How Expensive Is It to Have Kids?

00:00:00.000 | (beeping)

00:00:02.160 | - Welcome back to Ask the Compound.

00:00:14.240 | We're joined today by Gandalf.

00:00:15.740 | Still wearing his California hat,

00:00:18.680 | couldn't get out of the California mood.

00:00:20.440 | Wanted to thank everyone for coming out to Future Proof.

00:00:22.120 | We even had a handful of people come up to us

00:00:23.520 | and say, "Hey, you answered my question on the show before."

00:00:25.800 | - Yeah, that was cool.

00:00:27.240 | - Everyone was out in full force.

00:00:29.040 | And we're all kind of just getting home,

00:00:30.760 | people playing catch-up, so it's just me and Duncan today.

00:00:33.360 | No guests.

00:00:34.760 | I picked five questions.

00:00:36.720 | Remember, askthecompoundshow@gmail.com is our email here.

00:00:40.340 | - To me, I feel like I'm half a person today

00:00:42.920 | because half my voice is still gone.

00:00:44.760 | - Okay.

00:00:45.600 | Duncan lost his voice literally the first day of the event.

00:00:48.780 | - Yeah.

00:00:49.620 | - So it didn't last long.

00:00:50.440 | - We talked to a lot of people, though.

00:00:51.280 | That's what's always so fun about Future Proof.

00:00:53.080 | - It was, yeah.

00:00:53.920 | - Got to meet so many cool people,

00:00:55.000 | talk with a lot of people. - It was great.

00:00:56.320 | Yeah. - Great time.

00:00:57.160 | - People who listen to and watch our shows,

00:00:58.520 | a ton of people, so yeah, it was a lot of fun.

00:01:01.080 | Let's do it.

00:01:01.920 | - Okay, so up first today, we have a question.

00:01:04.680 | I'm gonna not save a name because it's a little specific.

00:01:08.680 | But they write in and say, "I recently started looking

00:01:10.560 | "at my mother-in-law's retirement account.

00:01:12.440 | "She's been with an advisor since late 2010

00:01:15.000 | "and has a 2.61% annual return.

00:01:18.340 | "According to their chart, the S&P 500

00:01:20.520 | "had a 12.95% annual return during the same period.

00:01:24.320 | "I know she shouldn't expect a return equal to the S&P

00:01:27.240 | "since she has a 60/40 portfolio,

00:01:29.520 | "but it's frustrating how much she's underperformed.

00:01:32.120 | "She has a new advisor at," and it's the same place,

00:01:34.840 | but redacted, "that has her in a few mutual funds

00:01:38.700 | "but has 60% of her equity exposure in seven stocks

00:01:41.900 | "that he changes two to four times a year.

00:01:44.360 | "I spoke with him and he's insistent

00:01:45.900 | "on keeping seven stocks to 'juice' her returns.

00:01:50.340 | "Should I cut her losses and move her IRA

00:01:52.520 | "to an account where she can be in a target date fund

00:01:55.040 | "or a Bogle three-fund portfolio?

00:01:57.280 | "Is there any reason she should stay

00:01:58.680 | "with her current advisor?

00:01:59.940 | "Am I crazy for thinking that 60% of your equity exposure

00:02:02.880 | "in seven stocks is way too risky for most people?"

00:02:06.160 | And maybe you can also hit on

00:02:07.400 | what the Bogle three-fund portfolio is.

00:02:08.840 | I actually don't even know what that is.

00:02:10.420 | - I got it, I got it, I got you covered.

00:02:12.320 | I'm usually a fan of ignoring short-term performance

00:02:14.940 | with the understanding that long-term returns

00:02:16.400 | are the only ones that matter, but in this case,

00:02:18.840 | I think we've got a long enough sample size.

00:02:21.360 | Reminded me of an old neighbor I once had.

00:02:23.440 | This guy was out in his garden all the time.

00:02:25.560 | My wife and I would always see him

00:02:27.320 | working in the backyard, in the garden,

00:02:29.520 | and we couldn't really figure out

00:02:31.640 | what he was doing back there, though.

00:02:32.880 | I'm hoping he wasn't burying bits and pieces of body

00:02:35.480 | because his landscaping always looked like crap.

00:02:38.680 | He's out there for hours and hours,

00:02:40.000 | every weekend, every night,

00:02:41.120 | he's out in his garden doing something.

00:02:43.220 | But there would always be tons of huge weeds

00:02:45.440 | in the mulch and in the rocks.

00:02:46.800 | There's these spotty grass areas, overflowing flower beds.

00:02:50.360 | And maybe he just wanted to be outside, that's fine,

00:02:52.240 | but I always said to my wife,

00:02:54.400 | it would be nice if he was actually making it look better

00:02:56.240 | while he's out there, right?

00:02:57.080 | It would be nice if he's putting in the hard work

00:02:58.640 | and actually seeing some results.

00:02:59.840 | And it sounds to me like this financial advisor

00:03:02.440 | is kind of like this guy's mother-in-law's,

00:03:04.820 | the financial advisor is kind of like my old neighbor.

00:03:07.280 | I guess if we want to take this analogy a step further

00:03:09.320 | and make a dad joke, we could say that he's been

00:03:11.320 | leaving a lot of weeds in his garden, too,

00:03:13.360 | based on the stocks.

