How Much Do I Need For a Down Payment?

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00:00:12.240 | - Welcome back to Portfolio Rescue,

00:00:19.860 | a show where we take questions straight from you,

00:00:21.780 | the viewer, from all of our different content we produce.

00:00:24.760 | Duncan, we took a week off because I was in Disney.

00:00:27.980 | I learned a valuable lesson about the difference

00:00:29.740 | between a trip and a vacation.

00:00:31.900 | A family trip is one where everyone goes to bed at 9 p.m.

00:00:35.000 | 'cause you're all tired

00:00:35.840 | from all the activities during the day,

00:00:37.240 | and a vacation is where you stay up late

00:00:38.620 | and party and have fun,

00:00:39.840 | and that was not what we were on.

00:00:41.580 | - I'm kind of surprised you're not wearing Mickey ears,

00:00:44.200 | you know?

00:00:45.260 | Thought you might come back with some of those.

00:00:46.780 | - I was the only crank in the family

00:00:48.080 | who didn't have, like, head-to-toe Mickey Mouse

00:00:50.460 | or Disney gear.

00:00:51.660 | Anyway, right before the show,

00:00:54.860 | I actually got a,

00:00:55.700 | I've given some book recommendations before.

00:00:57.980 | Poor Charlie's Almanac.

00:00:59.340 | This is something I read early on in my career.

00:01:01.800 | We actually had a relative of the person

00:01:04.220 | who worked on editing this book,

00:01:05.660 | and it's all of Charlie Munger's different speeches

00:01:08.420 | he's given over the years,

00:01:09.460 | sent me a signed copy.

00:01:10.580 | I think he sent a signed copy to the office, too,

00:01:12.300 | for Josh and Barry and Michael and some other people,

00:01:14.660 | which I thought was very cool.

00:01:15.860 | It's a very good book,

00:01:17.380 | and this guy is 98 years old now,

00:01:19.900 | and he was out there spitting fire yesterday

00:01:22.260 | calling Bitcoin a venereal disease,

00:01:24.460 | and I just hope I make it someday to that age

00:01:27.980 | where I think it's basically 80 plus

00:01:29.660 | where you just stop caring at all

00:01:31.660 | what you say and what people think of you.

00:01:34.500 | It's wonderful, so I would like that.

00:01:37.380 | I just want to say real quick,

00:01:38.220 | so remember, if you have a question,

00:01:39.100 | email us, askthecompoundshow@gmail.com,

00:01:41.060 | and you can also leave some feedback there as well.

00:01:43.800 | So we got a feedback.

00:01:44.640 | Last time, someone asked,

00:01:45.820 | "Hey, I want to YOLO into a rental property

00:01:48.180 | "in Austin, Texas.

00:01:49.340 | "I want to cash out my 401(k)."

00:01:50.840 | We think he was cashing it out and not doing a loan,

00:01:52.820 | didn't really specify,

00:01:53.660 | but someone said, "Hey, I'm surprised you guys

00:01:55.440 | "didn't talk about the fact that there's a tax issue here,

00:01:57.440 | "so if you cash out your 401(k),

00:01:59.160 | "you're paying taxes on it,

00:02:00.000 | "and then a 10% penalty for early withdrawal."

00:02:02.180 | Now, this person who wrote us in

00:02:03.780 | may have been taking that into account, right?

00:02:05.860 | They may have thought about that ahead of time

00:02:07.180 | and netted that out,

00:02:08.140 | but that's a good thing to think about.

00:02:11.100 | It's something that we didn't mention,

00:02:12.460 | so thanks to the audience for pointing it out.

00:02:14.560 | Always, again, send your feedback

00:02:15.740 | or leave them in the YouTube comments.

00:02:17.620 | All right, what do we got this week?

00:02:19.580 | - Okay, so first up, we have a question from Victor.

00:02:23.560 | "I'm saving to build a house in early 2023.

00:02:26.540 | "I have around $18,000 saved

00:02:28.500 | "and anticipate saving at least an additional $9,000

00:02:31.840 | "before I build.

00:02:33.020 | "Gemini offers a yield of 8% APY on its stable coin

00:02:37.520 | "and is considered one of the safest

00:02:38.780 | "crypto exchanges or platforms.

00:02:40.640 | "Should one consider using stable coins

00:02:42.420 | "to generate greater savings for things like a down payment

00:02:45.120 | "or other non-emergency savings?"

00:02:47.760 | - Get a lot of questions about this,

00:02:49.920 | because you're seeing 8%,

00:02:51.960 | and then even for an online savings account,

00:02:54.520 | you're earning 50 basis points, maybe, right?

00:02:56.200 | Half a percent, and the finance people look at this

00:02:59.840 | and say, "This doesn't make any sense.

