Is Wealth Destroyed or Reallocated During a Bear Market?

00:00:00.000 | (projector whirring)

00:00:03.080 | - Welcome back to Portfolio Rescue.

00:00:18.280 | Most people are outside enjoying the sun right now.

00:00:19.900 | We're in here talking finance, 'cause that's what we do.

00:00:22.440 | Today's Portfolio Rescue is sponsored by Innovator ETFs.

00:00:25.840 | Duncan, the second quarter of 2022

00:00:27.840 | was one of the worst quarterly returns

00:00:29.240 | in the history of the US stock market.

00:00:30.440 | John, throw up this chart here.

00:00:32.040 | I looked back, going back to the late 1920s.

00:00:33.680 | The worst quarterly returns, you can see,

00:00:34.880 | 16% and change as of 6/30/2022.

00:00:39.140 | Some of the worst ones are out a lot in the '30s, 1987.

00:00:42.880 | You can see there's only been, by my count,

00:00:45.800 | a handful of times that it's ever gone over 20%.

00:00:48.920 | Going back to the 1920s, it's like 2% of the time, right?

00:00:52.740 | Now, Innovator ETFs has this defined outcome ETF

00:00:55.560 | called the Innovator Defined Wealth Shield ETF.

00:00:58.480 | Basically, it tracks the return of the S&P to a cap,

00:01:01.320 | and it's on a quarterly basis,

00:01:02.520 | so we're looking at a three-month outcome.

00:01:04.680 | And basically, you get 2.4% of upside,

00:01:07.800 | but you're protected to 20% downside every quarter.

00:01:11.640 | So, their thinking here is,

00:01:13.040 | most of the time, the stock market goes up,

00:01:14.940 | and you're gonna get at least 2.4% per quarter,

00:01:18.400 | and you're protected to 20% downside,

00:01:20.420 | which, again, happens roughly,

00:01:21.840 | they looked back to 1950, and it happens 4% of the time.

00:01:24.280 | Then, going back to 1928, it's 2%.

00:01:26.720 | So, basically, if you're looking

00:01:28.400 | just to get a smaller return

00:01:30.200 | and be really protected to the downside,

00:01:31.800 | you really think the stock market

00:01:32.900 | is gonna roll over again, right?

00:01:33.920 | You're one of these people that thinks it's gonna crash.

00:01:35.720 | This is your thing.

00:01:36.800 | You're protected for a 20% buffer over a three-month period.

00:01:41.240 | Pretty interesting.

00:01:42.520 | Sorry, to learn more, InnovatorETFs.com

00:01:45.840 | to learn more about their defined outcome strategies.

00:01:47.760 | A lot of people have questions about these.

00:01:48.960 | A lot of people like how they define the ranges.

00:01:51.720 | Go there to learn more, they have a lot of tools.

00:01:53.620 | All right, Duncan.

00:01:54.460 | - Yeah, and if you're interested in them,

00:01:56.040 | be sure to click the link.

00:01:57.960 | It makes us look good, yeah, right?

00:01:59.400 | Sending traffic their way, yeah.

00:02:00.880 | - Yes, Duncan likes it

00:02:01.840 | when you hit all the stuff below here in YouTube.

00:02:04.360 | All right, Duncan, since just before the onset

00:02:06.440 | of the pandemic, July 2020,

00:02:08.400 | think about much simpler times, right?

00:02:11.380 | The S&P 500 is up since then, 27% in total.

00:02:15.380 | On an annualized basis, that's roughly 10% per year, right?

00:02:18.560 | Over the last two and a half years and change,

00:02:20.960 | 10% per year, right?

00:02:22.320 | Not bad, right?

00:02:23.960 | - Sounds good. - We'll take it.

00:02:24.960 | Just think about all we've gone through in that time.

00:02:26.800 | Pandemics, lockdowns, negative oil prices, supply shocks,

00:02:30.600 | geopolitical crises, 40-year high inflation, all this stuff,

00:02:33.320 | and yet the stock market has returned 10% a year.

00:02:35.700 | People in the comments will probably say,

00:02:36.600 | "Yeah, we gave $6 trillion at it," whatever.

00:02:39.440 | But that 27% gain includes a 34% drawdown

00:02:42.840 | in February and March 2020,

00:02:44.560 | then a gain of 120% from those lows

00:02:47.460 | through January 3rd of this year,

00:02:49.200 | and then at its worst point, a drawdown of roughly 24%

00:02:52.840 | and the S&P caught 23, 24% at its worst point.

00:02:55.960 | Now, I don't know, we're down 18% or something.

00:02:58.360 | The stock market, John Bogle once said,

00:03:01.500 | "The stock market is a giant distraction

00:03:03.120 | "to the business of investing."

00:03:04.160 | Think about that.

00:03:05.000 | In an almost three-year period,

00:03:06.400 | all that stuff we lived through,

00:03:07.840 | and we got 10% annual returns.

00:03:10.000 | - It's crazy.

00:03:10.840 | Yeah, I think historians will look back

00:03:12.680 | at what happened with the market,

00:03:13.960 | specifically during the pandemic,

00:03:15.680 | like the worst of the pandemic,

00:03:16.920 | and be pretty wowed by that.

00:03:18.760 | - It is.

00:03:19.580 | It's been just a crazy time,

00:03:20.560 | but the stock market is just always tempting you

00:03:22.740 | to do something stupid and make a mistake, unfortunately.

00:03:25.520 | And the stuff happening so much faster now,

00:03:27.000 | I think it's easier to make mistakes than ever.

00:03:28.680 | All right, we got a lot of good questions.

00:03:29.960 | I don't think we make many mistakes from our question people.

00:03:31.680 | We got a lot of people who know what they're talking about,

00:03:33.520 | but just wanna kind of help better understand

00:03:35.320 | their situation.

00:03:36.360 | Our question inbox, Sean, our analyst,

00:03:38.160 | who kind of tracks these each week, pulled them together.

00:03:40.160 | We had a ton of good ones, so let's get into 'em right away.

00:03:42.360 | - Okay.

00:03:43.200 | So up first, we have,

00:03:45.640 | "I've been buying the dip for the past couple of months

00:03:47.460 | "in the market and feel pretty comfortable

00:03:48.920 | "with my positions.

00:03:50.040 | "Should I continue to buy the dip or invest in my home?

00:03:52.580 | "i.e. new fence, additional rooms, bathroom, et cetera?"

00:03:56.520 | - Okay, I get the understanding here,

00:03:58.840 | but I look at these as two totally separate line items.

00:04:01.760 | The stock market is a place that people go to

00:04:04.400 | to build wealth over the longterm

00:04:06.960 | and grow above the rate of inflation

00:04:08.720 | and keep their standard of living up,

00:04:09.880 | again, over the longterm.

00:04:11.280 | Does the stock market guarantee those outcomes?

00:04:13.120 | No, but is it one of your best,

00:04:14.760 | highest probability bets for that to happen?

00:04:16.920 | I think so.

00:04:18.160 | I hate to be the bearer of bad news,

00:04:19.800 | but home renovations do not give you

00:04:21.920 | that same one-to-one protection

00:04:23.580 | or even grow your wealth, right?

00:04:25.040 | So Zonda is this housing research firm,

00:04:27.700 | and they put together this study showing

00:04:29.360 | the cost recouped from different renovations

00:04:32.600 | you do to your home, depending on how much you spend.

00:04:33.800 | So John, fill this up here.

00:04:35.760 | You can see it's a bunch of different stuff.

00:04:37.640 | Bath remodel, kitchen remodel.

00:04:39.120 | Let's pull in from an example.