00:03:14.200 | I mean, seven stocks is pretty crazy.

00:03:17.080 | The juicier returns thing,

00:03:20.200 | that's like doubling down on a mistake.

00:03:22.360 | Like you made one mistake and for whatever reason

00:03:23.960 | they underperformed and now trying to juice the returns

00:03:26.580 | to make up for that shortfall,

00:03:28.160 | that's just like a recipe for disaster.

00:03:30.560 | So I think that's just compounding things.

00:03:32.760 | My rule number one for financial advisors is do no harm,

00:03:36.040 | especially to people who have already built up

00:03:38.000 | enough money and saved.

00:03:40.000 | This advisor is not following that rule.

00:03:41.560 | So the Vanguard three fund portfolio

00:03:43.360 | is just total stock market US fund,

00:03:46.460 | total international stock market index fund,

00:03:49.040 | and total bond market index fund, right?

00:03:50.760 | So John, do a chart on here.

00:03:52.520 | I looked at the Vanguard three fund portfolio.

00:03:54.600 | It's like 35% US stocks, 25% international stocks,

00:03:57.760 | and 40% bonds for a 60/40 portfolio.

00:04:00.320 | Since October, 2010, it's more than doubled

00:04:03.360 | and we're talking about like a 6.1% annual return.

00:04:06.720 | So versus a 2.6% for the mother-in-law.

00:04:10.000 | So John, put the next one on.

00:04:11.160 | Let's say your mother-in-law had $500,000, right?

00:04:13.600 | I put this into the wife charts machine,

00:04:15.960 | starting off with the $500,000 rebalance on an annual basis.

00:04:18.640 | And we're talking a little less than $1.1 million

00:04:21.800 | if she would have had her money in the Vanguard portfolio.

00:04:24.820 | Using that 2.6% annual return you gave me

00:04:28.000 | would be more like $740,000.

00:04:30.240 | So that's a huge shortfall, right?

00:04:33.540 | I'm guessing a target date fund would be pretty similar

00:04:36.200 | to the Vanguard three fund portfolio,

00:04:38.240 | maybe a little more diversification, plus or minus,

00:04:40.280 | but pretty close.

00:04:41.840 | I'm not saying that Vanguard is always the answer

00:04:44.960 | and just put it in a simple portfolio.

00:04:47.920 | But I would also ask the mother-in-law,

00:04:49.360 | what else are you getting out of this relationship, right?

00:04:51.240 | If the advisor is only helping her

00:04:52.820 | with investment management and picking stocks,

00:04:55.200 | they're basically a stockbroker

00:04:57.160 | when there are a ton of other ways they could add value.

00:04:59.320 | So I think there's a lot that goes into an advisor

00:05:01.280 | besides just portfolio management,

00:05:02.960 | financial planning and tax planning, insurance planning,

00:05:05.700 | state planning, withdrawal strategies, budgeting,

00:05:08.240 | helping people make better decisions, all this stuff.

00:05:10.760 | - That's something that's wild to me

00:05:11.920 | about the finance industry is that it seems like

00:05:14.340 | almost anyone can just call themselves an advisor.

00:05:17.040 | - Yes. - Different people

00:05:17.880 | have different understandings of what that even means.

00:05:20.000 | - And unfortunately for some people

00:05:21.800 | who just don't know any better,

00:05:24.320 | I'm guessing the advisor has been making up excuses

00:05:26.720 | along the way or painting a different narrative,

00:05:30.040 | whatever they're doing.

00:05:30.880 | But I also think that you have to approach

00:05:33.640 | this conversation very delicately

00:05:35.720 | because this was an expensive mistake.

00:05:38.080 | It was during a raging bull market

00:05:40.440 | and the returns have been awful.

00:05:42.540 | People don't like talking about their financial mistakes.

00:05:44.560 | And I think it's one of the reasons

00:05:45.560 | why there's so much inertia with decisions like this

00:05:47.680 | and people just kind of keep the status quo

00:05:49.320 | because they don't want to think,

00:05:50.680 | "Well, if I already made mistakes,

00:05:52.280 | "what if I change and it's even worse?"

00:05:54.360 | So there's a good chance that the mother-in-law

00:05:56.640 | didn't know how bad things were.

00:05:58.480 | So don't make her feel bad here, right?

00:06:00.600 | Help her learn from the mistake,

00:06:01.920 | work with her to help find someone

00:06:04.080 | who can right the ship, diversify the portfolio more.

00:06:07.100 | Seven stocks is ridiculous.

00:06:08.840 | Warren Buffett holds way more than that

00:06:11.620 | and he has way more diversity in his portfolio.

00:06:14.880 | You want to find someone who's going to manage risk

00:06:16.240 | a little more prudently.

00:06:17.560 | I would just suggest you help her find someone

00:06:19.080 | who can create a comprehensive plan,

00:06:20.920 | set realistic expectations,

00:06:22.440 | and then maybe be more transparent

00:06:24.000 | with how they're managing the money.

00:06:25.960 | So the idea is that you can outsource

00:06:28.200 | your money management to someone else if you want,

00:06:30.720 | but you have to understand what's going on in the portfolio

00:06:33.320 | and why, and I'm guessing this place

00:06:34.560 | didn't do a very good job

00:06:35.440 | of setting those expectations up front.