00:03:01.280 | "How could you earn 8%?

00:03:02.120 | "This doesn't, it just doesn't compute."

00:03:04.480 | Actually, I wrote a piece last year

00:03:06.120 | comparing stable coins to MoneyMarkt,

00:03:07.880 | and I actually think this is kind of off-topic.

00:03:09.800 | Stable coins could be the gateway drug

00:03:11.680 | for a lot of people into crypto.

00:03:13.480 | I think stable coins could be huge,

00:03:14.800 | especially since it's a global asset

00:03:16.520 | and people could use it as dollars, potentially,

00:03:18.760 | and earn a lot of money on that.

00:03:20.200 | Separate topic.

00:03:21.040 | So, first of all, why do stable coins

00:03:24.680 | earn such high rates of interest?

00:03:25.920 | So, we talked to Zach Prince from BlockFi

00:03:27.240 | about this a number of times.

00:03:28.080 | You may have heard of BlockFi.

00:03:29.200 | They're the company that got fined $100 million

00:03:31.600 | by the SEC this week.

00:03:32.560 | We went into this on depth on Animal Spirits this week.

00:03:34.760 | - Yeah, you did a good segment on that.

00:03:35.920 | Everyone should listen to Animal Spirits.

00:03:36.760 | - Yeah, kind of felt like they were

00:03:37.600 | the sacrificial lamb here.

00:03:38.760 | It wasn't like they were doing anything nefarious,

00:03:40.240 | but the way I equate it is,

00:03:42.200 | they were kind of like Uber and Airbnb,

00:03:43.600 | just going into these markets before regulations existed.

00:03:46.160 | Like, the SEC didn't really have regulations.

00:03:48.400 | They said, you know,

00:03:49.240 | "Stable coins are unregulated securities,"

00:03:50.920 | and they had to pay this fine.

00:03:51.840 | Now they're gonna be regulated.

00:03:53.160 | Setting aside all the boring regulatory talk,

00:03:56.040 | first of all, one thing to understand here is that

00:03:58.600 | there are no traditional forms of finance in crypto.

00:04:01.240 | Like, there's no banks that are doing any sort of lending.

00:04:04.160 | If you wanna borrow against a stock or a stock portfolio

00:04:07.000 | from basically any brokerage on the planet,

00:04:09.400 | you can do so at a very low interest rate.

00:04:11.120 | We've talked about that a few times.

00:04:12.360 | People borrowing against their portfolio

00:04:13.640 | because you can do so at, I don't know, 2% to 3%.

00:04:16.040 | Maybe those rates are going a little higher now

00:04:17.800 | because interest rates are rising.

00:04:19.400 | But there's just not as many options

00:04:20.640 | for borrowing against crypto.

00:04:21.760 | So if you're a person who got in early

00:04:23.880 | on Bitcoin or Ethereum or something,

00:04:25.160 | you've made millions of dollars,

00:04:26.960 | and your significant other says,

00:04:29.120 | "Hey, I wanna build a new kitchen

00:04:30.640 | "or buy a new car with that money."

00:04:31.840 | And you say, "No, no, no, I'm a hodler.

00:04:33.040 | "I'm never selling."

00:04:34.800 | You wanna somehow unlock that newfound wealth

00:04:37.120 | that you've made, so you borrow against your crypto.

00:04:39.520 | And because there are no traditional forms of lending here,

00:04:42.520 | the places like BlockFi and Gemini that do allow lending

00:04:45.600 | can do so at a high interest rate.

00:04:46.760 | So I think they charge like 10% if you're gonna borrow at it

00:04:49.080 | since crypto is such a new form of collateral.

00:04:51.160 | And oh, by the way, it's a very volatile form of collateral.

00:04:54.120 | So that's why they're able to charge higher prices.

00:04:56.320 | So I don't wanna sell my Bitcoin or whatever

00:04:58.720 | because I've made a ton of money on it.

00:04:59.560 | I don't wanna pay the taxes.

00:05:00.760 | I wanna borrow against it.

00:05:02.120 | You borrow against it.

00:05:03.160 | These stable coins are paying the spread.

00:05:04.520 | Just like you borrow for a mortgage at 3%

00:05:07.240 | and the bank pays you 0.5% and they keep the spread,

00:05:11.160 | Gemini or BlockFi are doing the same thing

00:05:12.800 | where they're lending out at 10 and paying eight

00:05:15.360 | and keeping the difference, right?

00:05:16.920 | And then there's also institutional investors

00:05:18.400 | who are borrowing for arbitrage opportunities

00:05:20.040 | and market making and trying to short it.

00:05:21.720 | But that's the idea here.

00:05:23.000 | So that's how you're able to earn these high rates.

