm not pitching these kids to come work at our RIA.

00:11:54.040 | I think most of them would be better off at a larger firm to really get reps and then

00:12:01.120 | come to me, like come to me in three to five years when you actually know the difference

00:12:06.680 | between all the firms in the industry.

00:12:09.200 | And that's like a much better path.

00:12:11.160 | Right.

00:12:12.160 | Yeah.

00:12:13.160 | But your first thing you said is the important point.

00:12:15.000 | It's not easy.

00:12:16.000 | Whatever path is, it's not going to be easy.

00:12:19.100 | It's a great career.

00:12:20.100 | Why should it be easy?

00:12:22.880 | If this were easy, why wouldn't millions of people do this for a living?

00:12:27.040 | Because it's not.

00:12:28.040 | Yeah.

00:12:29.040 | All right, Duncan, next question.

00:12:30.040 | Let's do it.

00:12:31.040 | All right.

00:12:32.040 | Next, we have a question from Larry.

00:12:33.040 | Larry writes, Josh is right that I'm inclined to trust my money with someone that I like,

00:12:37.040 | which I'm sure is the thought behind all the content you put out.

00:12:39.720 | My question is, when do I know it's time to make that call?

00:12:43.160 | I have a goal number in mind, which I'm tracking towards nicely, but I'd hate to be too conservative

00:12:48.000 | or too aggressive as I approach retirement.

00:12:50.760 | I'm currently 14 to 16 years away from retirement.

00:12:53.760 | When do I make the call for help?

00:12:55.360 | Five years away from retirement, a year, six months.

00:12:58.520 | I'm curious to hear what you guys have to say on this, because six months to a year

00:13:01.120 | doesn't sound like much time to get a lot of help from a firm.

00:13:03.880 | No.

00:13:04.880 | Well, there's going to be millions of people asking this question you just had.

00:13:06.920 | John, throw this chart up here.

00:13:09.280 | This shows the number of people turning 65 by year, and I guess it's a record this year.

00:13:14.760 | It's going to be a record next year.

00:13:16.680 | There's going to be millions of...

00:13:17.760 | We've never had this many people live this long who have this much money, and there's

00:13:23.320 | obviously different...

00:13:24.320 | Is this saying that every year for the next seven years, we're going to have 4 million

00:13:30.520 | new people turn 65?

00:13:32.960 | Yes.

00:13:34.580 | The person who was asking the question about financial advice, the person, financial advisors,

00:13:38.060 | this is so bullish for financial advisors, because for people who have built wealth,

00:13:43.540 | the idea of saving or starting a business and creating wealth, that part is a little

00:13:48.440 | easier than transitioning into the next phase of financial planning of, "I have to spend

00:13:53.320 | it now, and I have to figure out taxes in retirement, and I'm not making as much money,"

00:13:57.400 | and all this other stuff is people are going to be turning to someone, a professional,

00:14:01.440 | for financial advice.

00:14:03.360 | I think Larry here sounds like a DIY group, which we deal a lot of, people who've done

00:14:07.960 | it themselves.

00:14:08.960 | They know how to create a portfolio, they know how to save, they know how to live on

00:14:13.040 | less than they earn, all that stuff, but now they need some expertise from going from a

00:14:17.720 | saver to a spender, and when is that?

00:14:21.280 | I think that's a question that a lot of these people have to figure out, and a lot of times

00:14:24.520 | it's, "Listen, I have a spouse or family members who are dependent on me, and God forbid, something

00:14:31.520 | should happen to me that I'm getting older.

00:14:33.280 | I want to make sure something's okay," or, "Listen, I don't have the expertise to handle

00:14:38.680 | my finances in retirement.

00:14:40.040 | I need to outsource this to someone else."

00:14:41.960 | I think that's the idea.

00:14:43.800 | I don't know if there is a perfect time to do it, but I think it's kind of, if you're

00:14:48.480 | asking the questions, you're getting close.

00:14:51.400 | Yeah, I think that's right, and go back to the phrasing of the question.

00:14:54.640 | He said he's 14 to 16 years away from retirement, when do I pull the trigger?

00:14:58.600 | I'm not sure that's framing the question correctly.

