Do I Still Have Time for Compounding to Work?

00:00:00.000 | (beeping)

00:00:02.180 | - Welcome back to Ask the Compound,

00:00:12.840 | a show where you, the audience, provides the questions,

00:00:14.920 | we try to provide the answers.

00:00:16.580 | Duncan tries to provide stock picks

00:00:18.160 | that you can then go short in your brokerage account.

00:00:20.760 | - Fair. - Fair enough.

00:00:22.720 | - Our email here is askthecompoundshow@gmail.com.

00:00:24.760 | A lot of wonderful questions again.

00:00:26.600 | Bonds continue to rule the day.

00:00:28.440 | We haven't got a question about the stock market in months.

00:00:30.640 | It's all bonds and taxes and Roth IRAs.

00:00:33.680 | Today's show is sponsored by Kaplan-Schweizer.

00:00:37.440 | Sean, our research analyst,

00:00:39.240 | just took this-- - Set it right.

00:00:40.400 | - I got it.

00:00:41.400 | Sean, our research analyst, just took level one for CFA.

00:00:44.240 | He asked, before he took it,

00:00:45.840 | "What do I do to pass this test?"

00:00:48.040 | I said, "Take as many practice tests as you can

00:00:50.800 | "and then get the study guides from Kaplan,"

00:00:52.600 | because that's what I did.

00:00:53.540 | I took the, not to brag,

00:00:54.600 | I have my, I'm a chartered financial analyst,

00:00:56.940 | Ben Carlson, comma, CFA.

00:00:59.200 | Do I have that on LinkedIn?

00:01:00.040 | Maybe.

00:01:00.860 | I don't know.

00:01:01.920 | I haven't looked at it in a while.

00:01:03.880 | But Kaplan makes it easy

00:01:04.760 | because the test books for the CFA prep are no joke.

00:01:07.560 | They're huge.

00:01:08.400 | They don't have a lot of questions in them,

00:01:09.800 | at least when I took it.

00:01:10.640 | So I, for the first one, didn't use the books.

00:01:13.080 | For the second one and the third one,

00:01:15.280 | I used Kaplan because it made it easier for test prep.

00:01:18.360 | They bullet point stuff for you.

00:01:19.960 | They summarize it.

00:01:20.800 | They make it easier.

00:01:21.800 | And I think you just have to take as many as you can.

00:01:23.720 | It's a tough test and there's very low pass rates.

00:01:25.880 | You have to do anything you can to get better.

00:01:28.500 | $300 minimum they recommend

00:01:31.060 | for studying for the CFA test, Duncan.

00:01:33.700 | It's no joke. - Sounds like a lot.

00:01:35.260 | - It is a lot.

00:01:36.100 | So go to the link. - I was reading

00:01:36.920 | some of their materials.

00:01:37.760 | I was reading about the portfolio perspective.

00:01:39.260 | I was looking at some practice questions.

00:01:41.220 | - It's tough.

00:01:42.060 | Go to our link on YouTube and you can check it out.

00:01:44.300 | You can save 10% on their exam test prep stuff right now.

00:01:47.860 | All right, let's do a question.

00:01:49.720 | - Okay. - Also,

00:01:51.740 | we have a lot of people emailing in with the CFA.

00:01:53.100 | We had a portfolio manager email today saying,

00:01:55.260 | hey, listen, I know taking the CFA

00:01:57.300 | is not necessarily gonna make you a better investor,

00:01:59.140 | but it shows your dedication to the craft.

00:02:01.000 | And if you wanna be a portfolio manager like me,

00:02:02.700 | that's what I'm looking for.

00:02:03.900 | So this guy said he's only hiring CFA people.

00:02:06.260 | - Okay, I mean, it makes sense.

00:02:09.060 | - Sorry, Duncan, you're out.

00:02:10.980 | - One day.

00:02:12.220 | - All right.

00:02:13.060 | - Maybe we'll do an episode

00:02:13.900 | where I just take a CFA practice test

00:02:16.220 | and everyone can just laugh at me.

00:02:17.780 | - All right, that's fair.

00:02:19.300 | - All right. - Bye.

00:02:20.380 | - Up first today, we have,

00:02:22.500 | not to brag, but I'm 38, make $50,000 a year

00:02:25.880 | and have $10,000 in Marcus, $10,000 in a Roth IRA,

00:02:29.840 | $10,000 in crypto and $10,000 in a traditional 401k.

00:02:34.360 | I have six months of savings I don't touch.

00:02:36.680 | My net worth is about $50,000.

00:02:39.040 | My annual expenses are $40,000

00:02:41.440 | and I can typically save $500 a month.

00:02:44.320 | I live in LA with my partner

00:02:46.240 | and work as a resident services coordinator

00:02:48.140 | for an affordable housing organization.

00:02:50.480 | What advice do you have for lower income folks

00:02:53.120 | who want to be financially stable?

00:02:55.080 | My point of view is that I have such a small amount of money

00:02:58.080 | but it doesn't really matter

00:02:59.280 | because my amount of time to compound is relatively short

00:03:03.080 | and my available monthly investment is low.

00:03:05.500 | Should I just spend my money

00:03:07.280 | because the reward of compounding takes longer than I have?

00:03:10.360 | I'm not competitive in the labor market.

00:03:12.720 | I graduated from Arizona State, LOL.

00:03:15.340 | I don't know what that means.

00:03:16.180 | I thought Arizona State was fired.

00:03:17.020 | - That's fired.

00:03:17.840 | - Yeah, taken down the alma mater

00:03:21.200 | and getting an MBA is in the cards.

00:03:23.800 | - All right, first of all,

00:03:24.640 | I believe Arizona State was the number one party school

00:03:26.840 | for like 20 years in a row.

00:03:28.100 | So you probably had fun at college.

00:03:29.560 | - See, don't say that.

00:03:30.600 | If you didn't, I wouldn't have known that, you know.

00:03:33.720 | - Looks like a great, you could hike the mountains,

00:03:35.400 | nice weather, fine.

00:03:37.300 | But here, don't sell yourself.

00:03:38.560 | Also, I think he put just kidding after the not to brag.

00:03:41.000 | - Oh yeah, I took that out

00:03:42.280 | because I thought it was kind of obvious

00:03:43.800 | because they, yeah, they may go on to say lower income.

00:03:46.000 | - I think Michael here is selling himself short though.

00:03:47.580 | He lives in California,

00:03:49.600 | an exceedingly expensive place to live

00:03:51.840 | on a lower than median income.

00:03:54.280 | And he still saves $500 a month.

00:03:56.160 | He has, he equals his annual salary and net worth.

00:04:00.240 | And he has a six month emergency fund,

00:04:01.880 | which I think didn't make it out of here, right?

00:04:03.240 | So he said he has six months of his savings locked in

00:04:05.040 | and didn't touch it.

00:04:05.860 | A lot of times we get these questions

00:04:06.800 | and we cut some of the fat off.