00:05:25.080 | And I would say, as this stuff matures,

00:05:27.720 | you would expect those rates to come in a little bit, right?

00:05:30.200 | But that's how it makes sense.

00:05:31.960 | And the other risk factor here is just that you don't know.

00:05:35.520 | This stuff is still so new, right?

00:05:37.680 | I mean, some people worry this stuff is gonna get hacked.

00:05:39.880 | Some people worry about the security of it.

00:05:41.400 | Other people worry about the counterparty risks.

00:05:43.600 | So the company that's actually paying the interest,

00:05:45.320 | that's potentially a problem.

00:05:46.680 | It's not FDIC assured.

00:05:48.260 | So that's this type of thing.

00:05:49.200 | But I think about this in a few ways.

00:05:51.640 | So I have money in stable coins at BlockFi.

00:05:54.280 | But I think like, am I gonna use this money in the next,

00:05:57.760 | I don't know, three to 12 months for spending purposes?

00:06:01.360 | If that's the case, I don't think you think about this

00:06:03.040 | in terms of all or nothing.

00:06:04.500 | Like I'm gonna put all my savings into stable coins

00:06:06.600 | 'cause they're earning way more interest

00:06:08.000 | or I'll leave all of it on that.

00:06:09.720 | I like to diversify and have a little bit in both.

00:06:11.760 | So I have money in online savings account not earning much.

00:06:14.420 | And I feel pretty safe about that.

00:06:16.680 | It's FDIC insured, all this stuff.

00:06:18.360 | And I have money in stable coins earning money.

00:06:20.520 | I think for house down payment,

00:06:22.360 | especially if you've got your timeline figured out,

00:06:24.680 | I think you can do the calculations

00:06:26.080 | and figure out how much more money you'd make

00:06:27.520 | earning 8% versus earning less than 1%

00:06:29.560 | and figure out is it really worth it.

00:06:31.560 | And again, maybe not do an all or nothing type of thing.

00:06:33.840 | But yeah, I think this is something

00:06:36.000 | people are still working on.

00:06:36.840 | We talked to Zach at BlockFi.

00:06:38.160 | He said, listen, if it's emergency savings,

00:06:40.040 | I don't think I'd feel comfortable leaving it in there.

00:06:41.520 | But if you're saving for a boat or something

00:06:43.640 | and it's down the line and it's not something

00:06:45.080 | that is gonna make or break your family or your finances,

00:06:48.200 | maybe that makes more sense.

00:06:50.040 | - Yeah, I feel like diversifying with a savings account

00:06:53.640 | at a bank is the target date fund of this.

00:06:57.620 | - Yeah, because again, you're not earning

00:06:59.720 | those higher rates of return for nothing.

00:07:01.560 | There is some risk here.

00:07:02.400 | And BlockFi, after settling their thing

00:07:05.400 | with the SEC this week,

00:07:06.840 | said you can't put more new money in now

00:07:09.520 | and no one can open a new account.

00:07:11.480 | So this stuff is still so new.

00:07:13.200 | I think that's part of the problem.

00:07:15.240 | So you have to have a little bit of risk appetite

00:07:17.160 | to earn that 8%.

00:07:18.840 | - Right, that makes sense.

00:07:20.480 | - All right, let's do the next one.

00:07:21.480 | - Okay, up next we have a question

00:07:23.560 | from, hopefully I'm pronouncing this right,

00:07:25.040 | but Yannick, and they write,

00:07:27.200 | I'm a 33-year-old movie producer in L.A.

00:07:29.520 | We've had several movie industry people write in,

00:07:31.360 | which is kinda cool.

00:07:32.360 | I'm a 33-year-old movie producer in L.A.

00:07:34.720 | and have my own company, so no steady salary.

00:07:37.080 | But I will make anywhere from 40 to $150,000 this year.

00:07:41.120 | I currently have $125,000 saved.

00:07:45.120 | Personal finances are in good shape, no kids, no debt.

00:07:47.840 | I'm currently renting and have a roommate and it sucks.

00:07:50.400 | My goal is to get a house by mid-2023 in the Valley,

00:07:53.620 | preferably sooner.

00:07:55.000 | Most of the houses are about 650 to $850,000.

00:07:58.760 | Do I need to put myself in a larger cash position

00:08:01.640 | since I want to spend the money soonish?

00:08:03.720 | What's a good ratio?

00:08:05.040 | Should I wait until I have a big enough down payment

00:08:06.960 | or go for it when I find the right place?

00:08:09.120 | Would it be better for me to save a larger down payment

00:08:11.280 | since my annual income varies so much?

