Do Young People Need a Financial Advisor?

00:00:00.000 | Welcome back to Portfolio Rescue, where we take questions straight from you, the audience.

00:00:20.160 | Remember, if you have a question for us, askthecompoundshow@gmail.com. Today's show is sponsored by Innovator ETFs.

00:00:26.760 | Duncan is sporting a nice Innovator ETFs hat. He's got some swag. We saw them at the FutureProof

00:00:31.800 | Festival, which we're going to get into a bit. So, this week, Duncan, Ray Dalio said

00:00:35.280 | if the Fed raises rates to 4.5%, which is actually not out of the question, it seems

00:00:39.980 | like, with inflation coming higher, the stock market's going to tumble an additional 20%.

00:00:44.480 | This is a very specific prediction, but I guess from the standpoint of discounted cash

00:00:48.240 | flow analysis, you figure, at least directionally, it kind of makes sense, right? You increase

00:00:53.080 | the hurdle rate, the interest rate, the present value of future cash flows, yada, yada, yada,

00:00:57.320 | should be lower. So, let's say you think there's a possibility Dalio's right here. Maybe inflation

00:01:01.840 | remains stubbornly high. The Fed has to hike rates to 4 or 5%. Again, not out of the realm

00:01:06.440 | of possibilities. That risk-free rate of 4 to 5% is pretty good competition for the stock

00:01:11.520 | market. But what if you think, I think it's a possibility, or it's a probability, but

00:01:15.360 | not a certainty? What if he's wrong, as well? Innovator ETFs has you covered. John, pull

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00:01:23.700 | for losses, 9%, 15%, and then 30%, which is actually after you're down the first 5 to

00:01:29.240 | down 35%. And the corresponding caps for those on the upside are 24%, 17% and change, and

00:01:35.840 | a little over 14%. So, let's say you want some more certainty around the Ray Dalio scenario

00:01:40.520 | without simply shorting the market. Because I don't think it makes sense to do extremes

00:01:44.180 | like that, if you really think he's right, right? So, maybe you look at the 15% buffer,

00:01:48.480 | which protects you against the first 15% of losses, but also gives you almost 18% on the

00:01:52.680 | upside in the event that Dalio's prediction is wrong. Which could be. You never know.

00:01:56.840 | So, I'm never a fan of going to the extremes. So, I think their Defined Outcome strategies

00:02:00.640 | give you a range of outcomes that you know in advance, but it doesn't necessarily pigeonhole

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00:02:12.160 | to InnovatorETFs.com.

00:02:14.240 | So, Duncan and I just returned from beautiful Huntington Beach, California for Future Fest,

00:02:19.600 | what did I say?

00:02:20.840 | Future Proof.

00:02:21.840 | Future Proof. One of those. Thanks to all the Compound viewers for coming out. I know

00:02:28.080 | we have Cliff Peebles here in the chat. Got to meet some people in person. We did a live

00:02:32.840 | Animal Spirits and a live Compound. We'll probably share some more thoughts on Animal

00:02:35.760 | Spirits next week about everything that happened there, but it was great to see so many people

00:02:39.400 | show up in person. We've never done one like that in person before, right? Duncan, a live

00:02:42.600 | show.

00:02:43.600 | Yeah.

00:02:44.600 | I know you were worried about the audio, because it was very windy there.

00:02:46.680 | Yeah. We set up our podcast mics, and everything came out pretty well, all things considered.

00:02:52.380 | And if anyone listening has a little FOMO about not going, maybe next year we can do

00:02:56.160 | a live version of the show with all the questions coming. But we did already actually pre-announce

00:03:00.800 | dates that we're going to do it again next September. It was fun. And because everyone

00:03:04.940 | was so busy, we had a lot of people. We had almost 40 people from Riddle's Wealth there.

00:03:08.680 | No expert guest host today. Duncan and I are doing it together. It's just us. Everyone

00:03:12.040 | worked so hard. We're doing it solo. We emptied out the inbox. And let's do it, right?

00:03:17.080 | It's also why you have that old mic. So I forgot to give Ben back his mic. So he'll

00:03:21.960 | have his regular mic back next week.

00:03:24.120 | It's like our flu game here.

00:03:26.680 | Yeah. Yeah, exactly. Yeah.

