The holidays start here at Ralph's with a variety of options to celebrate traditions old and new. Whether you're making a traditional roasted turkey or spicy turkey tacos, your go-to shrimp cocktail, or your first Cajun risotto, Ralph's has all the freshest ingredients to embrace your traditions. Ralph's fresh for everyone.

We've locked in low prices to help you save big storewide. Look for the locked in low prices tags and enjoy extra savings throughout the store. Ralph's fresh for everyone. Friday Q&A show today, four questions. Number one, my parents just bought an annuity. How do I figure out if they're getting screwed or not?

Number two, I've got $20,000 to invest. Where should I put it? Number three, here's how I hacked the child labor laws. And number four, is tax loss harvesting worth it or is it a bunch of sales copy? Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets.

This is episode 201 of the show. Thank you all so much for being here. I love doing these Q&A shows. If you'd like to get a question on a show like this and you'd like your question to have priority, make sure that you're a patron of the show. Details for that can be found at radicalpersonalfinance.com/patron.

Radicalpersonalfinance.com/patron and you'll get priority for shows like this. But even – I still have a few of these that aren't patron shows – patron questions. I just thought they were good questions. So we're going to kick this off with a question here that comes in from Brandon. Brandon says this, "Joshua, just wondering if you've done any podcasts about annuities or an episode on what to look for and questions to ask when picking a financial advisor.

My parents just moved to Florida last year and got wooed by an advisor that bought them dinner, gave them a free round of golf, etc., and now they're in an annuity. And I can't figure out how badly they're getting screwed, not because there's anything inherently wrong with annuities, but because the advisor is sadly not a fee-only advisor.

So I imagine he's taking a big cut of the action. I'm trying to convince him to find a good fee-only advisor to help them get set up for retirement, but I'm not sure about how to go about finding a good one. Thanks for the help, Brandon." Brandon, thanks for the most difficult question that I get every single time on this show, "How do I find a good financial advisor?" I'm going to set that kind of aside because I will talk about it more in the future.

We'll do some shows on how to find a good – good questions to ask a good advisor. My best answer to that is simply to educate people and trust that you'll know when you find one. That's the best answer I've got right now. But let's talk about the annuities question because I think this is a question that a lot of people find themselves – or a predicament that a lot of people find themselves in.

And it bugs me. The annuity sales business, especially here in Florida, is alive and well. And this one drives me nuts. There are radio shows after radio shows dedicated to this topic. Every Saturday morning or Sunday morning, you can turn on the local AM radio station. You can order around about 15 different people who advertise all over the place.

Get your guide to the way to participate in the upsides of the stock market without the downside potential. You order away and you get your DVD and then you get the phone call. It sounds like your parents got the postcard probably and they went for the free dinner type of approach.

I have – let's see. Do I have any friends who do this kind of seminar thing? I don't think I know anyone who does a seminar thing, but I know a lot of people do it here in Florida. I live in very much a retirement kind of corridor in Palm Beach County where there are a lot of retirees.

And at least once a week I get one of these solicitations in the mail. Previously when I was transitioning my business away from working with kind of everyday younger families type of clients to working exclusively with retirees, I was going through the thought process of how do I find and attract prospective retiree clients.

And I researched and thought about using that form of marketing myself. And like with anything, there are ways to do it well and there are ways to not do it well. It just depends on the scenario. I'm glad to read in your question at least the comment that you made about not that there's anything inherently wrong with annuities.

Most people have a big red flag anytime they have about annuities and probably this is rightly so. I have not done a standalone show on annuities. I have not been able to just simply get to it yet. At some point I will. But the challenge is that the word "annuity" as you say is a very vague term and it encompasses everything from the Social Security Administration which pays out their income to you in the form of an annuity.

To how you might receive a settlement in a lawsuit to a fairly old-fashioned straightforward investment product to some of the newfangled most incredibly complicated financial products that have ever been created in the history of the world. And it's a killer market. It's a tough market to work in because you got to look through and figure out what are you facing and what are you dealing with.

And with your parents, you say just moved to Florida last year. So that would tell me that they probably have just maybe perhaps retired from jobs and are setting up their retirement lifestyle. They're in a perfect scenario where purchasing annuities may be a really good plan for them, maybe a really good idea.

I personally in working with my parents who are probably of similar age, I recommend to them some of their money be in annuities. Assuming that the financial landscape looks kind of like it does today, which is a big assumption, but if I were kind of going that traditional financial planning model, I'd accumulated say a million or two million dollars and I'm turning 65 and I want to retire.

I would put a substantial portion of my net worth into annuity contracts to pay me out an income. And the reason for that is because annuities are peerless in their ability to deliver a consistent income in retirement. The entire purpose of an annuity is to take a lump sum of money and disperse it over a specific period of time.

That specific period of time can be a specific period measured in years, 10 years, 20 years, 30 years. It can also be over a lifetime, which is where annuities really shine. And with the sheer flexibility of annuities, especially of the ability to own what they call variable investments, so basically the ability to own mutual funds within an annuity and to pull guaranteed income off of those investments, annuities really do, in my opinion, a great job of solving some of the real challenges for how do we go from piling up money to how do we go to distributing the money.

They really do a great job. One of my favorite ways to pull a retirement income off of a portfolio is through the use of a variable annuity contract. And my preference is not for – and again, this is just a general recommendation. There would be exceptions to this that the facts and circumstances of a specific scenario would change.

But my preference personally, my bias is away from the equity indexed or fixed indexed products, which those are the products where your account is tied to an external metric, an external index, something like the S&P 500 index. And yet it is based upon the insurance component. It's guaranteed not to go down.

This is where any time you see an advertisement or hear the words "participate in the upside of the market without the downside risk" or anything like that, that is going in the direction of either an equity indexed or a fixed indexed annuity. And they probably have their place, but that's not my preference.

My preference is just a straight, systematic, simple variable annuity product, variable income plan. And to describe to you how simple it can work, here would be basically how it works. When you're accumulating assets within the context of an annuity contract, you are not – you're buying what are called accumulation units of an annuity.

This is the insurance lingo of how your actual check that you send in every month or in a lump sum works. It purchases a certain amount of accumulation units. Think of this primarily as an accounting metric. So instead of buying a certain number of shares of a mutual fund, you're actually purchasing accumulation units of an annuity.