00:15:03.880 | I don't think it's temporal, like how many years before I retire, should I?

00:15:08.660 | I think it's more like, what is the level of complexity in your financial, in your life,

00:15:14.440 | in your financial life, and what is the trajectory of that?

00:15:18.080 | Because it's seemingly getting more complex with every passing year, and for a lot of

00:15:22.080 | households, the answer is yes, because you just have so many more moving parts, so many

00:15:27.160 | more variables.

00:15:29.540 | The other thing is, and this is kind of universal, anxiety doesn't diminish with increased financial

00:15:38.360 | wherewithal.

00:15:40.600 | You're probably not worried about, "How do I pay my bills?"

00:15:43.920 | If you're in your late 40s, early 50s, making good money, okay, so that's different from

00:15:49.000 | your 20s and 30s, but you're worried about other things, and we will always find room

00:15:55.160 | to have anxiety and to worry.

00:15:57.440 | Yeah, am I going to be okay, am I making the right decisions, how do I not screw this up?

00:16:02.840 | That's the thing a lot of these people want to, and it's, when you get to retirement age,

00:16:06.320 | it's, do I have enough to live on, and wait, can I buy this second home on the lake, or

00:16:10.800 | can I take this trip, and that's the stuff that you want someone to lean on when you're

00:16:16.240 | anxious about all those decisions, and you want someone to help you make better decisions,

00:16:19.840 | or sign off for you, and say, "Yes, you can do this, it's well within your financial plan."

00:16:23.680 | That's when you need the help.

00:16:25.640 | I think that's right, so there's no right answer, it's not a number of years till retirement,

00:16:30.080 | it's not an age, it's not a dollar amount.

00:16:33.440 | It's at a level where you say, "You know what?

00:16:36.560 | This has gotten to the point where it's costing me peace of mind.

00:16:40.560 | There are so, I have more questions than answers, and I just want a pro in my life, and let

00:16:47.000 | me just get started on the path, and let me at least start talking to advisors, and seeing

00:16:52.680 | what they even do."

00:16:53.760 | You would be shocked.

00:16:54.760 | Yeah, if he's that far away, he can at least have some conversations, doesn't have to sign

00:16:57.280 | his life away.

00:16:58.280 | Yeah, you would be shocked at how many people just don't even know what wealth management

00:17:02.880 | and financial planning is.

00:17:05.020 | Think about how many people come to us, and the first encounter they have with one of

00:17:08.800 | our CFPs, they think we're doing security selection, or market timing.

00:17:16.240 | Everyone wants Josh's stock picks.

00:17:17.840 | Yeah, and we have to reorient, it's like, "All right, we'll get some portfolio stuff

00:17:23.240 | in the third meeting, fourth meeting, but can we figure out where you even are today?"

00:17:28.360 | Yeah, where you are, where you're going, and all that stuff.

00:17:30.960 | Right, so you could have that conversation any time is the right answer.

00:17:35.440 | Yeah, fair question, though, but I think if you're getting to ask the question, you at

00:17:40.320 | least start talking to people.

00:17:41.320 | All right, next one, Duncan.

00:17:42.320 | All right, up next we have a question from Dylan.

00:17:44.760 | "In March 2021, I bet on high inflation and bought $12,000 worth of tips, and have since

00:17:50.360 | seen the price drop per share.

00:17:53.040 | I distinctly remember that at the time, inflation was not on most people's radar, which is why

00:17:57.600 | I'm confused about how it was priced in.

00:18:00.120 | I probably wouldn't change anything because the dividend payments are nice, and it's good

00:18:03.800 | to have bonds in addition to my stock-heavy portfolio, but I'm wondering what I missed.

00:18:09.440 | Why has the price dropped despite record high inflation?

00:18:11.760 | Can you guys further explain tips, bonds, and ETFs?"

00:18:15.880 | I guess there's probably a good lesson here in knowing what you own and why you own it.

00:18:20.720 | This guy knows why he bought tips.

00:18:23.160 | And how the product that you've chosen works.

00:18:25.880 | Yeah.

00:18:26.880 | John, do a chart on here.