00:03:29.480 | Let's do it.

00:03:30.480 | Okay. So up first today... Also, my voice is still not totally back, but I think it'll

00:03:35.840 | work. It'll have to work. Okay. Up first, we have a question from Colin. "I'm a 29-year-old

00:03:41.800 | living in New York City paying high rent prices and cost of living expenses. I recently graduated

00:03:46.320 | from a two-year master's program, which set me back financially, but I graduated with

00:03:50.160 | a job that almost doubled my income prior to grad school, currently $150,000. Even with

00:03:55.440 | this high income, my high expenses and debt have me feeling behind my peers who didn't

00:03:59.260 | take a two-year break from the workforce. I see my friends in the suburbs buying houses

00:04:03.560 | while I have practically nothing in savings. I want to avoid becoming a person who only

00:04:08.080 | starts to experience financial relief when my income increases. What are some tips for

00:04:12.760 | a high income earner in a high cost of living scenario who can only save 10% of post-tax

00:04:18.080 | income to avoid becoming another rat in the rat race?"

00:04:21.480 | Is the rat race that bad? I was just on the subway. It's the rat race, right?

00:04:26.560 | Okay. All right. Duncan's making the case for the rat race. All right. So, Duncan, I

00:04:31.160 | watched Eyes Wide Shut recently. Tom Cruise and the Cole Kidman movie.

00:04:34.560 | Never seen that one.

00:04:35.560 | All right.

00:04:36.560 | I love Kubrick, though. So do I need to see it?

00:04:37.960 | Kubrick, if you love him, you might want to see it. It was definitely more of a film

00:04:41.400 | than a movie. It was one of the few Tom Cruise movies I haven't seen. I thought it was just

00:04:44.920 | okay. It didn't blow me away. But in the movie, he plays a doctor, which is kind of an odd

00:04:50.640 | role for Tom Cruise. But he has this enormous apartment. I think it's in 1999. He has this

00:04:55.360 | enormous apartment. At the beginning of the movie, they go to a doctor friend of his who

00:04:59.120 | has this just palatial penthouse condo.

00:05:02.360 | Today, this is a $50 million place. It just struck me that in the '80s and '90s, doctors,

00:05:09.000 | and I guess to a lesser extent, lawyers, were seen as these most glamorous professions.

00:05:13.600 | That's how you got wealthy. Because if that movie was remade today, he would be a hedge

00:05:16.600 | fund manager, or a CEO, or have a tech company, or something like that. So what does it have

00:05:22.040 | to do with anything?

00:05:23.540 | This question made me think of doctors. So I was actually speaking to a financial advisor

00:05:27.080 | this week who said that he focuses on doctors. His practice works with young doctors. And

00:05:32.280 | he mentioned how it's a unique financial situation because as a doctor, you go to school for

00:05:36.200 | 23 years in total, or 22 years or something. Then you go to your residency, and you don't

00:05:43.480 | make a lot of money. So you come out of your residency not making a lot of money. You have

00:05:47.600 | six figures of student loans. But then finally, once you become a doctor, then you're making

00:05:51.480 | real money. You're making high six figures or something.

00:05:55.480 | That seems kind of similar to Colin's situation here, where he put things off. He did make

00:06:00.480 | a lot of money for a couple of years. But then he immediately took a huge leap forward

00:06:06.000 | in his income. So he fell behind, but now he has to play catch up. And I think that's

00:06:10.480 | hard to do, because if you sort of set off that delayed gratification, and now you're

00:06:16.480 | making more money, you probably want to spend it right away, because for a couple of years

00:06:19.240 | later. But I think if he wants to avoid falling behind even further than his friends, I think

00:06:27.400 | what you do is you learn how to live like a student for two years without a job. I think

00:06:31.000 | maybe you probably want to keep living like a student for a little while. Give yourself

00:06:33.880 | a little cost of living raise, but maybe keep that baseline low. Because I think if you

00:06:38.960 | initially just start spending all the money you make, going back is going to be even harder.

