How Should You Invest at All-Time Highs?

00:00:00.000 | (beeping)

00:00:02.180 | (upbeat music)

00:00:11.040 | - Welcome back to Ask the Compound,

00:00:22.200 | the show where we get questions straight from you,

00:00:23.720 | the viewer, and even some feedback

00:00:25.600 | that we're gonna go over today.

00:00:27.520 | Ask the Compound show at gmail.com,

00:00:29.280 | that's your email here.

00:00:30.520 | Today's show is sponsored by Fabric by Gerber Life.

00:00:33.160 | Fabric by Gerber Life was designed by parents for parents,

00:00:36.800 | I'm a parent so I can understand,

00:00:38.480 | to help you get a high quality, surprisingly affordable

00:00:40.440 | term of life insurance policy in less than 10 minutes.

00:00:42.240 | We're gonna talk term of life at some point

00:00:43.760 | in Ask the Compound in an upcoming episode,

00:00:45.720 | I think at the end of this month.

00:00:47.120 | So they say go start to cover it in less than 10 minutes,

00:00:49.740 | no health exam required, thousands of parents use it,

00:00:53.320 | you protect your family.

00:00:54.500 | It's fabric.com/atc, sorry, meetfabric.com/atc.

00:00:59.500 | I checked it out, it's great.

00:01:01.100 | You just put in your age, male, female, what's date,

00:01:04.900 | do you use tobacco, how's your health?

00:01:07.220 | It's funny, you watch early 90s movies

00:01:08.640 | and everyone's smoking, it doesn't happen anymore, right?

00:01:11.940 | It's almost weird to see someone smoking.

00:01:14.020 | - In Europe there's still a lot of smoking.

00:01:15.980 | - I can see that.

00:01:16.860 | So, policy is issued by Western Southern Life

00:01:19.460 | insurance company, not available in certain states,

00:01:21.540 | prices are subject to underwriting and health questions,

00:01:23.260 | but this is the kind of thing that,

00:01:24.300 | especially if you're a parent, you have to check that box.

00:01:26.980 | My wife is a constant worrier, I'm not the worrier.

00:01:29.140 | She does, so she makes sure this kind of stuff

00:01:31.140 | is taken care of.

00:01:32.020 | I'm gonna have to introduce her to fabric, pretty cool.

00:01:34.980 | - Mr. Spreadsheet is not the worrier, interesting.

00:01:38.580 | - It is kind of funny, yeah.

00:01:39.500 | I'm more of a things will work out kind of guy.

00:01:43.020 | My wife is a worrier, so we balance each other out.

00:01:45.500 | All right, Duncan, last week we talked to trucks, right?

00:01:49.420 | And I got some good feedback from people.

00:01:50.660 | A lot of people actually who are truck drivers

00:01:52.580 | drew to me.

00:01:53.420 | Daniel, throw the first one up here.

00:01:54.580 | We got a good feedback here.

00:01:56.540 | 32 year old truck guy here, he says,

00:01:58.300 | "This is exactly why I waited 10 plus years

00:02:00.100 | "to buy my dream truck.

00:02:01.540 | "I waited until dividend income could cover the payment."

00:02:03.640 | That's even further than I went.

00:02:05.300 | "Also made sure he had a cash flowing business

00:02:06.960 | "to run with the truck."

00:02:08.020 | So he's using the truck for a business,

00:02:09.580 | not just driving it because it looks nice.

00:02:12.100 | He said he definitely advised the same to younger people.

00:02:14.180 | That's all I was saying last week,

00:02:15.620 | is that just wait a little bit, right?

00:02:18.380 | Wait till you can actually cover it.

00:02:19.500 | I don't care if you drive a big truck,

00:02:21.180 | just make sure you can afford it.

00:02:22.980 | - When I met a lot of truck people

00:02:24.340 | totally agree with what we were saying.

00:02:25.700 | I mean, it can't be more annoying

00:02:27.580 | to have someone who actually needs a truck

00:02:29.500 | to have to pay more for a truck

00:02:30.960 | because a bunch of people want them for vanity sake.

00:02:33.300 | - Yes, I had another one say,

00:02:34.220 | "Listen, I drove junky old trucks my entire career

00:02:36.820 | "and that allowed me to retire early

00:02:38.040 | "'cause I wasn't paying for the newest top of the line one."

00:02:40.360 | I think it makes sense.

00:02:41.200 | One more piece of feedback.

00:02:42.180 | Daniel, throw the next one up.

00:02:43.060 | This is someone coming to Duncan's defense.

00:02:45.280 | He says, "We all have our Oatleys in our portfolio

00:02:50.100 | "and the guys give Duncan a decent amount of grief for it.

00:02:53.380 | "I want to know what their Oatleys are, past or present."

00:02:56.060 | Fair question.

00:02:57.300 | We do.

00:02:58.140 | I also told you to watch the first 10 minutes of Curb,

00:03:00.460 | your enthusiasm, the new one.

00:03:01.820 | Did you see what Larry David did?

00:03:03.100 | - I saw, I saw.

00:03:03.920 | - He switched from what, soy milk to, or almond milk?

00:03:05.780 | - Almond milk to oat milk, yeah, yeah.

00:03:08.980 | - All right, see, you've been waiting for it.

00:03:10.700 | - It's a sign. - It's coming into,

00:03:11.900 | it's a sign.

00:03:13.500 | I got a couple of easy ones here.

00:03:15.180 | The easiest one for me,

00:03:16.060 | and I think it's a good lesson too in understanding,

00:03:18.420 | you can be totally right on the thesis

00:03:20.340 | and still get wrong on the stock price.

00:03:21.500 | So the one for me today that finally round-tripped for me

00:03:24.020 | for the first time since 2019 is Disney.

00:03:26.420 | My whole thesis was Disney+ is going to be huge,

00:03:28.820 | and I said that because I have kids.

00:03:30.320 | And it was a grand slam in terms of,

00:03:33.780 | they got way more subscribers

00:03:35.180 | than they ever thought imaginable,

00:03:36.300 | but they lost so much money that it didn't matter.

00:03:38.780 | And so I looked today, I think I bought it in 2019.

00:03:41.800 | Since 2019, Disney is essentially flat,

00:03:43.720 | which after today, Disney's up nice.

00:03:45.660 | It's back to break even for me, basically.

00:03:49.600 | And the S&P's up like 105% of that time.

00:03:52.260 | So it's not that I was down,

00:03:54.020 | just that I was down 30% at one point or something.

00:03:56.220 | It's the opportunity cost that the market itself

00:03:59.440 | just totally left it behind.

00:04:01.140 | - See, this is why I wish they'd bring back shareholder perks.

00:04:04.020 | You know, it wouldn't feel so bad

00:04:04.980 | if you got like a little discount at Disney

00:04:06.820 | or on Disney items or Disney+.

00:04:08.140 | - Give me a free lightning lane.

00:04:10.180 | - Yeah, there you go, yeah.

00:04:11.660 | - Something like that.

00:04:12.480 | The other one for me was Zillow.

00:04:13.320 | I was bullish on the U.S. housing market,

00:04:14.580 | and I have been for years.

