I think we're actually live. Welcome back to Ask the Compound, where we just did 10 minutes of a show for no one, because technology wasn't working. I think we're back now. All right. Yeah, I think it's working now. I think it's working now. All right. Welcome back, everyone. And welcome back, Duncan, from a trip to Germany.

Yeah, I'm having deja vu. I feel like we already did this. Yeah, it's like we already talked about it. All right. Yeah, thanks, everyone, for coming out. Good to be back. I already have been chatting about this now, but, yeah, got to drive on the Audubon. Had a lot of fun.

Drove a M-series BMW. Hit, like, 118 miles an hour. It was a lot of fun. Happy to be back on the show with Ben there. I was jealous last week seeing you on with Bill, so. Did you get to watch from Germany? Yeah. Yeah, I watched some of it.

Okay. All right. Welcome back, everyone. This week on The Compound is brought to you by Bird Dogs. John, go ahead and throw up our Bird Dog picture from Future Proof a few weeks ago. We're all wearing Bird Dogs here besides Nicole. You can see John and Duncan have kind of the plain color ones, which is just fine.

Michael has more of the camo look, and I have more loud ones. This is what I like about Bird Dogs is that they're not afraid to go a little crazy with the designs. And I like these ones. I got a lot of compliments on them. I wore them in this baiting suit.

Very comfortable. Bird Dogs are great. The funny thing is, I guess I can thank climate change, but it's been like 80s here through October and I've still been wearing my Bird Dog shorts. I thought I'd have to change over to ... I mean, before the world comes to an end, I think we're going to be able to enjoy some nice weather in Michigan.

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My wife asked the other day, "Why do you have so many of these?" And I said, "Because they're comfortable and I love them. Leave me alone." All right. Yeah. And they're our beloved sponsor. Yes. Okay. Thanks to everyone in the live chat for sticking around. You missed a live show with Duncan and I just for the two of us for 10 minutes.

Yeah. You had a really good answer to that first question too, so yeah, we'll do it again. I got a lot of practice. Let's run it back. We'll do it live. Okay. Let's do it live though, because it feels disingenuous to do it more than once because you feel like you're not giving it your all.

I could never be an actor and do multiple takes. I would have to be in only Clint Eastwood movies because he only does one take, right? Yeah. That's it. Yeah. He's famous for that. Yeah. I know. It feels weird. It feels weird. Also in the chat, the chat was going great.

Everyone's talking. I thought we were live. I had no idea. They were conversing like nothing was wrong. All right. Let's do it. All right. Here we go. First today, we have a question from Kevin that I feel extra good about reading now. Kevin writes, "I've always wanted to do my own Not to Brag, so here it goes.

I'm 33 and have $300,000 spread between a Roth IRA, Roth 401k, and a taxable account, all in VTI and VOO. I own my home and have $75,000 cash. I don't really understand bonds other than when rates go up, they go down in price and vice versa. TLT, the 20-year bond ETF, has crashed since rates started going up in 2022.

Assuming we're near the end of the rate increase cycle, even if rates stay higher for longer, why shouldn't I put $50,000 in TLT? If I hold it for a few years, it stands to reason that rates will be cut when inflation concerns are behind us or the Fed has to respond to a true recession.

How high can rates actually go from here?" And then they say, "This just doesn't seem that risky long-term." All right. Famous last words from Kevin here. Nice job on the Not to Brag. Let's look at the chart, John. Long-term bonds have crashed in a big way. This is TLT, the 20- to 30-year Treasury bond ETF.

It's down over 46%. This includes income, which hasn't been very much in the past few years, by the way. If you include inflation on here, we're talking about like a 60% crash, 60% plus in about three years, which is kind of crazy because the period from like 1950 to 1981, long-term bonds were down, I think, 70% on a real basis, inflation-adjusted basis.

That took 30 years. We've done what happened in 30 years in about three years. And if you look at this chart, I counted, I think, seven separate corrections of 10% or worse since the inception of this fund in the early 2000s, and interest rates were falling for most of that period.

So long-term bonds are no joke in terms of volatility. Obviously, the crash right now is another way of saying that yields have gone up. And so if we look at the characteristics of this fund, John put that on, this is the characteristics of TLT. I highlighted two variables here.