Then there comes a point in time where – with an annuity. You don't have to, but there comes a point in time where you do what you call annuitize the contract where it means instead of putting money into the contract, you can put money into the contract in a lump sum.

So they call it an immediate. Well, that can be either an immediate or a deferred annuity, but basically you can put it in a lump sum or you can put it in with a series of payments over time. On a monthly basis, you contribute $300 a month to the annuity.

Then at some point in time, you annuitize the contract, which means you turn on the income feature. So instead of you putting money into the contract, then that money comes out to you. Simplistically, this can either happen immediately, in which case that's what happens when you buy what they call an immediate annuity.

You bring $100,000 to the insurance company. You say, "Here's $100,000 and pay me my income immediately." In that case, that's called an immediate annuity. Or you can do that on a deferred basis. "Here's my $100,000. I'm going to take the income at some point in the future, but I'm not sure when, maybe five years, maybe ten years, maybe 30 years from now." So you defer the income payments out until the future.

That doesn't matter other than to explain those terms for you for the sake of this conversation. At the time that you annuitize the contract, you start to make distributions from the contract into your checking account. That's called annuitizing the contract. The way annuities work is that when that happens, the insurance company converts your accumulation units into what are called annuity units.

It's a set number of units, an accounting metric similar to saying it's a set number of mutual fund shares. Then that's the number off of which your income is based, based upon the internal formulas of the contract. Once you own those annuity units, you will never own more annuity units and you will never own less annuity units.

If you've purchased and you own 100 annuity units, that number will never increase or decrease based upon the performance of your investment accounts. But the actual value of those units will increase or decrease based upon the performance of whatever investments you've selected within that contract. We're talking here about variable contracts that have investment companies, basically mutual fund shares.

A version of mutual fund shares is called subaccounts within them. Then your income payments, if the value of those investment units – those annuity units goes up, your income payments will rise. If the value of those annuity units goes down, then your income payments will go down. So this might mean that your initial payment would be say $1,000 a month.

But then in the next month, the market has increased or the value of your investments has increased. So then your next month's payment might be $1,056. Then the next month, it might be $1,063. But then the market might go down and so it might go down to $1,032 and then it might be $975 and then it might be $970.

It might go down dramatically depending on what happens with the underlying value of the investment that will drive the income payment. The beauty of this type of approach is it smooths out the payment stream and it allows the payment stream to grow steadily over time. Assuming that the underlying investments grow and it allows the payment stream to keep pace with inflation.

If you have a well-built portfolio – and here we would be going with a mainstream portfolio allocation following modern portfolio theory – with good diversification across asset classes, so we have a portfolio that's insulated from various risks that are likely to face it. If we have a well-built portfolio, these income payments can perform extremely well.

These are investment products. So in a sales scenario, you're not allowed to do what's called a forward-looking statement. You can't run an analysis showing what it would do. But you can do a backward-looking analysis and say, "Well, what would have happened?" And when I've gone back and back-tested these things, you go back to the '70s or the '80s or the '90s depending on the different mutual funds that you can use in the account.

The payments work really well because if you started it in, say, 1982 and all of a sudden you got to 2001, in 1982 your initial monthly payment may have been $1,000 a month. But in 2001, it may have been, say, $2,900 a month. And then in 2001, it dropped to, say, $2,200 a month, which is a substantial difference.

But when you compare that over the course of a 30-year retirement, they work really, really well. Now, some people are in disfavor of these annuities and they are not – they're this type of approach and it's not without its own problems. For example, it could be argued, well, there was a 30-year bull market and that's why those scenarios worked so well during that back-tested environment.

There are risks to everything. But annuities are a perfect solution to take a lump sum of money and turn it into an income. That is what they do best. And retirees are the best prospective customers for annuities. They really are. That's who the product is designed for. So that's just a little bit of background to I guess try to come at the constant bad press that it seems that annuities get these days, even including variable annuities.

The major benefit – because you can do that kind of fluctuating income based upon management of an investment portfolio. But the major benefit in what I just described that comes with variable annuities is that you guarantee that you will never outlive that income payment. You guarantee. Now, there are many other types of annuities that you can mix and match and each of them can have its own unique place and each of them can have its own unique value.

So I guess what I'm trying to emphasize is that when you describe a financial planning situation that says very simply, "I have a portfolio. I want to turn it into an income and I want that income to last for life," my brain first goes to some sort of annuity product as the best solution for that.

Well, what's the problem? Because you're concerned with are they getting screwed. With any financial investment, you have to understand the potential benefits versus the potential costs. And annuities have costs, especially if it's some sort of variable annuity product, meaning it has investments inside of it. Then you have two layers of costs.

You have the costs of the underlying investments. Traditionally, think of mutual fund expenses as measured as an expense ratio. Plus, you have the costs of the insurance, the actual underlying costs of the insurance contracts, everything from the annual policy fee, usually $30 to $60, something like that, which is the fee that the insurance company charges every year to send out the mailings and send you your inch-thick prospectus that you don't read and all that stuff.

So everything from that to the actual insurance costs because the way that these are levied is by a life insurance company and they split the cost sharing among all the clients and so there's a basic insurance charge. Within the context of an annuity contract, this is called a mortality and expense charge or a mortality and expense risk charge or just the M&E charge.

And this is how the insurance company is reimbursed for the guarantee of insurance. And the difference here is if you were to compare this to – you can still get it but just something like a fixed annuity payment. With a fixed annuity payment, you just simply give them a sum of money and they give you a guaranteed income that's level going forward.

I'd be surprised if your parents had bought one of these. With interest rates at their current lows, the fixed annuity market, it's tough to want to lock in a long-term contract at the current interest rates. So it's most likely that they have purchased some kind of variable product. On a variable product, there's going to be – that mortality and expense charge is actually how the insurance company accounts for the cost of the annuity.

If it were a fixed product, then they would just simply pull it out before the income payment and you're getting just a direct back and forth. But the variable charge, it will actually change depending on the value of the contract. So here is where it gets into the weeds and I'll tell you how to – what to do.

But this is the suspicion. The other suspicion that you raise, not only annuity which immediately your brain should say, "What about the cost? How expensive is it?" But insurance product which means commissions and that's where you're getting to the difference between a fee-only advisor versus a non-fee advisor. Fee-only advisor is one who does not accept commissions of any type including and especially insurance commissions.