00:18:28.080 | I showed three bond funds on here, so I did TIP, which is the biggest tips fund.

00:18:33.400 | I did the ag on here as well to show total bond, and then I did the short-term tips.

00:18:39.000 | And you can see the ag is still-- this is from March 2021, when he says he made his

00:18:42.880 | inflation call.

00:18:44.440 | You still outperformed in TIP.

00:18:46.620 | It was down a little more than 3%.

00:18:48.320 | Ag is down more than 9%.

00:18:50.080 | But the short-term tips are actually up 6%.

00:18:53.240 | So you did better, and here's where our guy Dylan went wrong here.

00:18:59.320 | There's two components to tips.

00:19:01.120 | So it's the inflation components, so the Treasury Inflation Protected Securities.

00:19:04.480 | You get that inflation hedge.

00:19:06.680 | But they're also the bond component.

00:19:08.540 | And if interest rates are rising, especially as much as they did in 2022, they're going

00:19:14.880 | to act more like bonds and stocks.

00:19:16.320 | In that TIP, the average maturity is almost eight years on those bonds.

00:19:20.600 | For the short-term one, it's more like two to three years.

00:19:24.160 | And so you have way more interest rate risk than inflation protection on that longer-term

00:19:28.560 | tips.

00:19:29.560 | And so that's why they acted more like bonds than an inflation hedge, and you still lost

00:19:33.080 | money.

00:19:34.080 | Whereas the shorter-term tips, because they're so short-dated, you actually take out the

00:19:39.080 | bond component much more in the interest rate risk and just have the inflation part.

00:19:42.800 | Ben, can we back up?

00:19:44.800 | Let's take the ETF part out of this.

00:19:47.660 | I don't think that there is a genuine understanding amongst the public about the difference between

00:19:52.360 | TIPs and Treasury bonds.

00:19:55.120 | Why would people think that TIPs would protect them from rising inflation?

00:20:04.520 | What is the aspect of TIPs that would even lead somebody to a TIPs ETF?

00:20:09.760 | TIPs are actually probably the most unique normal financial product that there are.

00:20:16.120 | It's basically, you get a yield on these plus whatever inflation is every year.

00:20:21.920 | So let's say you're-- The yield doesn't change.

00:20:23.480 | The yield is fixed.

00:20:24.480 | The yield is fixed.

00:20:25.480 | It actually increases your principal.

00:20:26.480 | But what can change is CPI.

00:20:27.480 | Yeah.

00:20:28.480 | So the CPI changes your principal.

00:20:29.480 | So if you buy a bond for $100 and you earn 1% and inflation is 3, now you have $103.

00:20:38.760 | It increases your principal, and that's one of the-- it's a real hedge against inflation.

00:20:44.440 | The problem is, if interest rates rise, it still acts like a bond if you have duration.

00:20:50.800 | And rates went much higher because these TIPs yields were so low, because we were having

00:20:55.160 | deflation in the early 2020s, that you were paying a negative yield on them to own that

00:21:00.820 | inflation protection.

00:21:02.040 | So you didn't really get much bang for your buck.

00:21:04.440 | There was no yield there to protect you, and interest rates went up, which meant bond prices

00:21:08.400 | went down.

00:21:09.400 | So you got kind of a double whammy of no yield, and it acted more like a bond than an inflation

00:21:15.360 | protection.

00:21:16.360 | You know, it's interesting.

00:21:17.360 | And I think when we look back on this period, we're going to remember that a lot of the

00:21:25.060 | attempts to hedge or protect against inflation worked against investors.

00:21:31.040 | And they would have been better off trying to react as little to inflation as possible.

00:21:36.260 | You look at commodity stuff.

00:21:39.120 | You look at certain types of equities that historically have been good inflation protection.

00:21:43.800 | You look at reducing NASDAQ and long duration growth bet exposure.

00:21:50.200 | Some of these things initially worked in 2022, and then if you stuck with them for long,

00:21:55.360 | you got murdered.

00:21:56.360 | Like in the case of TIPs, the rate of inflation was rising slower than the rate of interest

00:22:04.040 | rates.