00:04:40.240 | Bath remodel recoups about 53% of your cost, right?

00:04:43.980 | Add a, do a bathroom addition, it's like 51%.

00:04:47.000 | Most of the ranges are in the 50 to 60% range.

00:04:49.920 | There's some that are a little higher.

00:04:51.080 | I don't know what manufacturer's stone veneer is.

00:04:53.160 | Apparently that pays off pretty well.

00:04:54.720 | But you can see, these are a percentage of your cost.

00:04:57.640 | You're not gonna make more than you put in, right?

00:05:00.360 | So I think I kind of blame HGTV for getting people

00:05:03.560 | to think that if they fix up their home,

00:05:05.280 | it's gonna be worth more.

00:05:06.560 | 'Cause you see those shows like Flip or Flop or whatever,

00:05:08.880 | where it's like home value, $400,000.

00:05:12.320 | Renovation budget, $50,000.

00:05:13.960 | Home price sale, $650,000.

00:05:16.060 | Profit, 200 grand.

00:05:17.200 | We are geniuses, right?

00:05:18.720 | Then they fail to mention that all the labor's free

00:05:20.440 | because these people want free PR and home on HGTV.

00:05:23.200 | And all the sales are probably finalized before it happens.

00:05:26.220 | Am I an HGTV truther, Duncan?

00:05:28.540 | Yes, I am.

00:05:29.500 | I'm sorry.

00:05:30.340 | It's the truth. - I support you in that.

00:05:31.760 | - Do I still enjoy watching HGTV occasionally?

00:05:34.560 | Not gonna lie, I do.

00:05:35.700 | Even though I know all of this, right?

00:05:37.460 | The point is, not all cash outlays are created equally,

00:05:40.960 | right?

00:05:41.800 | There was this economist back in the early 1900s,

00:05:43.100 | Irving Fisher.

00:05:44.400 | And he wrote this book where he laid out

00:05:45.800 | three different types of incomes.

00:05:47.200 | One of them is just money.

00:05:48.400 | You know, what we use to commence commerce, right?

00:05:50.980 | The other one is just stuff that you buy,

00:05:53.240 | physical stuff you buy with that money.

00:05:54.520 | So it's houses and cars and food and all this stuff.

00:05:59.080 | And then the third one is psychic income.

00:06:00.520 | And he basically boils psychic income

00:06:02.200 | down to human enjoyment.

00:06:03.480 | Like, what is gonna make you happy?

00:06:05.300 | The best example I've heard of this is a wedding dress.

00:06:08.120 | There are women who will spend hundreds

00:06:09.540 | or even thousands of dollars on a wedding dress.

00:06:11.960 | It's a dress you wear one time in your life

00:06:13.640 | on one day in your life.

00:06:15.260 | Now, the economist would say,

00:06:16.840 | "Why would you ever spend that much money

00:06:18.560 | "on something you're gonna wear one time?"

00:06:20.440 | And the bride would reply, "This gives me enjoyment.

00:06:23.100 | "This makes me happy.

00:06:23.940 | "This is one of the biggest days of my life.

00:06:25.540 | "It brings me enjoyment."

00:06:26.420 | So not all financial decisions have to be made

00:06:29.060 | from the idea of there's a hurdle rate, right?

00:06:31.480 | Now, homes can be a decent investment

00:06:33.200 | depending on your timing,

00:06:34.040 | but they're more psychic income, probably,

00:06:36.400 | when it comes to renovations.

00:06:37.360 | Just this week, my brother is finishing up putting in a pool.

00:06:39.760 | He lives about five or 10 minutes away from me.

00:06:41.880 | And there's no way he's gonna recoup the cost,

00:06:44.140 | especially in a state like Michigan.

00:06:45.900 | It sounds like it's basically a wash.

00:06:47.820 | It doesn't add to the value of your home,

00:06:49.160 | but it doesn't detract.

00:06:50.320 | So the money he's putting into this pool

00:06:51.740 | is not gonna help him very much.

00:06:53.240 | By the way, side note,

00:06:54.340 | labor supply issues are hurting him.

00:06:57.640 | He could not find anyone to come spray the hydro seed stuff

00:07:00.440 | 'cause it'd dig the pool up and then it messes up the grass.

00:07:02.800 | So he got four pallets of sod and said,

00:07:05.320 | "Hey, can you come help me lay this down?"

00:07:07.200 | So I go help him lay it down.

00:07:08.160 | I gotta admit, there's something about manual labor

00:07:10.900 | that is very cathartic.

00:07:11.960 | Seeing the fruits of your labor

00:07:13.280 | and seeing the progress you can make.

00:07:14.880 | I did this for two hours and not my whole career.

00:07:16.880 | - I was about to say, I feel like if that was your day-to-day

00:07:20.640 | you might have a different take.

00:07:21.480 | - I did it for two hours and I got home

00:07:22.680 | and had some ibuprofen

00:07:23.520 | and laid it on the couch 'cause my back was sore.

00:07:25.120 | But I'm just saying, there's something about it.

00:07:27.600 | But my brother and his family are gonna get all sorts,

00:07:30.240 | and hopefully my family too,

00:07:31.120 | 'cause we live nice and close to them,

00:07:33.120 | they're gonna get all sorts of enjoyment out of this.

00:07:34.680 | It's like a ginkgo.

00:07:35.520 | It's not gonna really help them

00:07:36.600 | if they went to sell the house, right?

00:07:38.440 | Now, I'm gonna give you one more option.

00:07:40.080 | What if I was to say it's possible

00:07:41.700 | to both buy the dip in stocks

00:07:43.140 | and do all your home renovations, right?

00:07:45.020 | Fix up your bathroom, add a bedroom, whatever.

00:07:46.660 | - Leverage.

00:07:47.820 | - Well, kind of.

00:07:49.180 | John, show up the home equity line.

00:07:51.900 | I've used this one before.

00:07:53.060 | There's almost now,

00:07:53.900 | we're approaching $28 trillion in home equity.

00:07:57.020 | Now, you can take out a home equity line of credit, a HELOC.

00:07:59.580 | And honestly, the best reason to do this

00:08:02.260 | is to renovate your home, right?

00:08:03.920 | Because you can write off that interest for tax purposes

00:08:06.980 | and then upgrade it in a way

00:08:07.940 | that increases your enjoyment of the house, right?

00:08:10.340 | Now, I will caveat this with rates are higher.

00:08:12.900 | So when I did my HELOC in summer of 2020,

00:08:15.500 | I think the rates were 3%.

00:08:16.900 | Pretty good deal, right?

00:08:18.100 | Now, it's probably closer to 4.5%

00:08:20.140 | last time I looked at mine.

00:08:21.180 | And it's a floating number,

00:08:22.140 | so it'll probably go up a little more.

00:08:23.860 | So those rates are higher.

00:08:24.700 | But you do have an option to both borrow against your home,

00:08:28.140 | but then use that money you're pulling from your house

00:08:29.900 | to fix up that house you live in, right?

00:08:31.780 | And you're gonna probably recoup some of the costs,

00:08:33.380 | probably not all of them.

00:08:34.640 | But I just don't think that the hurdle rate

00:08:37.060 | is the same when comparing fixing up your house

00:08:39.420 | and the enjoyment it could give you

00:08:41.260 | versus investing in the stock market.

00:08:43.660 | - How much lobbying did you do for that pool

00:08:46.020 | at your brother's house?

00:08:47.220 | - Why do you think I helped out with the sod?

00:08:49.820 | I get to use it now because I helped him some manual labor.

00:08:52.060 | But yeah, I'd be lying if I said

00:08:54.740 | I'm not a little excited about it myself.