00:06:43.520 | So you just lived on a low income for a couple of years. It shouldn't be that much harder

00:06:46.840 | to do it for a little bit longer. So I think setting that baseline to your future income

00:06:50.960 | is pretty good. You just don't want to overdo it. And if you can't continue to live like

00:06:55.240 | a student, unfortunately, you're probably going to have to move. I know people don't

00:07:00.000 | want to hear this, but there's basically three legs for the personal finance tool. You can

00:07:08.000 | spend less, you can earn more, or you can change your situation. And so those are kind

00:07:12.640 | of the things here. And luckily, he did find a way to earn more. I think it's glaringly

00:07:18.600 | obvious that making more money makes it easier to save more. But the fact that he put two

00:07:23.520 | years off and it doubles income, it's obviously a worthwhile investment. But I think if you're

00:07:29.280 | in a high cost of living area and the money you're making allows you to save a certain

00:07:33.680 | percentage of your income, you're going to have to figure out your spending or where

00:07:37.480 | you live, basically. Right? Unfortunately. It's hard to save in New York.

00:07:41.160 | It also brings up the good question of what high income means, right? Because it is so

00:07:45.640 | relative. It's relative. Yeah. To your cost of living.

00:07:48.760 | But I mean, doubling your income, obviously, again, it probably hurt for those two years.

00:07:53.480 | I wouldn't worry so much about falling behind your peers, because obviously that investment

00:07:57.400 | was worth it for you, because you're earning it back fairly quickly. But unfortunately,

00:08:03.520 | there's not many easy options besides living like you were living like a student for a

00:08:08.440 | while. Right. I think that's a good way to play catch-up.

00:08:11.080 | All right. Let's do another one. Okay. So up next, we have a question from Matthew,

00:08:18.360 | who writes, "I'm a 29-year-old with about $330,000 saved, all of it in brokerages or

00:08:23.800 | IRAs. Currently, I'm managing my own portfolio, all in individual stocks and cash. I feel

00:08:28.960 | like I do a decent job picking long-term businesses. I don't panic, buy or sell. And I've held

00:08:37.360 | my own during the recent downturn. However, I know that by now, that the right move is

00:08:42.080 | for the majority of my portfolio to be in low-cost index funds, with maybe a bit to

00:08:45.960 | play with. Frankly, I just enjoy investing in stocks, but I know chances to outperform

00:08:50.160 | the market in the long-term are low. The question is, I found a financial advisor offering a

00:08:54.520 | 1.2% annual fee on my holdings. I do not currently have a home or really any complicated assets

00:09:00.160 | or financial plans. I just want to accumulate. Is an advisor for 1.2% worth it? Or at my

00:09:05.840 | age, is simply finding low-cost index funds the right move?"

00:09:09.600 | We get this question a lot. "Do I need a financial advisor?" And I work in wealth management,

00:09:15.960 | so I'm kind of biased, but I've interacted with enough investors over the years to know

00:09:19.440 | that it's not for everyone. Not everyone needs a financial advisor, right? Some people are

00:09:23.140 | prone to making emotional mistakes as an investor, and they need an advisor for that to help

00:09:27.320 | them make better decisions. A lot of people have complicated situations because of a life

00:09:30.640 | event or just their personal circumstances. They might need an advisor. Some people are

00:09:34.960 | just really busy and prefer to outsource. They outsource a lot of things in their life,

00:09:38.160 | and they don't want to carry the load themselves, so they just lean on experts.

00:09:41.600 | One of them is, for a lot of people, especially if they've been a DIY investor their whole

00:09:44.640 | life and then they're getting close to retirement, there's that hit-by-a-busk risk where if something

00:09:49.760 | happens to me, what's going to happen to my spouse or my family, and I want an advisor

00:09:53.600 | to be there to take the place. We talked to one guy once who had millions of dollars and

00:09:58.720 | said, "I'm perfectly comfortable managing one myself. I like doing it, but I have something

00:10:04.100 | in our estate plan that says, 'If I die tomorrow, my wife is going to call Rehability Wealth

00:10:08.440 | Management.'" It's like a backup plan.