00:04:08.720 | But so he's not even 40.

00:04:11.360 | So I say this is more impressive than it sounds, right?

00:04:14.680 | He also says he doesn't have enough time

00:04:16.920 | to allow compounding to work.

00:04:17.900 | I don't think that's true.

00:04:19.100 | I call BS on this.

00:04:19.980 | He's not even 40 yet, right?

00:04:21.300 | I think people often underestimate the power of compounding

00:04:24.060 | over the short run because you save a little bit of money

00:04:26.500 | and you think, oh, I have a little bit of money

00:04:27.740 | at the end of the year, right?

00:04:28.940 | I still think $500 a month is fine.

00:04:31.380 | You have plenty of time.

00:04:32.700 | I went through a bunch of examples here

00:04:34.180 | to show how, where he is now

00:04:36.780 | and where he can be in the future.

00:04:38.020 | So right now, $50,000 saved.

00:04:40.060 | He puts away $6,000 a year.

00:04:42.200 | Assuming we grow that 50K at 6% per year

00:04:45.060 | and then increase the savings rate by 3% a year

00:04:48.160 | to account for inflation,

00:04:49.000 | which is not as much money as you think.

00:04:50.280 | Going from 6,000 at 3%, it's like 180 bucks in year one.

00:04:53.760 | Total, not per month.

00:04:55.440 | John, do the chart on this.

00:04:56.360 | This is what it'll look like at first.

00:04:58.400 | If he pushes back retirement to 70,

00:05:00.440 | we're talking about $1.2 million,

00:05:02.900 | using again a 6% annual return, which is not bad,

00:05:05.360 | which is pretty conservative.

00:05:06.560 | By 65, he'd have $822,000.

00:05:09.560 | So this is not bad, right?

00:05:11.400 | Just keep on the same track.

00:05:13.440 | Obviously, there's a lot of assumptions

00:05:15.380 | based into this analysis, baked into it.

00:05:17.180 | Like if you stay on the same track

00:05:19.060 | and you're doing alignment compounding,

00:05:20.700 | the world doesn't work like this in a nice curve,

00:05:23.340 | like a spreadsheet, but just, you know,

00:05:25.600 | take this word for word.

00:05:26.440 | You're not in that bad of a position

00:05:27.740 | if you just have a multi-decade view.

00:05:30.780 | However, I think we can do better than this, right?

00:05:33.220 | This is my campaign speech here.

00:05:34.820 | First, let's look at a little more frugality.

00:05:37.460 | He's obviously already cutting back,

00:05:38.700 | but let's say you just save an extra 25 bucks a month.

00:05:42.460 | A month, right?

00:05:43.800 | You don't go out to eat, you save a little bit more.

00:05:45.720 | This is on top of the current assumptions.

00:05:47.040 | That's $300 more in savings each year,

00:05:48.920 | on top of what you're already saving.

00:05:50.400 | Now by age 65, we're talking $1.5 million by age 70,

00:05:54.560 | or roughly 1 million by age 65.

00:05:58.360 | You can do a chart off, John.

00:05:59.960 | So these small changes can have a big impact

00:06:01.760 | over multi-decade time horizons, right?

00:06:03.520 | However, one of the ugly secrets of personal finance,

00:06:07.880 | frugality can only take you so far,

00:06:09.240 | especially when you're on a lower income, right?

00:06:12.460 | I think having a higher income and getting a raise

00:06:15.300 | or negotiating a higher salary

00:06:16.420 | is one of the biggest levers you can pull

00:06:17.740 | if you want to improve your personal finance.

00:06:19.300 | And maybe he's happy with this job,

00:06:20.420 | but I think now is the perfect time

00:06:22.540 | to explore your options, at least,

00:06:23.820 | in this tight labor market.

00:06:25.040 | Pull up the Fed chart here, John.

00:06:27.400 | This is Fed data on wage growth numbers

00:06:29.100 | broken up by job switchers and job stayers.

00:06:30.820 | Look at that spike for people who switched jobs.

00:06:33.580 | Since the start of 2022, people who've switched jobs

00:06:36.320 | are averaging 7% annual wage growth, okay, annualized,

00:06:40.060 | versus people who stayed at their job

00:06:41.320 | are averaging 5% annual wage growth.

00:06:43.480 | This doesn't take into account inflation,

00:06:44.520 | but look at that spike for people who switched jobs.

00:06:46.400 | If you ever wanted to test the waters

00:06:48.000 | to see what your value is in the labor force,

00:06:50.640 | now is the time to do it.

00:06:51.680 | And I think a single raise early in your career

00:06:54.820 | can have a massive impact on your finances

00:06:56.800 | if you save over time.

00:06:58.400 | So let's say now you find a new job

00:07:00.980 | that pays you $10,000 more per year,

00:07:03.000 | and you save like a third of it.

00:07:04.080 | Call it $3,500.

00:07:05.560 | Every year you save a third of that raise, right?

00:07:08.480 | Every single year.

00:07:09.440 | That raise could be worth hundreds of thousands of dollars

00:07:12.420 | to you.

00:07:13.260 | So let's say you save a third of that raise.

00:07:14.220 | We're still doing the, adding that on top of your 6,000,

00:07:16.740 | you're already saving per year,

00:07:18.140 | and then increase it by 3% for inflation.

00:07:19.940 | John, do the next chart on.

00:07:21.460 | Now by 70, we're talking $1.7 million.

00:07:24.200 | Again, pretty conservative 6% growth here.

00:07:26.720 | By age 65, we're looking at $1.1 million

00:07:29.780 | for a one $10,000 raise, right?

00:07:31.740 | And it assumes you just have your cost of living increases

00:07:34.500 | thereafter.

00:07:35.340 | Again, not bad, right?

00:07:37.240 | Now, one step further.

00:07:39.160 | Let's say if we combine these two strategies.

00:07:41.340 | You increase your saving a little bit,

00:07:42.540 | 25 bucks per month each year, add that 25,

00:07:45.580 | and you get a $10,000 raise.

00:07:46.980 | All right, John, now let's look at it.

00:07:49.460 | $2.2 million by the time you are 70.

00:07:52.940 | 1.4 million by 65.

00:07:54.700 | So those two levers you pull,

00:07:56.500 | you get one pretty decent size raise right now.

00:07:59.580 | You also save a little bit more money each year.

00:08:01.020 | We're talking about adding a million dollars

00:08:02.460 | to your bottom line by age 70,

00:08:03.860 | if you push back retirement that long.

00:08:06.100 | Obviously, again, life never works out like this.

00:08:08.100 | It's easy on a retirement calculator or spreadsheet.

00:08:10.600 | Some years you'll be able to save more,

00:08:11.940 | some years you'll be able to save less.

00:08:13.620 | Your career trajectory may work out better than you think.

00:08:15.960 | I think if you test the waters a little bit,

00:08:17.560 | you might be surprised what you can find right now.