One is average yield maturity, which is now over 5%, which seemed unfathomable, I don't know, 24 months ago that you'd go from 1% to 5%, which is kind of crazy that you can lock that in. The other one is effective duration. So Kevin is right. If bond yields rise, prices fall.

If bond yields fall, prices rise. So what duration tells us is that relationship between interest rates and bond prices. So with an effective duration of 16.3 years, what this would tell us is basically for every 1% move in this bond, rates up or down, it's going to move 16%, 16.3% or so in price.

Not exactly precise, but pretty close. So rates fall 1%, you're up 16% plus whatever yield you're getting, which is pretty good, right? So rates fall 1%, we're talking about like a 20 some percent gain. Now, if rates were to rise 1%, you're down 16%, right? So I guess it is worth pointing out that the maturity for this is a long time.

That's part of the reason the duration moves so much. But here's what I say. This seems like a nice setup for bonds. Rates have come up a ton off of zero to five. If we go into recession or the Fed cuts rates or economic growth slows or inflation keeps coming down, you would expect rates to fall.

The timing is the thing that can bite you on this one, though. What if, I don't know, what if economic growth keeps coming in hot or people decide the world is burning and I'm selling treasuries because government debt is spilling out of control and rates go to seven before they drop back down to three, right?

Can you sit through a 35% drawdown in the meantime? You can just get smashed. And what happens when yields do drop? Do you sell out after they hit 4% or wait until they get three? What's your out on this? That's the difference between a trade and an investment, right?

TLT rates kind of stay where they are, they stay in a range, but TLT is very volatile in the meantime. So I just think, I understand the thinking behind the trade. I just don't think it's as easy as it sounds. So one of my favorite books, Winning the Loser's Game by Charlie Ellis, who is one of my favorite communicators in all of finance, he had this analogy that investors, there's a difference between pros and amateurs, and he used tennis as an example.

So there was a study done that showed most tennis players, right? They strike the ball down the line, they have this laser-like precision, and there's these long rallies, and finally someone hits it in, or there's an unforced error. But most of the time, professional tennis players don't make errors.

And in fact, he said that it's been estimated 80% of the time, they hit winners, the professionals. But amateur tennis players, they're double faulting it into the net, they're hitting it over, they're hitting it across the line, 80% of the time, when they lose a point, it's because of an unforced error, they hit out of bounds, or they made a mistake.

And that's the idea, is that minimizing mistakes is just as important as hitting winners in investing, especially for people who aren't professionals, aren't hedge fund managers. So the point is, how do you avoid beating yourself as an investor? Personally, I like to have rules in place to guide my actions.

I try to minimize mistakes by avoiding market timing, I don't like to make short-term bets on the market and try to predict what's going to happen in the short-term, and then I just don't like to have investments in my portfolio that don't fit my personality or investing style. And one of those is, I've never been a fan of owning long-term treasuries.

I've looked at the historical data. They had a wonderful run from 1980 to 2020, as rates were falling, and they were one of the better investments. You got almost the same return as you did in the stock market, with way less volatility. It's been a wonderful bond bull market.

And if we see double-digit yields again, like we had in the '80s, I'd be happy to take part in those again. I just don't think it's worth the volatility. I'd rather be paid for volatility, where it makes sense, and that's in the stock market, as opposed to the bond market, where I think, for me, that's keep it safe, have some income.

And you can also earn higher yields in intermediate-term bonds right now, and I'd have to try to nail the trade of directions of interest rates. So if we look at the historical returns for long-term bonds, the case becomes far less compelling. So this is annual returns going back to 1926.

So this includes the bond bull market. Even with the bond bull market from 1980 to 2020, annual returns for long-term government bonds are 5% per year. For 5-year treasuries, far less duration risk, far less volatility and drawdown risk. It's 4.8% annually. You get double the volatility in long-term bonds in basically the same returns.

So John, if we look at the next one that shows the drawdown profile, this is just since the mid-2000s, early 2000s, you get way bigger drawdowns in long-term treasuries than you get in these 3- to 7-year treasuries, which is essentially 5 years. So I just don't think it's worth it for that volatility risk for me.

Now, I'm not going to try to talk you out of a trade if you're going to go into it with eyes wide open. It's just, it's entirely possible long-term bonds are setting up for a great trade here. The Fed pushes too hard, we go into recession, whatever it is, but I think you really have to nail the timing for a trade like this to work.