00:10:11.360 | Then I think when the stakes become too high and you're worried about making a huge mistake,

00:10:15.400 | but the people who don't need an advisor are the people who have put in the work, who pay

00:10:19.160 | attention to the stuff and just feel comfortable doing it themselves. Some people just find

00:10:22.760 | enjoyment out of it, and then there's a lot of the majority of young people who are simply

00:10:27.160 | looking to save and invest, like this person, probably doesn't need an advisor, especially

00:10:31.400 | if it sounds like it's something this person likes to do. They already sort of have it

00:10:34.720 | figured out. They're in individual stocks and they know they have to go to index funds

00:10:38.120 | and they should. They haven't made the switch yet. Do you need to pay an advisor over 1%

00:10:42.320 | to put in index funds? No. Just build it up in your 401(k) or IRA. If you don't have behavioral

00:10:48.080 | problems and you can stick with a long-term investment plan, and you're just accumulating

00:10:51.360 | assets and you're not in a complicated situation.

00:10:55.240 | Most people come to a financial advisor thinking, "I need help with my portfolio. I need investment

00:10:59.200 | management. I need someone to do asset allocation." That stuff is part of it, but financial planning

00:11:04.200 | is far more meaningful for the vast majority of the population. We're talking comprehensive

00:11:08.200 | financial planning, tax planning, insurance planning, estate planning.

00:11:11.840 | Yeah, it's holistic.

00:11:12.840 | Yeah, it's holistic. It's not only asset allocation, but asset location and withdrawal strategies

00:11:16.480 | and ongoing planning. It's all this other stuff too, that investment is a piece of it,

00:11:21.200 | but it's not the whole thing. So if you're just in the accumulation phase, I don't think

00:11:25.200 | you need to pay an advisor. No. I mean, you could pay for an hourly financial planner

00:11:29.000 | to create a financial plan for you if you really need that, but I don't think you need

00:11:32.960 | to be paying an ongoing asset management fee to people.

00:11:35.680 | A key thing they said there is that they enjoy it, right? So that's, I guess, giving away

00:11:42.760 | some of maybe what would be best for them. But yeah, for most people, I don't think most

00:11:47.180 | people, they said they're in individual stocks. I don't think most people want to be worrying

00:11:50.120 | about what an individual stock does day in, day out, that kind of thing. But if you enjoy

00:11:54.800 | it, then I guess that takes some of that pressure off.

00:11:57.600 | I've had this conversation too about getting to a place where you're comfortable, where

00:12:01.480 | if you need to scratch that itch and have 10, 20, 30% of your portfolio in individual

00:12:04.960 | stocks because you enjoy it, and then the rest on autopilot and index funds or ETFs,

00:12:09.960 | just figure out what that right balance is.

00:12:11.720 | Yeah.

00:12:12.720 | All right. Let's do it.

00:12:14.760 | Good advice.

00:12:15.760 | One more.

00:12:16.760 | Okay. Danny writes, "I'm 39 years old and I've been running into more and more instances

00:12:21.240 | of this type of behavior from my parents and their friends. If I go down a YouTube rabbit

00:12:24.960 | hole and are conned out of money, whether it be for gold coins or to cancel phantom

00:12:29.240 | subscriptions, how do we talk to our parents about being conned out of money?"

00:12:36.960 | It's kind of funny because our parents always told us growing up that it was like video

00:12:39.920 | games and TV and movies are ruining our brain. And unfortunately, it's probably the internet

00:12:43.960 | and social media that came for them. And I actually don't blame them because the baby

00:12:47.960 | boomer generation especially didn't have a lot of technology growing up. So I think they

00:12:53.160 | actually are easier to con. So I wrote a whole book about this called "Don't Fall For It,

00:12:56.840 | A Short History of Financial Scams." And the crazy thing to me is that technology evolves

00:13:02.320 | over time, but people were still doing the same scams in the 1600s as they are now. It's

00:13:08.320 | just a different wrapper.

00:13:10.800 | So there's this old joke about a little boy who comes down on Christmas morning and he

00:13:15.120 | notices all around the Christmas tree, it's filled with horse excrement everywhere, just

00:13:19.840 | horse poop all over the place. And his parents see him and he starts jumping up and down

00:13:23.420 | for joy. And his parents say, "What's wrong with you? There's horse manure everywhere."

00:13:29.480 | And the boy says, "With this much horse shit, there has to be a pony somewhere." Right?