00:08:19.980 | It could be worse, you never know.

00:08:21.260 | Investment returns might come in higher than 6%.

00:08:23.040 | It might come in lower.

00:08:23.880 | I think that's why financial planning

00:08:25.900 | is a process and not an event.

00:08:27.580 | The main takeaway here, though,

00:08:28.860 | how do you save on a lower income?

00:08:30.300 | It's the same way you save if you have a higher income.

00:08:31.940 | You live on less than you earn.

00:08:33.380 | You automate your savings.

00:08:34.340 | You increase your savings rate a little bit each year.

00:08:36.220 | You save more, a little bit more money each year,

00:08:38.700 | and you increase your earning potential

00:08:39.820 | because that's the biggest lever you can pull.

00:08:41.460 | The good news is for Michael here

00:08:43.740 | is that he already knows how to save.

00:08:46.060 | He lives in California and he's still able

00:08:47.420 | to save 500 bucks a month

00:08:49.060 | on a relatively low salary for there.

00:08:51.660 | I think there are ways to improve your situation

00:08:53.780 | if you're willing to work on your career a little bit.

00:08:55.980 | And I don't think you necessarily need

00:08:57.560 | to have an MBA to do so these days

00:08:59.140 | 'cause the labor market is so tight.

00:09:01.220 | So Ramit at I Will Teach You To Be Rich

00:09:02.660 | has these jobs on finding your dream job

00:09:04.700 | or starting a side hustle or negotiating a higher salary,

00:09:07.680 | which is much cheaper than an MBA,

00:09:09.360 | something you can kind of try on the side.

00:09:10.980 | I don't know how happy you are with your job,

00:09:12.260 | but now is the time to try something, I think,

00:09:14.900 | because it can't hurt to try to look

00:09:17.660 | and see if there's something better out there

00:09:18.780 | to try to earn a little bit more money by switching jobs.

00:09:22.060 | - Yeah, and like you say, just asking,

00:09:24.300 | just asking for more sometimes, right?

00:09:26.500 | I mean, sometimes-- - No one wants

00:09:27.900 | to have that conversation, but yes,

00:09:30.260 | having uncomfortable conversations like that,

00:09:32.500 | the worst they can do is say no, right?

00:09:35.340 | But I think this is the time in a tight labor market

00:09:38.700 | where you can get out there and see how much you're worth.

00:09:41.540 | And again, if he just goes from 50 to 60

00:09:44.340 | or 50 to 65 or 70 and he continues to save

00:09:47.940 | the way he's saving with that savings rate,

00:09:50.460 | don't YOLO everything now, you're doing fine.

00:09:53.180 | Keep it up. - Yeah, and don't discount

00:09:54.900 | how much the hiring process sucks, right?

00:09:58.100 | Companies don't wanna lose someone,

00:10:00.620 | organizations don't wanna lose someone

00:10:02.420 | to then just have to hire someone

00:10:03.820 | that they're gonna have to pay

00:10:04.980 | whatever you were asking for to begin with.

00:10:06.380 | You know what I mean?

00:10:07.220 | So yeah, I think that he has some options.

00:10:09.540 | - He's not gonna get hired as like a career counselor

00:10:12.020 | at Arizona State now that he mocked going there, but--

00:10:15.220 | - Probably not, yeah, yeah.

00:10:16.500 | - But yeah, all is not lost.

00:10:18.060 | You're still in a pretty good position here.

00:10:19.140 | Just keep up what you're doing

00:10:20.100 | and try to improve yourself a little bit.

00:10:21.180 | I think you could, I think you'll be fine.

00:10:22.580 | - Are they the Sun Devils?

00:10:24.100 | Is that the Sun Devils? - Yes.

00:10:24.940 | - Okay. - You got it.

00:10:25.760 | My brother went there for a year.

00:10:26.600 | - Okay, okay. - Good school, right?

00:10:27.580 | - Yeah, I agree though.

00:10:28.420 | I think Michael's being a little too hard on himself.

00:10:31.940 | I know that not to brag was a joke,

00:10:33.180 | but I mean, I don't think they've done a bad job.

00:10:36.980 | - I am much more impressed by someone on a lower income

00:10:38.960 | being able to save that much and put away money

00:10:41.020 | than someone at a higher income.

00:10:42.380 | - Right.

00:10:43.380 | - All right, next question.

00:10:44.860 | - Okay, up next we have a question from Matthew.

00:10:49.340 | I'm 42, I live in Italy and max out my 401k.

00:10:52.580 | Well, the Italian equivalent.

00:10:54.360 | I'm single and my savings are one year of expenses

00:10:57.020 | in cash and the rest in a world stock ETF.

00:11:00.020 | I'm almost done with my mortgage,

00:11:01.340 | so I earn 80% of my house.

00:11:03.260 | About my salary, I choose to get a monthly payment

00:11:06.100 | that just pays my expenses and a lump sum

00:11:08.480 | once a year in May.

00:11:09.780 | Wonder what kind of job or work that is.

00:11:12.500 | - Yeah, that is interesting.

00:11:13.700 | - Every year I invest the lump sum all at once.

00:11:16.180 | I ran some data and it looks like

00:11:17.620 | I should invest this lump sum every September

00:11:19.860 | because it's historically the worst month for the market.

00:11:22.700 | Does this make sense?

00:11:23.940 | Trying to buy cheap, right?

00:11:25.500 | All right, I wonder what the Italian 401k is called.

00:11:27.460 | All right, I've yet to read a good theory

00:11:29.060 | on seasonality thing, but it is true.

00:11:30.860 | John, do a chart on here.

00:11:31.960 | I looked at this, the average returns in the S&P 500

00:11:34.620 | by month, going back to 1926.

00:11:36.340 | Every month is positive on average besides September,

00:11:39.180 | which is down close to 90 basis points on average.

00:11:42.420 | And what are your thoughts?

00:11:43.260 | A couple of weeks ago, Josh did speculate

00:11:44.560 | that it's people getting sad because summer's over.

00:11:47.180 | I think there might be some credence to that,

00:11:49.820 | but I don't know.

00:11:50.640 | It's still pretty warm here in September.

00:11:52.260 | I actually think maybe just coming back from the,

00:11:54.740 | all the traders coming back

00:11:55.580 | from their beach houses at the Hamptons.

00:11:57.860 | I did dig into this a little more.

00:11:58.940 | 63% of all months have been positive historically,

00:12:01.700 | meaning 37% of the time you get a down month,

00:12:04.180 | going back almost a hundred years.

00:12:05.740 | In September, it's more like 50/50, almost exactly.

00:12:08.780 | Half the months are positive, half the months are negative.

00:12:11.580 | There's been 27 double-digit down months historically

00:12:14.900 | for the S&P 500 in the U.S. stock market.

00:12:17.100 | Seven of those have occurred in September.

00:12:19.020 | Now it is worth noting,

00:12:19.900 | four of those seven occurred in the '30s.