00:08:14.120 | - Now, Duncan, the Duncan High wants to know,

00:08:16.760 | did you ever think about going to Hollywood

00:08:18.080 | after going to film school?

00:08:19.360 | Or you're always more of a New York independent film

00:08:21.560 | kinda guy?

00:08:22.400 | - So, I mean, my plan was to stay in Wilmington,

00:08:24.280 | North Carolina, which was like, you know,

00:08:25.680 | Hollywood East, but the film industry died there

00:08:28.120 | because of a bunch of convoluted tax stuff.

00:08:30.760 | - Oh, they had people coming there from the tax, okay.

00:08:32.760 | I gotcha.

00:08:33.600 | You seemed like a more East Coast kinda guy to me.

00:08:34.800 | - Yeah, that was my plan.

00:08:36.320 | - All right, so this question is basically,

00:08:38.480 | do I wait to save for a larger down payment to buy a house?

00:08:40.880 | Do I just try to do it now?

00:08:42.280 | What do you think is a good ratio here?

00:08:44.960 | I think it seems like an old wives' tale

00:08:47.480 | that you need to have a 20% down payment for a house.

00:08:49.840 | And obviously, the one biggest reason for it

00:08:52.600 | is because it gets you out of that PMI,

00:08:54.560 | the private mortgage insurance.

00:08:55.680 | If you have a 20% down payment, you don't have to pay that.

00:08:57.800 | It's really not that much.

00:08:58.720 | I don't know, it's, depending on the size of the mortgage,

00:09:01.720 | it could be anywhere from 50 to 150 bucks a month,

00:09:04.080 | something like that.

00:09:04.920 | It's not terrible.

00:09:05.740 | - So 20 is the cap for, or the force of that?

00:09:06.580 | - Yeah, so you need to have a loan-to-value ratio

00:09:08.780 | of 80% to not have to pay that.

00:09:11.060 | So let's do a chart on here of the median down payment.

00:09:13.100 | This is from the National Association of Realtors.

00:09:15.540 | It shows the median down payment by age.

00:09:17.140 | And you can see all buyers, it's like 12%.

00:09:18.860 | But if you're in your 20s or 30s,

00:09:20.980 | the median down payment is more like 6% or 10%.

00:09:24.020 | You can see people who are older

00:09:25.540 | can afford a bigger down payment.

00:09:26.580 | And that makes sense

00:09:27.500 | because they have more financial assets.

00:09:28.740 | When you're younger, you don't have those financial assets.

00:09:30.660 | And that's the thing that's holding

00:09:31.480 | a lot of young people back these days,

00:09:32.980 | is they think, well, I can afford the down payment,

00:09:35.740 | even these higher-priced houses,

00:09:37.460 | but I can't afford, or I can afford the monthly payment,

00:09:40.100 | 'cause interest rates are so much lower.

00:09:40.940 | I can't afford the down payment.

00:09:42.300 | I think that's holding a lot of people back.

00:09:43.700 | When we bought our first house way back in late 2007,

00:09:46.300 | we put 5% down.

00:09:48.160 | And we weren't doing it because, ah,

00:09:49.740 | we said let's lever up this house because it's a great deal.

00:09:52.180 | That was all we could afford at the time.

00:09:54.380 | It would've taken us a lot longer to buy a house

00:09:55.900 | if we waited 'til we got 20%.

00:09:57.100 | So I think this person mentions they have a variable income.

00:10:00.220 | I think they probably have to think about

00:10:01.800 | what the lender will do for them

00:10:03.340 | and what their credit situation.

00:10:04.220 | It sounds like their personal finances are in good shape

00:10:06.020 | and they have no debt, so they should be in good shape.

00:10:07.820 | Put this next one up that shows,

00:10:08.860 | this is from the same report,

00:10:10.260 | the reasons mortgage lenders rejected by applications.

00:10:13.740 | And you can see there's a bunch of different,

00:10:15.060 | debt-to-income ratio is the biggest one.

00:10:17.700 | So if this person has, I know it's a variable income,

00:10:20.180 | but they don't have any debt,

00:10:21.020 | they're probably in pretty good shape.

00:10:22.000 | So here's what I would do if I'm in this situation.

00:10:24.540 | I'm thinking, well, I'm gonna buy a house

00:10:25.900 | in a couple years, but they already have a,

00:10:27.600 | they said they have a roommate and it sucks, they said,

00:10:30.220 | so they probably are ready to do it now.

00:10:32.460 | I would shop around for a lender.

00:10:33.620 | I wouldn't go to one place.

00:10:34.460 | I wouldn't just go to my bank.

00:10:35.300 | I would look for a bunch of places.

00:10:36.260 | And the great thing about the internet

00:10:37.140 | is you can shop around these days,

00:10:38.740 | see what kind of down payment they're looking for.