00:06:36.760 | I would get her out of there as quickly as possible.

00:06:39.800 | Don't stop it, go.

00:06:42.320 | - Yeah, I mean, and if he's really looking

00:06:43.800 | to juice the portfolio, then that advisor

00:06:45.560 | should be trading options and stuff in there, right?

00:06:48.360 | - Zero day?

00:06:49.560 | Yeah, I mean, that's just, I mean,

00:06:52.560 | talk about a huge rip. - I just love that term.

00:06:53.640 | He used it as a quote, so I'm guessing

00:06:55.400 | the advisor literally said, "Juice the returns."

00:06:59.080 | - And obviously, these advisors don't want to see

00:07:02.240 | the money go out the door,

00:07:03.240 | so they're going to do everything in their power

00:07:04.800 | to talk you into it.

00:07:06.800 | I would get her out of it immediately

00:07:08.720 | and find someone else who can help.

00:07:10.860 | - Yeah.

00:07:13.280 | I mean, this one came in.

00:07:14.440 | You feel horrible for these situations, right?

00:07:17.080 | Because my whole thing is always,

00:07:19.480 | you get one investing life cycle

00:07:21.200 | and time horizon and timeline.

00:07:22.480 | You don't get to choose when it starts, when it ends.

00:07:25.080 | If you miss out on a 10, 12-year period of returns,

00:07:28.200 | that is really difficult to make up.

00:07:30.360 | - And playing devil's advocate

00:07:31.960 | or being like giving the benefit of the doubt,

00:07:33.760 | what would you say to this advisor

00:07:34.960 | if they're like watching this show?

00:07:36.680 | - Find a new line of work?

00:07:39.680 | (laughs)

00:07:41.840 | I mean, that's just, it's a horrible way to manage risk.

00:07:45.160 | It sounds like, I mean, it's gambling.

00:07:48.400 | It's speculating.

00:07:49.540 | I had a friend who, we would play blackjack,

00:07:51.440 | and every time he'd lose, he'd go,

00:07:53.120 | "I'm just going to double my bet.

00:07:54.480 | "That way I can't lose," right?

00:07:56.360 | Which works until it doesn't, obviously.

00:07:58.920 | The whole doubling down

00:08:00.240 | and trying to make up for past mistakes,

00:08:03.040 | the market's not going to give you those returns back

00:08:05.060 | just because you want them.

00:08:06.560 | - Yeah, makes sense.

00:08:08.540 | - Let's do another one.

00:08:10.360 | - Cool, thanks for the question.

00:08:11.760 | Okay, up next we have a question from Mitch.

00:08:14.440 | Love the show, finally have something worth asking about.

00:08:17.040 | I'm 26, live in Southwest Michigan, single, no kids,

00:08:20.240 | income $180,000 to $250,000 a year, depending on bonus,

00:08:24.680 | currently renting as I plan to move closer to home

00:08:27.120 | in no less than two years from now.

00:08:29.560 | I have always been a good saver

00:08:31.280 | and made some decent stock picks a few years ago.

00:08:33.460 | My $450,000 brokerage account is now 100% invested

00:08:36.760 | in the S&P 500 with a slightly lower cost basis

00:08:39.600 | than today's price.

00:08:40.920 | However, I'm contemplating purchasing a vacation home

00:08:43.800 | up North for around $350,000 and paying cash for it,

00:08:47.840 | leaving about $100,000 in retirement,

00:08:51.040 | but still saving 70 plus percent of my take home.

00:08:53.680 | Have I gone completely crazy or is this feasible?

00:08:56.360 | And as a Michigander, when he says up North,

00:08:59.040 | like does he mean up in Northern Michigan

00:09:00.840 | or does he mean like Canada?

00:09:02.520 | - I'm guessing Northern,

00:09:03.480 | that we say up North for Northern Michigan here.

00:09:05.560 | So yeah, this is our first not to brag of the week,

00:09:07.660 | both in terms of the affordability of housing

00:09:10.140 | in Northern Michigan, I guess, and the savings rate.

00:09:12.560 | And so good on you, Duncan, you've heard the story

00:09:17.120 | about the fishermen and the businessmen in Florida before.

00:09:20.520 | Is this, have you heard this one?

00:09:21.480 | - Doesn't ring a bell.

00:09:22.320 | - All right, this is kind of an old one,

00:09:23.260 | but there's a fisherman lying on the beach somewhere

00:09:25.840 | and a businessman walks up to him and he says,

00:09:27.640 | "You're not gonna catch many fish that way."

00:09:29.440 | He said, "You should be working.

00:09:30.280 | "What are you lying on the beach for?"

00:09:31.200 | And the fisherman said, "Well, what good is that gonna do me?

00:09:33.920 | "I have a fishing charter already.

00:09:35.260 | "I take some people out, but I don't work that much."

00:09:37.040 | He said, "Well, if you start this business

00:09:38.720 | "and catch a lot of fish, you can get bigger nets

00:09:41.460 | "and catch more fish, then you can get a fleet of boats

00:09:44.180 | "and catch even more fish."

00:09:45.080 | And the guy said, "Well, what's the point of that?"

00:09:46.320 | And he said, "Well, once you buy a bigger boat

00:09:48.680 | "and you have a bigger fleet,

00:09:50.000 | "you can start a whole business around it.

