- Welcome back to Portfolio Rescue. I'm sure we take questions straight from you. We've got a lot of questions, like I said, last week. We're going to try to do a lightning round today. Before we get to that, remember, askthecompoundshow@gmail.com. Duncan, last week's show, I mentioned the 50/30/20 rule, right, of budgeting.

And I said, I don't know where it comes from. A lot of these things in finance, they just sound good and they stick like the 60/40 portfolio. No one actually knows who started that or where it came from. We all just kind of subscribe to it. But the 50/30/20 rule, last Thursday after we did the show, I was reading a book at night, kind of read before I go to bed.

I was reading this book called "Die with Zero" by a guy named Bill Perkins. And the whole idea is if you have a lot of money, your hope should be to spend that money, either give it away to charity or spend it all on experiences before you die. Interesting concept.

That's what you were talking about in "Animal Spirits." Yeah. One of the chapters of that same book, he said the 50/30/20 rule comes from a very well-known politician today. It's a woman. Do you have any guesses? A politician came up with this. Elizabeth Warren. Elizabeth Warren. Before she entered politics, Warren had been a law professor with special expertise in bankruptcy and co-wrote books about why middle-class Americans go broke and how to avoid that dismal fate.

She suggested the 50/30/20 rule, which she called the balanced money formula, as a way to help people maintain financial stability. Had no idea. This is the Elizabeth Warren rule. Did not know that. Yeah. That's kind of crazy. Did not know that. All right. So, we're just going to get right into it because last week we mentioned we're overflowing with questions.

So, we're going to do something of a lightning round today. Rapid fire. We still have an expert coming on at the end of the show, but I think we did seven or eight questions right away. We're just going to go rapid fire. We had a lot of them and I don't need to spend a ton of time.

So, I think Duncan's got a timer for me even. Yeah. He's going to buzz me if I go too long. I'm going to time you on the Apple Watch, and I've actually got a sound effect timer and buzzer. All right. All right. Let's do it. We're ready to go.

Question one. Okay. Okay. Can you please explain how the Fed raising interest rates fights off inflation? I understand it can slow down the housing and car market, but how does it impact other goods? Bikes, dishwashers, clothes, et cetera. Especially when there are supply side issues. Would the Fed be raising rates if demand and supply were at equilibrium?

This is true. The Fed can't prove more semiconductors. It can't build more houses. It can't put more cars in the lots. Here's one of the things they can do. They can make money more expensive so maybe people don't buy a second home because instead of 3%, it's 5%. I'm not going to pay for another house here.

I'm not going to buy a vacation home. Maybe some companies cut back on investments because the hurdle rate is now much higher. I think it's also a psychological component to this. People see asset prices fall and they might cut back on spending. Bill Dudley, who's a former New York Fed chair, wrote yesterday in Bloomberg, "In contrast to many other countries, the U.S.

economy doesn't respond directly to the level of short-term interest rates. Most home borrowers aren't affected because they have long-term fixed-rate mortgages. And again, in contrast to many other countries, U.S. households do hold a significant amount of their wealth in equities. As a result, they're sensitive to financial conditions. Equity prices influence how wealthy people feel and how willing they are to spend rather than save." He's saying the Fed has to jack up rates to lower the stock market.

That kind of makes sense. I don't know what the unintended consequences are going to be. Is a recession going to be better than high inflation? I think we might get a chance to find out if the Fed has their way. But yeah, the Fed can't make supply chain issues go better, get back without helping demand.

A lot of pressure here. All right, let's do the next one. Shot clock. That was pretty close. All right, next one. The best thing about the Fed, too, is you can always blame the Fed if things don't go your way. Of course. That's what I like about it. Perfect scapegoat.

What particular sectors or names come to mind for young investors with a 35 to 40-year time horizon? All right, easy. I don't know. I have no idea. You could say technology. That'd be an easy one. But who knows what the companies are going to be? There was this book I read.