00:10:40.700 | That way you know how much money you need

00:10:42.060 | and what your sort of range is

00:10:44.860 | in terms of the house you can get.

00:10:46.100 | 'Cause they'll tell you, listen,

00:10:46.920 | we'll lend you up to this amount

00:10:48.420 | and between these two amounts, that's what we can give you.

00:10:50.900 | So you kind of have a range.

00:10:52.560 | And I think then you start looking for houses

00:10:54.860 | because the process can take way longer than you expect,

00:10:57.060 | especially now with supply so low these days.

00:10:58.740 | I wouldn't really wait.

00:10:59.940 | I wouldn't wait for a 20% down payment.

00:11:02.260 | I wouldn't wait for housing prices.

00:11:03.820 | I know people say, I'm gonna wait for housing prices to fall

00:11:05.700 | or I'm gonna wait for a recession.

00:11:07.320 | I think you find a house because you like it,

00:11:10.540 | it's that stage in life, you can afford it,

00:11:12.460 | you can service the debt,

00:11:13.920 | and it's something you wanna live in for a number of years.

00:11:15.980 | So I think trying to time this thing perfectly

00:11:17.900 | is probably not a great situation,

00:11:19.220 | but I would definitely talk to a lot of lenders now.

00:11:21.220 | Don't wait to do it until you have a 20% down payment

00:11:24.380 | because what happens if you get to that point

00:11:26.380 | and then you can't find a house or they're more expensive?

00:11:28.580 | I would start the process early.

00:11:31.180 | - Yeah, no, that sounds like good advice.

00:11:32.900 | You guys have talked about this before,

00:11:34.060 | but there's so much more of it goes into buying a house

00:11:36.180 | that is important to you

00:11:37.180 | and that you're gonna live in for a long time

00:11:38.980 | than just trying to make the best math decision.

00:11:43.100 | - Yes, and I think as long as you're looking at it

00:11:45.020 | as something that I'm gonna be in this

00:11:46.220 | for five, seven, 10 years at least, minimum,

00:11:49.380 | obviously life can get in the way and change that,

00:11:51.380 | but from the start, if you say I'm finding a place

00:11:53.460 | that I'm gonna be there for a while,

00:11:55.100 | then I think that takes away some of the investment stuff

00:11:57.420 | where you can get burned by a bad housing market

00:12:00.020 | if you just lengthen your time horizon a little bit.

00:12:03.420 | - Right.

00:12:04.460 | - All right, let's do one more.

00:12:05.300 | - Okay, so up next we have the following.

00:12:09.460 | This is another fun one.

00:12:10.580 | I'm an engineer in New York City

00:12:11.900 | who joined a SaaS startup a few years ago

00:12:14.660 | just before unicorn status.

00:12:16.780 | The path to IPO is underway

00:12:18.420 | and over half of my options have vested,

00:12:20.580 | but I have not executed a single one.

00:12:23.340 | My equity at current fair market value

00:12:25.220 | will be about $1 million.

00:12:27.060 | I currently have $250,000 invested in the stock market.

00:12:30.580 | And if I come into this windfall of equity post IPO

00:12:33.380 | and after taxes, I'd like to know your thoughts on,

00:12:36.140 | and then they have a couple options here.

00:12:37.380 | So first, leveraging this equity for a stock secured loan

00:12:40.560 | to either reinvest or use for a down payment.

00:12:43.900 | Selling my equity immediately

00:12:45.500 | despite short-term capital gains hit.

00:12:47.720 | This is growth tech, so it could be up 100% from the IPO

00:12:50.340 | or down 80%.

00:12:51.820 | And then lastly, what are your thoughts

00:12:53.580 | on using some of this windfall

00:12:54.900 | for a down payment in Manhattan?

00:12:56.820 | - Great, this is a good question.

00:12:59.460 | Obviously a good problem to have,

00:13:00.820 | but this person is going from a quarter million dollars

00:13:03.940 | to well over a million dollars in net worth,

00:13:06.340 | assuming that their IPO price

00:13:08.540 | doesn't fluctuate too much more.

00:13:09.540 | So this is definitely more of a financial planning question

00:13:13.380 | than an investment question.

00:13:14.340 | So I'm gonna bring in Blair Duquene,

00:13:16.740 | who's been on the show before to help answer this one.

00:13:19.460 | Hey Blair. - Hey man.

00:13:20.300 | Hey Duncan.

00:13:21.580 | - Obviously, there's no right or wrong answer here.

00:13:23.780 | They give a lot of options

00:13:24.620 | and I think they're thinking about this the right way,

00:13:25.980 | but how do you approach a situation like this

00:13:28.100 | when your net worth, basically overnight, grows in multiples?