00:04:15.940 | And after 2021, Zillow fell like 30%,

00:04:19.260 | and I'm like, oh, perfect timing.

00:04:21.140 | I'm gonna get in on this.

00:04:22.060 | I'm bullish on the housing market.

00:04:23.660 | I bought in Zillow,

00:04:24.500 | and it fell like another 60% from there or something.

00:04:27.820 | - That one's a little bad for you.

00:04:28.780 | - I'm still way underwater on that.

00:04:29.980 | I've been buying more,

00:04:31.260 | 'cause I'm still positive on home ownership

00:04:34.060 | because of young people.

00:04:35.160 | But that one didn't work out too well for me.

00:04:37.340 | See, so yeah, those are my recent Oatleys.

00:04:40.620 | Is that fair?

00:04:41.520 | - Yeah, and I mean, it's all about

00:04:42.580 | when you get into a stock, right?

00:04:44.140 | I mean, you mentioned recently,

00:04:45.840 | Oatley's up a bunch over the last couple of months.

00:04:48.100 | If you've been holding it since the IPO like me,

00:04:50.060 | then things aren't great.

00:04:52.340 | But yeah, it's all about when you're in.

00:04:54.340 | - Just cut off that first part of the holding period.

00:04:55.260 | All right, let's get into questions.

00:04:56.780 | - Okay.

00:04:58.180 | Up first today, we have a question from YouTube.

00:05:01.400 | - Yes, this was a YouTube question from last week.

00:05:04.420 | I think I pulled it right from the comments.

00:05:06.940 | - Okay, let me see where we are here.

00:05:11.220 | Okay, so actually, I don't have it pulled up here.

00:05:14.740 | - All right, just read it. - I'm just gonna read it.

00:05:16.100 | Okay, "Investing at all-time highs is counterintuitive.

00:05:18.540 | "Does it produce great returns

00:05:19.840 | "because the market is forward-looking

00:05:21.500 | "and investors are momentum investors?

00:05:23.400 | "It doesn't seem to make sense to buy

00:05:24.740 | "just before a long, severe bear market."

00:05:27.720 | - All right, so I understand the worry here.

00:05:29.980 | The worry is, it's scary that we're back at all-time highs

00:05:33.240 | because literally every crash in history

00:05:35.940 | has started from all-time highs.

00:05:37.860 | So that means it's going to happen again.

00:05:39.660 | And we heard the same thing in 2013 when that happened.

00:05:42.700 | And I get it, it's been two years or so

00:05:44.100 | since we've had all-time highs.

00:05:45.540 | We already actually hit, if we do it today,

00:05:48.140 | it'll be nine all-time highs.

00:05:49.580 | Otherwise, through the close on Wednesday,

00:05:51.620 | we've had eight all-time highs this year alone already.

00:05:54.240 | So my point is, the thing you have to understand

00:05:56.820 | about markets is they're always and forever cyclical.

00:05:58.720 | And sometimes those cycles turn on a dime,

00:06:00.940 | but most of the time, they tend to go longer

00:06:03.460 | than you can think in either direction.

00:06:04.900 | The pendulum swings from one side to the other way too far.

00:06:07.660 | And the reason for this is because humans

00:06:09.060 | control the markets.

00:06:10.020 | And when things are going really well or really crappy,

00:06:13.500 | our emotions tend to get the best of us.

00:06:15.180 | And so that's why volatility

00:06:16.580 | tends to cluster during downturns.

00:06:17.940 | I've talked about this before on this show.

00:06:19.580 | But new all-time highs tend to cluster during upturns.

00:06:21.700 | So Daniel, give us a chart on,

00:06:23.260 | this is S&P 500 all-time highs since 1950 in chart form.

00:06:27.940 | And you can see the blue is just the price.

00:06:29.740 | And then those little green dots on there,

00:06:31.840 | which I had Sean, a research guy, put in for us,

00:06:33.980 | is all-time highs.

00:06:34.900 | And look at how they cluster.

00:06:36.740 | It's very rare that you see one all-time high

00:06:39.660 | and then a crash.

00:06:40.500 | The only time it really happened was in 2007.

00:06:43.540 | I think it was like nine all-time highs.

00:06:46.220 | The dot-com crash happened, stocks fell 50%,

00:06:49.080 | worked our way back from the bottom in 2003

00:06:51.900 | back up to 2007, and then you had the peak

00:06:53.740 | that led into the great financial crisis.

00:06:55.540 | But since 1950, you can do a chart off, Daniel,

00:06:59.180 | there have been all-time highs on 6.7% of all trading days.

00:07:02.700 | But during bull markets, those percentages are higher.

00:07:04.580 | So in the '90s, it was 12% of all trading days.

00:07:07.500 | And it took from 1929 to 1954 to take out those highs.

00:07:12.340 | It was forever from the Great Depression.

00:07:14.020 | But if you start from 1954 through the rest of that decade

00:07:16.460 | when it was a huge bull market,

00:07:17.500 | it was one out of every 10 trading days.

00:07:19.260 | From 2013 to 2019, it was 14% of all trading days

00:07:22.700 | that you hit an all-time high.

00:07:23.540 | So these things tend to cluster around each other, right?

00:07:27.580 | The new all-time highs tend to lead to new all-time highs.

00:07:29.540 | I know it seems scary, 'cause one of those

00:07:31.500 | is going to be the one that gets you.

00:07:34.140 | But most of the time, it's fine.

00:07:35.900 | And obviously, no guarantees with this stuff.

00:07:37.460 | But new all-time highs are actually relatively bullish.

00:07:39.460 | Daniel, next chart on, this is from J.P. Morgan.

00:07:42.140 | J.P. Morgan did a study where they found

00:07:43.860 | if you had invested on any random day,

00:07:46.180 | going back to 1988, throw a dart at the board, pick a day,

00:07:49.340 | your average return one year later would have been

00:07:51.340 | roughly 12%, a little less than 12%.

00:07:54.020 | But had you invested just on the days

00:07:56.660 | when the stock market hit all-time highs,

00:07:58.500 | one year later, your returns were nearly 15%.

00:08:01.660 | And they were higher three and five years later as well

00:08:03.780 | on a total return basis, investing dividends,

00:08:06.660 | which is totally counterintuitive to people.

00:08:08.300 | The average returns are better from all-time highs.

00:08:10.020 | - Yeah, I can't wrap my head around that math,

00:08:12.180 | how that works.

00:08:13.620 | - Because bull markets tend to last longer

00:08:15.380 | than bear markets, that's the whole thing, right?

00:08:18.500 | And so, I think the reason these results

00:08:21.140 | are so counterintuitive is because,

00:08:23.820 | I think it's just like behaviorally based.

00:08:25.860 | And so, like the research, I can take

00:08:28.180 | all the Daniel Kahneman behavioral biases.

00:08:30.460 | So the research shows investors hold on

00:08:32.020 | to losing stocks too long and hopes

00:08:33.300 | they're gonna come back, right?

00:08:35.220 | This is Oatly for you, Disney for me, Zillow for me.