00:08:56.180 | - Yeah, no, it sounds nice.

00:08:57.620 | - Let's do another one.

00:08:59.020 | - Okay, and that question was from Tony, by the way.

00:09:00.800 | So up next, we have a question from Scott.

00:09:02.980 | I'm an economics student

00:09:04.100 | and have been following your content for a while.

00:09:06.380 | Recent episodes of What Are Your Thoughts

00:09:07.740 | have placed Josh and Michael on opposite sides of a debate.

00:09:10.980 | Is wealth destroyed or reallocated in a bear market?

00:09:14.300 | I would love to hear a deeper discussion of this topic.

00:09:17.140 | I assume the answer is nuanced

00:09:18.420 | and specific to different examples,

00:09:19.900 | such as an individual investing in an asset,

00:09:22.740 | having it grow to a high,

00:09:23.980 | then crash without liquidating their hold,

00:09:26.300 | so the wealth is first created,

00:09:27.620 | then destroyed and was not real.

00:09:29.560 | On the other hand, I also see scenarios

00:09:32.060 | where a high is sold and the market bottoms,

00:09:34.600 | with those who have the profit reallocating

00:09:36.920 | into other assets.

00:09:38.420 | I'm very interested in both viewpoints

00:09:40.000 | and would love to learn more on the nuances,

00:09:42.500 | such as, this is my favorite part of this,

00:09:44.860 | is there more wealth on paper than global fiat currency

00:09:47.980 | or are global markets capped?

00:09:50.140 | - Now, this guy's an economics student.

00:09:52.180 | This is the kind of thing you have a discussion

00:09:54.560 | in the dorm room and over a six pack of beer,

00:09:56.860 | and then you never come to a definitive answer.

00:09:59.220 | Now, there is certainly some money

00:10:02.500 | that comes out of the stock market

00:10:03.780 | when, in a bear market, when people are selling.

00:10:05.540 | The reason stocks fall is because people are selling,

00:10:07.700 | and the reason people sell is 'cause they sometimes

00:10:09.660 | wanna get more defensive and move into cash

00:10:11.820 | or money markets or CDs or something that's,

00:10:13.740 | or bonds, whatever, something that's more defensive.

00:10:15.960 | But it's not a one for one for the simple fact that,

00:10:19.220 | and this kind of hurts your brain to think about,

00:10:20.620 | for every seller, there is a buyer of stock, right?

00:10:24.080 | There has to be.

00:10:24.920 | Now, of course, there are things like SPACs and IPOs

00:10:26.820 | and stock options that are kind of created out of thin air,

00:10:29.100 | but for the most part, the vast majority of shares

00:10:31.380 | are trading on an exchange,

00:10:32.780 | and it's the laws of supply and demand.

00:10:35.540 | And there are times where supply and demand

00:10:37.260 | simply nuke paper wealth in the stock market.

00:10:38.960 | Think about an example.

00:10:39.800 | So, Apple reports their earnings next week.

00:10:41.580 | Let's say Tim Cook came on and said,

00:10:43.140 | and after hours and said, "Airpods give you cancer," right?

00:10:47.980 | If that happens, I'm screwed,

00:10:48.900 | 'cause I listen to him all the time.

00:10:49.780 | But he says, "Airpods give you cancer.

00:10:50.980 | "Apple's stock falls 20% immediately

00:10:53.740 | "in after hours trading," right?

00:10:55.980 | They're a $2.5 trillion company.

00:10:57.540 | If they lost 20%, that's what, $500 billion worth of stock.

00:11:00.060 | Does that mean $500 billion came out of Apple?

00:11:02.660 | No, of course not.

00:11:03.620 | A lot of it happens instantaneously,

00:11:05.500 | where people want to sell,

00:11:07.620 | and the only price they can get is 20% lower,

00:11:09.600 | so they have to sell,

00:11:10.440 | and that effective paper wealth has just been nuked.

00:11:12.580 | It's gone, it vanishes.

00:11:14.640 | And this works on the other side, too, right?

00:11:16.940 | On the upside, when stocks, after hours,

00:11:19.220 | report really good earnings, and they go up 20%,

00:11:20.820 | the same thing.

00:11:21.900 | People aren't putting 20% more into a stock.

00:11:23.700 | It's just going up.

00:11:25.340 | Another way to think about this,

00:11:26.460 | money has to go somewhere, right?

00:11:28.180 | Investors have to allocate between stocks,

00:11:29.660 | bonds, and cash, and whatever else.

00:11:31.140 | Pseudonymous blogger Jesse Livermore wrote

00:11:33.300 | what is probably one of the most popular

00:11:35.220 | fin-to-it posts of all time.

00:11:36.820 | He wrote this in 2013,

00:11:38.220 | and it's this blog called

00:11:39.060 | A Single Greatest Predictor of Future Stock Market Returns.

00:11:41.020 | Duncan said he tried to read it and didn't understand it.

00:11:43.060 | I don't blame you.

00:11:43.900 | - Yeah, this is one of those where I was,

00:11:45.300 | as I was trying to read it, I was like,

00:11:46.820 | I need to just ask you to explain it to me like I'm five.

00:11:49.720 | - The funny thing is, he wrote this in 2013,

00:11:51.760 | back when everyone was sure stocks were in a bubble.

00:11:54.900 | Those were the nice days, I guess.

00:11:57.280 | John, throw up this chart.

00:11:58.760 | - What this chart just shows is the allocation

00:12:00.820 | of all investors to equities.

00:12:02.940 | Right, you can see right now it's roughly 50%.

00:12:05.300 | Back in the '70s and '80s, it was closer to like 25%,

00:12:08.700 | and even dipped below there sometimes.

00:12:10.300 | Now, the 1980s, the stock market was up 18% per year,

00:12:13.860 | yet investor allocations remained low

00:12:15.420 | throughout the whole decade.

00:12:16.480 | They remained at 25% or lower, pretty much,

00:12:18.600 | pretty much lower than 30% the whole time.

00:12:20.060 | They didn't really start going up until the 1990s.

00:12:22.660 | So there was a ton of wealth created in the '80s,

00:12:24.940 | but there wasn't a huge increase

00:12:26.340 | in allocations to investors.

00:12:27.340 | Now, that happened in the '90s, too,

00:12:28.580 | but you can see that it finally went up

00:12:30.440 | and a lot of people got in,

00:12:31.280 | but it wasn't just a ton of money pouring in the '80s.

00:12:33.640 | The stock market was just up.

00:12:35.100 | So I guess what I'm trying to say here is

00:12:37.940 | the reason stocks go into a bear market

00:12:39.320 | is 'cause certain investors sell,

00:12:40.680 | but a lot of those losses happen so quickly

00:12:42.140 | that prices readjust in a panic.

00:12:43.380 | So I'm on Team Michael and Team Joss here.

00:12:46.660 | So I'm sorry, I'm splitting the baby.

00:12:49.100 | They're like my children here,

00:12:51.260 | and I'll be like, I agree with both of you.

00:12:53.420 | Like, they need to settle this through paper, rock, scissor,

00:12:55.180 | is what I'm trying to say.

00:12:56.700 | Rock, paper, scissor?

00:12:57.540 | - It's one of those things, I feel like

00:12:58.740 | the more I've thought about it,

00:12:59.580 | the more confusing it kind of is, but--

00:13:01.980 | - It hurts your head.

00:13:02.820 | - A lot of people realize that,

00:13:05.060 | like when we're talking about taxing unrealized gains

00:13:07.380 | is when I think people really start to understand this,

00:13:09.580 | right, is like, well, wait,

00:13:10.580 | just because it's gone up on paper this much

00:13:12.260 | doesn't mean I actually have that money.