00:13:31.660 | How do you help someone think through this decision?

00:13:33.980 | - Yeah, well, first of all, congratulations, right?

00:13:36.560 | Making money off of working for a company

00:13:38.680 | that's very successful is one of the fastest ways

00:13:42.620 | and you've gotten lucky, so congratulations to you.

00:13:46.340 | One thing to keep in mind,

00:13:47.420 | and you hit the nail on the head,

00:13:48.540 | this could be up 100% or down 80% after the IPO.

00:13:52.380 | Right now is sort of not a great environment for IPO stocks.

00:13:57.220 | And I actually put together a chart

00:13:59.100 | of some of the recent names that we've seen go public, right?

00:14:02.620 | So this is what you're looking at

00:14:03.780 | with single stock security risk,

00:14:06.060 | whether it's like a Robinhood

00:14:08.540 | or a Rent the Runway down over 60% since their IPO price,

00:14:13.260 | or even a Coinbase down 40%, Bumble down 44%, right?

00:14:17.980 | So this is the environment we're looking at for IPOs.

00:14:20.700 | So your question about should I leverage this stock

00:14:24.140 | with a securities-backed loan, absolutely not.

00:14:26.620 | You really do not wanna lend against,

00:14:29.860 | borrow money against something that's volatile.

00:14:31.460 | I'd be surprised if they lend you even 25%, right?

00:14:34.540 | And keep in mind that if the stock is down 60, 65%,

00:14:37.700 | you're getting close to the point at which

00:14:40.080 | you're gonna have to sell the stock and pay off the loan

00:14:41.620 | and you've completely wiped out all of your equity.

00:14:43.980 | - Yeah, I agree with you.

00:14:44.980 | Take that off the table, that makes no sense.

00:14:47.300 | If you do that, you do it for a diversified portfolio.

00:14:49.220 | But how do you deal with the psychology here

00:14:51.420 | of someone thinking like, we're gonna IPO,

00:14:53.620 | but what if this thing grows even bigger from here?

00:14:56.060 | So how do you deal with the psychology of,

00:14:57.740 | listen, I know I need to diversify, it's smart,

00:15:00.100 | it makes sense, but what if I'm just worried

00:15:02.500 | that I'm gonna regret this decision

00:15:03.900 | and I wanna hold on to some of it?

00:15:04.980 | How do you deal with that?

00:15:06.360 | - Yeah, this is a tough one because

00:15:08.220 | if you sell and the stock goes up,

00:15:10.900 | you're always gonna do the math in your head

00:15:12.680 | about how much you could have been worth.

00:15:14.420 | But what you have to decide,

00:15:16.140 | knowing that the future is unknown,

00:15:17.740 | is how much are you not willing to risk in the stock?

00:15:21.500 | How much do you wanna go ahead and take off the table?

00:15:23.500 | Now, you mentioned taxes as well.

00:15:25.700 | If you do not have longer than a one-year time holding period

00:15:29.120 | you are gonna owe short-term capital gains tax,

00:15:32.240 | which is generally at a higher rate than long-term.

00:15:35.240 | So you're gonna have to play all of these factors.

00:15:37.300 | I would say, come up with a number in your head.

00:15:39.820 | What's a number that I'm not willing

00:15:41.060 | to go below in net worth?

00:15:43.080 | Probably sell that immediately.

00:15:45.440 | Come up with a number.

00:15:46.460 | What's a number of shares that I wanna hold forever,

00:15:49.420 | just in case the company does really well?

00:15:51.700 | And put those aside.

00:15:52.820 | And then maybe the remainder you sell over time

00:15:55.300 | after you have long-term capital gains treatment.

00:15:57.060 | There's no perfect answer.

00:15:58.500 | And you're always gonna go back and play mental games

00:16:00.860 | and do the calculations.

00:16:02.940 | But you have to make the best decision

00:16:04.500 | without having the information

00:16:06.060 | about what's gonna happen to the stock in the future.

00:16:07.780 | - And I do think your point about the ones,

00:16:09.460 | the stocks that have crashed recently from IPOs

00:16:12.140 | is a good one that people are kind of coming to reality

00:16:14.180 | and thinking like, okay, in the past,

00:16:16.120 | I would wanna hold onto these forever

00:16:17.380 | because look, they all went up for years

00:16:18.860 | and now they're coming down.

00:16:19.780 | I think that's put a dose of reality

00:16:21.860 | for people on this type of stuff.

00:16:23.540 | - Exactly.

00:16:24.580 | The last point of his question though was,

00:16:26.140 | should I put this down on Manhattan real estate?

00:16:29.340 | So, I would never bet against the city of New York.