I guess the good news is that you don't have to participate in every trade or invest in opportunities because it seems so juicy. What's the point of this money in the first place? I'm taking 50 grand and I'm going to put it out here just to make, what's your end game for the investment, I guess?

What's your time horizon and risk profile? Not just, is there a great opportunity? You could have a great investment opportunity, but if it doesn't fit your personality or your investment plan, I don't know, I think it's tempting fate to try to time something like this. It opens you up to more mistakes and unnecessary risks than you probably think.

I have a couple of follow-ups here. Kevin says, "How high can rates actually go?" What do you think? What's the answer to that? The TLDR to that? I mean, the thing is, if nominal growth is going to be 5% or 6%, 5% or 6% yields in 30-year bonds are not out of the ordinary.

It really depends on ... We had this period in the '80s and '90s where rates were much higher than inflation or growth. Obviously, the difference then is that they're coming down and now they're going up. It feels a lot worse. I don't know. I never say never in the markets.

I would have never expected yields to go from 1% to 5% so fast, but could the economy continue to be strong and the government spends a lot of money still and we get 6% nominal growth with 3% inflation? Then, I don't know, could rates stay at 5% or 6% for a while?

It's possible. I guess you never throw these things out, I guess. Do you think that people should stop calling bonds the safe part of your portfolio? People like me, non-finance pros, people have always said, "You ask 9 out of 10 people what's the point of bonds in a portfolio, they're going to say, 'Oh, that's the safe part of your portfolio.'" After this recent chaos in the bond market, does that really need to be restated or rethought?

It depends what kind of bonds we're talking about. I think that's what people have realized is that, "Oh, wait, yeah, long-term bonds are great when you have a rush to safety or a recession and yields are falling, but when yields rise, yeah, these are not safe because the duration is 30 years.

The maturity is 30 years. The duration is 16 years or whatever. That's a long time. So, short-term bonds, yeah, they're still pretty safe. I think anything less than one to two years is still pretty darn safe in terms of volatility and losing money, but for longer duration assets, yeah, there is a risk there of inflation and higher interest rates.

But no, certain types of bonds and cash, and I think that's the thing people have to realize that maybe you just have to be a little more conservative and not go so far out on the risk curve. Yeah. I think a lot of young people bought TLT back a couple years ago and were like, "Oh, that's my responsible money.

The rest of it I'm putting in all these risky stocks," and then they're like, "Wait, I got cut in half. It's a safe part of my portfolio." Yeah, when you see how volatile this stuff, and again, I was saying this before we had a huge crash that these bonds are too volatile for me, so we should mention that the doc this week for questions was bonds, bonds, bonds, yield, yield, yield.

People are really into this stuff right now and really curious about it, which makes sense because I think it's more exciting and interesting than the stock market right now. That's for sure. Okay. Speaking of which, here's another one. Yep. Up next, another bond question. I'm a married 30-year-old who is just a normal IT guy.

I max out my 401(k) and Roth 401(k), but I like to invest in things that reward me on the other side. I use betterment to do this. For example, I allocate money every week to hopefully buy a vacation home in five to seven years. I'm interested in your bond discussion from Animal Spirits as my whole life has been stocks, stocks, stocks to this point.

I'm not sure how to buy bonds or if I should. Could I buy bonds to achieve yield on my money for goals that have different timelines? I love the idea of regularly saving like this, like the whole idea of like not just I'm going to invest for 40 years down the line.

I think that's one of the reasons young people have a hard time saving for retirement in the first place. It's like I'm going to let future me worry about that, not present me, so I love the idea of saving for a goal like this for five to seven years.

I think from experience, I can say you're not going to regret saving for a purchase like this. The thing is, you have options galore when it comes to yield these days. We talked a lot about Series I savings bonds in the past. Throw those out the window now. Yields are like 4.3%.

You can do a lot better. I think a lot of people, too, who put their money into these Series I savings bonds are taking them out now and paying a yield penalty, so it probably wasn't even worth it to begin with, especially when you consider the website and stuff.

I made it 13 months with mine. Okay. So you paid a little penalty. You could also do T-bills, which are still paying 5.5% or so, or an online savings account like Marcus. Mine's 4.4%, which still feels low considering the yield environment. I'm waiting for a bump from them again.

However, this person has a defined time horizon of five to seven years. These short-term solutions come with a reinvestment risk. T-bills and online savings account rates could fall in the short end, and then you're stuck missing out on today's current high yields. You want to lock them in. You actually can lock in higher rates, which is like an asset liability match.