00:08:38.420 | But people also sell winners too soon, right?

00:08:41.140 | Oh God, I got a huge return in a month.

00:08:43.660 | So we also anchor to recent results, right?

00:08:45.460 | There's this anchoring bias.

00:08:46.740 | So people underreact initially to news.

00:08:48.820 | And then once that news becomes more apparent,

00:08:50.460 | then they overreact.

00:08:51.460 | That's why I think, that's why the pendulum swings

00:08:53.300 | to the upside and the downside,

00:08:54.420 | because people tend to overreact.

00:08:55.860 | So you add in all the fear, the greed,

00:08:57.220 | the overconfidence, the confirmation bias,

00:09:00.580 | all this stuff, this is what causes it.

00:09:02.580 | And that's why these trends tend to persist

00:09:05.380 | longer than people think,

00:09:06.260 | and why this stuff tends to cluster together.

00:09:08.900 | The good times tend to go on

00:09:10.100 | for a little longer than you'd think.

00:09:11.300 | The bad times tend to go a little lower than you think.

00:09:13.940 | So, and the simple explanation too,

00:09:15.940 | is just that, guess what?

00:09:17.200 | The stock market goes up most of the time, right?

00:09:19.860 | Three out of every four years,

00:09:20.700 | on average, the stock market is up.

00:09:21.700 | So that's why all-time highs

00:09:24.060 | are actually perfectly normal.

00:09:25.620 | If you're a long-term investor,

00:09:26.580 | you're gonna see plenty of all-time highs

00:09:28.060 | throughout your career.

00:09:28.900 | There's gonna be times where there's gonna be breaks.

00:09:30.260 | Again, we had two-plus years

00:09:31.900 | between time for an all-time high.

00:09:34.340 | But, you know, a handful of new all-time highs

00:09:37.820 | will lead to a crash.

00:09:38.660 | Most of them will lead to more highs.

00:09:40.740 | - The market usually goes up,

00:09:42.580 | but how many single stocks end up going down or going away?

00:09:47.100 | It's a lot, right?

00:09:48.340 | - It's a lot, more than--

00:09:49.160 | - We've talked about before.

00:09:50.000 | - Well, yes.

00:09:50.840 | - Right, yeah.

00:09:51.680 | So yeah, that's why it's like,

00:09:54.160 | don't do drugs and don't pick individual stocks.

00:09:57.020 | - Well, that's the thing.

00:09:58.620 | This works for the stock market as a whole.

00:10:00.500 | This does not necessarily work

00:10:02.460 | for individual stocks themselves.

00:10:04.620 | - Right, yeah.

00:10:05.660 | - All right, next question.

00:10:07.300 | - Hey, up next we have a question from, who is this?

00:10:11.180 | Brian.

00:10:12.380 | I'm in my mid-30s and married

00:10:13.840 | with a second child on the way.

00:10:15.460 | My wife is quitting her job at the end of the year

00:10:17.440 | to be a stay-at-home mom for the foreseeable future.

00:10:20.180 | We max out our Roths, get the max 401(k) match,

00:10:23.500 | put a couple hundred towards a 529 each month,

00:10:26.540 | send money to support my mom, and put the rest in savings.

00:10:30.460 | We've saved $125,000 in a high-yield savings account

00:10:34.100 | as a sort of emergency fund

00:10:35.500 | or future house/vacation, car, et cetera fund.

00:10:40.500 | Savings have mostly come from my wife's income

00:10:44.060 | and we live off of my income.

00:10:45.860 | When we transition to a single income,

00:10:47.460 | should we save as much as we do now

00:10:48.900 | and just reduce our discretionary expenses,

00:10:51.120 | or should we maintain our current spending

00:10:53.100 | and save nothing for the time being?

00:10:54.900 | The thought is that maybe we make up some ground

00:10:56.940 | in the future with promotions and raises,

00:10:58.900 | or if my wife goes back to work.

00:11:01.280 | - All right, great question.

00:11:02.540 | - This doesn't sound like it has to be

00:11:03.380 | in either or, though, right?

00:11:04.500 | That's my first--

00:11:05.340 | - No, so the way that I see it, though,

00:11:07.460 | if you don't have a grandparent willing to step up,

00:11:09.340 | and Brian is sending money to his mother,

00:11:11.420 | so maybe his mother will pay him back a little bit

00:11:14.500 | if she lives close by and help pick up the childcare,

00:11:16.980 | but you basically have two choices.

00:11:18.740 | You pay up for daycare, and daycare's really expensive,

00:11:20.900 | as I mentioned on the show before, right?

00:11:22.780 | I said that it's pretty close to paying for college

00:11:25.860 | without having 18 years to save for college,

00:11:28.060 | and number two is you have one of the parents stop working,

00:11:29.780 | so one of the ways, you're either shelling out money

00:11:31.380 | or you're making less money,

00:11:32.780 | unless you have someone who's willing to help

00:11:34.500 | or you have a really flexible work schedule, right?

00:11:37.340 | So we had three at one time for a couple of years in daycare

00:11:40.940 | and it was just brutal, but here's the thing.

00:11:43.220 | That situation is temporary, right?

00:11:46.260 | And we knew there was a light at the end of the tunnel,

00:11:47.700 | so for a couple of years there,

00:11:49.060 | we had to rein in our savings a little bit,

00:11:51.620 | but I knew that light at the end of the tunnel,

00:11:53.340 | all three kids going into public school

00:11:55.020 | was probably the biggest raise I've ever got in my career,

00:11:57.340 | because that line item was off of the book,

00:12:00.760 | so I realized, yeah, we're gonna have to cut back

00:12:03.160 | for a couple of years because the kids are in daycare,

00:12:05.420 | but then once they go to school,

00:12:07.260 | then that money, you can make it back up.

00:12:10.440 | So I would say, see how it goes in terms of cutting back.

00:12:14.180 | It's probably gonna be hard to cut back with two kids,

00:12:15.760 | 'cause kids can be expensive.

00:12:17.140 | Everyone always talks about how expensive they are.

00:12:18.860 | One of the things is you don't spend

00:12:19.940 | as much money on yourself, but yeah,

00:12:21.400 | having two young kids is gonna be expensive.

00:12:23.460 | The diapers and the wipes and all that stuff,

00:12:25.420 | and clothes, and it's a lot.

00:12:27.420 | But it sounds to me like Brian and his wife

00:12:29.100 | are way ahead of the game in terms of saving already.

00:12:30.700 | They have a 125K bank,

00:12:32.220 | they've been maxing out their retirement accounts.

00:12:34.460 | The way that I did it is I actually saved enough money

00:12:36.400 | to pay for the first full year of daycare

00:12:38.420 | when our twins were coming,

00:12:39.260 | because I did not wanna have to deal with that

00:12:41.500 | hanging over our heads.

00:12:42.840 | So it was there, it was taken care of,

00:12:44.800 | we didn't have to alter anything,

00:12:45.980 | and then we had to alter things

00:12:46.820 | down the line a little bit.

00:12:47.860 | So Brian's already shown the ability to save.