00:16:32.900 | Obviously, there can be periods of softness

00:16:35.500 | in Manhattan real estate.

00:16:36.420 | I'm hearing that condos are--

00:16:37.260 | - Are you saying James Altucher was wrong?

00:16:40.020 | No way. - 100%.

00:16:41.140 | I'm having my Jerry Seinfeld moment here.

00:16:43.060 | Why would you bet against New York?

00:16:44.300 | If you wanna live in New York

00:16:45.440 | for at least the next seven to 10 years

00:16:47.220 | and that's where you're gonna make your home,

00:16:49.180 | absolutely, use this money for a down payment.

00:16:51.940 | But if you're buying it for an investment as an investment

00:16:54.380 | and don't expect it to do better than the stock market,

00:16:56.380 | we've talked ad nauseum about real estate as an investment.

00:17:00.220 | But as a home, 100%.

00:17:01.860 | I'd love to see you in your dream Manhattan apartment.

00:17:04.580 | - Yeah, especially since the net worth

00:17:05.800 | is multiplying so much, like using that as a down,

00:17:07.980 | I think that makes a lot of sense

00:17:09.280 | 'cause you're diversifying your balance sheet then.

00:17:11.260 | All right, Duncan, we got one more.

00:17:12.340 | - I have just a quick new boil question there.

00:17:14.980 | So is there always a lockup for all employees

00:17:18.380 | of a company when it goes public

00:17:20.000 | or is that just for certain employees?

00:17:21.680 | - It depends.

00:17:22.540 | Some companies have that and others don't.

00:17:24.720 | So that's something that's worth knowing.

00:17:26.820 | But yeah, that depends on the company, I think.

00:17:29.060 | - Gotcha, okay. - Exactly.

00:17:30.340 | Nothing you can do about that though.

00:17:31.900 | - Right. - Yeah, exactly.

00:17:33.360 | Okay, so up next we have a question from Mark who writes,

00:17:36.180 | "I have two 529 plans to pay for the college expenses

00:17:39.380 | "of my two kids that are six years apart.

00:17:41.680 | "I've saved enough over the past 12 years

00:17:43.440 | "to cover private school for both kids

00:17:45.460 | "and my expected annual returns

00:17:46.820 | "have been a modest 7% or higher.

00:17:49.060 | "I don't use target date funds."

00:17:50.420 | I don't know if that's a slight to you or not, Ben,

00:17:53.040 | "but I'm about two years away from my first tuition bill

00:17:56.020 | "and I want to start planning my drawdown strategy.

00:17:58.540 | "Do you recommend allocating a year's worth of tuition

00:18:00.880 | "at a time into a more conservative fund

00:18:02.740 | "as the bills come due?

00:18:04.140 | "Would that ensure that the short-term bills can be paid

00:18:06.400 | "while still letting the longer-term investments

00:18:08.180 | "grow more aggressively?"

00:18:09.900 | - By the way, for my kids' 529 plans,

00:18:12.180 | I actually do use the target date fund options.

00:18:14.780 | For this reason, I don't have to do it.

00:18:17.020 | It does the glide path for me.

00:18:18.980 | So, we have a lot of haters out there on target date funds.

00:18:21.060 | But, Blair, I think that the idea here is,

00:18:24.460 | especially from a financial planning perspective,

00:18:26.180 | accumulation is way easier for most people

00:18:28.300 | than going through withdrawal.

00:18:29.880 | Because it requires, accumulation is easier

00:18:32.500 | because you're just setting your savings rate

00:18:33.940 | and you're hoping it grows and the market does what it does.

00:18:36.300 | Withdrawal strategy is a little different,

00:18:37.700 | especially for something like college,

00:18:38.980 | because I think, actually for college,

00:18:41.440 | it might be a little easier because,

00:18:42.980 | versus retirement, you have a much longer time horizon.

00:18:44.740 | For college, you have these four years

00:18:45.740 | and you kind of know what it's going to be.

00:18:47.740 | But as you approach that level,

00:18:49.780 | what's the point where you start saying,

00:18:51.060 | "All right, I'm completely shutting off

00:18:52.680 | "the market risk here and getting out."

00:18:55.420 | So, how do you approach that one?

00:18:57.060 | - Yeah, and this reader has done a great job of saving

00:19:00.020 | because I'm hearing that private schools today

00:19:02.100 | are costing anywhere between $60,000 to $80,000 a year.

00:19:05.140 | So, kudos to you for doing that saving and investing.

00:19:08.460 | Your time horizon now is between two and six years,

00:19:11.260 | at least on the child who's older.

00:19:14.140 | Longer, obviously, if your children are six years apart.

00:19:16.540 | So, think of it in terms of time horizon.