00:09:51.740 | "You can make tons of money."

00:09:53.100 | And he said, "Well, what's the point of that?"

00:09:55.040 | He said, "Well, you'll make so much money someday

00:09:57.140 | "that you'll be able to lie on the beach

00:09:58.900 | "and do anything you want."

00:10:00.040 | And the guy said, "Well, I'm doing that already.

00:10:01.620 | "What's the point?"

00:10:02.760 | Right?

00:10:03.600 | And so I think if you can get to the point

00:10:06.820 | where you've saved enough and you can enjoy

00:10:09.660 | the early fruits of your labor

00:10:11.140 | and a semi-retirement while you're young and still working,

00:10:13.420 | and you've already saved enough, why not do this, right?

00:10:17.020 | I don't think many people have ever regretted

00:10:19.700 | buying a vacation home, if they can afford it, right?

00:10:22.580 | There obviously are other costs and stuff

00:10:25.700 | that come with it, but if this single person,

00:10:30.140 | no responsibilities, no mortgage yet,

00:10:32.620 | and you can do this in cash

00:10:34.100 | and forego the whole 7% mortgage thing,

00:10:37.260 | that sounds wonderful to me.

00:10:39.220 | I'd be curious to know where he's buying,

00:10:42.660 | but especially if you can easily backfill those savings

00:10:47.060 | as a young person, it sounds to me

00:10:48.580 | like they're in a pretty good place.

00:10:50.060 | I mean, the most important question

00:10:52.160 | most people want answered when they're dealing

00:10:53.900 | with a financial advisor, from my perspective,

00:10:55.620 | is am I gonna be okay, right?

00:10:56.800 | If I spend this money on this house or on this car,

00:10:59.500 | am I gonna be okay?

00:11:00.340 | If this is my asset allocation, am I going to be okay?

00:11:02.540 | If I take this new job or retire early

00:11:04.340 | or take Social Security here, am I gonna be okay?

00:11:06.780 | That's kind of what people want to know.

00:11:08.340 | That's what it sounds like he's asking here.

00:11:10.380 | And based on past history of savings

00:11:12.660 | and savings rate and income and all these things,

00:11:15.700 | it sounds to me like you're gonna be okay.

00:11:17.500 | And I don't think this is the kind of thing

00:11:19.540 | where you're gonna look back in 20 years

00:11:20.660 | after all the memories you've created in this vacation home

00:11:23.900 | in one of the most beautiful parts of the world,

00:11:25.400 | especially in the summer, maybe in the winter too,

00:11:28.340 | you can become a skier, you're probably gonna be okay.

00:11:31.700 | I mean, so I say, if you have the ability

00:11:33.780 | to enjoy some of your money now,

00:11:35.660 | rather than waiting to buy that vacation home

00:11:37.340 | when you're 65, I'd say go for it.

00:11:39.820 | - Yeah, I saw quite a bit of Michigan

00:11:42.640 | represented at Future Proof.

00:11:44.620 | - Not bad, a lot of Midwestern.

00:11:46.660 | - Several other, yeah, several other people.

00:11:49.660 | - Yeah, so yeah, good on you.

00:11:51.900 | If you can do this, enjoy it.

00:11:54.740 | - Yeah, sounds good to me.

00:11:56.260 | - All right, let's do another one.

00:11:57.380 | - All right, up next, we have a question from Greg.

00:12:00.980 | Is the period of time when you have kids

00:12:02.620 | one of the most financially challenging times in your life?

00:12:05.820 | We have a two and four-year-old.

00:12:07.380 | It has seemed as though these early years in their lives

00:12:09.960 | have been the most financially challenging

00:12:11.740 | as there are constant expenses.

00:12:13.500 | They need care every waking hour by somebody.

00:12:15.700 | They drain me and my wife's energy,

00:12:17.220 | which makes work harder, not to mention excelling

00:12:19.560 | to get any kind of promotion.

00:12:21.860 | And of course, we're always going to the doctor with them,

00:12:24.160 | paying babysitters, childcare, activities,

00:12:26.780 | buying more food, et cetera.

00:12:28.380 | Don't get me wrong here, I absolutely love my kids,

00:12:30.820 | but curious to hear your take.

00:12:32.420 | Also, is it okay to not save or make as much

00:12:35.080 | during these couple of years in order to pay

00:12:36.620 | for more childcare to keep yourself sane?

00:12:39.460 | I heard around 10 years old,

00:12:41.220 | they don't want anything to do with me,

00:12:43.300 | or they won't want anything to do with me,

00:12:45.380 | so maybe I can really get back to it then.

00:12:47.800 | - I'm guessing young people just out of college

00:12:51.300 | might quibble with this one.

00:12:52.900 | It's certainly up there in terms of like

00:12:54.060 | the most challenging financial years.

00:12:55.460 | Young people who have student loans

00:12:57.020 | and paying high rent and all these things,

00:12:58.860 | but kids are very expensive.

00:13:00.300 | I've equated paying to put three kids through daycare

00:13:03.260 | as putting them through college

00:13:04.300 | without having 18 years to plan for it.

00:13:06.300 | It's very expensive, so the only silver lining

00:13:09.220 | I can think of for my having kids

00:13:10.900 | is just not having as much time or money

00:13:12.340 | to spend on yourself.