I want to invest for five years, so I checked bank rate today, and I'm seeing five years CDs for like 4.5%. So you can lock them in for five years, get 4.5%. Not a lot of liquidity in CDs. You can take them out early, and again, like iBonds, you'll have to pay a penalty.

But that's not a bad case. Five-year Treasuries, as of this morning when I checked, are yielding 4.7%. Seven-year Treasuries are about the same. You could get a three-year Treasury for like 4.9%. I think if you really wanted to lock in and match it up, the five-year probably makes the most sense.

You could buy these through a broker, or Treasury Direct is pretty simple. I've never personally purchased individual bonds, just because I think it's easier to buy ETFs. It's less work. You don't have to think about it as much. You could buy the three- to seven-year ETF we talked about in the last question.

It yields around 4.9% yield to maturity. Any total bond market index fund right now that tracks the aggregate is like 5.5% to 5.6% average yield to maturity. That's pretty good. The one problem here is that these are constant maturity funds. So a three- to seven-year Treasury ETF is going to stay three to seven years.

So as you approach your goal and get closer, your risk and duration is a little further out. So it's away from your desired goal. So I think the good news with a fund like this is rates can go higher, which you'd see that price decline, but then you'd also immediately reinvest into those higher rates as those bonds come off.

This is why some people prefer individual bonds. The thing is, there are now ETFs that you can buy that act like individual bonds. So iShares has an item called iBonds, which sounds like something Apple created. But you can actually pick the maturity of the bond line. They actually have a thing where you can set up a bond ladder.

So it matures every year, every 24 months, or every 36 months or whatever. And you can line it up with, I'm going to buy this vacation home five years from now, so I'm going to buy the bond that matures in five years, or seven years and it matures in seven.

And so you could do that, or you could build a ladder and buy them as you are saving on a weekly basis. You can slowly but surely build it up. So if you just search iBond ladders, it's a pretty cool little tool and website that they have. I don't really think you can go wrong in today's yield environment, whatever you choose.

But if you wanted to lock it in, that's probably the thing, so you don't have to worry about short-term rates falling if there is a recession or the Fed cuts or whatever. I just think you have to understand the tradeoffs with options like CDs and short-term bonds and T-bills and then longer-term bonds.

But you have options galore these days that you didn't have in the past. I didn't know about this. Yeah. That's interesting. I didn't realize they'd be able to do stuff like that in the mechanics of an ETF. Yeah, it's kind of cool. So I think they have one. I don't know if it's every six months or every 12 months, but you can sort of pick the end date and invest in it as you get close.

So there's one that's probably like, I don't know, 3.75 years or something right now, whatever. So it's a pretty cool option if you know the end date of your goal where you have to spend it. That's like matching your assets and your liabilities. Since we have bonds on the brain today, is it true that you should never own bonds in a taxable account?

No, because if you need to spend the money, then you don't want to put them in a tax-deferred account. So, I mean, you're paying income on those bonds, of course. Yeah, I guess you could think of munis as well if you want to have the taxes not take as big of a bite out, but the yield kind of is taken into account there.

But no, if you want to spend the money, then you don't have to put it in taxable. Right. Okay. Yeah. That's just another thing that I've heard people say before is like, oh, yeah, don't hold them in a taxable account. Another bond one. And this next one is one I think we've never gotten before.

So this is an interesting one. Yep. Okay. So this one is from Paul. You guys have talked about the statistical facts and the human factors of what to do with a lump sum if the ultimate goal is to get into the stock market. But what about bonds? I have about $30,000 to put towards a house and a car down payment that I won't use until spring or summer of 2026.

If I plan to use a few assorted bond ETFs, would I be better off putting it all in ASAP or dollar count cost averaging? All right. Let's bring our resident DCA expert in here. You hear dollar count cost averaging and lump sum and you immediately know. That's true. Nick Majulie, who writes our wonderful blog of dollars and data, the book Just Keep Buying.

Hey, Nick. I don't think you've even ever written about this. Have you, Nick? You think you've done a piece about diversified portfolios with lump sum or dollar cost averaging. Have you looked into bonds before? Yeah. I did this for like basically every asset class. I did it for Bitcoin, gold, bonds, and basically across the board, like going earlier generates a higher total return.