And a fee-based advisor would be one who accepts fees and commissions and most people would be building their business on commissions. Now, is it practical to get an annuity from a fee-only advisor? Not so sure. Most fee-only advisors that I work with will generally not use annuities partly because they find it difficult to charge fees on annuities.

And there's a conflict of interest in every single type of investment compensation approach. You often kind of have to ask yourself the question and say, "Am I – is this fee-only advisor – are they going to recommend simply a mutual fund solution for me because they've done all the research and that's very much the best solution?

Or are they going to recommend a mutual fund solution for me because that allows them to keep the totality of my money in one account so that I can charge an asset center management fee?" That's the question. So – which is why many people will go and consult an hourly planner.

That's one of the ways that – or a flat fee planner. That's one of the ways hopefully of avoiding that conflict of interest in working in the retirement space. But then again, if you think about how difficult that is from the advisor space of how difficult it is to find clients.

And if you're just simply charging and you're doing a few hours of work for a few hundred bucks, that's a tough value proposition to make it pay off. So that's the difficulty of the business model of the advisor. Secondly, if you're just going to do it for a flat fee and let's say that you're going to come into my office or someone's office and, "Okay, send us a check for 7,500 bucks." Wait a second.

For what? Most people don't grasp that. And so many consumers actually prefer the commission model. So the annuities have a commission associated with them. There are annuities that don't have a commission associated with them. In the past, I worked as a fee-based advisor. So I could charge fees or I could charge commissions.

And I had access to annuities on which I could charge fees so that I could be in a fee-only relationship with that client. Not as a fee-only advisor but just in that client that everything was based upon fees. I didn't choose to do that because I didn't feel that was in the client's best interest.

It would have resulted in more compensation to me but I think the commission model on that was cheaper for the client. And the problem here is the commission rate on annuities changes dramatically from one company to another. There are many companies that have very low-cost annuity products and very low expenses, very low commission rates.

And other insurance companies try to compete by offering a higher commission rate. And to the best of my knowledge, there's not going to be any ability for you to have access to that information unless you can ask a broker. That will just simply tell you or unless you can ask the agent and they tell you.

So a little bit of background to say that the fact pattern that you described here in this short note doesn't necessarily say problem, problem, problem. But it doesn't necessarily inspire my comfort feelings to say, "Yes, this is fantastic." The thing that doesn't inspire a comfort level for me is because I believe all financial planning should be done on a comprehensive basis.

And so just kind of purchasing a one-off annuity here or another financial product there doesn't make me feel real good. It doesn't make me feel all that comfortable because I think, "Wait a second. Is this a comprehensive plan?" But the reality is not everybody wants comprehensive plans, and your parents may have just simply wanted an investment product.

And that's why they purchased the annuity. So what can you do about it? Well, the first thing that you're going to do is pull the prospectus. And depending on where your parents are in the sales cycle, that will illustrate to them the choices that they have. If they are still within the context of the process of purchasing the annuity contract and they actually haven't received the contract yet, then the contract can be voided.

It can be canceled. All insurance contracts in different states I think probably vary depending on the length. In Florida law I know unless it's changed, it changes from time to time, but it should be about two weeks. But any time up until two weeks after you've received the actual contract, the physical paper contract from the insurance agent, you have the right to cancel the contract under what's called the free look provision where for any reason at all or no reason you can cancel any insurance contract.

And you're entitled to a 100% return of your money from the insurance company. If this were an annuity, then that includes just a 100% return of the funds, and there's no expenses or charges associated with it. So if they're still in the sales cycle of the actual contract, then they can go ahead and cancel that if you're concerned about it or if you find out that it's not very good.

If it's after the sale, then you want to go a little bit more slowly. And you need to read this – pull the prospectus and you need to figure out what the expenses are. The prospectus will list in it the actual expenses of the contract. And it's not that tough.

If you go to the table of contents and just search for expense information and look for what the mortality and expense charge is, look for the policy fee, and then look for the investment accounts and look at – see what the portfolio has been invested in assuming that it's a variable contract.

And then look at what the underlying expense ratios of those investment accounts are. And then total those up and that will come out to be the actual expenses of the policy. Your parents were given a copy of the prospectus or they should have been given by state law a copy of the prospectus.

But if they weren't, if they have the contract, just take the title of the contract and put it into the duck. Do a duck.go search and you'll find the prospectus right there. A little trick to finding these types of things and you can use the Googler if you want to.

Put in the name of the contract and then do file type colon PDF and you'll pull it up right on their site. So if it's a MetLife annuity, you'll find it on the MetLife site. Or if it's a prudential annuity, etc., you'll be able to find it right on the site.

And that will give you the information that you need. So you'll be able to pull the prospectus and have the information there. There are some tools that different insurance agents might have at their disposal. So, for example, back when I was an insurance agent, I had a tool that was called an annuity expense analyzer.

And so I could put in any contract. I could go through the contract, figure out what the options were, and I could figure out what the actual expenses were on that contract and then compare it to different solutions. You might, if you have a friend or you know somebody in the financial services business, especially somebody with an insurance company, then reach out to them and ask them for help.

They probably have something like that. It's a competitive tool that's used among different insurance agents. Additionally, look carefully at the surrender charges. And depending on how your parents paid their commissions, there may or may not be surrender charges associated with the contract. In general, there will either be a front-loaded commission or a back-loaded commission.

If they chose to pay the front-loaded commission on the purchase of an annuity, then that means that let's say they invested $200,000. That commission will have been pulled out up front. So let's say the commission rate was 2.5%. Well, if they invested $200,000, that means that their net account value after the purchase of the contract would be $195,000.

Under that type of payment option for their commission payment, they call it a sales fee. If you were comparing it – the sales load, if you were comparing it to commission-based mutual funds, they can take the contract and close it out. And so if you were running an analysis and all of a sudden you figured out, "Wait a second.

They paid $5,000 of commissions and we've decided this is an expensive contract. We don't need the annuity. They made a mistake," well, you would just take it and you'll have the $195,000. Most contracts, especially to the shame of the insurance industry, most contracts are back-loaded contracts where there's a higher commission rate that's pulled out over time.