00:12:22.180 | But even if we take the '30s out of the equation,

00:12:23.740 | I think if you start in 1950,

00:12:24.780 | September's still down on average.

00:12:27.220 | 2008 was a big one as well.

00:12:30.380 | The stock market has been down

00:12:31.380 | now the past four Septembers in a row.

00:12:33.220 | So I don't know if this is like a self-fulfilling prophecy

00:12:34.860 | or what.

00:12:35.920 | As far as I'm concerned though,

00:12:37.020 | this falls under interesting, not actionable.

00:12:39.940 | Because, I don't know, why does this,

00:12:43.940 | I think this is just,

00:12:45.540 | I think this is honestly just something that happens.

00:12:47.100 | I think this is like,

00:12:48.460 | people look at this in a hundred years and it didn't follow,

00:12:50.680 | and you try to follow some September.

00:12:53.000 | What is it?

00:12:53.840 | I don't know.

00:12:54.660 | Buy in May and go away.

00:12:55.500 | - If you were a betting man,

00:12:56.820 | would you bet on September

00:13:00.340 | being the cheaper month to buy stocks?

00:13:02.140 | - See, I think there's a sell in May and go away,

00:13:04.060 | but there's no buy in September

00:13:06.720 | because it'll be something to remember.

00:13:09.060 | It doesn't rhyme very well.

00:13:10.460 | Here's the thing.

00:13:12.380 | You get paid in May.

00:13:13.820 | On average, stocks are up in May, June, July, and August.

00:13:17.500 | Stocks are up three out of every four years on average.

00:13:20.260 | Don't overthink it.

00:13:21.140 | It's really gonna matter what month

00:13:22.300 | you put your money to work in three to four decades

00:13:24.240 | into the future.

00:13:25.480 | I don't know.

00:13:26.320 | I guess if you want to get cute with it,

00:13:27.200 | fine, wait till September.

00:13:28.720 | But what's the point?

00:13:30.340 | I mean, if you're investing in a lump sum,

00:13:33.960 | I don't think you try to nail it perfectly.

00:13:37.360 | I think most of the time you'll be better off

00:13:40.080 | if you just put the money to work right away

00:13:41.760 | and not try to game the system.

00:13:43.760 | - Yeah, I was thinking all this data

00:13:45.680 | makes it seem like, yeah,

00:13:46.920 | what they're saying is a no-brainer, right?

00:13:48.520 | But then, yeah, you just kind of, I guess,

00:13:50.280 | made the point that matters more,

00:13:51.460 | which is you're missing out on several months

00:13:53.400 | of the market being up to then buy

00:13:55.800 | in a month where it's down, yeah.

00:13:57.360 | - We actually got another question.

00:13:58.920 | Someone asked, "What's the best day of the week to buy?"

00:14:01.360 | Now, I didn't want to go that far into it,

00:14:02.880 | but I think you're getting that nitty gritty about it.

00:14:07.280 | Just it's too much minutiae and detail.

00:14:09.960 | - There is, I mean, there is truth to,

00:14:12.180 | what is it, people sell on Fridays

00:14:13.840 | because they don't want to hold things over the weekend?

00:14:15.680 | Like traders, right?

00:14:16.680 | Isn't there some truth to that?

00:14:17.880 | - I don't know.

00:14:18.720 | People always say the stock market

00:14:19.560 | never bottoms on a Friday.

00:14:20.520 | I don't know.

00:14:21.360 | I think these things are old wives' tales

00:14:22.400 | and they just sound good

00:14:23.640 | because traders have been saying them for years.

00:14:24.880 | I don't know if they're actually true.

00:14:26.060 | - We should come up with our own,

00:14:27.520 | like a good saying that we can just spread out there.

00:14:29.440 | - My brother used to tell me,

00:14:31.680 | I think you should buy on Thursdays

00:14:33.920 | 'cause people in their 401(k) get paid

00:14:35.480 | and put the money in on Friday.

00:14:36.760 | And I don't know, it's just--

00:14:38.360 | - Ah, look at that.

00:14:39.520 | - I think you're never gonna gain the system that way.

00:14:41.200 | If that sort of thing did exist,

00:14:43.100 | Jim Simons would arbitrage it out of existence.

00:14:45.880 | - Maybe that is what he's doing, though.

00:14:47.240 | We don't really know what's happening

00:14:48.280 | inside that portfolio, right?

00:14:50.720 | Let's do another bond one.

00:14:51.920 | - All right, up next we have a question from Alex.

00:14:54.440 | Ben, you've mentioned quite a few times

00:14:56.160 | that when buying treasuries,

00:14:57.600 | we can more or less expect the return

00:14:59.320 | to match the original yield.

00:15:01.120 | Is that true for corporate bonds as well?

00:15:03.200 | Would something like LQD be a more or less safe way

00:15:06.360 | to expect around 5% return over the next five to 10 years?

00:15:10.320 | - Great question because I've never really looked

00:15:12.580 | at this before for corporate bonds.

00:15:14.800 | Expect returns in the stock market

00:15:16.200 | are basically impossible to pin down

00:15:17.480 | because you could have all the fundamentals you want

00:15:19.380 | of earnings and sales and cash flows

00:15:22.760 | and slap a ratio on them or a multiple,

00:15:26.960 | but throw those fundamentals out the window

00:15:28.320 | if people are willing to pay more or less for stocks.

00:15:30.100 | That's all that really matters,

00:15:30.960 | how much are people willing to pay at that time.

00:15:32.780 | But expect returns for bonds are based on math.

00:15:34.720 | So John, do a chart on the first one.

00:15:36.940 | This is five-year treasuries.

00:15:38.440 | This is what we're talking about.

00:15:39.280 | And the question here from Alex,

00:15:41.580 | this shows the red dotted line is the starting yield.

00:15:44.960 | The black line shows a forward five-year return.

00:15:48.880 | It tracked pretty closely.

00:15:49.720 | I think the correlation is like 0.95

00:15:52.140 | for all you people who aren't math nerds.

00:15:53.940 | That's a really strong correlation means

00:15:56.020 | these have a very strong relationship together.

00:15:59.100 | I've also done this with 10-year bonds in the past.

00:16:00.940 | It's a similar story.

00:16:02.240 | I've never actually run the numbers on corporates,

00:16:03.900 | but this is how it was explained to me early in my career.

00:16:06.740 | Like future bond returns of anything

00:16:09.540 | are just the yield minus anything that goes wrong,

00:16:12.940 | like a default.

00:16:13.780 | So you don't have to worry about defaults for treasuries

00:16:15.760 | because the U.S. government can literally print money

00:16:18.960 | anytime they want, but for bonds, you do.

00:16:21.300 | But bond defaults are pretty small, actually.

00:16:24.760 | High yield bonds, we're talking something

00:16:26.020 | like two to 5% historically, I think.

00:16:27.920 | So take whatever that bond yield is

00:16:29.760 | and shave a little bit off because of that risk of default.