00:12:50.740 | Maybe his savings takes--

00:12:51.580 | - Can you use a 529 for daycare?

00:12:53.260 | - Would be nice, wouldn't it?

00:12:55.900 | So maybe his savings takes a hit for a couple years

00:12:58.220 | while his wife's home with the kids,

00:12:59.460 | but I don't know, the personal finance side of your brain

00:13:02.320 | is gonna go, "No, no, no, we can't do this."

00:13:04.220 | But I don't know, that sounds like

00:13:05.580 | a pretty rational trade-off to me.

00:13:07.860 | Two young kids at home.

00:13:09.000 | Once the kids are a little older,

00:13:11.100 | maybe your wife can go back to work,

00:13:12.620 | or as you said, you might be getting raises

00:13:14.260 | and making more money, your income's higher

00:13:15.420 | and you can save more.

00:13:16.260 | So I think you'd probably do the catch-up thing.

00:13:19.460 | Your financial life would be way easier

00:13:20.940 | if everything worked linearly.

00:13:23.020 | Easier said than done.

00:13:25.380 | That if everything worked in a straight line,

00:13:29.420 | you could save the same amount every year,

00:13:30.600 | but sometimes you're gonna have to cut back.

00:13:32.780 | Life events get in the way.

00:13:33.820 | It's happened to me before.

00:13:34.740 | You buy a house, you remodel your basement,

00:13:37.020 | you have something like this come into play,

00:13:40.540 | you have a wedding, whatever it is.

00:13:43.080 | Making more money certainly helps,

00:13:44.500 | but having an expiration date in your childcare expenses

00:13:47.180 | and maybe your wife going back to work, that's okay.

00:13:49.100 | And also, it's okay to change your financial plan.

00:13:50.820 | I think that's where I kind of fall on this.

00:13:53.220 | 'Cause it's gonna be temporary.

00:13:54.980 | - Yeah, that makes sense.

00:13:57.060 | Sounds like good advice.

00:13:58.260 | - All right, next question.

00:14:01.300 | - Okay, up next we have a question from Eric.

00:14:03.900 | We moved to Florida from New Jersey in 2011.

00:14:06.540 | In 13 years, we've only had $8,000 in claims

00:14:09.500 | on our home insurance.

00:14:10.820 | In the past four years alone, our rates have tripled.

00:14:13.780 | Our auto insurance has doubled.

00:14:15.740 | We love living here, great weather,

00:14:17.580 | good schools, beaches, et cetera.

00:14:19.700 | But what are we supposed to do?

00:14:20.860 | Self-insure, move somewhere else,

00:14:22.980 | suck it up and pay the higher rates?

00:14:25.620 | - Okay, so this is some feedback we got from Animal Spirits

00:14:27.700 | because Michael and I have been talking about this,

00:14:29.200 | that the highest home insurance premiums

00:14:31.780 | in the country are Florida.

00:14:33.020 | I think they said the annual average is like $9,200, right?

00:14:36.460 | And the number was, I think, something like 15 to 20%

00:14:39.380 | of people in Florida are choosing

00:14:40.460 | to forego paying insurance.

00:14:42.340 | And we actually got some good feedback on this

00:14:44.480 | from a colleague of ours.

00:14:46.420 | Bill Duke, he actually wrote a blog post at the Bell Curve.

00:14:50.140 | Bring Blair in here.

00:14:53.380 | - Hey, guys. - Hey, Blair.

00:14:54.860 | - You checked with Michael and I,

00:14:55.700 | you said, "I wanna do some feedback on this,"

00:14:57.380 | 'cause you had a lot of thoughts.

00:14:59.340 | And it's interesting 'cause the feedback we heard

00:15:02.180 | from people was, first was, tell them to suck it up

00:15:05.780 | and just do it, it is what it is.

00:15:07.140 | You're taking a risk by living in an area like this.

00:15:10.800 | And some of the people were saying,

00:15:11.920 | "No, I would take the risk and not pay the insurance."

00:15:13.940 | So you live in New Orleans, which is a place

00:15:15.940 | that had some natural disaster in the past.

00:15:17.540 | So where do you fall on this?

00:15:19.220 | 'Cause some people say,

00:15:20.200 | "I could never go without home insurance.

00:15:22.780 | "It would just scare the daylights out of me.

00:15:24.460 | "I can't even imagine."

00:15:25.460 | Other people are more willing.

00:15:27.580 | - Yeah, so I feel the pain from this question

00:15:30.140 | because Louisiana must be number two

00:15:32.220 | in the nation for homeowners insurance rates.

00:15:35.340 | We've also seen a tripling of rates in the last few years.

00:15:39.140 | And there's reason to believe that hurricanes,

00:15:41.500 | at least, are still cyclical.

00:15:43.620 | So there might be some relief coming up soon.

00:15:46.700 | So if we wanna pull up a chart

00:15:47.940 | of the most costliest hurricane seasons in history,

00:15:51.700 | three of the top 10 were 2020, 2021, and 2022, right?

00:15:56.340 | So three in a row was really tough

00:15:58.980 | for the overall insurance market.

00:16:01.180 | Insurance companies buy reinsurance,

00:16:02.940 | which is insurance that kicks in

00:16:04.400 | after they hit certain amounts.

00:16:06.080 | And the reinsurance market was really tapped out.

00:16:08.200 | So that's a lot of the pressures we're seeing.

00:16:09.820 | Then we had the double whammy of,

00:16:11.540 | it costs more because of recent inflation, right?

00:16:13.900 | It costs more to buy the materials to replace the house,

00:16:17.980 | and it costs more for labor.

00:16:19.360 | So double whammy with insurance.

00:16:21.080 | We had a really bad string of bad storms.

00:16:23.300 | 2023 was a year where we got a little bit of reprieve.

00:16:26.360 | So there may be some more insurers

00:16:28.020 | that can come into the market.

00:16:29.060 | At the end of the day, though,

00:16:30.300 | the market is telling us something.

00:16:32.060 | It's expensive to live in these areas.

00:16:34.540 | And so you really have basically four choices as I see it.

00:16:37.740 | Suck it up and pay the higher rates.

00:16:39.920 | You can sell your house and try to rent

00:16:41.860 | and see if you can push some of those costs

00:16:43.460 | off to the landlord.

00:16:44.900 | You can move away.

00:16:46.260 | And it's hard to imagine for people

00:16:48.660 | who don't live in these areas what it's like.

00:16:51.020 | They say, "Oh, that's just easy to live somewhere else."

00:16:52.760 | But that's not what we wanna do for the most part.

00:16:55.860 | You could self-insure, but most people cannot self-insure.

00:16:59.500 | The bank is not gonna let you self-insure

00:17:01.700 | if you have a mortgage.

00:17:02.620 | They need protection for that mortgage loan.

00:17:04.900 | - Yeah, so you gave an example in your post

00:17:07.460 | about someone who decided to forego the insurance.

00:17:10.520 | Why don't you tell us how that one worked out

00:17:12.400 | and what the thought process was.

00:17:13.920 | - Exactly.