00:13:14.300 | It's not real. - It's hard to, yes.

00:13:15.860 | It's not like there's a dollar for dollar,

00:13:18.020 | this is why the stock market grows over time

00:13:20.100 | and your wealth compounds, right?

00:13:21.700 | You hope that you have more money at the end of it

00:13:23.940 | than you put in.

00:13:25.460 | But yes, I'm willing to say

00:13:27.940 | I'm team Josh and team Michael here.

00:13:29.460 | They're both right.

00:13:30.660 | - I highlighted one line

00:13:32.060 | that I thought was a super hot take from that article.

00:13:34.420 | It says, "Buy and hold is painted

00:13:35.740 | "as the informed, responsible, pro-American thing

00:13:37.940 | "to do with a portfolio,

00:13:39.320 | "but in terms of financial stability,

00:13:41.120 | "it can actually be very destructive behavior."

00:13:44.360 | Isn't that a hot take?

00:13:45.520 | It sounds like a hot take to me.

00:13:46.360 | - A little bit, yeah, we'll take it.

00:13:47.900 | All right, let's do another one.

00:13:48.860 | - Okay.

00:13:50.220 | Up next, we have a question from Ben.

00:13:53.300 | "Question about changing risk tolerance.

00:13:55.500 | "I've been invested fairly conservatively for my age,

00:13:58.640 | "age 40, at about 50/50 bonds and stocks.

00:14:02.040 | "I've been through a few bear markets

00:14:03.520 | "as I started saving seriously just before the GFC

00:14:06.720 | "and feel more comfortable hanging on

00:14:08.360 | "through awful markets like we're in.

00:14:10.440 | "I stressed out during the GFC,

00:14:12.920 | "but held on and my stomach is getting stronger

00:14:14.960 | "each time I go through a downturn.

00:14:16.620 | "My question is, if I'm more comfortable

00:14:18.600 | "hanging in there with a relatively conservative portfolio,

00:14:21.520 | "is this a good opportunity to rebalance

00:14:23.100 | "and dial it up a bit?

00:14:24.360 | "Maybe more of a growth portfolio

00:14:25.940 | "of 75/25 stocks to bonds?

00:14:28.520 | "This is all long-term blue hair retirement money,

00:14:30.700 | "mainly index funds, diversified, et cetera.

00:14:33.020 | "Job is stable and all that.

00:14:34.560 | "Thanks a ton.

00:14:35.540 | "Also for our super young people,

00:14:37.660 | "GFC is global financial crisis."

00:14:40.140 | - Yeah, that's pretty crazy

00:14:41.140 | that someone might not know that.

00:14:42.460 | I'm sorry, but it's fair.

00:14:45.220 | We're old, Duncan.

00:14:46.140 | All right, so this is essentially an over-rebalance, right?

00:14:48.140 | I actually think a bear market is a better time

00:14:49.500 | to do this than a bull market

00:14:50.480 | if you're gonna take more risk,

00:14:51.540 | but you have to still be careful

00:14:52.500 | 'cause you don't know if there's another leg

00:14:53.540 | coming down at some point.

00:14:54.380 | But asset allocation is definitely

00:14:55.540 | one of the most important decisions

00:14:57.300 | that you have to make as an investor.

00:14:58.820 | And this is something we spend a lot of time

00:15:00.260 | with clients on.

00:15:01.180 | So I wanted to bring one of our financial advisors on here

00:15:03.800 | to give some guidance

00:15:04.640 | on how they handle these type of situations

00:15:05.780 | 'cause not all portfolios are set it and forget it.

00:15:08.540 | There are times when you can switch,

00:15:10.100 | whether it's your risk profile

00:15:11.340 | or your circumstances or money changing.

00:15:13.160 | So Alex Palumbo, actually one of the first advisors

00:15:15.340 | we brought into Ritholtz Wealth back in what, 2016, Alex?

00:15:18.480 | - January 17th, 2016.

00:15:20.900 | But who's counting?

00:15:21.740 | - Same day as Bill Sweet.

00:15:23.620 | - Okay.

00:15:24.460 | So I was a few months before you guys.

00:15:25.300 | - Shut up, Bill.

00:15:26.140 | - He's an OG.

00:15:26.960 | He's been here for a while.

00:15:27.800 | - Can I shut up, Bill, real quick?

00:15:29.620 | - If you want.

00:15:30.460 | - So I want a controversial hot take here.

00:15:33.500 | Bill and I actually came up with this exact show idea

00:15:37.100 | four years ago and we got shut down.

00:15:39.780 | So then you copied us.

00:15:41.420 | So right now we're in the process

00:15:42.500 | of filing a class action lawsuit.

00:15:44.140 | I wanted to let you know,

00:15:44.980 | and my attorney's gonna reach out to you after the show.

00:15:47.220 | I just wanted to give you a heads up on that.

00:15:48.140 | - Okay, remove his feet, John.

00:15:49.740 | That's how you get him out of here.

00:15:50.580 | - Yeah, see you later, Alex.

00:15:51.900 | Nice talking to you.

00:15:53.300 | Okay, so Alex, a client's come to you and says,

00:15:55.100 | "Listen, I think I've been a little too defensive.

00:15:58.380 | "My risk profile, I can handle it.

00:16:00.300 | "I want to dial up my risk."

00:16:01.900 | How do you approach that conversation?

00:16:03.340 | How do you, and then if you agree with that and say,

00:16:05.420 | "Okay, we're gonna come to an understanding.

00:16:06.560 | "You're gonna go from 50/50 to 75/25 or 60/40,

00:16:09.100 | "whatever it is."

00:16:10.260 | How do you handle that transition,

00:16:11.660 | assuming it makes sense for their plan?

00:16:13.620 | - Right, so I think you hit the nail on the head here.

00:16:17.060 | It definitely, you prefer to hear this from a client

00:16:21.100 | when stocks are going down

00:16:22.300 | versus when stocks are going up, right?

00:16:23.740 | That's just like better investor behavior.

00:16:26.440 | But to this particular listener's question,

00:16:29.660 | he said he feels more comfortable hanging on

00:16:31.220 | through awful markets like we're in.

00:16:33.160 | Of course you do, right?

00:16:34.100 | You're in 50% bonds and that's really not the only time,

00:16:37.100 | but that's the main time

00:16:38.460 | that bonds actually show their benefit.

00:16:40.700 | We know that equities will 100% perform better

00:16:42.860 | in the long term.

00:16:43.980 | So objectively, of course, this is a good time.

00:16:47.540 | The one thing that I would take some caution in

00:16:50.460 | for this particular client, if it were a client,

00:16:52.500 | is that this person is 40 right now.

00:16:55.340 | Their dollar amount in terms of their investable portfolio

00:16:58.020 | is going to increase exponentially, not linearly.

00:17:01.180 | So like, yeah, you have 100, 200, 500K, 50K right now.

00:17:05.420 | By the time you're 50,

00:17:06.260 | you should have two to three X times the assets.

00:17:08.500 | And in that concept, the drawdowns are more magnified,

00:17:11.300 | especially from a dollar perspective.

00:17:13.260 | So yes, this is objectively a good time.

00:17:15.460 | - I do think that's an important point as you age.

00:17:17.880 | Even if your portfolio is a little more defensive,

00:17:20.200 | because you have more money,

00:17:21.280 | it could take a smaller drawdown percentage terms,

00:17:23.860 | and in money terms, it's gonna hurt a lot more, right?

00:17:25.600 | I think that is something

00:17:26.440 | that a lot of people don't think through,

00:17:27.780 | the differences between percentages and dollars.