Some companies, very few, and this is one of my beefs, will convert their contracts from front-load to back-load once the commissions have been paid off. But many of them will just have this sustained higher expense charge associated with them. And in this case, there might be surrender charges. This is the real shame of the annuity industry is that many times these surrender charges are absolutely egregious.

They're high and they go on forever, and you'll find this information out in the prospectus. But if you want to get me mad, just start going through a prospectus and all of a sudden you find surrender charges that continue for 15 years, for 20 years. It's just – it's unconscionable in my opinion.

That is not appropriate. Now, thankfully, there are companies out there that are competing in the free market, and you should search them out. There are some good companies that have very reasonable commission rates and very reasonable surrender charges. I used to feel – I did. I still do. I always felt very confident with my annuity products that I had when I was with Northwestern Mutual.

They had some of the lowest – were in the top three lowest expenses in the industry. As memory, that could be inaccurate now at this point, but extremely low expenses. I thought the commissions were fair. They weren't extremely high. I would get paid less money than if I sold some other company's annuity products, but I felt really good about the quality of the contract for the clients, and I felt that the expenses were fair.

And there's more and more competition there. Vanguard has been competing there. I think Vanguard offers annuities now, and any time Vanguard brings their kind of billion-dollar cannon to bear on an industry, they're so big now at this point. The market has to respond. And so one of the things you want to look at is just figure out what those expenses are.

Now, let's say that you're in what I hate, the worst of the worst. Let's say that you are in a situation where you have a variable annuity contract with high underlying expenses. So you look and the mortality and expense charge is high. The expense charges for the policy are high.

You look at the investment accounts, and the investment accounts are high. And you look at it, and you find out that there are some expensive riders, and this is where the fees come in. Perhaps there's a guaranteed minimum income benefit. Perhaps there's a guaranteed minimum withdrawal benefit. Some of these types of riders, they can be 2% per year of expenses.

And I've reviewed variable annuity contracts that have been as high as, what was the record, 5.5% or something like that, utterly crazy. Now, the reason I always have to hedge the bets is because there have been a few times where the companies offered such dramatic benefits in exchange for the expenses.

And here's where we go into a brutally difficult area to explain of guaranteed minimum income benefits on certain annuities. The way they work, it's very difficult to get them. But when you start to get into them, sometimes what the annuity company has promised is crazy awesome. Some of you may have seen these advertised or some of you may own these products.

That's why I'm being very careful with what I say. There have been guaranteed minimum income benefits where the companies promised a 10% per year growth in the income. Well, wait a second. When you're saying that the growth of the income can grow 10% guaranteed, that can be pretty dramatic.

Now, most people don't understand how these actually work. Just to throw in the terms so you're aware of it without going into explaining it in detail, you have what you call a phantom account. And you have a phantom account and a real account. And the phantom account is kind of your income calculation and the real account is something else.

So sometimes you have to be very careful with these contracts if they're old and if they're mature to calculate them. The insurance companies grossly miscalculated some of these benefits. And in the past years, in the early 2000s and I would say early and mid-2000s, they were offering extremely high benefits.

And then in the late 2000s with the crash in 2008, 2010, some of the declines in the market and the anemic stock market through part of that period, they overpromised. And so some of the insurance companies are actually buying out old contracts. And if your insurance company sends you a letter and says, "Dear Joshua Sheets, we'd like to offer you a brand new contract for no cost," your radar should immediately go up and say, "Wait a second.

What's going on?" And you do some very careful calculations to figure out what do you own because some of those insurance contracts, they made a mistake in your favor. What does the Monopoly game say? The bank made a mistake in your favor. Collect $50. Well, in this case, the insurance company has made some mistakes in your favor.

You're going to collect a lot of money in the future if you hold on to this contract because it is a legal binding contract and they have to stand by it. But they're trying to mitigate the risk and pull the risk off their books. So this has happened, but that's not across the board.

And so some of the guaranteed minimum income benefits and guaranteed minimum withdrawal benefits are extremely overpriced compared to what the benefit is. And I've generally personally, at least the times that I was in it, I didn't see the point. I never sold a guaranteed minimum income benefit or a guaranteed minimum withdrawal benefit.

But it doesn't mean that there weren't products that could use them. But again, you have to analyze the individual situation. The reason I'm emphasizing this for you is let's say that you get into this situation. You say, "I've got a variable annuity with high expenses. I've got individual subaccounts with high expenses." And you get in and say, "And I've locked this in with high surrender charges." And you find out to get out of this contract, you're going to impose a very large surrender charge.

That would be bad news, in which case I would go and talk to the insurance agent and ask them and say, "Explain this to me." Now, you might have in there some benefits that you can drop. Sometimes if you'll drop these benefits, things like guaranteed minimum income benefits or guaranteed minimum withdrawal benefits, you drop the benefits off.

You drop the expenses down to a more reasonable level to where it's not going to beat an S&P 500 index fund, but you're not buying an index fund. You're buying an annuity which has other benefits that an index fund doesn't have. So that's how I would go through it and look through the options.

I know it's intimidating to sit and read the prospectus, but that's really what you got to do. And that's what your insurance agent has to do. Well, none of the insurance agents – none of us read the prospectuses. We just read about the things we need to know. Nobody reads the prospectuses.

But start there and all the information is there. So that would be where I would start. You'd be able to answer the questions. I hope that's a little bit of a useful answer to you not to overreact and freak out just because your parents bought an annuity. I'm not the benchmark for appropriate standards of rightness and wrongness, but I sold some decent annuities, nicely sized annuities, which is how I was paid based on commission to clients.

And I'm very proud of the planning solution because it was the best planning solution. I believe that the compensation that I received in the form of a commission rightly compensated me for my work. And it was a fair and ethical arrangement because the facts fit the solution. So just because it's not a fee-only advisor doesn't immediately say to me, "Well, we've got a problem." It may or may not be.

So talk to them. Read a little bit online. Take a look through the – pull the prospectus. Get the name of the annuity product from them. Put in the name of the company and the name. Take the prospectus and read it and then have a discussion with them about what they're doing, if they'll open up to you.

Maybe even you'll be able to have a discussion with the advisor. If you get a shady feeling from the advisor, you'd have to have direct authorization from your parents to talk to them. But if you talk to the advisor, that should give you either a good feeling or a shady feeling.