00:22:05.040 | Like the Fed was literally outrunning inflation.

00:22:07.920 | So that actually works against you.

00:22:09.680 | Now you have-- all right, so now you're hedged against inflation, but you're directly opposed

00:22:17.260 | to what the Fed is doing with overnight rates.

00:22:19.880 | So you actually caused yourself more harm than had you just stuck with a low duration

00:22:25.000 | or a money market fund.

00:22:26.000 | Yeah.

00:22:27.000 | You know, cash or money markets were your best hedge against inflation for the most

00:22:30.400 | part, because you had the short term rates ratcheted up so quickly, and you got to reinvest

00:22:35.200 | quicker.

00:22:36.640 | And that's why-- I mean, you have to feel for these people who did this, because we

00:22:39.480 | heard from a lot of people who did this.

00:22:40.760 | They said, listen, I thought inflation was a risk.

00:22:42.480 | I invested in TIPs.

00:22:44.280 | But you're probably getting more of that protection in TIPs from shorter term instruments.

00:22:49.720 | The problem is, it'll be interesting, because if and when rates fall, the longer term TIPs

00:22:53.800 | will do better, because they have that bond component, and shorter term TIPs will lag.

00:22:57.600 | But you're not-- On the way down.

00:22:58.600 | Yeah.

00:22:59.600 | It's not because of inflation or anything.

00:23:00.600 | It's just because they're going to act like bonds.

00:23:01.820 | You know what's going to be funny?

00:23:02.820 | Like in five years, they're going to be making TikTok videos showing the correlate-- they're

00:23:07.280 | going to show 2023, the biggest Fed interest rate increases in 40 years, and NVIDIA going

00:23:15.720 | straight up.

00:23:16.720 | And they're going to say, the best inflation hedge is large cap semiconductor stocks.

00:23:23.720 | So people should stop playing this game.

00:23:27.400 | You can get the macro right and still get the trade wrong.

00:23:29.680 | That's the point here, is understanding what you own.

00:23:32.600 | But yeah, the simple hedges worked better.

00:23:35.640 | And guess what?

00:23:36.640 | Even though the stock market was bumpy, the stock market is still your best long term

00:23:40.040 | hedge against inflation.

00:23:41.040 | And I agree.

00:23:42.040 | Trying to out think these things is maybe a little too-- getting a little too cute with

00:23:45.440 | these investments, since it was so short term.

00:23:48.480 | Here's my full proof inflation hedge.

00:23:53.440 | Ticketmaster just blasted out new Pearl Jam dates for later this year.

00:23:58.200 | They're going to do two nights at Madison Square Garden, September 3rd and 4th.

00:24:01.280 | Wait, I thought Eddie Vedder was going to wrestle with Ticketmaster's CEO.

00:24:04.520 | I didn't think they used them anymore.

00:24:07.440 | Maybe they found a way to do this where the Pearl Jam fan club doesn't get screwed over.

00:24:11.400 | And because I'm part of it, I got this message.

00:24:14.320 | I don't know.

00:24:15.640 | Anyway, I guarantee you, whatever CPI is between now and September, the face value of Pearl

00:24:22.760 | Jam tickets the week before Labor Day in New York City is going higher.

00:24:27.960 | It's almost like a-- I don't even think I can go to the show.

00:24:30.360 | It's my wife's birthday.

00:24:31.840 | But it's my inflation hedge.

00:24:33.520 | So I put myself in the lottery.

00:24:35.440 | However many tickets they'll let me buy, I'll buy them.

00:24:38.160 | And I'm pretty sure I'll be hedging out some consumer inflation at a minimum.

00:24:44.680 | You heard it here first, Josh Brown's inflation hedge.

00:24:47.080 | Eddie Vedder.

00:24:48.080 | Pearl Jam tickets MSG, almost a no-brainer, those are going to be $1,000 tickets.

00:24:54.480 | The real best inflation hedge is having the ability to increase your income.

00:24:58.520 | I think that's the thing most people probably miss on.

00:25:00.640 | Well, Nick Magiulli does a lot of content around that concept, is like, I don't care

00:25:06.640 | how much effort you're putting into optimizing your portfolio, put 10x that amount of effort

00:25:12.920 | into optimizing your career.