00:17:29.580 | That can make things way more painful.

00:17:32.180 | - You cannot believe the amount of conversations I have

00:17:34.540 | with retired clients with, you know, five, $10 million.

00:17:37.500 | They're like, "Do you see how much money I lost?"

00:17:40.340 | And it's no fault to them.

00:17:42.300 | And I'm like, you have to try to focus on the percentages.

00:17:45.700 | If only from a behavioral and psychological perspective,

00:17:48.260 | it's so much easier to be like,

00:17:49.340 | "Hey, I'm up 15% last year.

00:17:50.900 | "I'm down 8% this year."

00:17:52.420 | Once you start looking at the dollar amounts,

00:17:53.900 | if you're down 10% with $10 million,

00:17:56.780 | you are on paper just lost a million dollars.

00:17:59.500 | And if you have no income coming in,

00:18:00.940 | it's really painful to deal with.

00:18:03.020 | The last thing I'll mention to this particular listener

00:18:06.540 | and commenter and questionnaire,

00:18:09.020 | is that working with an advisor helps with this a lot.

00:18:11.420 | I've seen this time and time again,

00:18:12.900 | is that if you're managing your own assets,

00:18:15.660 | going from 50/50 to 60/40 seems like a big leap.

00:18:18.660 | But if you have an elite or competent team behind you,

00:18:21.700 | who's managing the portfolios for you,

00:18:23.780 | who can add context to your situation

00:18:25.980 | and show you the ramifications of increasing risk

00:18:28.300 | over the short, intermediate, long-term,

00:18:30.220 | it's much easier to deal with a more risky

00:18:32.860 | slash more volatile slash more equity-heavy portfolio.

00:18:36.420 | - Yeah, I agree.

00:18:37.260 | And by the way- - Plug for Red Hole 12.

00:18:38.980 | - Yeah, and you saying that you came up

00:18:41.420 | with the idea for Portfolio Rescue

00:18:42.660 | is kind of like the Winklevi twins

00:18:45.260 | saying they can't get up with Facebook.

00:18:46.540 | I mean, come on, right, Duncan?

00:18:47.940 | He's trying to- - Yeah.

00:18:49.300 | Yeah, or Grantham saying he called the spare market

00:18:51.860 | back like eight years ago. - I kinda wish that

00:18:53.420 | the Winklevoss did come up with Facebook.

00:18:55.100 | I mean, did you watch the movie?

00:18:56.020 | It was pretty clear that Zuckerberg stole it,

00:18:57.620 | but I don't want our whole thing to get shut down.

00:18:59.700 | - All right, let's do another one.

00:19:01.860 | - Okay.

00:19:02.700 | - This is the not to brag of the year so far, by the way.

00:19:06.460 | - Yeah, no, this one actually had me thinking

00:19:08.620 | that we need to add a button, a not to brag sound effect,

00:19:11.500 | and so we might actually do that.

00:19:13.460 | So this one is, "My wife and I received,"

00:19:16.060 | I've never heard of anything like this,

00:19:17.340 | but let us know in the chat if you've heard of this.

00:19:19.700 | "My wife and I received an unexpected wedding gift

00:19:22.100 | "of $200,000 in Microsoft stock.

00:19:25.440 | "As a general rule, I don't own individual stocks,

00:19:27.600 | "and the bogel in me wants to transform this

00:19:29.640 | "into a diversified index.

00:19:31.340 | "However, I don't want to create a large tax event

00:19:34.000 | "just to hold equities.

00:19:35.440 | "My thought is to slowly diversify over time,

00:19:37.860 | "sell 5% per month, considering that Microsoft

00:19:40.660 | "is a relatively stable blue chip.

00:19:42.900 | "Is it better to rip the Band-Aid off all at once?

00:19:45.960 | "Is there another creative solution that I'm not considering?

00:19:48.600 | "To further complicate the issue,

00:19:49.940 | "about 40% of this might be used as a down payment

00:19:53.000 | "for a house in the next few years."

00:19:55.220 | - All right, this is from Adrian.

00:19:56.060 | - Good job, I mean, you really lucked out with that.

00:19:58.740 | - This is from Adrian.

00:19:59.580 | "Who the hell did you invite to your wedding

00:20:01.180 | "that gave you $200,000?"

00:20:02.220 | Alex.

00:20:03.120 | Alex is gonna get married in what, two weeks, Alex?

00:20:05.540 | - 15 days, but who's counting?

00:20:06.620 | - 15 days.

00:20:07.460 | I'm gonna give you $75 in VTI stock for your wedding, okay?

00:20:11.740 | I know it's not Twitter, K and Microsoft, but.

00:20:13.460 | - That's more than what you've given me so far, so.

00:20:16.060 | - I think I got like a ladle and some steak knives

00:20:19.100 | from Bed Bath & Beyond for my wedding.

00:20:20.940 | This is awesome.

00:20:21.760 | Now, great problem to have.

00:20:23.420 | Not a bad way to start out as a new layabouts.

00:20:24.660 | Alex, I know that you've had a lot of clients come to you

00:20:26.700 | with concentrated stock positions,

00:20:28.220 | whether they work for a company,

00:20:29.620 | they have Amazon shares or Google shares, whatever it is,

00:20:31.940 | or maybe we've had clients in the past

00:20:33.300 | who have invested in IPOs very early on

00:20:35.540 | and have huge capital gains,

00:20:37.580 | unrealized capital gains in these stocks,

00:20:39.060 | and they come to us and they say,

00:20:40.380 | "I know I needed to diversify

00:20:41.660 | "'cause I have 80 or 90% of my wealth in this one stock.

00:20:43.880 | "How do I do it?"

00:20:44.720 | So how do you typically structure these sales

00:20:46.860 | when you have a concentrated position to deal with

00:20:48.620 | from a tax perspective?

00:20:50.420 | - Yeah, this actually was a really great question.

00:20:52.220 | There's a lot of nuance here, and I have a ton to say.

00:20:54.500 | Shocker to you, Ben, I'm sure.

00:20:56.660 | I will say, I don't think this was that much of a brag,

00:20:58.420 | but wait until the next question, spoiler alert,

00:21:01.220 | for the big time brag.

00:21:02.620 | But to answer this, this is a really good question.

00:21:06.040 | So first of all, right off the bat,

00:21:07.780 | 5% per month does sound like a reasonable strategy, right?

00:21:10.500 | Just like baseline.

00:21:11.900 | Here's the two things that really stood out to me

00:21:14.460 | in terms of concepts to consider.

00:21:17.740 | If you do this over two years,

00:21:18.980 | you're pretty much attempting

00:21:19.860 | to spread out your tax liability, right?

00:21:21.860 | However, if the stock is valued at $200,000,

00:21:24.700 | you just got married, you listened to Portfolio Rescue,

00:21:27.300 | assuming you're doing okay for yourself,

00:21:29.620 | you're most likely always gonna be in that 15% tax bracket

00:21:33.260 | in terms of the capital gains, right?

00:21:34.660 | So like, if you can sell some now

00:21:36.940 | within that 0% tax bracket, that's great.

00:21:39.640 | But I would take an educated guess

00:21:40.960 | that this married couple probably doesn't make

00:21:42.800 | that little of earned income

00:21:44.340 | to be at that 0% capital gains rate.

00:21:46.580 | - Well, here, how does this,

00:21:47.820 | so how does this complicate matters?

00:21:49.460 | Because they said 40% of it,

00:21:50.780 | they wanna use for a down payment.