Most advisors that I know really care and they're doing a good job for their clients. And the bringing them in with a round of golf and the free drinks and all that, that's just a marketing method. It's no different than Coca-Cola putting commercials on your TV or Betterment putting commercials on every personal finance blog.

That's no different. That's just the advertising mechanism. Can it be abused? Sure. Everything can be abused. But if you talk to them, I think you'll get a good feeling of either is this advisor really caring about the situation? And they're helping the client in this careful planning perspective? Or do I get a bad feeling?

And if you get a bad feeling, be careful. There's a lot of shysters down here in Florida working with clients in the retirement planning space. Let me know what you find out. Next question comes in from Singapore. And the question says, "Hey, Joshua. Can't thank you enough for starting Radical Personal Finance.

I've been a fan since you did the interview with Jacob Lund Fisker. I've learned a lot from you and others in the personal finance community. I'm unable to quantify that with an exact figure yet, but I know it's going to compound to a huge amount, maybe millions over my lifetime.

I just signed up via Patreon to support your show. Thank you. It's a small amount, but one important thing I've learned on my personal finance journey is learning to pay for value rather than simply focusing on cost. Thank you." I agree. And I think every audience member should sign up for Patreon, and I'll be able to deliver even more value, 10 and 20 and 100 times in excess of the cost.

I have a question which relates to the investment part of building wealth. How should I invest an idle $20,000 U.S. that's sitting around in my savings account for maximum returns? I feel that I'm sufficiently exposed to the stock market at this stage and diversified enough within and outside the publicly traded securities realm.

I don't want to pour money into publicly traded stocks as due to mean reversion, future returns tend to be lower and markets are at highs. Please feel free to suggest the most radical ideas you have. That's why I love the show. Some background on myself. I'm 28 years old living in Singapore.

My marginal tax rate is 7%, but we are forced to contribute 20% to our own tax-free housing, medical, and retirement accounts. My annual take-home salary post-taxes and retirement contributions, et cetera, is about $50,000 U.S. I've invested $60,000 U.S. in semi-diversified stocks, ETFs, and REITs. I have $20,000 U.S. in alternative non-publicly traded investments.

I have a six-month emergency fund. I have a 30-year level term life insurance policy for $400,000 U.S. and my time horizon is greater than 20 years. I consider myself an aggressive investor willing to take large risks on small sums of money for the potential return if the mathematics are in my favor.

For example, no lotteries but yes to emerging market stocks. I know it's hard to provide investment suggestions without knowing the nuances of each individual situation. Right off the bat, I know that I should be focusing on increasing my salary and earning potential and starting a side business. But should I be getting more insurance coverage?

Should I be maxing out retirement accounts when my marginal tax rate is only 7%? Is there anything else I'm missing? As a goal-oriented person, and my goal is to reach financial independence fast, I can't stand the fact that my money is idling in my savings account earning a negative real rate of return.

Keep doing great work. Thanks for taking the time to read this. So what a fun question. It's a super fun question. And I love the fact that I've got a Singapore listener. I'm not the least bit familiar with the Singapore laws and rules other than what you've written here.

But it's cool to have a listener. My parents are actually in Singapore right now. And I've always been interested in the Singapore story, just how this tiny little city-state basically has emerged into a global power. I have a biography of – what's the guy's name? Lee Kuan Yew, I think, is the – I guess in some ways – I don't want to be insulting or a compliment.

I don't know much but kind of the father of Singapore. And I have a biography somewhere on my shelf that I haven't read yet. And I'd like to read it. But I'm fascinated by how the laws work. I especially grew fascinated with how you guys over there handle just such high legal civil penalties for tiny infractions.

I mean I don't remember the actual numbers but the penalty for chewing gum and spitting it on the street is massive. And so that makes the freedom-loving US-American side of me say, "How on earth could this little nation-state do this? Why would anybody live there?" But you look at how prosperous Singapore is, and that's why I'm interested to read that guy's biography.

Because in some ways, I'm convinced the best form of government is a benevolent dictatorship. The problem is how do you find a benevolent dictator? So anyway, I'm interested in Singapore. So it's kind of fun to hear that I have a listener there. And one of these days, I'll get there and maybe we can meet up.

So let's talk about your investment question. First of all, you're doing an awesome job and it seems that you have done a good job thinking about your portfolio, especially thinking about it and applying it to your life. A couple of boxes that you're ticking here. I've got $60,000 in semi-diversified stocks, ETFs, and REITs.

I've got $20,000 in alternative non-publicly traded investments. I've got a six-month emergency fund, term life insurance, and I'm trying to figure out what to do. So what should be the approach here? The best I can do here is probably give you a little bit of a framework of how I think about this with regard to rates of return of investing.

I think of it almost as a continuum from active investing to passive investing. And your return or your potential returns will go from highest to lowest. I'm not necessarily talking about actively traded mutual funds versus passively traded mutual funds, although I think that's the best example that's intuitive of this continuum that I see.

But I'm thinking about this in a broader, more general sense, that the more work you do, the higher should be your returns. And the less work you do, the lower the returns. So think about this. The highest rate of return is often in creating your own income through a job, but that's also the highest amount of work.

But if you compare the financial capital required for that, which is zero, and the work required for that, which is 100%, your rate of return on your financial capital is massive. I guess you could say just for the sake of my metaphor, it'll break down here, but it's a good thought.

I think it's worthy of consideration. Your financial capital is the cost it takes you for you probably to get on the subway and actually get to work. That's what it costs you to gain income from your employment. So we've got high returns and a ton of work all the way over on the other end to just simply taking your money, doing no work, and just plunking it into some sort of investment vehicle, your savings account.

No work at all. You just put the money there, and you're just going to get a low return, however. So you're already focused on – and I'm thankful for that – you're already focused on the idea of how do I increase my income? And I would guess that if you're making $65,000 gross-ish before taxes and retirement contributions, there's a lot of room to grow there.

And that should probably be a primary focus. Now, can you actually invest $20,000 effectively into that? I don't know. It would depend on your field. If you were in something like – Singapore is a finance capital of Asia in many ways. So if you were in finance and you needed to fund, say, a CFA designation, a chartered financial analyst designation, that would take you from a lower-level financial analyst or kind of office job to an upper-level financial analyst where you have the potential for hundreds of thousands of dollars of income.