00:25:15.320 | Because that's really going to be the difference maker.

00:25:17.680 | And of course, he's right.

00:25:18.680 | The problem is you can't sell that in a newsletter or a trader alerts product.

00:25:26.680 | That's why it's such valuable advice, because it's hard to package.

00:25:29.360 | Yeah, because to your point about your career path, I had the same thing.

00:25:32.520 | My career path was not normal.

00:25:34.320 | It's hard to tell people, like, I did this crazy career path, now you try to try to mimic

00:25:38.280 | it.

00:25:39.280 | It's impossible.

00:25:40.280 | You can't mimic anything.

00:25:41.280 | Read these books about like the Wall Street legends.

00:25:43.760 | You can't do anything these guys did.

00:25:45.680 | The serendipity, like who they were in Columbia Business School with in 1965.

00:25:49.920 | You're going to replicate that?

00:25:52.720 | You know what I mean?

00:25:53.720 | So yeah, I think focus on how you're going to raise your level of income, keep your expenses

00:25:59.040 | in check, and give yourself the flexibility to grab hold of opportunities when they come.

00:26:05.760 | That's what's going to make the difference, and not which tips ETF do I protect cash with.

00:26:13.960 | That's not going to be the thing.

00:26:16.480 | Did you see the government's going after shrinkflation?

00:26:18.720 | That could help, right?

00:26:20.920 | I thought junk fees.

00:26:22.120 | They're doing shrinkflation too?

00:26:23.520 | Shrinkflation too.

00:26:24.520 | Yeah.

00:26:25.520 | All right, good.

00:26:26.520 | All right, next question.

00:26:27.520 | I think we have a question from another John.

00:26:30.560 | Here's my take.

00:26:31.560 | Hot, warm, cold, or whatever you determine it to be.

00:26:34.000 | I feel like it makes more sense to put excess money in a taxable account than to max out

00:26:38.040 | a 401(k).

00:26:39.520 | My why here is that there's a lot of life to live between now and 59 and a half.

00:26:44.320 | My biggest fear is turning 50 and just staring at a big pile of money we can't touch for

00:26:48.640 | 10 years.

00:26:49.880 | I think this strategy allows for us to have a rich life during all phases of our life

00:26:54.280 | and not just save it all for a specific period.

00:26:57.120 | I'm well aware of the tax benefits of 401(k)s and the disadvantages of the taxable account.

00:27:01.280 | At the end of the day, having that money more accessible just makes more sense to me.

00:27:06.640 | Is it silly of me to think this way?

00:27:08.520 | I think they need some better fears, honestly, if that's their biggest fear of having a bunch

00:27:12.160 | of money at 50.

00:27:13.160 | Josh, you mentioned Nick actually made the case on this show a couple years ago that

00:27:16.480 | you shouldn't max out your 401(k) and he was saying it's not worth giving up the flexibility

00:27:20.760 | you get from just owning index funds in a taxable account and it's kind of a negligible

00:27:24.720 | difference.

00:27:26.320 | Bill Sweet might have a problem with this.

00:27:27.800 | I don't agree with Nick's take, but I get where he's coming.

00:27:31.320 | I'm not saying he's wrong because this is almost subjective.

00:27:35.520 | There's always a mathematical answer and then a what's best for me personally answer.

00:27:42.440 | I think what Nick was saying made a lot of sense, what this guy is asking makes a lot

00:27:46.480 | of sense.

00:27:47.480 | I think you have to know yourself.

00:27:48.480 | For most people, they're not disciplined enough to take-- what's the contribution now, 23,000

00:27:54.160 | a year?

00:27:55.160 | Yeah.

00:27:56.160 | For most people, they're not disciplined enough to take $23,000 a year of their own

00:27:59.920 | volition, a set amount out of every paycheck, set it aside into a brokerage account, and

00:28:05.680 | then not pull it out whenever they feel like it.

00:28:08.740 | That is one of the benefits of the 401(k) structure.

00:28:12.740 | It makes it almost impossible to get access to your money in a good way.

00:28:16.280 | You never see it hit your checking account when you get paid either.