00:17:14.760 | The other thing is you can't self-insure

00:17:16.360 | if your home equity is part of your financial plan

00:17:18.440 | because you have to be willing to lose

00:17:20.040 | some of that equity to self-insure in a total loss.

00:17:23.120 | So I was at an event in New Orleans.

00:17:24.920 | I met an elderly woman.

00:17:26.040 | She's been in her home for over 40 years.

00:17:28.080 | There's no mortgage.

00:17:29.440 | The amount of money that she paid for her home

00:17:31.280 | is way below what it's worth.

00:17:32.720 | It's below even lot value, okay?

00:17:34.920 | So she's on a fixed income.

00:17:37.000 | Her insurance on this $300,000, $400,000 house

00:17:39.520 | was jacked up to $9,000 or $10,000 a year.

00:17:42.240 | She just doesn't have the money to pay for it

00:17:43.900 | and she's willing to accept that risk.

00:17:46.040 | She's gonna pocket that money

00:17:47.480 | that she would put in insurance in a savings account

00:17:49.660 | or an investment account.

00:17:51.360 | Hopefully she'll have many years

00:17:53.200 | or maybe never have a claim,

00:17:54.860 | but hopefully she'll bank some savings.

00:17:57.120 | If she does have some damage from a storm,

00:17:59.440 | she'll be able to pay for it.

00:18:01.200 | And in a total loss situation,

00:18:02.700 | she is willing to walk away and sell the lot

00:18:06.400 | and move somewhere else.

00:18:07.920 | And that's a risk that she's willing to take

00:18:09.600 | in order to stay in her home.

00:18:11.220 | But again, she doesn't have a mortgage.

00:18:13.080 | She doesn't have huge,

00:18:14.920 | she didn't have a lot of money that she paid for the house.

00:18:17.600 | The house value is not predicated

00:18:19.840 | on success of her financial plan.

00:18:21.860 | Very, very few people fall into that category.

00:18:24.520 | So it is an option in some cases,

00:18:27.080 | but you have to be willing to take that risk

00:18:28.800 | and you have to be financially able to take that risk.

00:18:30.920 | So otherwise, yeah.

00:18:33.080 | - And maybe do something to those savings.

00:18:34.840 | Like the point, especially if you have a really old house,

00:18:36.920 | I can see it making more sense

00:18:38.120 | and your mortgage is paid off

00:18:40.040 | because then the land is probably worth

00:18:41.320 | more than the house anyway.

00:18:42.920 | - Or at least enough to recoup

00:18:45.400 | what you paid for the house, right?

00:18:46.880 | So it all depends.

00:18:48.520 | You've got to run your own numbers.

00:18:49.940 | Most people are not gonna be able to self-insure,

00:18:52.120 | but there really are instances where it might make sense

00:18:54.600 | because if you're insuring for the 100-year plan,

00:18:57.200 | your insurance should be about 1%

00:18:59.840 | of the fair market value of your home.

00:19:01.720 | If it's running higher than that,

00:19:03.100 | which it is in a lot of areas,

00:19:05.200 | if you don't have a mortgage and you can take a loss,

00:19:08.040 | you might wanna consider it.

00:19:09.200 | Most people are not in that situation.

00:19:10.480 | - So Michael in the chat here says he's also from New Orleans

00:19:13.280 | and he said that his insurance is more than his mortgage now.

00:19:17.000 | - I could see how that's the case.

00:19:18.520 | Yep, absolutely.

00:19:20.120 | It's wild and it's mind-blowing to people

00:19:22.280 | who don't live in these areas,

00:19:24.360 | but that's the reality we deal with.

00:19:26.380 | Unfortunately, the market is telling us something.

00:19:28.560 | These weather events, whether it's fires, floods, storms,

00:19:32.720 | it looks like they're gonna be here to stay.

00:19:34.880 | And so you also have to think long-term.

00:19:38.280 | We think about this as well.

00:19:39.400 | We definitely wanna raise our kids

00:19:40.560 | through high school in New Orleans,

00:19:41.720 | but we may not be long-term owners

00:19:43.520 | of expensive property in New Orleans, just saying.

00:19:46.120 | - Is it worth it to shop around at all

00:19:47.860 | or are the rates pretty similar anywhere you go?

00:19:50.440 | - I got to a situation where I'm on the insurer

00:19:52.680 | of last resort through the state

00:19:54.360 | because I have an old slate roof.

00:19:55.800 | So in some cases, insurers are dropping out of the market.

00:19:58.800 | You don't even have any alternatives.

00:20:00.580 | The one caveat is if you can get in,

00:20:02.720 | USAA actually still has fair rates,

00:20:05.160 | but of course you have to qualify to be a member.

00:20:07.680 | - Okay.

00:20:08.520 | - I think the scariest part of this to me is yeah,

00:20:10.440 | what, you know, insurance, they've done their research.

00:20:13.280 | They, so they're kind of telling you

00:20:15.580 | if they're not willing to insure or they're charging a lot,

00:20:18.480 | that's a little scary, right?

00:20:19.320 | - Yeah, they're pretty good at weighing the risks, right?

00:20:20.860 | They run the numbers.

00:20:21.840 | - Yeah, so.

00:20:23.000 | - Yeah, interesting.

00:20:24.040 | All right, let's do another question.

00:20:26.040 | - Okay, up next we have my mother passed away

00:20:30.240 | and each of my brothers will get $300,000 to $400,000

00:20:33.920 | from the estate.

00:20:35.240 | Sorry for your loss, just to start off here.

00:20:38.120 | My brother is 35 single and has a good job

00:20:40.600 | making 75,000 Canadian dollars, but it's not permanent.

00:20:45.600 | He has $5,000 in retirement savings

00:20:47.980 | and previously worked in restaurants

00:20:49.380 | making 40 to 50 K a year.

00:20:51.520 | He has a rent controlled unit at about $1,100 a month.

00:20:55.000 | I worry about his financial security,

00:20:57.160 | but to his credit the past few years,

00:20:59.000 | he's been investing and eliminating debt.

00:21:01.320 | He could buy into a co-op or older condo

00:21:03.680 | for $200,000 to $400,000 and not have a mortgage,

00:21:07.120 | been saved for retirement.

00:21:08.620 | This would essentially eliminate any concern

00:21:10.320 | with unemployment, homelessness, or retirement.

00:21:13.840 | All he would have to worry about is maintenance.

00:21:15.860 | Or he could stay where he is, rent,

00:21:17.800 | and have a very good nest egg for retirement.

00:21:20.120 | What do you think he should do?

00:21:22.040 | - All right, so a lot of stuff going on in this one.

00:21:24.760 | We've had clients like this in the past

00:21:27.600 | who have come into money, if parents pass away,

00:21:32.160 | and then it ends up being one of the siblings

00:21:34.600 | kind of ends up being the person overseeing everything.

00:21:37.800 | So how do you think about this in terms of

00:21:40.880 | not only managing this money for yourself,

00:21:42.720 | but managing money for someone else potentially

00:21:44.760 | and trying to help them,

00:21:46.040 | especially if their financial habits

00:21:47.560 | aren't in the best shape?