I mean, this has been true across every asset class. I mean, you assume-- I mean, for risk assets, at least, you assume they're going up over time. If that's the whole reason you're investing, why would you be putting money in something you expect to go down? It doesn't make sense.

So if you're expecting something to go up over time, the sooner you do it, on average, you tend to outperform. It's about 80% of the time, et cetera. Probably even more so with bonds, though, right? So I looked at this before, and the S&P over the last 100 years is up like 300 every four years on average.

I think I found for five-year treasuries, it's like 88% of all calendar years are positive, which makes sense, because bonds don't go down as much, because they don't go up as high as stocks. And you're just clipping the yield and income. So most of the time, bonds are up in a given year.

So it would make sense that you wouldn't want to overthink this, and you just want to put the money into that bond and start earning the income. Yeah. I think in this particular question-- let's say I was in this person's shoes. The only thing I'm actually slightly worried about, in just the smallest way, is we know the debt ceiling is good through, I think, January 2025.

And this guy's talking about, I'm just going to lock my money up till, whatever, spring 2026. In the event that the US actually defaults and there's madness, that's the only real risk I see of this strategy. Outside of that-- Do you want to make a call, Nick? No. I'm not making a call.

I'm just saying-- Well, can't we-- I'm only buying treasury bills-- --in the next 45 days. --through-- yeah. I'm only buying T-bills through next December. I mean, there aren't any that are for next December yet, because they're only one year. But once my T-bills roll over this December, I'm buying them through next December and then playing a wait-and-see game, because after that, I have no clue what's going to happen.

Well, the other thing is, in the last question, I talked about the options you have now for yield. If you're really worried about something like that, you could diversify your yield sources, right? I have some in an online savings account. I have some in T-bills. I have some in a bond ETF, or whatever it is, that is corporates or munis or something else.

So I think you can, if that's really a worry, that the money's not going to be there for a T-bill. And hopefully, if that ever really did happen, and I don't know, maybe-- I think we have bigger problems on our hands, honestly, if the US defaults. But it's-- And you'd-- Yeah.

I would put it in now. Here's the thing. Here's the worry about putting it in now. You're going to see rates go up more. Now your bond is-- you have a crappy bond. There's better bonds you can buy, so the price of your bond goes down. But that's OK, because you can sell that crappy bond and reinvest it at the higher rate.

So you're still going to get the same return. So if you have a bond that's paying 5%, you're going to get 5%, even if you sell early. But you just have to reinvest that money, right? So bonds are all mathematically, I would say, perfect in that way, that you're going to get-- Whatever you buy, you're going to get that return if you just wait through the end of it, right?

You don't want to wait for that. That's it. You're going to deal with that volatility in the interim. And especially with a shorter-term goal like this, I would think DCA would be your enemy as opposed to your friend. Because unless you invest in something that's really risky and it crashes in the short term, your goal is not that far.

So you shouldn't be taking that much risk anyway. Yeah. Yeah. You don't DCA bonds. I could see the arguments for stocks and risk assets, and we can get into that. But for bonds, no. There's no need for that. Yeah. OK. All right. Let's do another one. All right. Thank you.

I was looking at my personal balance sheet the other day and thinking about whether my personal leverage ratio, total debt to net worth, is at an appropriate level. To clarify, I'm not just referring to leverage in an investment portfolio, but overall leverage, mortgage debt, auto loans, student debt, margin loans, et cetera.

In the financial planning world, is this ratio something you look at with clients? And if so, would you consider a healthy range? For context, my leverage ratio is currently about 0.6 to 1, and my only debt is my mortgage. Is this too low? Do I have room to lever up a little more?

I've never actually thought about this before. Yeah. Same. So they asked about how it works in the financial planning context. I think in the financial planning world, you look at income to debt, maybe, in terms of how much you're spending out of your portfolio, how much money you're making, and it's like, how much do you bring in and then how much do you spend?

And your debt service ratio or your debt payments fall into that second category, and it's just does your income, is your income big enough to cover your debt payments? That's the only thing I'd be worried about, not what is your debt to your assets or net worth or whatever.

Yeah, I agree. This feels like a good time to say shout out to all my fellow student loan people making payments again. So. Yeah. I mean, the good news is you're paying that off and it'd be going down. But John, throw up the chart here that shows U.S. household debt service as a percentage of disposable income.