00:13:13.740 | But yeah, the childcare thing is very expensive.

00:13:16.060 | Either you have to pay a lot for it,

00:13:18.460 | or someone has to step back in terms of

00:13:19.980 | one of the spouses has to step back

00:13:21.680 | and maybe not work as much,

00:13:22.620 | or both of you just don't have as much time or energy

00:13:25.420 | to, as you said, put your foot forward in terms of your job.

00:13:29.780 | I actually did talk to someone this week

00:13:30.940 | about Future Proof, about kids,

00:13:33.220 | and people were asking me,

00:13:34.780 | one of the things was,

00:13:36.220 | is it weird that people know all about you and your kids

00:13:38.100 | because you're on a podcast and stuff all the time?

00:13:40.380 | I said, whatever.

00:13:41.480 | But my kids are, twins are six,

00:13:44.220 | and my oldest daughter is nine,

00:13:45.260 | and I was talking to a guy,

00:13:46.100 | and he said, "My kids are 17 and 14 now."

00:13:48.020 | And he said, "It is kind of weird

00:13:49.100 | "because they get to the teenage years,"

00:13:50.700 | and everyone says this, right?

00:13:52.260 | Your kids don't want anything to do with you anymore.

00:13:53.980 | They just want to hang with their friends,

00:13:54.960 | or they want to be in the room,

00:13:55.800 | or you just don't see them as much.

00:13:57.080 | You don't have to be, you know,

00:13:59.560 | helicoptering around them as much.

00:14:01.960 | And he said, "It's opened up a whole new life for me again.

00:14:04.640 | "I can go hiking in the morning.

00:14:06.620 | "I can go out to get drinks with my friends more.

00:14:08.680 | "I can go out to dinner."

00:14:09.920 | Because the kids are always doing

00:14:11.200 | their own sort of social thing.

00:14:12.120 | So he did say it kind of opens up.

00:14:14.160 | And the thing is, people are saying,

00:14:15.580 | is just savor this time with your kids

00:14:16.920 | 'cause at a certain point, it's gonna go away,

00:14:18.840 | which I do take to heart.

00:14:20.360 | So I think you can look at your finances in the same way.

00:14:24.040 | You just might have to supercharge your savings rate

00:14:25.920 | after the kids are off your payroll.

00:14:27.240 | Now, that might take some more time.

00:14:28.780 | I don't know if all of a sudden at age 10

00:14:30.480 | or in their teenagers, they're gonna need less money.

00:14:32.840 | In some ways, it could be just more money, actually.

00:14:35.960 | But I have heard a lot of people say,

00:14:37.560 | like, listen, that's why it's so beneficial

00:14:40.080 | to have that catch-up savings for your IRA and 401(k)

00:14:43.920 | that the government allows you in your 50s

00:14:46.160 | is because maybe that's the time that you have to do it,

00:14:48.360 | is when the kids are out of the house

00:14:50.440 | and they're off their payroll,

00:14:51.400 | and they're through college,

00:14:52.660 | or whatever they're doing with their life,

00:14:54.400 | and they're out of the house,

00:14:55.340 | then that's when you can supercharge your life a little bit.

00:14:58.400 | The other thing is just,

00:15:00.240 | I think time management is more important

00:15:02.280 | than ever when you have kids

00:15:03.120 | because you don't wanna miss anything,

00:15:05.120 | but you also wanna keep this part of your life going.

00:15:07.120 | So some stuff has to fall by the wayside, right?

00:15:11.080 | I think Ryan Holiday, if you've ever read any of his books,

00:15:14.320 | he says there's three things that you can have.

00:15:16.160 | You can have family, you can have work,

00:15:17.840 | and you can have the scene.

00:15:18.680 | And the scene is what he calls going out and partying.

00:15:21.320 | He's like, pick two because you can't have all three.

00:15:23.400 | So you're gonna have to just learn

00:15:25.100 | to prioritize a little bit better,

00:15:26.740 | and maybe some of the stuff you used to do in your life

00:15:28.420 | you're not gonna be able to do anymore

00:15:29.600 | if you want to have the work and family life

00:15:31.860 | work out for you.

00:15:33.220 | - So I don't have kids,

00:15:34.700 | but it seems to me like you could save a little money

00:15:37.020 | by picking which sport you funnel them into.

00:15:40.540 | Soccer has to be a lot cheaper

00:15:41.860 | than lacrosse or football, right?

00:15:44.740 | It would seem like it at least.

00:15:46.220 | - Yeah, or hockey because of all the...

00:15:48.780 | The great thing about soccer,

00:15:49.700 | which I was never a soccer player growing up,

00:15:51.020 | I always did other stuff is--

00:15:52.280 | - I was big into soccer.

00:15:53.760 | - You know that the game's gonna start here

00:15:56.000 | and it's gonna end here.

00:15:56.840 | There's no timeouts.

00:15:57.680 | It's just there's a halftime and it's just free.

00:15:59.520 | That's one of the things I love about it.

00:16:01.280 | Unfortunately, my son is getting into baseball,

00:16:03.280 | which means like double headers in three-hour games.

00:16:06.240 | And so I'm trying to steer him clear of that,

00:16:07.840 | but it's not working.

00:16:09.840 | But yeah, I think it's okay to...