00:21:49.780 | So how do you think about even starting

00:21:51.600 | to help someone in that situation?

00:21:53.600 | - Yeah, the concept of sudden money,

00:21:55.720 | which is what we have here, right?

00:21:57.960 | Sudden big chunk of money that's coming to you

00:22:01.240 | through an unfortunate event,

00:22:02.440 | a family member has passed away.

00:22:04.300 | People tend to not make the greatest decisions

00:22:07.240 | when faced with this.

00:22:08.440 | I am personally not a fan of putting a huge chunk of money

00:22:11.200 | into real estate versus investing it,

00:22:13.980 | because I just ran quick numbers.

00:22:15.880 | If you invested 300,000, he's 35,

00:22:18.320 | let's say he works until the retirement age of 65,

00:22:21.060 | just at a 6% return, it's gonna be over $1.7 million.

00:22:25.400 | And buying a condo or a co-op doesn't solve the problem

00:22:29.520 | of joblessness or homelessness.

00:22:31.480 | It still costs money to own property.

00:22:33.460 | You have to pay the taxes,

00:22:34.460 | the insurance that we just talked about,

00:22:36.100 | there's upkeep.

00:22:37.060 | So that's not gonna necessarily solve the problem.

00:22:38.840 | - You lose your liquidity, yeah.

00:22:40.120 | - Exactly.

00:22:41.000 | So I would be more of a fan of invested for the long term,

00:22:44.120 | use it to supplement some of the problems

00:22:47.720 | that might come along.

00:22:48.680 | But at the end of the day,

00:22:49.680 | I think he's gonna be way better off

00:22:51.460 | by investing this money than spending it

00:22:53.140 | on something like a property or any other thing

00:22:55.920 | that you might be tempted, of course,

00:22:57.380 | to spend sudden money on.

00:22:58.920 | - How helpful is something like a financial advisor

00:23:00.600 | in this case, where it's someone who's coming

00:23:02.240 | into this new money to help provide some guardrails?

00:23:04.800 | - If willing, a financial advisor can be great,

00:23:08.760 | but all we can do is lead the horse to water.

00:23:11.120 | We can't make them drink.

00:23:12.120 | So you have to be truly willing to accept that advice.

00:23:16.240 | And if the financial advisor is the thing

00:23:18.120 | that's gonna help keep you accountable, absolutely.

00:23:21.320 | - Yeah, and I've even seen cases

00:23:22.860 | where there's a trust involved or something

00:23:26.340 | where they kind of dole out the money more slowly

00:23:28.860 | and it acts as almost an income stream

00:23:31.060 | and it's invested as opposed to just having

00:23:32.740 | this big pool of money, like you said,

00:23:34.860 | that can be really tempting to do something with right away

00:23:37.740 | and you blow it and then what?

00:23:39.940 | - Exactly.

00:23:40.780 | Most people do this on the front end

00:23:42.180 | if they have children and grandchildren

00:23:43.780 | that they know they're gonna leave large sums of money to.

00:23:46.500 | They go ahead and title that in a trust

00:23:48.180 | or a trust that comes from their will.

00:23:49.940 | It's giving you, the person who's passing on the money

00:23:53.320 | to your heirs, control past the grave, essentially,

00:23:55.800 | and helping them with guidance, putting a trustee in place

00:23:59.360 | and rules and parameters as to when

00:24:01.600 | and where the money can be spent and how.

00:24:04.600 | That's great estate planning 101 basics for anybody.

00:24:07.600 | It looks like it's too late for this one,

00:24:09.080 | but at the end of the day, it's a good thing

00:24:11.160 | to have a financial windfall.

00:24:13.040 | And if treated properly, this could really set him up,

00:24:16.680 | even with no additional savings.

00:24:18.240 | We're talking about almost $1.8 million

00:24:20.180 | at a pretty conservative 6% rate of return in 30 years.

00:24:23.100 | - Yeah, I'd say rule number one here is do no harm.

00:24:25.700 | Just don't screw it up.

00:24:27.300 | - Exactly.

00:24:28.140 | - That's how I look at it.

00:24:29.580 | All right, one more question.

00:24:30.420 | - It sounds like they're pretty concerned

00:24:31.260 | about their sibling here.

00:24:32.580 | Is this kind of like the airplane thing?

00:24:35.140 | You've got to secure your own oxygen mask

00:24:37.860 | before taking care of other people?

00:24:39.580 | Is that the way you have to kind of think about this stuff?

00:24:43.100 | - Certainly, you have to look out for yourself first.

00:24:45.220 | Family dynamics are really tough,

00:24:46.980 | especially when people are dying and passing away,

00:24:49.360 | and there's complications around money.

00:24:51.240 | It's a whole topic.

00:24:52.520 | There have been books written about this.

00:24:54.580 | It happens in lots of families.

00:24:57.760 | I feel for them.

00:24:58.980 | At the end of the day, you can't do something

00:25:01.440 | for your sibling that they're not gonna do for themselves.

00:25:03.360 | So as much as you want to help,

00:25:05.360 | you're gonna have to let them stand on their own two feet.

00:25:07.600 | - And some people don't like to be lectured to,

00:25:08.960 | even if they are bad with their finances.

00:25:10.980 | So it's a tricky situation if you're almost policing them.

00:25:15.320 | It's kind of, you're walking a fine line.

00:25:16.980 | - Yeah, don't let money ruin your relationship either.

00:25:19.480 | - Right.

00:25:20.320 | - Good advice.

00:25:21.140 | Okay, up next, we have kind of a tone shift from that one.

00:25:27.320 | We have Jack writing in, starting off with,

00:25:30.120 | my wife, in parentheses, Borat voice.

00:25:33.240 | - You have to do it, Duncan.

00:25:35.320 | - My wife, I can't do it.

00:25:38.800 | Is it okay to imitate a made-up comedy character?

00:25:42.640 | - I think that's fair.

00:25:43.640 | - Okay.

00:25:44.860 | Anyway, so my wife and I recently--

00:25:46.320 | - I didn't know we were still doing Borat jokes,

00:25:47.600 | but not bad.

00:25:48.520 | - No, I mean, classic, right?

00:25:50.040 | It's a classic.

00:25:50.880 | - That's true.

00:25:51.720 | - My wife and I recently married.

00:25:53.320 | We have steady government jobs that we expect to keep

00:25:56.200 | for the foreseeable future.

00:25:57.760 | Our combined annual income is 180K.

00:26:00.560 | Naturally, we're thinking about buying a house.

00:26:03.160 | I like how he says naturally,

00:26:04.480 | because it's true, everyone is trying to buy a house.

00:26:06.040 | - Yeah, that's the next step.

00:26:08.000 | - We want to continue to live in the college town

00:26:10.160 | where we've been for a few years, but housing is limited.

00:26:12.840 | Someone at a local credit union told us

00:26:14.800 | the median home price was $850,000,

00:26:17.900 | and they put in parentheses,

00:26:19.500 | "Honestly, I thought it would be higher,"

00:26:21.500 | which is out of our price range,

00:26:22.680 | unless Oatly stock makes a run pretty soon.