The average since, I don't know, the 80s is like 11 percent. It's much lower than that now. It's a little below 10 percent. So I don't know, Nick, have you ever looked into this? Like what what is a reasonable ratio? Yeah. So I haven't, but I agree with it's all about the income, right?

You're looking because what is debt that you have to make payments on, right? You make payments on your debt. And the question is, like, the risk you run into is not being able to make payments and defaulting and it hurts your credit score, all the nasty things that happen there.

Right. So the real issue is like, I don't care about your debt ratio. It's like you could have a debt ratio of 10 percent. But if you have really high interest rate debt, that could be worse. And you have a higher payment than someone who has 50 or 60 percent mortgage rate debt or debt, maybe say from a mortgage.

It's a really low rate. So you've got to it's the rate that matters and the size of the debt. It's kind of there's multiple variables here that are moving together. So I would say, like, I wouldn't focus on whether you should lever up more. It's like, think about how much risk you're taking now with like your debt payments relative to what your income is and look at that and what's the right ratio.

This is going to be different for every person. Are you single? Do you have low liabilities? Do you have a family, a large family of take care of a lot of other liabilities like all those things affect how much risk you want to take. So I'm generally not a fan of debt.

Of course, like I think there's like mortgage that's useful. I think education that can be very useful if you can get if you can get into a job that ends up benefiting you. But it's it's always case specific. You have to look at it individually. So I can't I will say generalize answer my my outlook on debt totally changed in the in the early 2020s.

I took it as much debt as it possibly could when rates were 3 percent or whatever. And I think I'm glad I did. But again, I had to think in terms of payments and there's this old budgetary rule that's like the 50 30 20 rule. And it's like 50 percent of income should go into necessities, which is basically housing, transportation, health care, that sort of stuff.

Other regular bills, 30 percent on wants and then 20 percent on savings or paying off debt or whatever. So I think what is it? 30 percent for housing is typically a pretty good rule of thumb. Like that's what you want to pay. And I think you can think of that in terms of debt, too.

I would look at it more in terms of your budget as opposed to your net worth, because you're right, the high the high cost of debt right now has to be taken into account way more than the actual amount of the debt. Exactly. I agree in New York, I think housing is more like 80 percent of the budget, you know, you don't need a car.

So you're fine. Yeah, that's that's how you make it make sense. All right. Last question. All right. Last but not least, we have a question from Stefan. I've heard you discuss dollar cost averaging DCA is how we're going to abbreviate it. The easy scenario to discuss is the 401k IDCA because I get paid and contribute monthly.

The more complex scenario deals with a self-directed IRA with an established balance where taxes and cost of transactions are not an issue. If we take the current bear market and compare two situations or portfolios, Portfolio A has two hundred thousand dollars fully invested. Portfolio B has two hundred thousand dollars with one hundred thousand invested and one hundred thousand in cash.

An advisor might tell Portfolio A to sit tight. You can't time the market. Safe advice. An advisor might tell Portfolio B to start DCA-ing that one hundred thousand dollars over the next six months or year because you can't time the dip. Safe advice again. Here is the rub. With one costless trade, Portfolio B could look exactly like Portfolio A, be fully invested and be told to sit out the market swoons.

With one costless trade, Portfolio A could go to 50% cash and look like Portfolio B and start to dollar cost average. I've never heard of someone selling half their portfolio just to start dollar cost averaging it back in. If that is the best financial advice, then why not go all cash and start dollar cost averaging back in?

I love this question because it feels like a logic puzzle and I'm pretty sure that it might be a syllogism. I remember that from college. It is kind of like a dorm room discussion if you ever talked about markets when you were in college, I guess. I think he's twisted his brain into a pretzel a little bit here overthinking this.

So the Charlie Munger rule number one of compounding is never interrupt it unnecessarily, right? And Nick, of course, your work has shown that dollar cost averaging works over the long term and is a pretty good strategy, but lump sum beats it. So the point is you don't want to take a portfolio that's fully invested and sell out of it to dollar cost average because the market might do A, B or C over the next few months.

The point is to keep that money in and let it compound no matter what happens. So I think he's overthinking it here. You don't do dollar cost averaging because it's a better strategy. You do it because you kind of have to or you have behavioral reasons for it. Yeah.

I think the other thing here too is, yeah, the other thing to think about with regards to this is like, okay, it's not a costless trade. I mean, it costs nothing because there's no transaction costs to move into like to go from 100% stock to 50/50 stock and cash.