00:16:34.260 | According to Charles Schwab,

00:16:35.300 | investment grade bond default rate was 0%

00:16:37.560 | in 14 of the years from 2001 to 2022.

00:16:41.480 | It's because we have all these zombie companies

00:16:43.020 | walking around, right, Duncan?

00:16:44.840 | The highest default rate was less than 1% in 2008

00:16:47.920 | during the global financial crisis, so not too bad.

00:16:50.360 | Investment grade corporate bonds

00:16:51.360 | don't default all that often.

00:16:53.200 | Now that's out of the way, let's do some charts.

00:16:54.480 | First one from Bank of America

00:16:55.880 | looks at total returns versus yield.

00:16:58.560 | This is only over 12 months,

00:16:59.640 | so I'm not a really big fan of this,

00:17:00.900 | but it's pretty close, not too bad.

00:17:03.200 | They line up okay, but in one-year periods,

00:17:05.400 | you're gonna get more volatility

00:17:06.380 | because rates can move and inflation can move

00:17:08.260 | and economic growth expectations.

00:17:09.960 | I also looked at corporate bond,

00:17:12.280 | long-term corporates going back to 1926,

00:17:14.720 | forward 10-year returns.

00:17:16.080 | That's a pretty good line, right?

00:17:17.040 | It's not a perfect fit, but it's not bad.

00:17:19.660 | I think the correlation I found is 0.9

00:17:21.760 | between starting yields for longer-term corporate bonds

00:17:24.840 | and forward 10-year returns.

00:17:27.280 | I looked this morning,

00:17:28.480 | investment grade corporates are yielding around 6%,

00:17:30.480 | so yeah, that's a pretty good estimate

00:17:31.600 | for returns going forward from here for corporate bonds.

00:17:34.440 | The only thing I would caution

00:17:35.460 | if you're investing in these corporate bonds

00:17:36.600 | is during a recession,

00:17:37.480 | these bonds tend to get hit way harder

00:17:39.680 | and have a higher potential for drawdowns

00:17:42.380 | when we do go into recession.

00:17:44.380 | People sell their corporates,

00:17:45.320 | they have a flight to safety going to treasuries.

00:17:47.280 | I don't know if that'll happen this time,

00:17:48.240 | but that's what's happened historically.

00:17:51.040 | Not bad though, right?

00:17:51.920 | 6%, you can kind of bank on it going forward,

00:17:54.120 | I don't know, five, seven years in the future or so.

00:17:56.920 | - Yeah.

00:17:57.740 | - 6% is pretty good.

00:17:58.640 | - Yeah, I used to mess around with the junk bond ETF,

00:18:01.920 | you know, that was more my style.

00:18:03.360 | - Triple levered junk bond ETF?

00:18:04.760 | - Yeah, there you go.

00:18:06.840 | - It's like JNKZ maybe?

00:18:08.240 | I don't know if they have that, but.

00:18:09.720 | - Only companies that have gone bankrupt.

00:18:11.600 | - Yeah, there you go.

00:18:12.440 | All right, so not bad.

00:18:13.280 | All right, let's do another one.

00:18:14.420 | But yeah, that's, it makes sense intuitively

00:18:17.700 | and it makes sense historically as well.

00:18:19.940 | - Cool, I like it.

00:18:23.060 | Okay, question four.

00:18:24.580 | Question from Justin.

00:18:27.180 | My wife and I, 22% tax bracket in Pennsylvania,

00:18:30.580 | recently had our first child.

00:18:32.100 | - I love it how people always share

00:18:33.420 | their tax bracket with us.

00:18:34.500 | - I do like that, yeah, yeah, it's kind of like.

00:18:35.980 | - It's kind of funny.

00:18:36.820 | - It's one of the shows that shares like weight

00:18:39.060 | or like measurements or something.

00:18:40.500 | - Yeah, and we're tax brackets.

00:18:41.620 | - Yeah.

00:18:42.740 | My wife and I recently had our first child.

00:18:44.580 | Unfortunately, the birth was complicated,

00:18:46.540 | resulting in a brain injury.

00:18:48.340 | Due to the nature of this injury,

00:18:49.700 | the range of outcomes is wide,

00:18:51.420 | anywhere from minimal impacts to requiring special care.

00:18:54.980 | We will not know until later in life

00:18:56.740 | what the developmental impacts are,

00:18:59.060 | even up until school age.

00:19:00.920 | My initial thought before this was to put money

00:19:03.380 | in the Pennsylvania 529 plan.

00:19:06.000 | Now, due to the uncertainty,

00:19:07.860 | I no longer think this is the right course of action.

00:19:10.420 | My thought is to put this money into a brokerage account

00:19:12.780 | and assign it to a more optimized vehicle

00:19:14.860 | when more is known.

00:19:16.300 | We are also considering contributing more to our HSA

00:19:18.820 | due to anticipated increasing healthcare costs.

00:19:21.900 | Does this make sense?

00:19:23.180 | Are there other vehicles to consider

00:19:24.560 | for an 18 year time horizon?

00:19:26.940 | So, sorry to hear if this is a sad one.

00:19:30.020 | - One of the strange things about being a financial advisor

00:19:31.960 | is that sometimes you're called upon

00:19:33.200 | during like life's tough situations,

00:19:35.020 | like death, divorce, medical issues,

00:19:37.080 | and it almost feels wrong to think about finances

00:19:39.080 | in a situation like this because you're dealing

00:19:40.700 | with so many other things on a personal level,

00:19:43.020 | but I'm happy that he's at least thinking about this

00:19:45.760 | 'cause you don't want it to be a situation

00:19:47.060 | where down the road,

00:19:47.900 | since there are a wide range of results,

00:19:49.380 | that you're surprised down the line.

00:19:51.060 | So, let's bring in an expert from financial advice

00:19:54.120 | to help us with this.

00:19:55.300 | Financial advisor extraordinaire with us, Kevin Young.

00:19:57.860 | - Hey Kevin, how's it going? - Kevin, how's it going?

00:19:59.340 | - Great.

00:20:00.400 | - So, my initial thought here would have been an HSA.

00:20:02.900 | It sounds like that's already been thought of.

00:20:05.340 | Is there anything else to think about here?

00:20:07.020 | Like some sort of trust, any other sort of insurance?

00:20:09.680 | What else can we assume here that would make sense

00:20:12.720 | to cover your rear end on something like this?

00:20:14.900 | - Yeah, yeah.

00:20:15.740 | So, this is a great question and it's close to my heart.

00:20:20.040 | My seven-year-old Jack has pretty severe special needs.

00:20:24.840 | He was born with a very rare genetic condition.

00:20:28.960 | And so, I have walked in your shoes, Justin.

00:20:31.600 | It's not easy, but you'll get through it.

00:20:36.700 | And some of the things you can do

00:20:39.240 | to put yourself in a good position,

00:20:40.920 | you're already thinking about.