My brother got it for me for Christmas one year in 2007. The Forever Portfolio by James Altucher of all people. And he picked these stocks that you could hold forever for decades and decades. Most of the stocks you've never heard of today because things change. It was right before the Great Recession.

And then you had all this other stuff happening afterwards. And so all the stocks that ended up doing well, you wouldn't have picked. So even picking out a decade and a half later is harder than three to four decades. John, throw up this chart of the biggest stocks in the S&P going back to 1980.

You can see here in 1980, it was basically all energy stocks. These stocks have turned over so many times. It's so hard to pick. So maybe if you want to say like tech, technology is going to be a big part of our lives. Maybe the NASDAQ 100. But if you have three to four decades ahead of you, guess what?

The easiest thing to do is you bet on the market. Corporations will continue to produce profits. They'll continue to innovate. That's what you want to do. Trying to pick certain stocks or sectors up for three to four decades in the future, when the future is so uncertain, is really difficult and basically impossible to do.

Perfect timing. Look at that. Nailed it. I actually had a follow up on that one real fast. What percentage of companies do you think will no longer even be around in 40 years? A very high percentage. Yeah, it seems like a lot. Yes. Through bankruptcy or mergers and acquisitions or whatever, yes.

Picking those companies is ridiculous. After that long, it's hard to do it for next year, next five years, 10 years, 30 or 40 years in the future is really difficult. Okay, so up next we have, what will bring more value in the long run for a child? Paying for a fancy private college that totals $250,000 or sending them to a mid-tier public school on a full ride and putting that $250,000 into an index fund for their retirement?

Listen, this is the type of question that is way easier to answer as an older person than a younger person. When you're older, you can easily say, "Don't spend a lot of money on a wedding because that's a waste of money," or, "Why would you spend all this money on college when you can just invest it and start a business and go bet on yourself?" That's way easier to say as a younger person.

Hey, outside of the top 15 to 20 schools, it doesn't matter where your degree came from as long as you get one. I think you use this as a teaching moment. You can say option one, you go to a really expensive school but you forego this potential financially being set up as a young person and maybe buying your first house or paying for a wedding or whatever you want to do with the money, retiring early, or you go to a state school but here's what you're giving up.

You're not going to go to a nice expensive school that you want to. You could be missing out on experiences and which one do you regret more? You put all the information out there for them. You use this as a teaching opportunity to maybe talk about compound interest a little bit before their eyes glaze over.

But I say if you're going to do this, don't scold someone. Don't force them. Give them all the information and let them make the decision themselves, right? Because again, your decision at age 18, maybe they say, "You know what? I'll make my own money someday. I don't need your money.

I want to go to this school because my friends are going there because that is this awesome program that I want to do," whatever. So I think that's what you do. You help them make an adult decision and let them figure out which path is better for them. Yeah, no, that sounds like good advice.

Also, yeah, so much of college is about what you make it. Like, there are people, there are brilliant people who go to, you know, like less prestigious schools and end up, you know, being very successful. Well, my favorite one is... Going to a private school doesn't really mean that much.

Oh, did we lose you, Ben? Oh, I think we might have lost Ben there for a second. All right, well, let's give Ben a second to see if he comes back. And if he doesn't, then maybe I'll bring Matt back in. All right, so we'll switch this up a little bit.

So we'll go ahead and jump into Matt. So Matt, get ready. I'm going to get your opinion on this. What do you think about this question between the public mid-tier school and a private school? Also, I should introduce you. This is Matt Lurias, a young advisor extraordinaire at Red Horse Wealth.

We were going to surprise you at question eight, but I'll go ahead and bring you in. Of course. Throw me a curveball right off the bat here. Love it. So I agree with Ben. It's much easier to answer this as an older person, just saying, having gone through the experience of paying for these types of big events and saying, well, you know, did I really need that?

But the experiences are worth something. So, you know, in terms of like, where are you going to go to school? You know, as long as you get a good education, I think, and even if it's a mid-tier school, if you're not paying as much money, you know, you'll probably end up okay at the end of the day.