That might be an effective use of the $20,000. So look for some kind of opportunity in your field for that. That just comes to me because I think of Singapore as a financial hub of Asia. But it's hard to invest $20,000 effectively into your income. But that really is going to be a huge rate of return.

And I think your goal should be to get into the top – probably the top 4% of your field, whatever that is. Get into the top 20% and then get into the top 20% of the top 20%, which is the top 4%. Then if you want to try to go to the top, fine, but I think the rates of – there's a law of diminishing returns as time goes on.

So that's all the way over on the most active side of your investment continuum. Highest rate of return but lowest – excuse me, most work. What about the next stage over? Well, maybe this would be something like investing in your own business. You already said I know I need to have a side business.

Well, a business is going to be a massive amount of work, but it's going to also have a potential high rate of return. It's very shaky and very uncertain, but is there some capital that you could employ into that type of business? I don't know what that is. We'll get there in a second, but that's going to be determined based upon your interests.

But moving on across a continuum, maybe the next tick over is to invest in some existing business that somebody else has already started and grown. So I think here of – let's see, Mitt Romney in the United States politics made Bain Capital famous. We go in. We buy companies that are struggling.

We swap them around. We build their value. So that might be a little bit less risky than starting a new business from scratch, and you need more capital. So maybe it's a little bit less work. I don't have any idea, but in my mind, it makes the metaphor continue to work.

The next tick over might be a very active investment into something like a real estate development. Here you're kind of merging business and investment, and real estate development is very much a business in which your product is just physical real estate. But you're taking advantage of changes in the market, changes in the investment market.

Maybe the next tick over would be small-scale real estate and ownership and management. This is why it's so appealing, at least in the United States, things like owning rental houses because it's not a pure investment, but it's not a pure business. It's got benefits of both. The next tick over might be some sort of, say, active trading strategy.

Maybe you are very active with trading stocks and you're very skilled with your portfolio management, or maybe this would be actively managed mutual funds or bond trading, something where it's active and you're putting more work into it with the hope of gaining excess returns. Then all the way over to – at the simplest side, you could just simply buy some sort of index fund.

It's super easy to do. There's no work required. The costs are low, and you'll just get the average returns based upon the fundamental growth of the market. That's the major returns there. Least amount of work, probably the lowest amount of investment. Now, you could apply this continuum to different things.

So you could have other opportunities. You could buy gold and silver coins or you could put money in the bank or you could buy insurance contracts. But within all those markets, I think there's a continuum. In my mind, you can use this in any market. Let's say gold. One end of the gold coin market, you could work and you could create collections of coins with a high numismatic value.

You're looking around and you're trying to find the rare and valued coins to create collections that will be valuable to the investors and the coin collectors. Well, this is a lot of work. You've got to go to coin shows. You've got to go to online marketplaces and look for the coins.

But if you can put together a collection, then you can benefit from not only the potential changes in the strike price of gold or the spot price of gold. You can also potentially benefit from the numismatic value, the value to collectors. By doing the hard work of going out and finding these individual pieces and then buying them at a discount relative to your collection and then putting them together in a collection, selling the collection to somebody that has more money and wants the collection, you're putting a lot of work in.

But you're going to get a higher rate of return than if you're just buying a standard bullion coin and sticking it in a vault somewhere. Or maybe another way to actively work in the gold market would be to actively invest and swing trade the price of gold with ETFs.

Now, those are active strategies, but they're a lot of work. And on the other end, you could just go and buy some gold American eagles or some maple leaves or some Krugerrands or whatever and just stick them in your safe or a vault somewhere. Now, if you wanted to – same thing – let's say – talk about insurance contracts.

I think most people don't think about this with regard to insurance contracts. At the passive end of the insurance market, you could just simply go out and get a life insurance contract. And that could be a life insurance contract on your life or if you're running a portfolio, maybe you could just simply buy a guaranteed investment contract from an insurance contract – excuse me, an insurance company, a GIC, a guaranteed investment contract.

That's very passive. You're just simply getting the stated value. But at the other end of the market, you can do more work and you can move into active investing and potentially increase your returns by purchasing life insurance contracts from other people. Maybe finding structured settlement contracts and buying them out or investing in viaticals or working in some of those not so popular, not so well-known areas of the insurance market where there's more work involved but potentially some rates of return.

Now, the reason why I think this is a useful metaphor is because in my mind, the market has to pay you that higher premium in order to make it worth the work. Let's say that you could earn 5% with option A that doesn't require any work or you could earn 5% with option B that requires a lot of work.

I'd go with option A that doesn't require work any time. So these more active strategies, for you to pursue them, you're only going to pursue them if there's a potential for payoff and return. I'm sure there are markets where this doesn't apply, but for me, it's a meaningful perspective that I find to be useful.

And so your problem is to figure out at every stage of your life, where can I most invest this money to gain the highest reward? And you're going to be somewhere on that continuum as far as how much work you're willing to do. Now, you mentioned your primary goal is to be financially independent as quickly as possible.

So now we have a goal, and so the next question is, well, what does that look like? What does financial independence look like to you? What would you do if you were financially independent? What does financial independence mean? And here are some different ways that I would apply this because the goal is to use the $20,000 to fund the next goal.

That's the purpose of the money. The only reason we're saving the money is so that we can allocate it into the next goal that we have set for ourselves, whatever that goal is. For some people, that's I want to buy a car, $28,000. Well, probably in Singapore, it will get you a fifth of a car, maybe even a little bit of the car license.

I don't know what the annual licenses are, but I assume in a small – in most city states that I've traveled to, you're going to pay a lot of money just for the privilege of operating a vehicle. So maybe that's the next goal. That's what you would spend it on.

But for you, it's not. It's financial independence. But just because it's financial independence, obviously – you're writing me the question – doesn't make the solution simple. But if you can identify what financial independence would look like, I think you can get closer to it. Let's say you'd stay in Singapore.

This is the first question. Would I stay in Singapore or would I move somewhere else? If you'd stay in Singapore, then what would you do with your days? Is there a way that you could just simply do it now and get paid for it? For me, a backup plan of mine was something like being a college professor.