00:26:24.980 | I conservatively expect to put up a down payment of 125,000,

00:26:31.020 | but I'm worried it's still not enough.

00:26:32.860 | I'm considering borrowing about $7,000

00:26:35.120 | against my retirement plan through the state,

00:26:38.280 | but there are pros and cons for sure.

00:26:40.300 | Dan, next slide.

00:26:41.480 | On the one hand, this account will have time

00:26:44.660 | to grow for 30 more years,

00:26:45.900 | but a loan at 9% variable interest over 15 years

00:26:48.780 | sounds painful if it won't make that much of a difference

00:26:51.380 | in the down payment.

00:26:52.220 | Am I missing something?

00:26:53.660 | We're better off than most people our age,

00:26:55.180 | but I still fear we're gonna miss the last helicopter

00:26:57.400 | out of Saigon boat if rates go down

00:27:00.660 | and we're crowded out of the market.

00:27:03.140 | They have a way with words.

00:27:04.340 | - Yeah, this is a well thought out email.

00:27:07.260 | So actually, this is from Jack,

00:27:08.660 | and Jack wrote us in and said,

00:27:09.900 | "Hey, I thought you were gonna use my question.

00:27:11.480 | "I decided not to borrow against a 457."

00:27:14.480 | So they already are having, you know,

00:27:16.640 | six figures in a down payment.

00:27:18.640 | I think people overestimate the amount they need

00:27:22.640 | for a down payment sometimes.

00:27:24.160 | I think a lot of it depends on the bank you're working with,

00:27:26.080 | but even if they got up to 850,

00:27:27.520 | which he said might be too high for them,

00:27:29.200 | that's what a 15% down payment for 125.

00:27:31.920 | That seems plenty to me.

00:27:33.160 | People don't, unless the bank is forcing you

00:27:35.360 | to come up with the money

00:27:36.520 | because you have a poor credit score or something,

00:27:38.760 | you don't have to go to 20%, right?

00:27:40.760 | What do you think about coming up with smaller down?

00:27:42.160 | I think my first house, I did a 5% down payment.

00:27:44.880 | - Yeah, I think it's more about the income

00:27:48.920 | to debt payment ratios here

00:27:51.200 | than the down payment necessarily.

00:27:53.160 | There are different loan programs,

00:27:54.740 | depending on the age of the house

00:27:56.600 | and all different down payments that are available,

00:27:59.280 | but I just ran some quick numbers

00:28:00.640 | and I'm trying to figure out which college town you're in.

00:28:03.320 | I don't think it's Palo Alto or Berkeley.

00:28:05.120 | I think that's a little higher,

00:28:06.120 | but it's certainly not Tuscaloosa or Athens, Georgia.

00:28:08.480 | So I'm just trying to figure out

00:28:09.480 | where the median home price--

00:28:10.320 | - A little cheaper in the South, huh?

00:28:11.160 | It could be Ann Arbor, it's pretty expensive there.

00:28:12.920 | - It might be, yeah, you're right.

00:28:14.280 | So if we're looking at the median purchase price of 850,

00:28:18.240 | and I put some numbers together on a very simple spreadsheet

00:28:21.320 | and a down payment of 175,

00:28:23.280 | that means you're borrowing 675 to buy the house.

00:28:26.060 | I looked up 30-year mortgage rates yesterday,

00:28:28.200 | 6.375 was the rate that I was seeing.

00:28:33.120 | That means your monthly principal and interest payment

00:28:35.240 | on the note is gonna be just under $4,200.

00:28:38.360 | Now, you're gonna have to do these numbers yourself.

00:28:40.520 | I don't know what your insurance rates are,

00:28:42.080 | I don't know what your taxes are.

00:28:43.640 | I used one half of 1% annualized on insurance, 1% on taxes.

00:28:48.000 | That gives you a total monthly payment

00:28:49.560 | to be in the house of just over $5,200.

00:28:52.280 | If we look at your income,

00:28:53.800 | and you said you have steady jobs, steady government jobs,

00:28:57.160 | gross monthly pay here, if you're making 180,000,

00:29:01.200 | is 15,000 a month.

00:29:02.560 | I don't know what your effective tax rate is,

00:29:04.200 | so you're gonna have to go in and do some work here.

00:29:06.960 | But let's just say it's 20%,

00:29:08.440 | and your net pay is $12,000 a year.

00:29:11.040 | If you're just looking at the mortgage note

00:29:12.640 | for this 850 house, you're a little over

00:29:15.820 | what we use as a rule of thumb,

00:29:17.760 | which is housing shouldn't be more than a third

00:29:19.380 | of your take-home pay.

00:29:21.040 | But when you add in insurance and property tax,

00:29:23.960 | you're way over the line.

00:29:25.020 | So I think it's more about the purchase price of the house,

00:29:28.000 | especially if 175 is a stretch for you on a down payment.

00:29:31.220 | Because you don't want 43% of your take-home pay

00:29:35.440 | going towards just living in the house.

00:29:37.160 | - That's pushing it pretty high as far as the budget goes.

00:29:39.440 | - Exactly.

00:29:40.400 | So I ran another scenario.

00:29:41.700 | What if your house price is a little lower?

00:29:44.280 | And I think I'd use 650 if we wanna put that up, Dan,

00:29:48.860 | with the same down payment.

00:29:50.160 | And that's gonna be a much higher percentage down payment,

00:29:52.800 | same mortgage rate.

00:29:54.120 | Your monthly payment drops total in this analysis

00:29:57.120 | to about 4,100.

00:29:58.440 | And if we look at that compared to your net take-home pay,

00:30:02.580 | your numbers are a little more in line.

00:30:04.120 | That was a $700,000, sorry.

00:30:06.040 | Your numbers are a little more in line.

00:30:07.320 | Even with your property tax and insurance,

00:30:09.680 | you're close to that third.

00:30:11.860 | Government jobs are stable,

00:30:13.100 | but you're probably not gonna get huge raises.

00:30:15.160 | But over time, I think you would grow

00:30:16.480 | into a house like this.

00:30:17.440 | So that's kind of the way I would think about it,

00:30:19.340 | more so than how much of a down payment you can put down.

00:30:22.040 | - Yeah, and I do wonder if the bank likes

00:30:23.520 | that more stable government income as well,

00:30:25.480 | where that will be kind of helpful

00:30:27.940 | for getting a loan as well.

00:30:29.400 | - They just want you to have those W-2s in place, honestly.

00:30:32.360 | They just wanna prove the income.

00:30:33.920 | They're gonna be willing to lend you way more money

00:30:35.880 | than those numbers I just showed you.

00:30:37.440 | They will lend you up to 38% of your gross income.

00:30:41.080 | So don't take the maximum loan that the banks will allow.

00:30:43.480 | - I feel like everyone does that, though.

00:30:44.680 | They give you a range,

00:30:45.640 | and everyone always says the highest, whatever it is,

00:30:47.600 | that's where we're going.

00:30:48.760 | - Yeah. - That's our range.

00:30:49.840 | - I like that this is all kind of in the hands of Ovaly,

00:30:53.080 | you know, based on what they said here.