You'll end up all right. So, I mean, you know, don't, don't, don't kill yourself over it. Don't feel like you have to spend godly amounts of money on, on school, but also at the same time, you want the experience, right? You want to be able to learn the things that, you know, don't necessarily happen in college, you know, you know, meeting people, networking, all that type of stuff is important.

And, you know, when we're older, it's easy to say, did I really need that? But, right. Yeah. Hindsight, people, if people aren't happy with their careers, they're always going to look back and be like, oh, I spent too much on college. But, you know, I think, I think that some of that is, yeah, hindsight bias.

Also, we both went to school, you know, very close to each other. You went to Coastal Carolina on the coast of South Carolina. I went to UNCW on the coast of North Carolina. So, and I had a great, great experience. Okay, so this is uncharted, uncharted territory. Ben is still not back.

So he must be having some serious computer. Yeah, some computer difficulties. So yeah, we're taking over. And yeah, I guess we'll just continue on. So John, John hit it. Let's, let's go to the next question. Okay, so did we get Ben back? Hold on. Let's see. Ben, are you back?

Ben, thank God. I'm on my phone. The power literally just went out of my business. You froze. I was like, how long do I give it before we just, like, completely, you know, regroup and continue on. So, but this is great. This is, it's not like we're alive or anything, you know?

Yeah, we're only, this is the power of life. My, the power in my whole office just literally shut down. And I'm sitting here in darkness, but I'm on my phone. So I apologize for the video. But hey, it works. It works. So we were wrapping up the college question.

So we're, we're on to the next one. Matt had some, some good contributions there. So I guess you can hop in and help out. Yeah, yeah. So we'll just have Matt, Matt on. The surprises is over. Okay, so up next, longtime viewer of the show, love all the content you put out.

I'm 23 and just graduated from college. I landed my first job at a financial services firm and I'm wondering how I should allocate my earnings. Would you recommend focusing on paying off my student loans first around $30,000 or building up my retirement portfolio? My boring answer to this one is I like the idea of splitting it up because I think that's the simplest way to go about it.

And I think building those financial habits early and saving important. Now it could be you're one of these people that just loves paying off debt because you hate it so much, right? Duncan, I can't remember. Are you a Duke or North Carolina fan? Because you're, you're from North Carolina.

I'm a Duke fan. Okay. So some people hate debt as much as people outside of Durham, North Carolina hate coach K and Duke, right? Wow. Yeah. It's pretty vitriolic. It's pretty vitriolic. Come on. It was in the news a lot, but I'm just saying if you really, one of these people that just hate debt and cannot stand it, and it's going to keep you up at night, pay it off.

And I like the idea of splitting it up and building those savings habits while you pay off the debt. And then when the debt's paid off, roll that those payments into your savings. For sure. I agree. I mean, you got to start contributing to the 401k at least, I think a little bit.

You don't have to do a lot, but you can do both at the same time. There's no reason why not. Yes. At least get your match. All right. Buzz it. So right on time. There we go. Um, so one, one thing I had to add to that is just, yeah, the Dave Ramsey school of like no debt ever kind of thing that, that always to me is kind of annoying because it's like, well, you're basically telling a lot of people that they can't like go to college then if they can't take out student loan debt, because you should never take out, you know, I feel like, like you're saying some people are so, so extreme about it that it's kind of off.

Yeah. That's a debt that's going to pay off for you. There's good and bad debt for sure. Okay. So up next we have my friend who's 38 years old, has a 2.8% 30 year fixed mortgage, roughly 24 years left and pays an extra $400 each month towards her principal.

If she continues to prepay $400 towards her principal, she has about 16 years remaining. Her house has enjoyed strong appreciation in the past six years, about 85% according to Zillow. I told her I would show, I told her that I would slow pay the mortgage due to the phenomenal rate plus significant appreciation and invest the $400 a month in the stock market.

What are your thoughts on this? I do think the rates matter in these things. Like my first interest rate I paid at my house, like 6.5% and we ended up refinancing a few times to the point where we kept making the same payment and it was like double by the end.