00:21:51.800 | So does having a goal attached to it make you think,

00:21:54.860 | do you at least rip the bandaid off for that 40%

00:21:56.940 | and just sort of get that into something

00:21:59.300 | and then slowly with the rest?

00:22:00.260 | Does that make sense at all,

00:22:01.340 | where you're kind of doing a hybrid approach

00:22:03.060 | to dollar cost averaging out of this?

00:22:05.100 | - Yes, and I was, yes, of course it does.

00:22:07.460 | That, everything I was about to say

00:22:09.620 | gets thrown out the window when you wanna use this

00:22:11.660 | for a new home within the next few months.

00:22:14.440 | However, from working with clients,

00:22:16.260 | when you might wanna buy a home in a few months,

00:22:18.320 | that tends to be like,

00:22:19.160 | I'm not gonna buy a home for a few years.

00:22:21.940 | You don't want this money invested in an individual equity

00:22:24.320 | if you're gonna buy a home

00:22:26.140 | within the next three to nine months for obvious reasons.

00:22:29.360 | But the one thing I'll say regarding the taxes,

00:22:32.000 | these people are probably not gonna be

00:22:33.060 | in the 20% capital gains rate.

00:22:34.920 | So you're probably always gonna pay 15% capital gains tax

00:22:38.940 | on these sales.

00:22:40.460 | So you don't wanna let the tail wag the dog

00:22:43.220 | in the sense where it is good to space it out

00:22:45.580 | because you will have to pay taxes on this.

00:22:47.380 | That's a slight benefit.

00:22:48.700 | But one thing that's important to consider

00:22:50.740 | is over the next 20 months,

00:22:52.660 | if you sell like 5% of this stock over the next,

00:22:55.220 | 5% over the next 20 months,

00:22:56.900 | there's almost 100% chance that that stock is gonna move

00:23:00.640 | much more than 5% differently than the index, right?

00:23:05.640 | And so you don't wanna let the proverbial tax tail

00:23:10.540 | walk the dog, that's what Bill always says.

00:23:12.500 | So keep that in mind is that Microsoft for better or worse

00:23:15.100 | is gonna perform much differently

00:23:16.300 | than the overall index most likely.

00:23:18.420 | And you're probably always gonna pay

00:23:19.580 | 15% capital gains as well.

00:23:21.220 | Last thing I'll mention, Ben,

00:23:22.380 | 'cause I know you don't like when I ramble

00:23:24.340 | is one thing I like doing for clients is like,

00:23:26.660 | don't sell in October, November, and December

00:23:30.740 | because you're like,

00:23:31.700 | let's say you sell something December 31st,

00:23:33.740 | you're guaranteed to pay capital gains on that

00:23:35.700 | unless you already have losses to offset this year.

00:23:39.780 | What I do a lot of the time,

00:23:40.740 | let's say we get a new client in like October

00:23:42.540 | and their portfolio isn't extremely risky

00:23:44.900 | or there's not a lot of nonsense going on.

00:23:46.740 | We'll wait until January 1st to recognize gains.

00:23:49.880 | That gives us 12 months to tax loss harvest on the portfolio.

00:23:52.860 | - You have a budget that you can work against basically

00:23:55.200 | for the rest of the year.

00:23:56.420 | - Exactly.

00:23:57.260 | So like sell 10% in July, August, September,

00:24:00.060 | stop and see if you can harvest losses from there.

00:24:02.620 | Now you might be thinking, Duncan,

00:24:03.860 | this is gonna be very difficult

00:24:05.100 | for your average retail investor.

00:24:06.820 | That's exactly why you work

00:24:08.300 | with a comprehensive financial planning firm

00:24:10.100 | who can execute all this for you.

00:24:11.440 | But in all serious, another RWM plug,

00:24:13.620 | there's a lot of nuance to this question

00:24:14.980 | that from like the layman eyes, you might not consider,

00:24:18.060 | but there's a lot going on here.

00:24:19.100 | And if you do it correctly,

00:24:20.360 | you can probably save yourself a lot of money

00:24:22.260 | and be more informed in your decision-making.

00:24:24.020 | - Just an awesome wedding gift though.

00:24:25.460 | I will say whoever did this for them,

00:24:27.760 | kudos to you, Bill Gates or whoever did this.

00:24:29.740 | - Ben, I'm holding you to that $75 in VTI

00:24:32.100 | 'cause that was just said,

00:24:33.140 | but that's more than you've given me so far.

00:24:34.740 | So I'm holding you to that.

00:24:36.140 | Thank you.

00:24:36.980 | - I'm still waiting for my invite to the wedding

00:24:37.860 | and then you'll get your 75 bucks in VTI.

00:24:40.060 | - All right, this is very fair.

00:24:41.740 | - Sounds fair.

00:24:42.580 | - All right, one more, Duncan.

00:24:43.620 | - Okay.

00:24:44.980 | So up next, we have a question from Alex

00:24:47.080 | and this is a two pager, so hang in there.

00:24:50.080 | My wife and I--

00:24:50.920 | - So this is one of the better,

00:24:52.840 | sometimes people give us emails

00:24:54.720 | and there may be some spelling errors

00:24:55.960 | and I'm not averse to do that myself.

00:24:57.720 | And there may be some people that shorten things.

00:25:00.840 | This is a very well-written email.

00:25:04.200 | - Yeah, it was.

00:25:05.040 | And they also have, they have a certain way with words.

00:25:08.400 | - Yes.

00:25:09.240 | - As people will see.

00:25:10.400 | My wife and I are in the process

00:25:11.700 | of getting our financial lives together

00:25:13.520 | and I have been going through the process

00:25:15.220 | of talking to financial advisors.

00:25:17.360 | I've come out the other side of this process

00:25:19.360 | wondering what the value of a financial advisor is.

00:25:23.800 | My wife and I have been extremely blessed

00:25:25.680 | over the past couple of years

00:25:27.400 | and we both find ourselves in a sexy ass tax bracket

00:25:30.680 | and are fortunate enough to be able

00:25:32.520 | to put a significant amount of money to work

00:25:35.580 | now and for the foreseeable future.

00:25:37.880 | We are fairly young, I'm 33 and she's 27.

00:25:41.040 | Don't have kids, no debt,

00:25:42.520 | and we're both maxing out our 401ks.

00:25:45.120 | At this point, we are not worth much,

00:25:47.680 | but over the last couple of years,

00:25:48.940 | we've seen our incomes grow

00:25:50.200 | and haven't had time to amass enough wealth

00:25:53.560 | to get wealth managers with white wigs and soft rumps

00:25:56.480 | to have any interest in working with us.

00:25:58.200 | I gotta say, I don't even know what that means,

00:26:00.560 | but I don't fault them for this.

00:26:02.840 | - But it's provocative.

00:26:03.860 | - Yeah, no, I mean, it sounds like shots fired.

00:26:06.360 | I don't fault them for this,

00:26:07.440 | but recognize it as the reality of the situation.

00:26:09.800 | I enjoy learning about the market

00:26:11.120 | and feel like if we continually put our money

00:26:13.200 | in an S&P 500 index, we might see the same

00:26:16.400 | or similar performance as we would see

00:26:18.720 | with any financial advisor.

00:26:20.360 | Part of me wants it to be more complicated than that,

00:26:23.680 | but as I've listened to you guys

00:26:25.080 | and your peers in the market over the past few years,

00:26:27.760 | I can't escape the impression

00:26:30.300 | that if you were to put your money in the market

00:26:31.800 | continuously and keep it there,

00:26:33.460 | you'd be hard-pressed to make it grow better

00:26:35.320 | with less stress.