But like with that same argument, why don't you just go 100% cash? Why don't you go and take out debt and lever? I mean, you could take this. I mean, I don't think it's a costless trade in that sense. You are making a pretty big statement about the future, right?

When you go from 100% stock to 50% stock, 50% cash, you're basically market timing. That's what you're doing, right? You're saying, hey, I think the market's going to go lower, right? That's the only way. DCA only outperforms or what I call averaging in. So slowly putting your money into the market only outperforms in cases when the market's dropping, right?

So if you had 100K in cash and 100K in stock, I would say on average, the right thing to do across history is you put that 100K cash in right now because on average, the market's going to go up and 80% of years, you'd be right, right, versus putting it in every month over the next year, right?

However, the only time where that's not right, where that would have been the wrong move is when the market goes down. So you're basically saying the market's going to keep crashing, and that's why I want to DCA in. But I'm saying, if you're going to do that, why even DC-- why not just wait until the bottom?

Because that's-- you're going to-- you already think the market's going to crash. Why not predict the bottom or something else, right? So it's-- you can see how the logic breaks down pretty quickly once you make a little bit of a sin. And then you start going beyond that. And you can start kind of getting into the space where you're now in all cash.

And then all of a sudden, the market rips back upward, and you're not involved at all. And so I've seen this happen. We saw this happen during COVID. Yeah. And so it's rough to see that. You get yourself in trouble. And this is like, if I invert like Munger, your whole idea about spending the portfolio, too, is you want to put the lump sum in if you can early, but then you want to spend it slowly, like a dollar-cost average.

So essentially what he's saying here is, you take a lump sum out of the portfolio. And that's the faulty reasoning here, is you're taking it out at one time and putting it back in slowly. The time that you take it out could be the wrong move, too. So I think, yes, you want to just-- if it's in there, you leave it in there, and you let the long-term of the market take care of it, and compound, and don't work against you, and overthinking it, and trying to dollar-cost average.

Most people do that, again, because they get the money, and they put in money out of their paychecks, or because they do it for behavioral reasons and don't-- but mathematically and logically, you'd want to put the money in right away if you can. Yeah. And if you're worried about it, then take a few months.

I mean, the difference between putting it all in now and putting it over three months is so miniscule, it doesn't really matter. It's like 2%. It's like, OK, $100,000, $2,000, who cares? But now it's less risk you're taking, so you can sleep at night. That's fine. But if you take a year, two years, five years, the longer you take to get invested, that's where you really start to see the pain.

It's the foregone money you would have had, right? So that's where I kind of recommend people, hey, if you're taking over a year, don't do that. If you want to take a few months, even six months, go ahead. It's not going to really make a difference in your life.

So-- That's true. Speaking on behalf of the dumb money, I would just say I've gotten myself into more trouble with dollar cost averaging over the years because I don't notice how much I'm down. It's like I'm putting in a set amount into a certain stock, an individual stock, right?

And I wake up one day, I'm down like 45% in a stock, whereas if I just put everything I wanted to put into that stock up front, I probably would have sold it when I was down 15%, 20%. Oh, because you're averaging down and your cost basis is going down?

Yeah, it doesn't feel as bad over time. So I think that's another argument that I could potentially make for lump sum, kind of maybe saving-- it would have saved me some losses. Well, you're talking individual stocks here. We're talking about the market. Right, right. You're talking about the market.

I'm talking about individual stocks. And Duncan, just a tip, Duncan. I recommend buying the stocks that go up. That usually helps. So-- See, I love a good sale, you know? So you average all the way down and then you sell it at the bottom. That's-- Right. That's your problem.

That's how you tax loss harvest, right? Yeah. All right. Just-- all right. Yeah, just buy a lotto ticket, Duncan. That's my book. Just keep tax loss harvesting. All right. Can only carry over for so long. All right. All right. Well, thanks for answering questions, as always. Thanks for waiting for us through the technical difficulties.

Nick, thank you, as always, for your help here. Duncan-- Thanks, Nick. Welcome back. Yeah, thanks for having me on. Appreciate it. Leave us a comment. Thanks for everyone in the live chat. Remember, leave us a comment on YouTube. We'll check some questions there, as always. Email us, askthecompoundshow@gmail.com. And we'll see you next time.

Thanks, everyone. Thanks, everyone.