I got a – one of the main reasons I got a master's degree is so I would have a backup plan. I could go get a job teaching at any university and I could find a university in a little college town somewhere in a pretty place to live, live in a little apartment near the university and ride my bike to the college.

To me, it's a pretty easy life. So if you add something like that or any version of that, is there a call for the money there? Do you need a master's degree and that's what you're going to pay for because that's what you would do? Would you change jobs?

If so, go ahead and spend the money on figuring out how to change jobs now. But let's say that you're happy with your current job and your career and your lifestyle and you want to be financially independent and you want to stay in Singapore. Well, in that situation, then why bother with the fuss of all the work of active investing?

Just slide the money over and put a little bit more money in the stock funds, put another ten grand in the publicly traded stocks, put 5,000 in your alternative investments and keep five grand in cash. I don't know. Or spend five. I don't know. The point is investment takes work.

So you should put it in the direction where you're happy with that risk return tradeoff. Many people are content with their jobs. They're content with their businesses. And if you're content with your job and with your business, then putting the money into the retirement account because it's simple, it's low stress, building a diversified portfolio, doing a little bit of risk management and then just focusing on living your life is a fine option.

So if you're happy with your job and your career and your lifestyle while you're working your way to financial independence or maybe you have a job that is – requires – is very demanding for you. For example, let's say that you were a financial analyst. That's a very demanding job.

You're not going to have a lot of time to be trying to spend all your time evaluating business deals of little flats that you're flipping. It's just not going to work. You're going to be focused on your job. So in that case then, better off, focus your effort and your attention on your job, invest in the – in the – your version of the 401(k).

Now, let's say that you want to leave Singapore after financial independence. Well, the next question, what would you do? Because if that were the case, then you could probably intelligently invest your money into doing it now. You just need a game plan. Do you want to travel? The best example here, I'd like to get him on the show someday, but there's a guy named – his website is fluent in three months.

He calls himself Benny the Irish Polyglot. He built a website that allowed him to travel for the last 13 years or 14 years, something like that. He didn't have any money when he started, but he just worked his way around and traveled. So maybe you need to put the $20,000 into that.

Now, I'd be surprised if you wanted to travel forever. Most people don't. So maybe in your financial independence plan, you should try it for a year or two and take a short sabbatical or maybe a longer sabbatical. Take a few years off from your work and go travel and use it as an opportunity to say, "What part of the world would I want to live in?" Because most people aren't just going to live this perpetual indulgence, perpetual leisure lifestyle.

You might find that the reason that you want to be financially independent is because you don't love the fast-paced, hurry, hurry, hurry Singapore lifestyle. But you get on a plane and open up a beachfront scuba shop in Cambodia or maybe you go over and you employ your business skills and developing beachfront condos in Cambodia and you get the ability to live a slightly more relaxed lifestyle but also to engage in something you feel is satisfying.

The ability to say, "There was nothing here and now I've created something. I built a building." Then maybe that's the best. Or would you write and publish novels? Is that something that's important to you? Well, in that case, why wait? Work your day job, toss the money into a stock and just a mainstream mutual fund so you don't have to think about it, and focus on writing and publishing the novels.

Or take some of it however much you need to build your tribe that is surrounding your area of focus for novels. Next week I'll have an interview with an author named Matthew Bracken, and we talk a little bit about independent publishing. But I think you'll really enjoy it because he found his tribe, and today he's able just simply to write for the people that love his novels.

I'm a satisfied reader of his novels. So the key that I'm emphasizing here is you have obviously listened to the show enough to understand how I'm going to answer the question. But even in your question, you gave me all the financial data, but you didn't give me the lifestyle data.

And all finances are intended to fund lifestyle. What happens is in the financial advice industry we get so focused on the financial data we forget about the lifestyle data. What are the goals? And I'm not criticizing you. I'm just saying start there because if you know those goals, it will quickly become apparent I think what you should do with the money.

Are you willing to pay the cost to accumulate all of the money for financial independence and be entirely passive? That's a legitimate route. That's what many of the popular financial independent pundits have done. And the reason they were willing to pay the cost is because they were able to get it done in short enough time where it was worth it.

Think of – well, some of the people I've interviewed on the show. Think of Brandon the mad scientist who I interviewed on the show. Why was he willing to pay the cost for financial independence doing it the way that he did it with aggressive savings, extensive use of tax-advantaged accounts?

The reason is because he was earning his income in a job that was not entirely dissatisfactory to him. He didn't hate it. And he was able to see the light at the end of the tunnel and do it in a fairly short period of time. The reason I say those two things is, number one, from the time – if you go and read his site, it's a great site.

But I'm pointing out what's unique about his situation with this idea of financial independence. The reason why it worked is because it wasn't that long of a period of time. He didn't labor at it for 40 years and then be able to look forward to a 10-year retirement. Rather, he labored for 10 years and was looking forward to a 60-year retirement.

And he had a job and a business that he likes. And my evidence for that is he continued doing it after he was – declared himself financially independent. Maybe he's changed by now. I haven't looked at his site in a little while. But he continued doing it. That's very different than if you're working at a job that you hate, making not very much money, spending most of your money, and you're not able to continue on.

You're not willing to continue on. I am – I'm sweeping the streets and I don't enjoy being a sweet street sweeper, and I'm only making just enough money to pay my bills. Well, in that case, continuing that on for 10 years is intolerable because you know, A, at the end of 10 years, there's no light at the end of the tunnel as far as my ability to have a lot of money.

And I don't – I'm not going to like the next 10 years. So we jump off of the plan of this idea that's taught about financial independence, extreme savings, and we get on to the find a better career plan. But you have a high-paying job that you're good at and you really like.

You have massive income potential and you're able to live at a relatively low cost, 10 years or less. In that case, the simplest, best plan, just focus on your existing career for a while. Don't focus too much on using non – all of the investment approaches that are going to require a lot of activity and focus and just build your career for 10 years.

Do like Jeremy with Go Curry Cracker did. We work at Microsoft, he and his wife both. We don't spend much money. Do what Pete, Mr. Money Mustache did. I work at a job. I save my money and I have a nice job. I have a nice lifestyle, and I just do it the easy way with passive investing.

Nothing wrong with that. But the key is how do those things fit into your lifestyle goals? It's your choice. If you're focused on your career, you're not going to have time to be developing beachfront condos in Cambodia or writing e-books and selling them online or scouring the back alley shops of Singapore for Spanish doubloons from 1652 to build coin collections to sell online.