But then when we sold our house after 10 years, I realized like, wait, what was that money doing for me? It was illiquid. It was just sitting there. It wasn't that great. I think if you have that low of a payment and it's taxed advantage, I think you have to think about that in terms of like, how are the rest of your finances?

Are you on track with your retirement savings? Could you be using this money for something better than a 2.8% repayment on your house? Some people just don't like debt. So I mean, if that's how you are, you know, and if that's keeping you up at night, then pay it off.

But yeah, otherwise it's probably other things you could be doing with it. And that's just, you know, it takes a little bit more deeper dive into your, your full picture. It's a really, really low hurdle rate. Yeah. Cool. We didn't even get to the buzzer on that one. So let's let's keep trucking along.

Okay. So another Fed one. What happens when the Fed raises rates? Moreover, if the bond market has priced in several rate hikes, why raise rates 25 basis points per month? If 6.25 basis point hikes are priced in this year, what would happen if the Fed raised to 1% in March?

I don't really understand this one. I have to be honest. Okay. So they're basically saying the Fed has this target that they want interest rates to get to, but they're taking their time and it's going to take them a while to get there. And if they're going to get to 2% or 3% anyway, why not just rip the bandit off and do it now?

So they're taking a stair-step function where they're doing like little increments at a time. This is the hardest price, hardest part of investing is like what's priced into the market. No one really knows because there are no counterfactuals. And I think the idea is like, if they ripped the bandit off and did this, what would they be signaling?

Like things are worse than people think. Would there be like a meltdown, some counterintuitive reaction? Like maybe the bond market would be worse than the stock market in this case. I think it's mostly psychological because people can't handle big, huge changes right away and throwing the kitchen stick. I think people would just freak out because so much of it is psychological.

Yeah. I can't believe I'm doing this from my phone. It's surreal. 45 seconds left on the timer, Matt. You have anything to add? Let's just do the next one and then we can spend some time on the next question. Okay. So up next, I'm 44 and single with no kids.

I have a net worth of around $425,000. College educated and a financial controller at a commercial real estate firm in Chicago. I would have more if Twitter had performed better, though I didn't sell any or I haven't sold any. I own 5,550 shares at $29.83 cost basis. What do you think about where I am?

Okay. So this one was obviously sent to us before Elon Musk decided to hop in and buy 9% of Twitter and the shares shot up 30% this year. So now this guy's up like 65% on his shares. John, throw the chart up on Twitter. This is Twitter since the IPO.

Has not done great. So the S&P is up like 200% since Twitter went public. Twitter is up like 15%. That includes this week's run-up in prices from Elon Musk taking over. I think it's funny this guy included Twitter in his asking how he's doing. Because I think if your whole financial ecosystem is based around how one stock is doing and it has to make or break you, that's kind of tough.

The other thing is you have an amount of money. The idea of answering where am I, I think that's hard to do because you have to answer where do I want to be, how much do I want to spend, when do I want to retire, what are my goals.

So Matt, someone comes to you and says, here's how much money I have, here's my age, here's where I want to be. How do you help them understand whether you're on the right track or not? Yeah. I mean, every situation is different. So we really have to take a look at everything that's going on and kind of see like, all right, where do you want to be?

How do you envision the rest of your life playing out and what resources do you currently have to get there? And what capabilities do you have to continue to add to these goals and what's prioritized then? So I did a back of the envelope for this one. If this guy did nothing else at $425,000 or whatever he has, he earns 6% of his money, he retires at 65, he's got like $1.3 or $1.4 million.

If, since he's a listener on the show, he's maxing out his 401k, he's maxing out his Roth IRA, so that's $26,000 a year, call it. If he did that in addition to what he already has, he'd have like $2.3 million. So I think you take that and you say, I don't know what the market's actually going to do, but if I need more than that, I'm going to work longer, I'm going to save more.