00:13:34.120 | And that's financial fraud. It just--it has to be true. Right? There was a--in my book,

00:13:39.800 | there was this woman and I think she was a boomer unfortunately. And Jason Statham, a

00:13:46.040 | person who was posing as Jason Statham in between "Fast and Furious" movies said to

00:13:50.680 | her, "Hey, I'm a little short on cash because I'm paycheck to paycheck between movies. Just

00:13:55.760 | front me a couple of hundred thousand dollars to make it." And this woman thought she was

00:13:59.360 | friends with Jason Statham. You're not--you're going to be shocked, but it wasn't. Like,

00:14:03.280 | and that kind of stuff. So, it's--one of the hard parts is a lot of people don't want to

00:14:08.160 | talk about this if it happens. And so, I looked for a good estimate of like how often--how

00:14:12.200 | much money is being scammed from people in a given year. And every study I found said,

00:14:18.480 | "Whatever money--whatever estimate we have, multiply it by two or three because the number

00:14:22.240 | of people who get scammed then don't say anything because they're embarrassed is enormous."

00:14:26.760 | So, there was a study I looked at in the book and they look at two groups of people. One

00:14:32.760 | group had gone through--they'd been the victim of financial fraud and they admitted it. Another

00:14:37.320 | group who wasn't the victim of financial fraud. And they gave them these--this test and it

00:14:41.320 | was like an eight-question test. It was fairly in-depth, all about the markets and investing

00:14:46.260 | and stocks and your finances. And they found the average score among victims of fraud was

00:14:50.360 | like 60%, which sounds bad, but it was actually way higher than the non-fraud victims. The

00:14:56.320 | people who hadn't been a victim of a fraud were like two out of eight. And so, what they

00:15:00.760 | figured was like the people who were victims of fraud were actually more informed about

00:15:04.600 | investments than those who weren't. But the conclusion of the study was like everyone

00:15:08.280 | gets taken, but it's the most sophisticated investors who get taken the most. And that's

00:15:11.560 | because they're either overconfident, but also because they have the target on their

00:15:15.240 | back, right? Older people, the baby boomers especially, they have the most money. So,

00:15:18.400 | they have the target on their back. That's why people go after them. So, I did this thing

00:15:22.120 | where I looked at six signs of financial fraud in the book. One of them was--this is the

00:15:26.200 | Madoff thing. When the investment manager takes custody of your assets, that was like

00:15:29.400 | the biggest--that should have been the biggest red flag for Bernie Madoff people. He was

00:15:32.560 | not only managing the money, but also holding onto it for people. That made it easier to

00:15:36.280 | falsify the records and stuff. I think the biggest one is--especially for these smaller

00:15:40.680 | ones that this person is talking about going down like a rabbit hole on the internet--when

00:15:43.880 | there's like an aura of exclusivity in the pitch. So, it's like this is especially tempting

00:15:47.760 | for the wealthy people because they want to think like, "Well, that's not available to

00:15:50.880 | other people." For me, if there's this like secret door that I can go through--and I think

00:15:54.440 | scammers often use time as a sales tactic too. Like if you don't act now, you're going

00:15:58.840 | to miss out. So, people want to believe like they have to do it now. I think anytime it's

00:16:02.720 | too complicated to understand, that's a good red flag. If it sounds too good to be true,

00:16:07.880 | when the promise returns are ridiculously high. I think Charles Ponzi, the original

00:16:11.200 | Ponzi scheme, he was offering like 40% a month.

00:16:14.780 | Not bad.

00:16:15.780 | Yeah. The risk-free rate at the time was like 5%, not too far from now. And then when they

00:16:20.300 | tell you exactly what you want to hear. So, I think the simple way to tell your parents--so,

00:16:23.840 | I've heard a few people now. Nick Magiulia wrote about this a few months ago, and I actually

00:16:26.720 | heard about this someone personally. With remote work being a thing, people would contact

00:16:32.000 | someone on LinkedIn and say, "Hey, I've got a job for you," and go through like a back

00:16:35.240 | and forth interview process all on the internet. And then say, "Okay, job is yours. Give me

00:16:40.600 | your social security number, your bank account number." And then they looked into it and

00:16:44.280 | there's no job there. People are just scamming them, right?

00:16:46.760 | Right. I've heard of that.

00:16:48.760 | So I think some simple ones to tell your parents, never give out information like that over

00:16:51.560 | the internet, especially. The other one, never click on a link that an email sends you to

00:16:56.520 | reset a password, right?