00:28:18.600 | It's just taken off the top.

00:28:20.200 | That's right.

00:28:21.360 | That's behavioral.

00:28:22.840 | Dude, Nick is a computer.

00:28:26.400 | He computes.

00:28:27.840 | He doesn't need that behavioral Jedi mind trick.

00:28:32.240 | I actually like having the 401(k) stuff.

00:28:34.720 | I actually like having it locked up so I'm not going to touch it in the next 20 years

00:28:38.640 | or whatever.

00:28:39.960 | I like the fact that it's difficult to access.

00:28:41.160 | I don't even count it.

00:28:42.160 | Yeah.

00:28:43.160 | I'm not even tempted to touch it.

00:28:44.160 | Right.

00:28:45.160 | I don't even think about it.

00:28:47.900 | I look at it because I get an email.

00:28:52.120 | We have a nice match at our firm and blah, blah, blah, and everyone's in it, and it's

00:28:55.560 | working out great, but I don't think about my 401(k) money because I'm 46.

00:29:01.400 | I'm not going anywhere near it for two decades.

00:29:04.380 | It's irrelevant.

00:29:06.120 | It's fully invested in stocks, by the way, for anyone that's curious.

00:29:10.080 | I wrote this in my book, How I Invest My Money.

00:29:13.240 | I have zero cash.

00:29:14.520 | I have zero bonds.

00:29:16.120 | It's 100% invested in global equities.

00:29:19.000 | I never change the amounts.

00:29:21.280 | Whatever the max is, I max it out, and I never try to time it, and I never alter what I'm

00:29:26.840 | putting where, and I just leave it alone.

00:29:31.280 | Since we started the firm in 2013, I think we had our first year for the plan that year.

00:29:36.320 | It's done incredibly well, obviously.

00:29:39.040 | Markets have done incredibly well.

00:29:40.680 | Could I have optimized it?

00:29:42.600 | Could I have put in less and put more into a brokerage account and maybe use that money

00:29:47.000 | differently?

00:29:48.000 | Yeah, but I'm busy.

00:29:50.240 | That's the other thing.

00:29:51.440 | It's something that's already taken care of, automated.

00:29:54.680 | I don't even think about it or look at it.

00:29:56.760 | I do agree with this.

00:29:58.000 | If he's saying, because we get a lot of people who say, "I want to retire at 55."

00:30:01.240 | For some reason, 55 is always the year.

00:30:03.280 | I don't know why.

00:30:04.280 | That's just the one people pick.

00:30:05.280 | It just sounds easy.

00:30:06.280 | If you're going to retire early- What are you going to do at 55 years old?

00:30:09.760 | Fair.

00:30:10.760 | No, honestly.

00:30:11.760 | Literally, what do you think you're going to do?

00:30:13.800 | Traveling?

00:30:14.800 | How much golf?

00:30:15.800 | Seven days a week?

00:30:17.640 | That is true.

00:30:18.640 | You will not retire at 55.

00:30:19.640 | No, if you want to retire early, you have to give yourself more flexibility.

00:30:22.320 | I agree.

00:30:23.320 | It's hard to think right now how you're going to feel at that age and what you're going

00:30:28.520 | to do with yourself.

00:30:29.520 | Do you know people in their 50s?

00:30:32.040 | Do any of them seem like they should have more free time?

00:30:34.640 | To do what?

00:30:35.640 | Read about World War II?

00:30:36.640 | What are we doing here?

00:30:39.600 | You might sell your business.

00:30:40.600 | They could get super into politics?

00:30:42.600 | Yeah.

00:30:43.600 | Sell your business, sit around for two years, sending emails to your kids that they don't

00:30:47.800 | read with jokes in them, and then at some point, you have to go do something with yourself

00:30:52.480 | or you're going to lose your mind.

00:30:55.620 | This might be a regional thing.

00:30:57.360 | I don't know anybody in their 50s who's retired.

00:30:59.480 | I know very wealthy people in their 50s.

00:31:02.240 | They're working more.

00:31:04.760 | There's just so much to do in this world.

00:31:07.720 | I don't know.