00:16:12.800 | I think you just have to make sure

00:16:13.640 | you're planning ahead for other points of your life

00:16:15.680 | when you're gonna be able to backfill a little bit

00:16:17.440 | and supercharge it when you can prioritize that.

00:16:20.120 | And if sometimes a family comes first, then so be it.

00:16:23.720 | You're gonna have to just give up

00:16:24.720 | on other parts of your life.

00:16:26.120 | - Yeah, that makes sense.

00:16:28.220 | - But I totally get it.

00:16:30.600 | This is the stuff lots of parents talk about.

00:16:32.840 | You know, I'm tired all the time of running around.

00:16:34.960 | I'm dealing with...

00:16:35.800 | It's certainly a lot.

00:16:37.960 | I think you just have to understand that,

00:16:39.800 | yeah, sure, there's gonna be times

00:16:41.520 | where you wish you could save more,

00:16:42.560 | but I mean, the kids kind of come first for a lot of people.

00:16:46.400 | - Yeah, makes sense.

00:16:48.640 | At some point, you can put 'em to work for you,

00:16:50.280 | you know, once they're old enough.

00:16:51.840 | Get the Roth or tax advantage account

00:16:54.760 | you can get if your kid works for you.

00:16:56.800 | - I just thought you meant put 'em to work on YouTube

00:16:58.880 | and have them work for you. - That was weird too.

00:17:00.960 | - All right.

00:17:01.960 | - Okay, up next, we have a question from Bill.

00:17:04.620 | I'm 28 and have recently become very interested

00:17:07.880 | in sports gambling and trying to beat the books.

00:17:10.600 | This is a great question, I like this.

00:17:12.400 | This year, I've made about $5,000 from gambling,

00:17:14.680 | which is about double my starting bankroll.

00:17:17.520 | Much of that is attributable to new player promos

00:17:19.920 | that I cannot do again, and some luck.

00:17:21.920 | Long shot tennis futures, whatever that means.

00:17:25.760 | However, I do think that if I put in the time,

00:17:28.400 | I could be profitable and outperform

00:17:29.920 | traditional equity investments.

00:17:31.520 | Am I an idiot if I move money out of my

00:17:33.440 | traditional investments into sports books?

00:17:36.300 | I view it as a business rather than gambling,

00:17:38.520 | but that may just be the degenerate gambler in me talking.

00:17:41.900 | - All right, many of the questions that we get

00:17:43.680 | exist in a state of gray.

00:17:45.280 | Like, there's few black or white answers,

00:17:46.980 | and it's like, you could do this and you'd be okay,

00:17:48.520 | or you could do this and you'd be okay.

00:17:49.980 | Not this question.

00:17:51.140 | Do not do this, do not even think about doing this.

00:17:54.840 | No, sports gambling is a form of entertainment.

00:17:59.160 | It is not a business, and yes, you are a degenerate gambler

00:18:02.780 | if you're thinking about doing this.

00:18:05.320 | And he even admitted that he hit on some

00:18:07.160 | long shot tennis futures, and he had some sign up promos,

00:18:10.720 | and the people who actually do this for a living,

00:18:13.000 | like, they understand how Vegas sets the lines, right?

00:18:15.640 | They understand that, like, the tendencies of teams

00:18:18.440 | to perform based on certain circumstances,

00:18:20.240 | like, after a back-to-back game on the road,

00:18:23.840 | this team typically will underperform the spread

00:18:26.080 | by one and a half points or whatever.

00:18:28.240 | It's, the people who do, and there's quantitative models,

00:18:31.480 | if you, I mean, the, trust me, Vegas,

00:18:33.540 | the house will always win in this scenario,

00:18:36.440 | and the assumption that, well, I'm gonna hit a parlay

00:18:38.560 | once every three months, and that's gonna bankroll me

00:18:40.560 | for the rest of the year, no.

00:18:42.520 | If you wanna put some money into this

00:18:43.840 | and have this be your entertainment budget,

00:18:45.560 | I am fine with that, but you wanna take your money

00:18:47.360 | out of your retirement accounts,

00:18:48.360 | your investment accounts for this, I say no.

00:18:51.480 | This is way better business for FanDuel or DraftKings.

00:18:55.440 | You know, when you hear a podcast advertised

00:18:57.940 | for FanDuel or DraftKings, that the fine print

00:19:02.360 | that they have to read afterwards

00:19:03.280 | is always 10 times longer than the actual ad itself,

00:19:05.640 | and they read it, like, a million miles an hour?

00:19:08.000 | - Yeah.

00:19:08.840 | - There's a reason for that.

00:19:09.680 | This, it's, no one comes and cleans the house with that.

00:19:13.680 | The people who do this for a living have way more money

00:19:16.760 | and way more knowledge, and they have systems in place,

00:19:20.360 | and they're not hitting long shots

00:19:21.760 | and player promos and getting lucky.

00:19:23.880 | No, do not do this with your investment account

00:19:27.440 | under no circumstances. - And for the record,

00:19:28.600 | you're not, like, against sports gambling or anything.

00:19:30.520 | You like-- - Oh, it's fun.

00:19:31.360 | - You like doing this for fun and stuff, but--

00:19:33.080 | - Yeah, and I love going into a casino.

00:19:36.400 | I haven't been in a while, but I'll go play blackjack,

00:19:39.280 | but the money that I take out to play blackjack,

00:19:41.560 | I assume it's going to be gone by the end of the night.