00:16:58.480 | Or a text.

00:16:59.480 | Or a text. Yeah, any time, click on this. Go to the actual website yourself if you want

00:17:02.920 | to reset something. Don't click on it yourself. Otherwise, I think you have to prepare them

00:17:09.520 | a little bit and tell them that people are looking to get you in this stuff. If you have

00:17:14.240 | a question, ask me before you do something. You don't need to be in a rush to do anything,

00:17:17.680 | especially when it comes to your finances.

00:17:18.960 | Yeah, it's sad because you don't want to make people super jaded and untrusting of everyone.

00:17:23.960 | But yeah, I mean, it really has gotten pretty out of hand. I get texts all the time now.

00:17:29.040 | The latest one that I've heard a lot about is USPS or UPS couldn't deliver your package,

00:17:35.400 | and so you might actually be expecting a package. And so you click the link and it's a scam.

00:17:39.560 | Sometimes it's not. And so it's one of those things where now it's like, I never click

00:17:43.160 | any of them because I just assume it's a scam.

00:17:45.600 | Yes, don't click the links. Remember when the internet first came out, no one ever wanted

00:17:50.720 | to give their credit card information? And now you become more trusting of it. And now

00:17:55.040 | you think everything's going to be fine and you have to be a little more discerning.

00:17:59.800 | And send an email. I'll send your parents a copy of this book. Maybe that'll help.

00:18:03.760 | Yeah, good idea.

00:18:05.160 | Come in your way. All right, let's do another one.

00:18:09.560 | Okay. Oh, and for any boomers who were offended by any of that, it's not just you, first of

00:18:14.600 | all, but second of all, you can leave your best Gen Z and millennial jokes in the chat

00:18:18.160 | and we'll take a look at some of those.

00:18:19.800 | Yes, but the whole point, though, is everyone gets scammed. I mean, think about who's getting

00:18:23.520 | scammed on the NFT crypto stuff. Guess what? It's young people. That's not boomers.

00:18:27.600 | That's like what you just said too, right? You can't get scammed on an NFT project unless

00:18:31.600 | you know what an NFT is, right? You're probably not going to put money into it unless you

00:18:34.680 | actually know what it is. So it's not people who don't know anything. It's people who actually

00:18:38.720 | know something that often get scammed.

00:18:40.960 | Yeah, and they're overconfident. Exactly.

00:18:43.160 | Okay, so up next we have a question from Jared. My wife bought some land in New Zealand a

00:18:49.280 | few years before we met, with vague ideas of building a house. Turns out its value has

00:18:54.280 | appreciated by four or five times, so she asked me if she should sell it while prices

00:18:59.240 | are high. We don't really need the money for anything, so I thought the tax burden sounds

00:19:02.880 | like a hassle, and I don't know if the money would be better off in stocks. One wrinkle

00:19:07.360 | is that she has stage four lung cancer and probably only has a few years, so it's unlikely

00:19:11.880 | she'll ever build on it. Should she just sell it?

00:19:15.240 | You know, we get a lot of these emails, and I actually thank people for sharing this kind

00:19:18.960 | of stuff, because obviously it can't be easy to ask this kind of thing, and I can't even

00:19:22.560 | imagine what it's like to go through.

00:19:23.560 | That's a sad one.

00:19:24.560 | So there's this guy, George Kinder is his name. He's generally known as the father of

00:19:28.360 | financial life planning, and his whole thing was, it's not financial planning, you're planning

00:19:31.720 | your life. And he does this thing where he asks three questions. This is pretty well

00:19:35.120 | known in the financial advisor community. So he is asking these questions to get people

00:19:39.680 | to dig deeper into their goals when they're creating their financial plans. So the first

00:19:43.960 | one is, imagine you're financially secure both now and in the future. How would that

00:19:48.160 | change your life? What would you do differently?

00:19:50.720 | Second question is, and this is kind of a progressive set of questions. Second question

00:19:54.040 | is, your doctor tells you you have five to ten years left to live. You won't feel sick

00:19:58.040 | ever, but you won't know exactly when you're going to go. Just sometime in the next five

00:20:01.240 | to ten years, and then the question is, how will this change your life and what you do

00:20:04.880 | with it?