00:20:41.800 | An HSA is a great idea, maxing that out.

00:20:46.040 | Because even if the effects are minimal,

00:20:49.280 | which we hope is the case, being a parent,

00:20:52.880 | you're gonna have medical expenses over and above

00:20:56.160 | what your healthcare is gonna look like.

00:20:58.300 | Your deductibles aren't gonna, are gonna be higher.

00:21:02.080 | Whatever the case, HSA is always a great plan.

00:21:04.400 | - Yeah, with kids, even if there's not

00:21:05.680 | some sort of special issue,

00:21:06.960 | there's a lot of trips to the doctor.

00:21:08.500 | - Yes, absolutely.

00:21:10.480 | And the other thing you can start to think about

00:21:12.800 | a little bit is a lot of states,

00:21:15.160 | Pennsylvania being one of them,

00:21:17.100 | has what's called an ABLE account.

00:21:19.300 | And an ABLE account, A-B-L-E,

00:21:22.440 | is a part of the 529 section of the tax code.

00:21:26.120 | And what it's designed for is, unlike a typical 529

00:21:29.940 | where people put money in and it's used

00:21:32.140 | for higher education expenses,

00:21:33.700 | an ABLE account is used for medical expenses

00:21:37.220 | for people with disabilities.

00:21:39.620 | And the great thing about it is it functions very similarly.

00:21:42.940 | You put money in.

00:21:44.680 | The state of Pennsylvania is actually one of the best

00:21:46.620 | because you can get a tax deduction up to $17,000, which is--

00:21:51.500 | - How many states have the availability for this account?

00:21:54.740 | - A lot of states have the availability for the account,

00:21:57.220 | but I don't, there might be one or two others

00:22:00.080 | that actually offer you a deduction.

00:22:01.500 | Pennsylvania is actually the best one I've seen.

00:22:04.180 | Unfortunately, it's only for Pennsylvania residents,

00:22:06.020 | otherwise I would have one.

00:22:07.380 | - Yeah.

00:22:08.340 | - So what's great about it is similar to that regular 529,

00:22:11.960 | you get the deduction up front.

00:22:13.500 | The money is gonna grow tax deferred.

00:22:15.380 | And if, when you take it out,

00:22:17.460 | if it is used for a qualified expense,

00:22:20.740 | which in this scenario could be anything,

00:22:24.620 | assistive technology devices, medical appointments,

00:22:28.700 | you know, changes to the home because you need a ramp

00:22:31.180 | or you need, you know, special equipment in the house,

00:22:34.300 | anything like that can be paid for with this.

00:22:36.540 | - So it works kind of like an HSA a little bit.

00:22:38.500 | - It's very similar to an HSA.

00:22:40.720 | And the other great thing is if these, you know,

00:22:44.940 | if the problems are a little bit more substantial

00:22:48.060 | and there's a path down the road

00:22:50.940 | to be getting benefits from the state,

00:22:53.400 | an ABLE account will not mess with your ability

00:22:57.580 | to get those benefits.

00:22:58.940 | So they do not, even though the assets are for your child,

00:23:02.860 | the state will not look at those assets

00:23:04.820 | at something that would reduce their benefits

00:23:07.380 | either now or way down the road.

00:23:10.380 | So I'd encourage you to check out,

00:23:11.800 | I was on the Pennsylvania site yesterday,

00:23:14.920 | checking into this.

00:23:16.260 | It's a really good resource.

00:23:17.500 | So I'd highly encourage you to check that out.

00:23:19.780 | The other thing here to note,

00:23:21.500 | because you don't know what this is gonna look like yet.

00:23:25.900 | And that was the way that we were.

00:23:27.840 | We still have some questions

00:23:29.740 | about how Jack is gonna be ultimately,

00:23:32.060 | but it's very different than what we imagined in good ways.

00:23:35.820 | But you can always roll over from a regular 529 plan

00:23:40.820 | into a ABLE 529.

00:23:43.820 | So if you wanted to make those contributions

00:23:45.860 | to the regular 529 today,

00:23:48.100 | and then three, four years from now,

00:23:49.620 | you realize, okay,

00:23:50.700 | maybe college isn't gonna be the answer here.

00:23:53.420 | You can roll over up to the gift amount,

00:23:56.740 | which is 17,000 this year,

00:23:58.160 | you can roll that into the ABLE account.

00:24:00.520 | - Wow, okay, so there's a lot of options here.

00:24:02.400 | This is way more than I,

00:24:04.000 | I'm not really familiar with this ABLE account.

00:24:05.880 | So he has some good options here

00:24:08.440 | that sounds like they're pretty flexible as well.

00:24:10.440 | - Yeah, yeah, they're really flexible.

00:24:12.440 | They're gonna give you a similar breakdown

00:24:14.280 | of investment options as well.

00:24:16.160 | And I think Pennsylvania,

00:24:17.800 | you can have up to $100,000 in the account

00:24:20.120 | before they start to ding you for benefits.

00:24:24.160 | The really cool thing about Pennsylvania too

00:24:25.960 | is they've got a link where you could,

00:24:27.960 | you can send it to somebody if somebody says,

00:24:29.600 | "Hey, what should we get the baby for a gift?"

00:24:32.720 | There's a link that'll go right to the account.

00:24:34.680 | And so if they wanna contribute money

00:24:36.760 | as a gift or anything like that,

00:24:37.920 | they can do that as well.

00:24:38.920 | So it's great.

00:24:40.100 | - That's awesome.

00:24:40.940 | That's good to hear.

00:24:41.780 | So Justin actually asked another follow up question

00:24:44.320 | about his wife.

00:24:45.160 | So why don't we come on again.

00:24:46.060 | Here's another one.

00:24:46.960 | - Okay, my wife is a teacher

00:24:53.400 | and is enrolled in the Teacher's State Pension Plan.

00:24:55.980 | The payout is a formula based on average salary,

00:24:58.960 | years of service, and a multiplier.

00:25:01.020 | This is quite difficult to forecast for many reasons,

00:25:03.420 | including how long my wife will want to work,

00:25:05.920 | average salary, 25 years in the future,

00:25:08.420 | when you can withdraw without penalty,

00:25:10.240 | and the solvency of the plan.

00:25:12.060 | My question is how we should be thinking

00:25:14.100 | about this pension plan.

00:25:15.840 | We have access to several options,

00:25:17.400 | 401(k), Roth 401(k), 403(b), Roth 403(b).

00:25:21.180 | Should we consider this plan icing on the cake?

00:25:23.840 | After 30 years in the plan,

00:25:24.960 | my wife would be around 62 or 63.

00:25:27.800 | Perhaps it would be good to push more money into a Roth

00:25:32.240 | to have more flexibility if she wanted to retire a bit early.

00:25:35.440 | Looking for some general thoughts on this situation.

00:25:37.860 | - So one of the joys of financial planning

00:25:39.900 | is like a never ending stream of unknowns.