00:30:54.560 | I like, I like-- - It's a lot of pressure

00:30:56.240 | on you, Duncan. - I like depending

00:30:57.080 | on what I stock. - And roll the dice.

00:30:58.480 | - And someone in the chat did say,

00:31:00.360 | like, listen, the reason a lot of people

00:31:01.620 | do wanna put 20% down,

00:31:03.280 | and we talked about this a couple weeks ago on the show,

00:31:04.560 | it's a private mortgage insurance.

00:31:06.080 | If you don't put 20% down, you have to pay that.

00:31:09.240 | I did look at the process. - I hear a lot of people

00:31:10.480 | very afraid of that.

00:31:11.600 | Like, a lot of people - It's low.

00:31:12.820 | - find that as a deal breaker. - Yeah, it's not very much.

00:31:15.020 | - It's like $100 a month.

00:31:16.400 | It's not a lot of money.

00:31:18.720 | - Yeah, it's not terrible. - If you put down, yeah.

00:31:20.420 | It's not terrible.

00:31:22.080 | And then you can grow out of it,

00:31:23.640 | and you don't necessarily have to pay off

00:31:25.420 | the full whatever percent,

00:31:27.120 | because your home price will appreciate over time,

00:31:29.200 | so you can get a new appraisal.

00:31:30.720 | So I would not be afraid of private mortgage insurance.

00:31:33.760 | - Yeah. - But on the other hand,

00:31:35.120 | you should be buying a house that you're gonna live in

00:31:36.920 | for the foreseeable future,

00:31:38.800 | because you don't wanna put 5% down,

00:31:41.560 | need to sell it in three years,

00:31:42.760 | and the housing market's actually down,

00:31:44.100 | because there's a 5% commission to sell it,

00:31:46.200 | yada, yada, yada.

00:31:47.040 | You don't wanna put yourself in a situation

00:31:49.160 | where you're underwater on a house.

00:31:51.320 | - Yes. - Speaking on behalf--

00:31:52.160 | - Make sure you're gonna be in this

00:31:52.980 | for like seven to 10 years.

00:31:54.400 | - Speaking on behalf of millennials,

00:31:55.880 | I just have to say, this is why young people are mad.

00:31:58.520 | The idea that $125,000 down payment isn't enough

00:32:01.860 | to be able to get a decent house somewhere

00:32:03.260 | is kind of infuriating. - Yes, I get it.

00:32:05.380 | And to his point here, he made it sound like naturally,

00:32:08.700 | we have to buy a house, and I get that feeling,

00:32:11.260 | but I would run the numbers on does it make sense

00:32:14.060 | to rent a little longer too?

00:32:15.100 | You don't have to buy a house

00:32:16.500 | just because you think you have to.

00:32:18.540 | No one's forcing your hand here that you have to buy a house.

00:32:21.220 | - Nope. - True.

00:32:22.040 | - It's not for everyone. - It's not required.

00:32:23.420 | - Yeah, you could find maybe better places

00:32:26.420 | to use that $125,000 to invest the difference

00:32:29.260 | if you're gonna keep renting,

00:32:30.860 | and you don't have to.

00:32:32.620 | - Yeah, if you are a homeowner

00:32:34.700 | and you ever wanna make yourself sick,

00:32:36.020 | especially if you've bought in the last 15 years,

00:32:38.420 | take your down payment and see what it would've been worth

00:32:40.780 | if it had been invested in the S&P 500.

00:32:43.180 | I bet that will give you a little bit of heartburn.

00:32:45.140 | - True, but yes, I feel like this whole episode

00:32:48.820 | is kind of like a PSA against home ownership

00:32:52.900 | because insurance costs are rising.

00:32:54.460 | - It's too expensive. - Yeah, it's expensive.

00:32:56.980 | - Don't do it. - But yeah,

00:32:58.460 | but that's the thing is you really have to run the numbers.

00:33:00.460 | You can't just say I'm gonna do this

00:33:01.740 | because everyone else is doing it around me

00:33:03.380 | and I have to because it's the biggest investment

00:33:05.300 | I'll ever make.

00:33:06.140 | You have to run the numbers and make sure it works for you,

00:33:07.900 | and if it doesn't, then it's not worth it.

00:33:09.700 | - Yeah, on the flip side, I love my house.

00:33:12.100 | It was worth every stretch,

00:33:13.420 | everything I don't get to spend money on,

00:33:15.420 | but you have to just weigh the pros and the cons.

00:33:18.220 | - Yeah, I feel like it's more about the control, right?

00:33:20.820 | The finances, I think, in a lot of cases,

00:33:22.820 | you guys have proven,

00:33:23.820 | it doesn't actually make more sense to buy,

00:33:25.900 | but just the peace of mind of this is mine.

00:33:28.520 | I don't know, I can do whatever I want.

00:33:29.740 | - The psychic income.

00:33:30.700 | - Yeah, yeah.

00:33:31.540 | - It weighs on you, but yeah,

00:33:33.260 | you don't wanna get in over your head

00:33:35.280 | and totally regret it

00:33:36.380 | 'cause you can't do anything else in your life

00:33:37.860 | 'cause the house is eating up everything.

00:33:39.940 | - Right. - Yeah.

00:33:41.220 | Well, I gotta go, guys.

00:33:42.660 | It's Mardi Gras.

00:33:43.880 | I'm gonna put on my beads.

00:33:45.180 | It's Mardi Gras here in New Orleans,

00:33:48.100 | so we're gonna have fun, but thanks for having me on.

00:33:50.140 | I really enjoyed it. - It's fine.

00:33:50.960 | - Speaking of fun, I was gonna ask,

00:33:52.700 | are you gonna organize a firm-wide trip to the sphere

00:33:56.220 | to see the dead?

00:33:57.620 | I don't know if you saw it.

00:33:59.380 | - I wanna talk about that presale.

00:34:00.740 | It was really tough, but if the firm wants to cover it,

00:34:04.380 | I will definitely be the team lead.

00:34:07.040 | - I think we should push. - And we'll all go out there

00:34:08.540 | and we'll have a great time.

00:34:09.820 | - All right, well, have fun at Mardi Gras.

00:34:11.420 | I'm jealous. - Thank you.

00:34:12.260 | - I've never done it before.

00:34:13.680 | Thanks to Blair for coming on.

00:34:15.020 | New TCAF tomorrow, as always.

00:34:18.480 | Send us your emails, askthecompoundshow@gmail.com.

00:34:20.900 | Leave us a comment on YouTube, subscribe,

00:34:23.380 | like, all that good stuff, and we'll see you next time.

00:34:25.620 | - See you, everyone.

00:34:27.260 | (upbeat music)

00:34:29.840 | (upbeat music)

00:34:33.400 | (upbeat music)

00:34:35.980 | (upbeat music)

00:34:38.560 | (upbeat music)

00:34:41.140 | (upbeat music)

00:34:43.720 | (upbeat music)

00:34:46.300 | (upbeat music)

00:34:48.880 | (upbeat music)

How Should You Invest at All-Time Highs?

Chapters