00:19:43.920 | If I win money, that's a benefit, it's a bonus,

00:19:47.480 | but if I lose any money, I look at that as, like,

00:19:50.240 | paying money to go to a concert.

00:19:52.840 | It's like, that money is a form of consumption.

00:19:55.440 | That is entertainment that is not investing,

00:19:58.560 | because there's no way that you understand

00:20:02.040 | how this stuff works as well as the professionals do,

00:20:04.520 | and even them, it's very difficult.

00:20:07.280 | - Yeah, and I've kind of done the opposite of this,

00:20:09.560 | honestly.

00:20:10.400 | I've lost, like, every penny that I've ever done

00:20:12.680 | on FanDuel, that kind of thing,

00:20:14.040 | so I was just like, I'm just gonna put it in the market

00:20:16.640 | and just, like, buy penny stocks and have fun that way.

00:20:18.960 | To me, that's more fun than gambling on sports, personally.

00:20:22.480 | - That way, you don't have the double whammy

00:20:23.560 | of your team losing and your bets losing, right?

00:20:26.040 | - Right, exactly, yeah.

00:20:27.040 | - Although, I've done the emotional hedge.

00:20:28.820 | I, like, I bet against my team sometimes,

00:20:31.080 | but that feels gross, too, you know?

00:20:33.200 | Like, I know if my team loses, at least I'm gonna--

00:20:35.880 | I can't do that either, so that feels kind of gross as well,

00:20:38.080 | but I'd kind of shy away from this one

00:20:41.840 | and lean towards, yes, you're a degenerate gambler.

00:20:44.160 | Keep, put some money in there,

00:20:45.880 | but under the assumption that you're not going to win

00:20:48.920 | in the long run.

00:20:49.820 | - Yeah, have fun, but don't mess up your retirement,

00:20:51.960 | probably.

00:20:52.800 | - No.

00:20:53.620 | - Yeah.

00:20:54.460 | Okay.

00:20:55.300 | - And guess what?

00:20:56.120 | The worst thing that can happen

00:20:56.960 | is you hit another long shot and you go,

00:20:58.320 | oh, I'm good at this.

00:20:59.640 | I can do this, right?

00:21:01.120 | The people who hit the parlays are so lucky.

00:21:03.600 | Sorry, you're not good at it, you're lucky.

00:21:05.640 | - That's why I lost all my money on Marist,

00:21:07.120 | because I just love doing the insane parlays.

00:21:09.800 | - Yes.

00:21:10.640 | Bet on the Super Bowl or something, occasionally,

00:21:13.360 | but don't make it your retirement plan.

00:21:15.540 | - Good advice.

00:21:17.760 | Okay, so last but not least, we have a question from Mike.

00:21:21.600 | I'm 62 and planning to retire at 65.

00:21:23.960 | My current retirement portfolio is about 55%,

00:21:27.480 | or $370,000 in equities, primarily S&P 500 index funds,

00:21:32.320 | and the remaining 45% is in long-term CDs

00:21:35.080 | with a remaining seven-year term at 4.25%.

00:21:38.640 | I've never owned any bonds and consider the CDs

00:21:40.880 | the safe part of my portfolio.

00:21:42.840 | This worked out well during the last downturn

00:21:44.680 | when both stocks and bonds took a hit.

00:21:46.560 | What are your thoughts about my allocation?

00:21:49.240 | - Seven-year CDs at 425 is pretty darn good, actually.

00:21:52.400 | My whole take for the last five years or so

00:21:55.960 | has been that you have to be way more thoughtful

00:21:57.560 | about fixed income asset allocations than you did

00:21:59.480 | in the past.

00:22:00.320 | In the '80s and '90s and 2000s, it was pretty easy

00:22:02.400 | 'cause rates were so high.

00:22:03.840 | Pretty much anything you put your money into was fine.

00:22:06.320 | There are pros and cons to using CDs.

00:22:08.840 | I'm sure this was a great strategy

00:22:10.720 | for a rising rate environment

00:22:12.400 | 'cause those CD rates are locked in.

00:22:13.480 | So the pros is you don't have to worry

00:22:14.720 | about that interest rate risk.

00:22:16.040 | If you have current CDs and rates rise, it doesn't matter.

00:22:19.240 | You don't lose principal or price.

00:22:21.160 | You're just missing out on opportunity costs

00:22:23.520 | of those higher rates.

00:22:24.920 | But if you had these, whatever,

00:22:26.000 | foreign change rates locked in, that's pretty darn good.

00:22:30.240 | The con is you have to worry about reinvestment risk.

00:22:32.080 | So I don't know if this is a laddered portfolio,

00:22:33.720 | but this money is all in one CD.

00:22:35.920 | So that's, laddering it can actually help a little bit.

00:22:38.800 | So you have one, two, three, four, five year CDs

00:22:41.600 | or something, and as they come up,

00:22:42.800 | that lowers your reinvestment risk a little bit.

00:22:46.120 | But it's true for most fixed income investments

00:22:49.480 | that you have some reinvestment risk,

00:22:50.480 | but it's certainly true here,

00:22:52.320 | especially if you lock in higher rates

00:22:53.760 | and they're lower when you go to re-up.