00:31:08.960 | I can't relate to that, unless you really hate your job, which doesn't sound like is

00:31:14.640 | this gentleman's problem.

00:31:15.640 | All right.

00:31:16.640 | We've got one more.

00:31:17.800 | All right.

00:31:18.800 | Up next, we have a question that came in through Twitter, which by the way, I'm always, like

00:31:22.400 | you say, Ben, I'm always going to call it Twitter.

00:31:24.560 | It's hard for me to remember to say X, but someone did call us out for the fact that

00:31:28.000 | we changed the name of our show from Portfolio Rescue to Ask the Comp Out.

00:31:31.880 | Oh, man.

00:31:32.880 | I got it.

00:31:33.880 | Someone did point out that we did that.

00:31:34.880 | That's true.

00:31:35.880 | All right.

00:31:36.880 | If you want to call us Portfolio Rescue, I bet it.

00:31:37.880 | Exactly.

00:31:38.880 | All right.

00:31:39.880 | This one is, "Any advice for someone with a large cash position, but SPY, QQQ, and BTI

00:31:44.880 | are at or close to all-time highs, dollar-cost average, suck it up and buy?"

00:31:50.080 | All right.

00:31:51.080 | This is like-- The math says buy, but it's not always the

00:31:54.640 | right answer for every personality type.

00:31:56.560 | Yeah.

00:31:57.560 | This is like the psychological barrier of-- we showed on last week's show, the JP Morgan

00:32:01.640 | study that if you bought at all-time highs, your average returns over one, three, and

00:32:05.120 | five years are better than picking any random day.

00:32:08.200 | So your average returns are higher from all-time highs, and I still get the psychological barrier

00:32:14.320 | that people have here of, "Yeah, but what if I put all my money in at the all-time high

00:32:18.640 | before bear market, and then I feel like an idiot?"

00:32:21.320 | Totally.

00:32:22.320 | I mean, Ben, you did the definitive answer to that question, "What if I'm the worst market

00:32:28.320 | timer in history, and I only buy major generational tops in the market?"

00:32:34.640 | You looked at a hypothetical investor who bought 2007 and all of these other market

00:32:40.840 | tops, and you can correct me if I'm wrong, but I think the conclusion was even if you

00:32:45.680 | are the absolute jinx, these lump sum investments that you've made at generational market tops

00:32:53.680 | still haven't put you that much further behind the eight ball.

00:33:00.320 | As long as you keep the money invested, you're probably going to be okay.

00:33:03.000 | As long as you don't give up.

00:33:04.000 | Right.

00:33:05.000 | I think-- so, John, throw the chart up.

00:33:06.000 | We've been talking about this for a while on all of our shows about the money market

00:33:09.440 | funds.

00:33:10.440 | We're at $6 trillion.

00:33:11.440 | I think there's $2 trillion in CDs.

00:33:12.800 | I think people in a lot of these funds are going to be having this conversation themselves

00:33:16.400 | like, "Geez, if the Fed cuts from 5% to 3%, what am I going to do now?

00:33:21.320 | Am I going to buy that?"

00:33:22.320 | Michael doesn't agree with you.

00:33:23.320 | Michael thinks these assets are going to be sticky.

00:33:25.240 | I think he's wrong, and I'm in your camp.

00:33:28.720 | So a trillion dollars came into money markets last year.

00:33:32.360 | I don't think a trillion comes back out and goes into the S&P 500, but I don't think it's

00:33:37.400 | sticky.

00:33:38.400 | I think the longer this rally goes on, the less likely it is to be sticky, obviously.

00:33:44.720 | But I could see treasuries being a hot asset class, like three- to five-year treasuries

00:33:51.000 | being a hot asset class.

00:33:52.000 | That's the thing.

00:33:53.000 | If you see short-term yields going down and bonds rallying because yields are falling,

00:33:56.360 | then-- Yeah.

00:33:57.360 | You're going to extend.

00:33:58.360 | Yeah.

00:33:59.360 | We're sending a letter this week, but we did that for our own clients.

00:34:02.920 | It's like, look, we already made the short-duration bet during the pandemic.

00:34:07.720 | It was not a market timing call.