00:20:05.880 | And then the third one is, drilling down even more, now the doctor tells you you have one

00:20:09.240 | day left to live. What are your biggest regrets? What do you wish you would have done, and

00:20:12.520 | what would you have done differently? And he uses this as a framework to help people

00:20:16.040 | kind of drill down to their goals and dreams and get better.

00:20:20.280 | Now for most people, these questions are theoretical in nature. For Jared and his wife, who's asking

00:20:24.840 | this question, this is real life. And now it sounds like they are financially secure,

00:20:28.880 | so that number one is kind of checked off. And wife maybe only has a few years to live,

00:20:32.880 | so it's like, now what?

00:20:34.040 | So I could offer you a breakdown of the pros and cons between owning land or owning stocks

00:20:37.640 | or the timing of this or anything else, but really, I don't think finances should be the

00:20:42.640 | priority here. So we, I introduced a financial advisor named Joe McClain this week at the

00:20:49.440 | Future Proof Festival, and he manages money for professional athletes. And they asked

00:20:54.840 | him, how do you go about setting a financial plan and allocating their assets when they

00:20:59.600 | have millions of dollars?

00:21:00.600 | He said, well, one of them is like the safety security bucket, one of them is the growth

00:21:03.200 | bucket, and one of them is the dream bucket. And he said, when he lays it out like this,

00:21:06.960 | of course, the first one everyone wants to go to is the dream bucket. And so I think

00:21:10.400 | that's probably, that's probably where you want to start here. With the understanding

00:21:14.320 | that we don't know the rest of your financial circumstances, that's where I would start

00:21:17.420 | too, is, I don't know, maybe your wife wants to build a house in New Zealand and enjoy

00:21:21.180 | her last few years. Maybe you want to cash out and take some amazing vacations together.

00:21:24.920 | Or maybe make her feel better to give the money away, or make your financial standing

00:21:28.760 | more secure before she goes. So, it's hard to say. Obviously, this has got to be extremely

00:21:33.960 | difficult with that hanging over you, and it can't be an easy conversation to have.

00:21:37.600 | But maybe having a talk about your wife's dreams and what she wants to get out of it,

00:21:40.960 | and using that framework, might be a good place to start in terms of figuring out what

00:21:45.080 | to do next with that.

00:21:46.360 | Yeah. Yeah, I like that. That's what I was thinking too, is, yeah, I mean, maybe something

00:21:51.960 | she would really like to do with that money. Yeah, otherwise, yeah, maybe it's not worth

00:21:56.680 | the hassle.

00:21:57.680 | Yeah. Now is the time to not, like, throw the financial out of the equation, and just

00:22:03.640 | think about, like, what would I actually do with this money if I didn't have a lot of

00:22:07.280 | time? And obviously, that's the situation they're dealing with.

00:22:09.640 | All right. One more question.

00:22:14.120 | Okay. Last but not least, we have a question from Michael. "My wife and I are in our early

00:22:20.880 | 30s, and have our first kid arriving in December. I have about $32,000 left in student loan

00:22:25.720 | debt, but they are refinanced at great rates. $5,200 at 3.5%, and $27,600 at 3%. Both are

00:22:34.040 | fixed rate, and we pay a little over minimum payment, $500 a month to the $5,000 loan,

00:22:39.240 | and $900 a month to the $27,000 loan. I've always thought anything under 3% is basically

00:22:44.640 | free money, and usually wouldn't think to pay it early. But for some reason, student

00:22:48.320 | debt really annoys me, probably because we've been paying for a decade. We built up a decent

00:22:53.120 | emergency fund by putting $1,000 a month into it. However, now that it's a decent figure,

00:22:57.320 | I plan to only contribute $500 a month. Does it make sense to use that extra $500 that

00:23:02.040 | would normally be going to our emergency fund to pay down student debt, or would you invest

00:23:06.720 | any extra money and assume long-term, the investments will outperform the interest rates

00:23:10.920 | on the loans?"

00:23:12.560 | What's the gif of the little girl where she's, "Why not both?" I don't think these decisions

00:23:16.720 | have to be all or nothing. I agree that there should be no hurry with rates that low. My

00:23:19.460 | student loans were sub 3%, so I used the entire 15-year period to pay them off. But I'm not

00:23:27.360 | one of those people who's totally averse to holding debt. It doesn't bother me, especially

00:23:30.800 | if the rates are so low. For others, it doesn't even matter what the rates are. They just

00:23:33.400 | can't take it.