00:22:55.700 | Another pro is that you know exactly what you're getting.

00:22:58.960 | The yield and maturity length are set in advance

00:23:01.040 | so you know that specific amount of money that you put in.

00:23:02.840 | You're getting the principal back

00:23:03.760 | plus whatever income at maturity.

00:23:06.440 | So from a planning perspective,

00:23:07.920 | CDs are pretty good, right?

00:23:08.980 | Bonds, there's some uncertainty involved,

00:23:11.080 | but CDs, that's pretty good.

00:23:12.640 | The con is that they're liquid, right?

00:23:14.580 | So if you're thinking from a planning perspective,

00:23:16.240 | you wanna keep this 60/40 or 65/35 or whatever it is,

00:23:20.400 | rebalancing them is kind of difficult.

00:23:21.840 | You can get out of a CD early,

00:23:23.440 | but typically it comes with an early termination penalty,

00:23:25.480 | kind of like those savings I bonds we talked about

00:23:27.440 | where they'll just take some of the income

00:23:29.200 | so you won't get the same rate if you wanted to rebalance

00:23:31.760 | or you had a liquidity event

00:23:33.600 | and you didn't wanna sell stocks,

00:23:34.600 | but you wanted to sell CDs.

00:23:35.440 | So there are pros and cons here,

00:23:37.840 | but I think if you know that stuff going in

00:23:42.120 | and you wanna use CDs,

00:23:43.460 | I looked today, there's still six and 12 month

00:23:46.600 | and 18 month CDs that are close to 5%.

00:23:49.120 | I think going out a little further,

00:23:50.200 | you're not gonna find those high rates anymore.

00:23:53.240 | But as long as you understand what you're going into,

00:23:56.160 | know what you're getting into,

00:23:57.960 | I don't think it's a terrible idea.

00:23:59.640 | I think the idea of maybe spreading your bets a little bit

00:24:02.480 | between CDs and T-bills

00:24:04.160 | and then some sort of intermediate term bonds or whatever

00:24:06.720 | is not a bad idea

00:24:08.040 | to give yourself some more diversification there.

00:24:10.080 | But if you know the pros and cons going in,

00:24:12.800 | CDs aren't a bad deal.

00:24:14.640 | - Are there funds that do this laddering for you

00:24:16.840 | or do you have to manually do this?

00:24:18.720 | - No, there's some bond fund ladder.

00:24:19.960 | I guess a CD ladder would be kind of nice

00:24:21.800 | if a bank would just do it for you,

00:24:23.480 | but yeah, so that's the other part

00:24:25.760 | is that it's probably more of a manual process to do it.

00:24:30.000 | And it's easier now than when I bought my first CD

00:24:32.880 | and I had to go down to the bank to do it

00:24:34.000 | and write them a check.

00:24:34.840 | You can just do it online now at some of these places.

00:24:37.840 | But yeah, I mean, it's not a horrible strategy.

00:24:41.000 | Again, I'm sure he felt great having this strategy

00:24:44.800 | when interest rates were rising

00:24:45.760 | and bonds were getting killed.

00:24:47.200 | - Yeah.

00:24:49.360 | - But yeah, it's not the worst strategy.

00:24:50.440 | It was for sure.

00:24:51.280 | - Cool.

00:24:53.520 | - We'll take it.

00:24:54.360 | - Makes sense.

00:24:55.200 | - We got some good questions today.

00:24:56.480 | - Yeah, really good ones.

00:24:57.320 | - Rachel said she liked the range.

00:24:58.240 | I liked the range today too.

00:24:59.520 | It was good.

00:25:00.920 | - We have diversification of audience, don't we?

00:25:03.320 | - We do.

00:25:04.160 | We definitely do.

00:25:05.000 | - I like it.

00:25:05.820 | Some investing, some personal finance, some housing.

00:25:08.320 | - And if you're here because you clicked on the thumbnail

00:25:10.320 | because of this stupid hat,

00:25:11.680 | just know I'll never wear this again,

00:25:12.880 | but thanks for watching.

00:25:14.120 | - Did you buy that hat in California?

00:25:15.800 | - Yeah, at the hotel the first day we arrived.

00:25:17.880 | I saw it and was like,

00:25:18.700 | "I'm not getting sunburned this year."

00:25:20.440 | And I put it on, wore it the whole time.

00:25:22.240 | - Good idea.

00:25:23.080 | I didn't get a sunburn either.

00:25:23.900 | I had a nice tan going in.

00:25:25.040 | Remember, you can email us, askthecompoundshow@gmail.com.

00:25:28.640 | I think we send a sticker to everyone who asks a question.

00:25:30.320 | Is that right?

00:25:31.160 | Or something?

00:25:31.980 | - It's true.

00:25:32.820 | - Yeah.

00:25:33.660 | - Compound sticker.

00:25:34.480 | - Yeah.

00:25:35.320 | Feel free to leave us a comment on YouTube.

00:25:36.720 | Make sure to subscribe to the Compound channel.

00:25:40.520 | Leave us a review on our podcast.

00:25:43.020 | And what else?

00:25:45.000 | That's all I got.

00:25:45.840 | We'll see you next week.

00:25:46.660 | - That's it.

00:25:47.500 | See you, everyone.

00:25:48.340 | - Thanks, everyone.

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How Expensive Is It to Have Kids?

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