00:25:42.200 | And this is the kind of thing too,

00:25:43.080 | where you want to be able to bank on a pension being there.

00:25:46.000 | We actually get a lot of questions from people saying,

00:25:48.000 | listen, I'm in this state

00:25:49.400 | and I don't trust the government

00:25:50.440 | 'cause they're spending too much money.

00:25:51.760 | And I'm worried my pension's not even gonna be there.

00:25:53.360 | So I think they're thinking about it similarly

00:25:55.600 | and wondering like,

00:25:56.440 | are they gonna change the formula on me?

00:25:57.840 | Or are they gonna call back some of this stuff

00:26:00.400 | that they're promising me

00:26:01.240 | because they can't afford it in the future?

00:26:03.280 | So how do you think about, especially, I mean,

00:26:05.420 | it's a little easier if you have someone

00:26:06.440 | who's approaching retirement age

00:26:07.560 | and they're looking through this

00:26:08.400 | because in those situations,

00:26:10.000 | they're probably gonna be grandfathered

00:26:11.160 | and you don't have to worry about it.

00:26:12.000 | How do you approach something like a pension

00:26:13.880 | in terms of financial planning?

00:26:15.920 | Because you have the formulas here.

00:26:17.440 | And from the math side of things,

00:26:19.440 | it should be relatively easy.

00:26:20.400 | You could map out the income,

00:26:21.520 | you could map out what it's going to be from the pension,

00:26:24.420 | but people are still worried about this stuff.

00:26:26.640 | So how do you approach these things?

00:26:28.640 | - Yeah, so I think, he used the term icing on the cake.

00:26:31.520 | I think that's how you think about it.

00:26:33.520 | I would probably save and invest like it didn't exist

00:26:38.520 | if it's 30 years from now.

00:26:40.800 | Because you just don't wanna put yourself

00:26:42.880 | in a position where you're counting on something

00:26:44.640 | that doesn't end up happening

00:26:45.800 | or happens at 70% of what you had thought it was, et cetera.

00:26:50.180 | I think pensions are a lot like social security.

00:26:54.940 | No politician is ever gonna run on reelection

00:26:59.600 | on getting rid of or cutting social security.

00:27:02.640 | Similar to state pensions, right?

00:27:04.200 | - I was thinking the same way.

00:27:05.560 | I think a lot of young people in the back of their mind

00:27:07.320 | have thought of social,

00:27:08.240 | they're planning for social security not being there,

00:27:10.540 | but I think it's going to be there

00:27:12.440 | even if it's diminished in some way.

00:27:14.320 | Because yeah, you're right.

00:27:15.160 | No one's gonna take away that benefit in their right mind.

00:27:18.120 | 'Cause a lot of people think that's mine, it's my right.

00:27:21.440 | I think a lot of people are thinking of it the same way.

00:27:23.640 | And I agree, it could be diminished a little.

00:27:26.240 | I don't think it's gonna be, especially for teachers.

00:27:28.320 | I don't think that pension's not going to be there.

00:27:30.440 | - Yeah, that's a political landmine, I would think.

00:27:35.440 | But again, just assuming even for social security

00:27:39.880 | in general, right?

00:27:40.720 | Like we're living longer, when it was designed,

00:27:44.580 | it wasn't designed to sustain

00:27:45.840 | a 30 or 40 year retirement, right?

00:27:47.400 | So things might have to change at some point,

00:27:50.340 | whether it's social security or a pension,

00:27:52.120 | you don't want to rely too much on something,

00:27:54.080 | even though it's a promise and it's a guarantee.

00:27:56.520 | It's just not something that you want to fully bank on.

00:27:59.760 | And so I think if you have the ability to save

00:28:02.120 | in different types of accounts, at the 22%,

00:28:06.240 | this is the same Justin, right?

00:28:07.960 | - Yes, yes.

00:28:08.800 | - Okay, so at the 22%--

00:28:09.640 | - Yeah, we already know the tax bracket, right?

00:28:11.320 | - Yeah, this is really helpful.

00:28:13.240 | Everybody needs to put their tax bracket in

00:28:14.700 | when they email us questions now.

00:28:16.780 | So at 22%, probably lean towards the Roth

00:28:21.780 | just because you're not getting as much bang for the buck

00:28:25.380 | on the deferral.

00:28:26.220 | - Bill's so happy in the chat now.

00:28:27.380 | - Yep, Bill Sweet would like the fact

00:28:28.820 | that you agreed with him there.

00:28:29.980 | - Yeah, yeah, yeah.

00:28:30.820 | So there's a sweet spot and I only know that

00:28:32.940 | because I get to work with Bill Sweet and Bill Artzaronian.

00:28:36.960 | So you have a lot of other options

00:28:38.660 | and I would continue to do that.

00:28:40.740 | And then hopefully the pension's there in full

00:28:43.080 | and that's great.

00:28:44.580 | - I talked to a family member recently

00:28:46.020 | who is reaching retirement age for a teacher,

00:28:48.860 | I think it's like 55 or something,

00:28:50.700 | and was talking about the pension.

00:28:52.380 | And I said, "Do you realize how much that pension is worth

00:28:54.740 | "if you put a present value on it somehow?"

00:28:56.980 | That's kind of tricky to do

00:28:58.020 | because it deals with discount rates and stuff.

00:28:59.740 | But she's like, "If you backed the income out

00:29:02.340 | "and turned that into what it would be

00:29:03.800 | "if you had a lump sum."

00:29:04.980 | It's a big amount of money,

00:29:06.740 | bigger than most people would realize

00:29:08.280 | if they tried to turn that into an annuity or something.

00:29:10.700 | - Yeah, and in the corporate world,

00:29:11.860 | you're starting to see,

00:29:13.860 | I've certainly seen it with clients of mine

00:29:15.380 | that if they worked someplace 10, 15 years ago

00:29:18.380 | and they'd been there for 20 or 30 years

00:29:19.660 | and they have a pension,

00:29:20.860 | they're getting letters saying,

00:29:22.660 | "Hey, we'll buy you out of this right now

00:29:24.180 | "and here's the amount we'll give you right now."

00:29:26.380 | And you go in and you do the math

00:29:28.600 | and you figure out,

00:29:29.440 | "Well, what would I need to return in the market

00:29:31.260 | "to do better than this?"

00:29:32.700 | But again, sometimes it's just,

00:29:33.880 | "Hey, I know we probably could do a little better

00:29:36.080 | "in the market over the longterm,

00:29:37.540 | "but I love the idea of that guaranteed check

00:29:39.500 | "coming in every month."

00:29:40.420 | - Exactly.

00:29:41.260 | - Which has meaning.

00:29:42.460 | - And it's an emotional thing, yeah.

00:29:43.740 | - Kind of like a basic,

00:29:45.300 | maybe nuboil question for you guys,

00:29:47.060 | but a pension,

00:29:49.120 | you don't get to select what funds

00:29:52.060 | are in there or anything, right?