00:26:36.720 | I would love it if you guys could blow some holes

00:26:38.480 | in this thesis, as it seems like there has to be

00:26:40.800 | some value provided by good people out there,

00:26:43.240 | that I need someone smarter than me

00:26:44.400 | to weigh it out real nice.

00:26:45.920 | - All right, I will say--

00:26:47.240 | - Basically, they're saying that you shouldn't exist,

00:26:49.400 | you shouldn't have a job, Alex.

00:26:50.440 | - Well, Alex is-- - Please put me in, Ben.

00:26:51.960 | - Hang on, Alex. - I'm not on this one.

00:26:52.960 | - Hang on, Alex, before I let you lose here.

00:26:55.280 | I will say there are now advisors who work with people

00:26:57.480 | who have higher incomes but don't have a lot in assets.

00:26:59.880 | There's hourly financial planners now.

00:27:01.780 | A little plug, we have an advisor dedicated

00:27:04.320 | to our lift-off program that people who have,

00:27:05.840 | don't meet the minimums for the other wealth management

00:27:07.920 | that have the ability to automate it,

00:27:09.760 | invest it through Betterment,

00:27:10.600 | but then also talk to one of our younger advisors, Matt.

00:27:13.980 | But I will say, hiring an advisor is not for everyone.

00:27:16.660 | I think there are some reasons that you wanna do it, right?

00:27:18.520 | A lot of people make some mistakes,

00:27:19.680 | some people have a life event, Alex is getting married,

00:27:22.840 | I talked with a client of ours who was a young person,

00:27:25.080 | young people, a young couple who was just having

00:27:26.640 | their first child and they have an advisor with us

00:27:28.640 | and they were having a hard time working through

00:27:31.360 | some decisions that they were making financially

00:27:34.440 | and having this first kid

00:27:35.280 | and having an advisor can help.

00:27:36.960 | Not everyone needs an advisor.

00:27:38.280 | I know there are a lot of smart people

00:27:39.480 | who can do it on their own and don't need one.

00:27:41.840 | But Alex, what are some of the main reasons

00:27:43.480 | people have come to you to kind of give this listener

00:27:46.400 | a reason for getting an advisor in the first place?

00:27:49.060 | With the understanding that you're probably a little biased.

00:27:52.500 | - I mean, sexy ass tax bracket, soft rumps.

00:27:57.020 | I mean, should we mark this not safe for work?

00:27:59.220 | I mean--

00:28:00.060 | - This is probably an English major.

00:28:03.780 | By the way--

00:28:04.620 | - Soft rumps.

00:28:05.460 | I thought you want hard rumps, right?

00:28:07.460 | - That's why we do squats and lunges here.

00:28:09.080 | All right, so--

00:28:09.920 | - That's why I'm the director of fun, all right, so--

00:28:11.860 | - What are the reasons that people come to you?

00:28:13.220 | What are some of the main reasons people come to you

00:28:14.800 | and say, I need an advisor, I wanna hire you?

00:28:17.260 | - Yeah, initially I definitely wanted to eviscerate this guy

00:28:21.260 | Benny Market style, but then I took a step back.

00:28:24.080 | One, 'cause you told me I can't rip apart our viewers.

00:28:26.580 | But secondly, because he's actually probably right, right?

00:28:30.340 | For the reasons that you mentioned.

00:28:31.720 | If he was, he 33 years old, 27 years old.

00:28:34.740 | This is one of the unfortunate truths in the industry, right?

00:28:37.060 | It's like younger folk who don't have the investable assets

00:28:39.380 | could benefit from some holistic financial planning advice.

00:28:42.620 | They can't find good advice.

00:28:43.740 | The Northwestern Mutual guy is right around the corner,

00:28:45.820 | the insurance guy.

00:28:46.660 | But other than that, there's really no good place to look.

00:28:49.940 | So right now, what I would recommend to this nega Alex,

00:28:53.420 | this anti-advisor other Alex,

00:28:55.740 | is listen to RWM content, what she's doing, right?

00:28:58.780 | The fact that you're listening to Portfolio Rescue

00:29:01.740 | makes me believe you're probably are perfectly fine

00:29:03.940 | with whatever diversified index investing strategy

00:29:06.500 | you are in.

00:29:07.460 | However, ways that a good advisor can help you

00:29:10.660 | even when you don't have a lot of investable assets,

00:29:12.640 | but you have a high income earning,

00:29:14.560 | financial goal planning, right?

00:29:15.900 | It's very helpful to set yourself up on a pad

00:29:19.100 | and not just invest blindly,

00:29:20.500 | having no idea what your short, intermediate,

00:29:22.860 | long-term net worth is going to be.

00:29:24.700 | When you can retire, when you can part-time work,

00:29:27.020 | can your wife dial it back?

00:29:28.740 | Education planning, if you wanna have kids.

00:29:30.820 | Tax planning, not just filing taxes,

00:29:33.320 | but the tax loss harvesting example I just mentioned, right?

00:29:36.740 | Also access to strategies that you can invest in on your own

00:29:39.860 | if the price is right.

00:29:41.280 | Lastly, and I think this is important

00:29:42.900 | and I'm gonna get more nuanced than we typically get,

00:29:45.460 | behavioral assistance, but not in the sense like,

00:29:48.580 | did you panic in 2020?

00:29:50.360 | Did you buy crypto in 2020?

00:29:51.980 | Did you get meme stunked in 2021?

00:29:54.300 | Did you sell anything this year?

00:29:55.420 | But did you buy this year, right?

00:29:58.060 | Did you rebalance this year?

00:29:59.500 | Like those are things that they actually don't show up

00:30:01.860 | in time-weighted returns,

00:30:02.860 | but they can really add to your bottom line

00:30:04.800 | if you do them correctly.

00:30:06.220 | What you don't need is insurance planning,

00:30:08.300 | especially 'cause you don't have kids.

00:30:09.440 | Like, you need insurance, but not insurance planning.

00:30:11.900 | You don't need complex estate planning.

00:30:14.820 | And then can I go a little in depth

00:30:16.620 | on like hiring an advisor real quick?

00:30:18.180 | - Yeah, but I mean, so one of the reasons

00:30:20.200 | that people come to us is because

00:30:22.900 | sometimes they wanna outsource it

00:30:24.100 | and then they just don't wanna do it themselves.

00:30:25.580 | They have more important things to do with their time.

00:30:27.240 | If you were interested in this stuff and you follow us,

00:30:29.180 | you probably are, then that's fine.

00:30:31.260 | But it could come to a point of your life when you go,

00:30:32.740 | you know what?

00:30:34.340 | I've been doing this on my own the whole time.

00:30:35.740 | My spouse doesn't pay attention to it as much as I do.

00:30:37.660 | I'm worried if I got hit by a bus,

00:30:39.580 | what's my spouse gonna do, right?

00:30:42.420 | - Contingency plan is good here.

00:30:43.500 | Let me quantify for this here real quick, Benny Buckets.

00:30:46.620 | All right, so let's say you spend

00:30:47.940 | three hours a week doing this, right?

00:30:50.820 | That seems reasonable

00:30:51.660 | if you're managing your own assets, right?

00:30:53.040 | Times 50, that's about 150 hours a year.

00:30:55.620 | If this guy's in a sexy ass tax bracket

00:30:57.580 | looking for soft rumps,

00:30:58.860 | he's probably making at least $25 an hour, right?

00:31:01.140 | He probably values his time at $25 an hour.

00:31:04.060 | I think that's a low number.

00:31:05.740 | That's about $3,700 a year of his time

00:31:09.840 | that he's spending on managing his own finances.

00:31:13.060 | Now, if you hire someone and pay them that exact fee,

00:31:17.020 | you're getting that value back.