It's not going to work. That's the market that Publica Trader Mutual Fund serves. But if you're working at a job that isn't a good fit for you and you don't want to do it for another 30 or 40 years, then in that case, you might start to invest your money in a more active way.

If that's the scenario, don't be scared to wait and see. You should simply keep your money liquid and wait until you find the idea or venture that fits you. Don't be scared to sit on cash and wait as long as you're being focused about it. You mentioned regression to the mean.

You mentioned that you're concerned about high markets and basically what you're predicting is they're going to come down in the relatively near future. Who knows? You could be right. I think you probably are. But if you believe that, then just sit on cash and wait for the markets to dump.

Now, you might miss it or you might not. But remember, at least in the US, a lot of fortunes in the US were built in the Great Depression. So just focus on learning to value assets. Figure out what the numbers are that are going to inspire you to get in and just sit on your cash.

There's a difference between sitting on cash out of a paralyzing fear and uncertainty and unwillingness to do something versus sitting on cash while you wait for the right investment opportunity. I fear that the financial advice industry has muddled these things. We often say invest now, invest now because we as financial advisors need the account.

We don't get paid until the account is opened. But I think invest now is sometimes the right advice and sometimes the wrong advice. It depends. And one of the things that I have noticed as I've read biographies of wealthy people and accomplished people, I've noticed that at times in their life having money makes a big difference.

Most of them were broke starting off and so it was access to money, other people's money. A loan from my dad or a rich uncle or aunt or something like that or a loan from a bank that made the difference. They hocked everything they had and they went out and they borrowed the money and they bought the land and they drilled the oil well.

Those things work. I mean maybe. If there's oil, it works. Otherwise, you go bankrupt. My point is that sometimes they didn't have the money. Sometimes it's access to money. But even as business people continue to develop their business pursuits, they still need money. So if you're investing as a stock investor and you're looking at a company that doesn't have any funds, you're saying, "Wait a second.

Don't you guys have a way to deploy this?" So apply that to your own situation. If you're a watchful investor just waiting for the right opportunity, don't freak out about sitting there in money just sitting there not being put to use. It is being put to use. It's dry powder.

But on the flip side, if you're a fearful investor, then that's where you need that save and invest now advice. I remember a situation that I worked in with a prospective client. And this prospective clients, they actually were clients of mine. They had insurance products that they needed to help them with some life insurance planning and some long-term care insurance planning.

But they basically had like $1.3 million sitting at CDs. And these were middle-aged clients in their 40s. They didn't have any strong outlook as far as a reason they were sitting in CDs. They didn't have a moral objection to investing in stocks. They didn't have any real use for the money.

They were just kind of fearful and paralyzed with fear as far as what to do. And I started to work with them, and I presented some different solutions. We talked through some different things, and they wanted stocks, but they didn't want to pay fees. They didn't want to pay any fees.

They didn't want to pay commissions. I told them, "Well, go to Vanguard. Here's what you do." But they still did nothing. And I pressed and pressed and pressed on the button of you've got to invest the money because they needed to invest the money. To the best of my knowledge, the money is still sitting there uninvested years later because of fear.

Now, if the market turns, they'll feel like geniuses. But the problem is they still have to at some point come up with a plan to invest. And those types of investors need that invest now advice. Don't just keep the money on the sidelines. That was one of my failures.

I racked my brains to figure out what is the right solution for this client. Whether it was something with me or not, I never could figure it out. They just didn't know what – they were just nervous. The money had been an inheritance. They didn't know what to do.

But you don't sound like the fearful investor. Be the watchful investor and keep your powder dry. I'm going to quit there for today, so that means you'll have to look forward to hacking the child labor laws and then talking about tax-loss harvesting on the next Q&A show. I hope these answers are useful.

I know I took some time with them, but I believe these concepts are worth the time. These are some of the framework concepts that I think have real value. So I hope that you agree. Thank you all so much for listening. There's going to be a few changes in the month of June.

Details soon on that. Still working through those changes, but details on that soon. In the meantime, if you have benefited from this, if this content has been helpful to you, please come to RadicalPersonalFinance.com/patron and you can become a supporting patron of the show. That just means that basically you say, "Joshua, I found some value in the content that you're creating, and I'm going to send you a little bit of money to say thank you." That money allows me to expand the show offerings.

It allows me to figure out how to create bigger, better shows. I've had many requests for annuities, but those financial planning shows are extremely time-consuming to do well and to figure out how do I convert textbooks into podcasts and not beat every detail to death, but also not short-circuit it.

So your financial contributions sustain the show, and I thank you for them. Your financial payment sustains the show. That's how I view it, is just simply me doing my best to practice what I preach in terms of the value proposition. I don't think it's a good plan to go into your boss and demand on the very first day before you start working, demand your paycheck up front.

Generally, unless you have a reputation, perhaps of getting a book deal of some kind, but generally I think it's a good idea to go in and work for a week and then get your paycheck on Friday afternoon. I try to do the work here up front, and if you think the work is worth the paycheck, go to RadicalPersonalFinance.com/patron and you can pay me on Friday afternoon.

Thank you all so much for listening. I appreciate each and every one of you. Figure out what your goals are, and if you start writing them down, start figuring them out, start fleshing them out, and then comparing them to the financial assets, I think you'll be able to create your own financial plan that will be appropriate for your situation.

And then you'll get everything firing on all cylinders and your results will be awesome. Cheers, y'all. Thank you for listening to today's show. Please subscribe to the podcast with our free mobile app so you don't miss a single episode. Just search the App Store on your device for Radical Personal Finance and you'll find our free app.

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Details are at RadicalPersonalFinance.com/patron. If you'd like to contact me personally, my email address is Joshua@RadicalPersonalFinance.com or connect with the show on Twitter @RadicalPF and at Facebook.com/RadicalPersonalFinance. This show is intended to provide entertainment, education, and financial enlightenment. But your situation is unique, and I cannot deliver any actionable advice without knowing anything about you.

Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy, and consult them, because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions. I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together. Until tomorrow, thanks for being here. Are you ready to make your next pro basketball, football, hockey, concert, or live event unforgettable? Let Sweet Hop take your game to the next level.

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