00:29:53.180 | You just have a share of the pie.

00:29:54.820 | - No, they invest it for you

00:29:56.620 | and they have to reach their bogey and yeah.

00:29:59.580 | - This was on your practice test question

00:30:01.660 | before you went live.

00:30:03.380 | The pension, they bear the risk of the investment.

00:30:06.620 | - Oh, that's what that meant.

00:30:07.780 | - That's what that means.

00:30:08.620 | - Okay, I see.

00:30:09.460 | All right, one more question.

00:30:10.500 | - Okay, last but not least,

00:30:12.460 | we have a question from Eric and sorry, Kevin,

00:30:15.280 | we've got the bummer questions for you, but Eric writes,

00:30:19.740 | yeah, Eric writes,

00:30:20.660 | "My father recently passed away

00:30:22.220 | "and my 71-year-old mother will be receiving

00:30:24.400 | "approximately $800,000 in life insurance proceeds.

00:30:28.260 | "My mother's level of financial literacy is low.

00:30:30.480 | "My dad always handled the finances.

00:30:32.400 | "So I will be in charge of overseeing the management

00:30:34.400 | "of the life insurance proceeds.

00:30:36.580 | "How would you recommend investing these funds?

00:30:38.840 | "Their only debt is a mortgage with $200,000 remaining,

00:30:42.040 | "seven years left at a 3% rate,

00:30:44.540 | "about a million dollars in equity."

00:30:46.900 | So sorry to hear Eric.

00:30:48.260 | - We've talked in the past

00:30:49.140 | about why people get a financial advisor.

00:30:51.180 | This is one of the reasons,

00:30:52.020 | especially a lot of like DIY people come to us.

00:30:54.580 | They say, listen, I've managed the finances fine myself,

00:30:57.140 | but I want my loved ones or my spouse to be taken care of.

00:30:59.740 | I actually have one guy, guy has about $10 million.

00:31:02.540 | We've met with him a bunch of times over the years.

00:31:04.540 | And he says, listen, I like doing it on my own.

00:31:06.260 | I'm gonna continue to do it on my own,

00:31:07.820 | but I have a letter that's gonna go to my wife.

00:31:09.580 | Should I pass before she does?

00:31:10.860 | And it says, call up the folks at Ritholtz

00:31:13.020 | and have them take care of you.

00:31:15.100 | But this is the kind of thing that makes sense.

00:31:17.120 | So I guess it's probably too simple to tell this guy

00:31:20.300 | that his mom needs a financial advisor.

00:31:21.620 | My only advice here would be just don't be in a hurry

00:31:23.860 | because emotions are probably already high.

00:31:25.900 | Like don't just sit on the money forever,

00:31:27.900 | but I think take your time

00:31:28.780 | and be thoughtful about this decision as well.

00:31:30.860 | And maybe reach out to a professional for some help.

00:31:33.940 | - Yeah, we talk about getting rid

00:31:37.500 | of a single point of failure in a financial plan.

00:31:40.660 | And that's what happens

00:31:43.620 | when there's a do-it-yourself investor

00:31:45.740 | with spouses or children or people

00:31:49.480 | that need to be taken care of after that person's gone.

00:31:52.280 | And it's far more common than not probably.

00:31:57.280 | But for this person, that burden now is on your shoulders.

00:32:04.180 | So figuring out not only what's best for your mom,

00:32:09.180 | but also making sure that you're not taking on too much

00:32:12.820 | of a burden for that,

00:32:13.780 | that you understand everything that's happened.

00:32:15.740 | God forbid something happened to you,

00:32:17.660 | now we're back to square one.

00:32:19.700 | - Yeah, someone with low financial literacy.

00:32:22.420 | I also think the probability for a scam is high here.

00:32:25.860 | So I'd help your mother find someone.

00:32:28.500 | Because if we have a million dollars in equity in a home

00:32:31.060 | and $800,000 in life insurance,

00:32:32.460 | there's probably more money there too.

00:32:34.440 | She's gonna have a huge target on her back

00:32:35.940 | from people who are going to try to take advantage of her.

00:32:38.340 | So I would help her just make sound financial decisions.

00:32:40.780 | I don't think, yeah, you need to take over

00:32:42.260 | the management of the money.

00:32:43.180 | I would probably try to find someone to help.

00:32:45.500 | But I would at least help her make good decisions

00:32:47.180 | in terms of who to hire and go through

00:32:49.060 | that process with her.

00:32:49.900 | - It seems like you also have to take into account,

00:32:51.620 | like Kevin was kind of alluding,

00:32:53.260 | just how much the stress of having this on your back

00:32:55.580 | is worth.

00:32:57.260 | - It's a lot.

00:32:58.100 | - Because yeah, if you make a choice

00:32:59.940 | that is perceived as wrong down the line,

00:33:01.860 | you're the guy that lost mom's money,

00:33:03.740 | like that kind of thing.

00:33:05.300 | Seems like there's a lot of pressure there.

00:33:07.020 | - Yeah, and these types of things,

00:33:09.140 | you wanna find a good fiduciary advisor

00:33:11.580 | that can handle this stuff for you.

00:33:13.340 | Because yeah, you never want...

00:33:16.620 | I don't know if you have siblings

00:33:17.740 | or if there's other family members involved

00:33:20.740 | that say that there's an investment that goes wrong

00:33:23.420 | and now it's your fault.

00:33:24.640 | Well, that could open you up to liability.

00:33:27.140 | And these are not fun topics to talk about.

00:33:31.700 | But you have to think about this stuff.

00:33:33.620 | And what happens if you're out of the country

00:33:36.020 | and mom needs, mom's boiler went,

00:33:38.420 | she needs $5,000 immediately and you can't do it.

00:33:42.100 | These are like just little things

00:33:43.700 | that where it might make sense to get a professional

00:33:46.300 | to help you out with this stuff.

00:33:47.140 | - Yes, family and money is not something

00:33:49.060 | that mixes very well.

00:33:50.320 | - Sounds like a blast.

00:33:53.660 | - Yes.

00:33:55.540 | - But yeah, sorry for your loss here.

00:33:56.900 | - Yep, thanks for helping out today, Kevin.

00:33:58.700 | - My pleasure.

00:33:59.860 | - Good questions.

00:34:01.700 | Tune in tomorrow morning

00:34:02.540 | for a brand new episode of "The Compound and Friends"

00:34:04.020 | with Josh and Michael.

00:34:05.340 | Email us as always, askthecompoundshow@gmail.com.

00:34:08.580 | Maybe leave a comment in YouTube here.

00:34:11.060 | We're always looking for questions.

00:34:12.580 | Appreciate everyone in the live chat as always.

00:34:14.220 | - Share with your friends.

00:34:15.620 | - Yeah, thanks everyone.

00:34:16.780 | - Yep, thanks everyone.

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Do I Still Have Time for Compounding to Work?

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