00:34:09.080 | It was just risk/reward.

00:34:11.200 | Why take duration risk with rates at zero if everyone's earning the same yield anyway?

00:34:16.760 | And that ended up being a very wise move on the part of the investment committee.

00:34:20.960 | Now it's the opposite.

00:34:21.960 | We're not predicting what rates are about to do, but why wouldn't you extend?

00:34:27.160 | If it's not that much of a differential between short- and long-term rates, why wouldn't you

00:34:31.800 | get a little bit longer here just in case?

00:34:34.600 | If you want to dip a toe in dollar-cost average over months or quarters or whatever it is,

00:34:41.360 | I can get behind that, even if it's not the right spreadsheet answer.

00:34:44.520 | Yeah.

00:34:45.520 | I like AAA corporate bonds here.

00:34:49.600 | I like municipal bonds.

00:34:51.560 | I like anything other than cash right now.

00:34:54.000 | I don't think we're getting the amount of rate cuts that the consensus seems to think

00:34:57.840 | we're getting this year.

00:35:00.360 | But ultimately, the longer they leave rates higher, the more obvious it is that they're

00:35:04.680 | going to be forced to cut them.

00:35:06.720 | Because we're about to run into commercial real estate refinancing risk.

00:35:11.640 | We're about to run into a lot of corporate bonds repricing.

00:35:15.540 | And it'll hit the lower end first, and people will dismiss it at first.

00:35:19.320 | But ultimately, it'll cascade.

00:35:21.440 | It'll get worse.

00:35:22.440 | And the Fed will cut rates, because conditions will simply be proven to have been too tight.

00:35:28.660 | So it's interesting.

00:35:30.280 | It's a paradox.

00:35:32.140 | You don't have to be betting on them cutting rates.

00:35:34.320 | The better bet is to say, they're going to cut rates too late, but they're going to be

00:35:38.760 | forced to.

00:35:39.760 | They're going to have to go even bigger.

00:35:42.080 | So instead of getting 25 basis points once every other month, it'll be 50 basis point

00:35:47.920 | cuts, because they'll be reacting to some bank in Oklahoma blowing up.

00:35:53.480 | So that's the way that I'm thinking about the next couple of years.

00:35:58.600 | So I think that that's like a-- it's interesting.

00:36:02.660 | I don't think it's like a flight out of money market funds.

00:36:05.320 | But I don't think it'll be as sticky as Michael thinks it will.

00:36:08.040 | We'll see.

00:36:09.040 | I think it'll be a slow trickle.

00:36:10.960 | And maybe that's the way to do it, too, if you're worried about that reinvestment risk.

00:36:15.200 | Absolutely.

00:36:16.480 | Was this good for you?

00:36:17.480 | Was this fun for you guys?

00:36:18.480 | Because I got to tell you, this is the highlight of my day.

00:36:20.400 | That was great.

00:36:21.400 | Yeah, it was great.

00:36:22.400 | Always good to have you on.

00:36:23.400 | This is good.

00:36:24.400 | Absolutely.

00:36:25.400 | New TCAF on Friday.

00:36:26.400 | Thanks to Josh, as always.

00:36:28.720 | Thanks to Duncan.

00:36:29.720 | Yeah, man.

00:36:30.720 | Love you guys.

00:36:31.720 | Thanks so much for doing the show.

00:36:32.720 | Thank you, Josh.

00:36:33.720 | Askthecompoundshow@gmail.com.

00:36:35.480 | We get these questions from everywhere-- Twitter, people DM me, they respond, YouTube replies,

00:36:40.640 | the live chat.

00:36:42.560 | Email us.

00:36:43.560 | We're always happy to answer.

00:36:44.560 | See you next time.

00:36:45.560 | How do people email-- how do people email us?

00:36:47.480 | Askthecompoundshow@gmail.com.

00:36:48.480 | There it is.

00:36:49.480 | There it is.

00:36:50.480 | All right.

00:36:51.480 | See you next time.

00:36:52.480 | See you.

00:36:52.480 | [MUSIC PLAYING]

00:37:18.480 | you

Career Advice from Downtown Josh Brown

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