If I need less than that, maybe I can save less now or retire a little earlier. So I think that's how you look at those goal posts along the way. I cheated. I just did that one when you finished. I think that was all our lightning round. We did pretty good.

I think we got through seven of them and we held two questions for Matt. We were going to bring Matt in now before I had my technical difficulties. Back to schedule programming. There's a storm here today, so yeah, my power went out. But let's do a couple more. We've got one floor that we've got for Matt here.

By the way, a lot of these questions I think are from younger viewers, which I think is great. So we wanted to bring Matt in, since he specializes in working with some younger investors. So let's ask the question here. Okay. So what are some good questions to ask when selecting a financial advisor, especially as a young person?

All right. Really great question, because I think this is one of the hardest things for people to understand. I don't know, because you go to the hospital and they give you a checker. You don't select them. A lot of things, you don't really know what you're looking for. So Matt, why don't you talk about when you're talking to prospective clients, what are the things they should be looking for and what are some of the red flags that maybe they shouldn't be asking questions about?

Yeah, definitely. It's a great question. I think anyone looking for an advisor, you have to be seeking out a long-term relationship. You want something that's going to last. You don't want to hop around a bunch, go from advisor to advisor. So you really want to take it seriously. You want to do your due diligence and you want to ask the right questions.

So there are wrong questions to ask as well. So right questions being obviously the obvious ones, are you a fiduciary? Are you going to serve my best interests at all times? If you're a younger investor, I think a key question is how do I fit into your firm's philosophy given where I am in life right now?

And how is that path going to evolve for me as a client of the firm? Yeah, you're right. As a young person, you could have certain things that are going on in your life and you have life events that change. So it's like, how can you help me along the way as I have these changes happen?

Right. So what are the services that I should be seeking out right now that you can provide to me? How will that change? And then what are the fees around those services? Do the fees change? Obviously, you don't want to be paying a ton of money for stuff you don't need.

So you want to be cognizant of that as well, I think. And then we can get into like investment philosophy. If you're someone who is a little bit more experienced when it comes to investing, you've done some on your own, right? Obviously, you want to make the relationship as easy as possible to be able to stick with it for a long time.

So you want to make sure philosophies align, I think. Yeah. I also think one of the most important things is like, what does the relationship look like going forward? Like, how are you going to work with me? How often are we going to talk and communicate? Because I know that can vary for our clients.

Some people want to have their hand held and talk all the time. Some people want check-ins, you know, irregularly. So it kind of depends, like, how are you going to work with me and how are you going to fit with my schedule and personality? Yeah. I think the key is expectations have to be aligned in the beginning.

So spend time with whoever you're talking to. Talk to more than one firm and really make sure that you're getting, you're setting out on the right foot in terms of what the expectations are for both the advisor and the client. And both should desire the same thing in terms of having a long-term relationship that's beneficial to most importantly the client.

Yeah. A lot of it comes down to, here's what I want out of you. Can you actually fulfill what I want? Or are you just telling me what I want to hear? I agree. Yeah, definitely. Do you ever get any, like, personal questions, like your favorite music or sports or stuff like that?

I mean, because it seems like people would naturally want to know that stuff if they're going to have a long-term relationship. Definitely. You know, that's the fun part is getting to know people and really getting to mesh with certain people and see like, hey, do we even get along?

You know, sometimes you don't get along with somebody. It has nothing to do with finance or numbers or financial plans and it's like, all right, you know, we just get along and I trust this person. I think trust is a huge thing. Obviously, it seems obvious, but you want to trust whoever you're seeking out as an advisor.

So a lot of times you want to work with someone that you like and respect. And yeah, trust I think is the big one for sure. Yeah. Yeah. I would need to ask favorite Beatles album. So I just put it in the chat. No, I'm just kidding. I mean, worst, Duncan, worst podcast question ever.

Beatles or Stones, right? Oh, because, well, because of the obviousness of it, you know, it's like, it's not even a contest. Yes. Yes. Okay. Let's do the next one. I probably just made a bunch of people mad. Okay. So last but not least, I'm in my thirties and can now afford to buy a house full cash without taking any debt.