00:31:18.780 | And now that's assuming he can get the exact same returns

00:31:21.660 | and do the exact same processes and elite strategies

00:31:26.660 | that financial planning groups can give you.

00:31:29.420 | So just assume that you can get a few basis points

00:31:31.540 | of value on top.

00:31:32.620 | That's when you can start to quantify

00:31:34.940 | why someone in his situation would hire an advisor.

00:31:38.340 | - I think what Alex is trying to say

00:31:39.380 | is that if you give him an email,

00:31:41.500 | he'll give you a 20 minute call

00:31:43.100 | about what it is to be an advisor

00:31:44.860 | and he'll walk you through.

00:31:45.700 | And then when you're ready to hire an advisor,

00:31:46.860 | if you want to, go talk to him.

00:31:49.420 | - Do you value your time?

00:31:50.420 | But to your point, Ben, and this is the last thing I have,

00:31:52.420 | there are those guys at Planet Fitness

00:31:54.260 | that pay $10 a month.

00:31:55.660 | They are super jacked and they are an elite shape.

00:31:58.800 | Like they don't need to hire a nutritionist

00:32:01.860 | or pay 200 bucks a month for CrossFit

00:32:03.500 | or do all these things.

00:32:04.720 | There are the outliers,

00:32:06.220 | but those people, and just like the do-it-yourselfers

00:32:08.740 | who are 50 with 5 million bucks,

00:32:10.180 | they're the outliers.

00:32:11.260 | They're not the median or the mean, though.

00:32:13.020 | - By the way, I used to have a membership

00:32:16.020 | at Planet Fitness, so thanks for that.

00:32:17.740 | - Well, there can only be so many guys like me at the gym,

00:32:19.860 | you know, but what I was gonna say is

00:32:23.500 | I feel like a lot of our audience

00:32:25.340 | are definitely more in the maybe inclined

00:32:27.580 | to be do-it-yourselfers, that kind of thing, right?

00:32:29.660 | They're watching financial content,

00:32:30.940 | they're trying to learn,

00:32:31.760 | they're reading you guys' blogs and stuff.

00:32:33.980 | And so, yeah, I feel like we might skew

00:32:36.900 | a little more that way,

00:32:37.740 | but yeah, I think the best explanation

00:32:39.100 | I have heard before is just when it's too complicated,

00:32:42.040 | stressful, time-consuming, your situation,

00:32:44.740 | then that's the time maybe you would go to someone else.

00:32:47.700 | - And if you're thinking about it,

00:32:48.840 | there's nothing that can hurt from having a conversation,

00:32:51.020 | and if you have a conversation

00:32:52.500 | and the financial advisor lays out

00:32:54.100 | all the things they can do for you,

00:32:55.160 | which they should be doing,

00:32:56.260 | these are the different things I will do for you,

00:32:58.460 | if you don't think that those are worth the money,

00:33:00.220 | then don't do it.

00:33:01.060 | But you can at least have the conversation

00:33:02.160 | without completely handing over your life savings

00:33:05.020 | before beforehand, right?

00:33:06.740 | - Two other things.

00:33:07.580 | - An hourly advisor is a good idea,

00:33:09.620 | and paying a one-time financial planning fee

00:33:11.720 | is a good idea for these people.

00:33:12.760 | - That's what I was about to ask you.

00:33:14.060 | Can you explain to people how you're charged, typically?

00:33:18.860 | That's something I feel like no one really,

00:33:20.340 | I don't even quite understand.

00:33:22.060 | - Yeah, so typically it's an AUM fee, right?

00:33:25.180 | Assets under management.

00:33:26.540 | We charge you 50 basis points, 0.5% of your overall assets,

00:33:30.200 | and we do everything for you.

00:33:31.860 | But for someone who has, it's actually,

00:33:34.100 | it's a good question.

00:33:34.940 | For someone with like $50,000,

00:33:37.020 | if you charge them 50 basis points,

00:33:38.820 | that's $250 for the year.

00:33:40.500 | Like, that's not a lot of money to pay for services,

00:33:43.060 | but you can pay, that's under the AUM model.

00:33:45.640 | But younger people can pay,

00:33:46.480 | "Hey, I'm gonna pay you 500 bucks to 1,000 bucks.

00:33:49.740 | "Talk to me for an hour or two.

00:33:51.580 | "Tell me what to do."

00:33:53.240 | The problem is you have to go and implement that yourself,

00:33:55.640 | but that can be really valuable

00:33:56.960 | if you do have the technical abilities

00:33:58.580 | to actually implement all of the things that I mentioned.

00:34:01.100 | And someone who's in their 30, 33 years old

00:34:03.100 | who's listening to Portfolio Rescue probably can.

00:34:05.420 | And there's almost no doubt

00:34:06.500 | that if you go to the right place,

00:34:08.280 | it's worth paying 500 bucks.

00:34:09.540 | - By the way, and I also think it's okay.

00:34:11.540 | Someone in the comments said,

00:34:12.380 | "I won't pay for a golf coach

00:34:13.380 | "that can't beat me on the course."

00:34:14.420 | And I haven't found one yet.

00:34:16.540 | Tiger Woods has a golf coach, right?

00:34:18.020 | All the best golfers in the world have coaches.

00:34:19.740 | Michael Jordan had trainers and coaches.

00:34:21.500 | Even the best people know when to outsource.

00:34:23.100 | So you just have to understand

00:34:24.220 | if outsourcing is right for you.

00:34:25.820 | - Can you tell this guy to reach out to us

00:34:27.540 | so we can hire him?

00:34:28.380 | It sounds like he's really good at this.

00:34:29.620 | - Can I follow up with one more question?

00:34:32.140 | Do you have one good red flag

00:34:35.220 | that someone should look out for

00:34:36.780 | if they're interviewing financial advisors?

00:34:39.400 | - Yeah, I mean, I already said it.

00:34:41.540 | If you go to an advisory group or a financial planning company

00:34:44.060 | and during the first meeting, they mention insurance,

00:34:49.060 | that is a huge red flag, right?

00:34:51.380 | That's always a part of the puzzle,

00:34:53.020 | but that's never like, oh, you're 50 years old,

00:34:54.780 | you could really benefit

00:34:55.620 | from some indexed universal life insurance policy

00:34:58.260 | or, hey, you could really cover your spouse's income

00:35:01.140 | by buying this whole life.

00:35:02.260 | That's the biggest red flag.

00:35:03.300 | - Yeah, it shouldn't be selling you products,

00:35:05.540 | it should be offering you solutions.

00:35:07.220 | - Right. - So, yeah.

00:35:08.220 | All right, Alex, after you get married,

00:35:09.700 | you can come back and give us some advice financially

00:35:12.100 | on how to be a newlywed.

00:35:14.620 | Remember, if you're listening to this in podcast form,

00:35:16.220 | leave us a review.

00:35:17.300 | Watching on YouTube, hit that subscribe button.

00:35:19.900 | Compound merch at idontshop.com.

00:35:22.020 | We're gonna have a new compound and friends tomorrow,

00:35:23.900 | as Michael calls it, TCAF.

00:35:26.020 | That hasn't, not growing on me yet, sorry.

00:35:28.140 | - Yeah, I'm not 100% in on it.

00:35:30.260 | - All right, keep those questions and comments coming.

00:35:31.860 | Wanna thank Alex again for offering his advice today.

00:35:34.500 | If you have a question, askthecompoundshow@gmail.com

00:35:37.780 | and we'll see you next week.

00:35:39.500 | - See you, everyone.

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Is Wealth Destroyed or Reallocated During a Bear Market?

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