00:23:34.400 | And to put it in perspective, I think the average rate is like 6%.

00:23:37.720 | Yeah, so these people obviously have a very good loan rate right now. The other good thing

00:23:43.320 | is that these decisions don't have to be set in stone. You can tinker a little bit. Maybe

00:23:46.240 | try to split the difference for a year, put half in your student loans and half of it

00:23:49.760 | is in savings or investing. Obviously, if you've got a new child on the way, maybe giving

00:23:53.300 | yourself a little buffer and keeping that emergency fund higher is probably going to

00:23:55.800 | be helpful. Then at the end of the year, you can check your student loan balance after

00:23:59.500 | making some extra payments, check your investments and where they are, and decide which one of

00:24:04.120 | these made me feel better, which one of them has helped my financial position better. And

00:24:08.840 | I think you can kind of change, and you can tinker a little bit and see.

00:24:11.800 | And I think you can also compare rates, as well. Who knows, if the Fed keeps raising

00:24:14.200 | interest rates, you could have a rate on your savings account that's higher than this 3%

00:24:17.560 | loan, right? Like, six-month, one-year, two-year Treasury bills right now are higher than my

00:24:22.680 | mortgage rate. Not to brag. Actually, very much to brag. But it's possible. So, you could

00:24:29.200 | be looking at that rate, and it's going to look even better maybe three, six, nine months

00:24:34.020 | from now, where you go, "I really don't want to change," especially with inflation being

00:24:37.820 | so high. So, from a financial perspective, holding that low-rate debt on a real basis,

00:24:44.900 | it's negative right now, big time. We're talking -5% or something. It's very appealing. So,

00:24:52.620 | I wouldn't be in a hurry to pay that, from a financial perspective. I understand from

00:24:55.680 | a mental, psychological perspective, it feels like it's just hanging over you. But that's

00:25:01.180 | almost more of an asset than a liability now. I'm in no rush to pay my mortgage off. And

00:25:08.020 | if I could take out more debt at that 3% rate right now, I probably would, right? So, yeah.

00:25:14.060 | I'd be in no hurry. But again, you can always split the difference and then see how it goes

00:25:17.220 | for a little while.

00:25:18.460 | Yeah. No, that sounds like good advice. Yeah, I'm jealous that that's a very good interest

00:25:23.300 | rate. But yeah, if you refinance, I guess, for people who are working in public service,

00:25:28.540 | that kind of thing, you lose eligibility to do the 10 years where you get your loans paid

00:25:32.940 | off or whatever that's called, ESLF.

00:25:35.020 | Yeah. And if this person actually, if they're part of the thing that got the $10,000 off,

00:25:41.220 | you know, they just have some savings there too, right?

00:25:43.940 | Right.

00:25:44.940 | Okay. Oh, I finally got my Chardon shirt here.

00:25:48.340 | I noticed.

00:25:49.340 | I got an email. So, remember, if you want one of these, we're people wearing them out

00:25:52.020 | at Future Proof, Duncan and John and Josh, I think, and Michael. idontshop.com. Again,

00:25:58.940 | thanks everyone for coming out and checking it out. John, did you throw up that picture

00:26:01.020 | yet from Future Proof? Check that out. Look at that. That's our live podcast booth.

00:26:04.700 | Look at their shirts.

00:26:05.940 | Yeah. We had a lot of people in the crowd with Hawaiian shirts. We appreciate that.

00:26:09.420 | Michael, if you're listening in podcast form, leave us a review, give us a five-star rating.

00:26:13.980 | If you're on YouTube, leave a comment below, leave a question, subscribe, idontshop.com

00:26:21.140 | for compound merch. Keep those questions and comments coming. If you have something to

00:26:23.820 | ask us, askthecompoundshow@gmail.com. We will be here next week and we'll bring a guest

00:26:29.140 | host next week, but we'll see you then.

00:26:32.180 | See ya.

00:26:32.380 | [Music]

Do Young People Need a Financial Advisor? | Portfolio Rescue

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