However, with interest rates so low and they were at this one a while back, but should I take a, take a loan anyway and finance the house and invest my capital in the stock market? I think this is interesting that like rates could change the story going from a 3% mortgage rate to a 5% that hurdle changes.

So nine months ago, I would have said you'd be nuts to pay in full cash. Now, maybe it kind of makes sense. But first of all, kudos to this person for having that amount of money. I don't know where they live to be able to buy in cash, but that's great.

But so Matt, you're thinking through this type of decision with a client and this is the kind of thing where there really is no right or wrong answer, right? A lot of this is personality driven and depending on what the person wants to get out of it. So how do you help someone work through a big decision like this?

Because this is, this is a huge decision. We're talking about a huge lump sum of money, you know, six or seven figures here, potentially depending on how much home they're buying. Yeah. Like a lot of these questions, there are a lot of qualitative elements that need to be addressed, right?

As opposed to just where can I make the most money? You know, what should I, what should I do in that sense? It's really about, you know, what's the opportunity cost, right? What other goals do you have that this money you could be throwing into equity in your home could be used for, right?

Do you have kids? Do you want to help them get to college and go to college? You know, if they're young, you might want to front load a five to nine plan and use some of this money for that. So that's just one example, but there's a lot of things that, you know, play into this as opposed to just, Hey, I've saved up the money.

Should I just throw it all into my house? I also think, especially when you're young, uh, borrowing money makes more sense to me because especially with a house that offers more liquidity, flexibility, you can't really spend your house in a pinch. You could obviously borrow against it, but having some flexibility to do something with that cash and then still having that cash to, if, if, if you realize a few years down the road, like I made a mistake here, you can still pay it off eventually, right?

You still have that cash somewhere. So, so I think that that is the kind of thing where it's, it's hard to take that one back. If you buy the house in all cash, obviously maybe one of the things now is, well, if you're getting into a bidding war, having all cash could, could make more sense and help.

But I think especially when you're young, you'll, you lose some of that flexibility by just having it paid off. Definitely. I mean, the interest rate part of it is, is pretty big. I think, I mean, a couple of months ago, you know, it's, it's like you said, it's more obvious, but still, even with where we're at today, you want the flexibility.

You want to be able to fund other parts of your life. Having everything tied up in equity, you know, is, you know, it's, it could be restraining a little bit, but again, you've got these people, they just hate that. So, you know, if that's the type of client that I'm dealing with, you know, the conversation is going to lean that way and there's nothing wrong with that.

There's nothing, you know, we can, you know, we can, we can gear towards that type of conversation if it's required for the person that we're dealing with. Duncan, I'm not going to make a Coach K, Duke reference here, because I know it's a, it's a touchy subject right now.

I didn't, I didn't realize. It's rough. Yeah. Sorry. Tough weekend. It's been rough. A tough way for them to go out, but literally the worst team they could have lost to, you know, everyone knows that, I guess, but yeah. Yeah, that had, that had to be tough. It's rough.

Thanks to Matt for stepping in here. I've been in this office for six years, seven years now almost, and I've never lost power before. So yeah. Glad I could be the one on here today to experience the time, and thanks Matt for stepping in. We got to mention no Portfolio Rescue next week because Duncan and I will be in Miami recording a live edition of Animal Spirits that if we figured out, can hopefully go up on this channel at some point.

Keep those questions and comments coming. Remember, askthecompoundshow@gmail.com. Thanks guys. Thanks everyone for watching, and we'll be back in two weeks. One other thing. Don't forget we're also available as a podcast wherever you listen to podcasts. So make sure you've subscribed and give us a rating, all that kind of stuff.

It helps a lot. Yeah. Thanks everyone. We have a fancy new cover with Duncan and I on it. Our pictures. It looks amazing. Sure. Feel famous. All right. Thanks everyone for watching. See ya. See ya. See ya.