00:19:18.900 | I also use the Target Date Fund

00:19:20.500 | because I don't want to have to go in

00:19:22.500 | and make changes as my kids get older.

00:19:24.460 | And I looked up, in the state of Louisiana,

00:19:26.780 | my Target Date Fund, even on the aggressive side,

00:19:29.000 | goes 100% in short-term bonds and cash

00:19:32.920 | when the child turns 16.

00:19:34.780 | - Oh, really interesting.

00:19:35.860 | - Yeah, that might be a little bit too much

00:19:38.580 | on the conservative side,

00:19:39.660 | because if you're thinking about that fourth year of college

00:19:41.700 | it's still six years away,

00:19:43.340 | you could make the argument

00:19:44.460 | that even if the market were to sell off now,

00:19:46.580 | it may, it will probably have recovered.

00:19:48.940 | But think in terms of three years, right?

00:19:51.320 | You're gonna be making that second year payment.

00:19:54.540 | I'll give you two three-year examples,

00:19:56.300 | August 2007 to August 2009,

00:19:59.100 | great financial crisis in between.

00:20:00.520 | You really don't wanna see your hard-earned savings

00:20:02.620 | be worth less after you've already won.

00:20:05.740 | You know, 2000 to 2002 is another three-year example.

00:20:08.840 | So maybe 50% or more should be in fixed income

00:20:13.160 | at this point.

00:20:14.000 | Go ahead and lock in those gains.

00:20:15.860 | - Right, yeah.

00:20:16.700 | Because essentially, again, you have the end date.

00:20:18.480 | When you're retiring,

00:20:19.760 | you could have two, three, four decades ahead of you.

00:20:23.100 | So like that stock bond balance makes more sense

00:20:25.640 | to like overweight it to stocks potentially,

00:20:27.320 | depending on your resources and stuff.

00:20:29.180 | But if you have a four-year period,

00:20:31.460 | like you said, start thinking about it two years before,

00:20:33.660 | like you know your end date, right?

00:20:35.700 | So taking too much risk of that

00:20:37.220 | just doesn't make a lot of sense.

00:20:38.880 | - Yeah.

00:20:40.340 | - Okay. - Absolutely.

00:20:41.600 | - Perfect.

00:20:42.440 | So I did see we had someone in the comments

00:20:43.520 | suggest that our Hollywood producer look for a credit union.

00:20:47.560 | I think that's a great idea.

00:20:48.400 | I actually use a credit union for my mortgage.

00:20:50.080 | They actually offer better rates on the savings

00:20:51.640 | and checking accounts too.

00:20:53.000 | I get like 3% on my checking account, not bad.

00:20:56.400 | So we appreciate the feedback.

00:20:58.120 | Again, have some thoughts on the questions today.

00:21:00.720 | We always appreciate the feedback.

00:21:02.340 | Leave us a comment below.

00:21:04.200 | You can come in for the live show like all the people here.

00:21:07.080 | We're getting very close to Duncan's big round number

00:21:09.100 | of 100,000 YouTube subscribers.

00:21:10.680 | I think next week we're going to do a t-shirt giveaway.

00:21:12.880 | We're going to figure something out there, right?

00:21:14.200 | We have our Portfolio Rescue t-shirts.

00:21:16.040 | - From the chat right here, we're going to do a giveaway.

00:21:18.080 | So yeah, tune in for that.

00:21:19.360 | - So anyone who's not here live, check in live.

00:21:21.160 | We're going to be doing a giveaway here on the live chat.

00:21:23.440 | Thanks again to Blair for joining us as always.

00:21:25.680 | - Thanks for having me.

00:21:27.280 | - Yep, remember, askthecompoundshow@gmail.com

00:21:30.120 | if you have a question and we will see you next week.

00:21:32.400 | - Also, one other thing.

00:21:33.780 | We're watching Portfolio Rescue's now its own podcast.

00:21:36.520 | So if you ever miss a live, then you can find this

00:21:40.040 | on whatever platform you use to listen to podcasts.

00:21:42.440 | - I don't know, Duncan.

00:21:43.280 | They say I have a face for YouTube.

00:21:44.360 | So people should really watch it on YouTube.

00:21:47.080 | I know a lot of people prefer to have it on podcast.

00:21:50.160 | So we're going to have their own Portfolio Rescue feed

00:21:52.080 | and we're going to put it up the same day, I think, right?

00:21:54.020 | - Yes, same day.

00:21:55.240 | - All right, thanks everyone.

00:21:56.200 | - See ya.

00:21:57.040 | (upbeat music)

00:22:00.900 | (upbeat music)

00:22:03.480 | (upbeat music)

00:22:06.060 | (soft music)

How Much Do I Need For a Down Payment? | Portfolio Rescue

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