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♪ Got to sort of tell 'em ♪ Two destinations, one loyalty card. Visit yamava.com/palms to discover more. Today we have an in-depth discussion on angel investing with early retiree Doug Nordman. He's made it his serious hobby, and he's put his money where his mouth is with regard to his investing, and he's going to share with us his learning and experience from being in the trenches as an angel investor.

And he's also going to share with us some wisdom surrounding the decision of, "Should I rent the house that I need to live in, "or should I buy the house that I need to live in?" (upbeat music) Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets, and I'm your host.

Thank you so much for being here. Today I have a very special interview with my friend Doug Nordman. Doug's been on the show with me before for episode 114. In that episode, we talked about the history of the early retirement movement, but Doug's a versatile guy, and today we dig into one of his favorite subjects, angel investing.

It's a no-baloney guide to the topic of investing in private companies as an angel investor. (upbeat music) This is a really good interview, and I'm very excited to bring it to you, especially because it covers a topic that's very important to me, that I'm studying and focusing on learning a little bit of my own growth and career as a business person.

I'm very interested in investing in private businesses, and I want to learn how to do it effectively. The challenge is, how do you actually figure out where to get good information on the subject? Now, there's lots of people that'll teach you about investing who also will sell you investments.

There's lots of people who will share with you their investing secrets as a way to enhance their reputation, but there are very few people who are willing to sit down and publicly discuss what they've learned as an investor and how they've learned it, and Doug is one of those guys.

He is an early retiree, but as you'll hear in the first part of this interview, he's very involved in angel investing there in Hawaii, where he lives. It's well worth listening to, and it's going to save you some money in your own investing journey. And then stay tuned for part two.

I just thought about splitting this out into two separate episodes, but I've decided to just leave it together. Part two, we kind of pivot away from investing, and we move into the topic of, should I buy or should I rent? Doug's the author of a site called TheMilitaryGuide.com, which is one of the leading financial websites targeted with excellent information toward military personnel, and he knows what he's talking about, especially as being a former military person who has had to move countless times during the course of his career.

Here we go. Doug, welcome back to the Radical Personal Finance podcast for your reprise performance here today. - Thanks, Joshua. It's good to be back. - So we first had you on the show for episode 114, where we talked about the history of the early retirement movement, and I perceive you in some ways as one of the kindly grandfathers of the online early retirement movement.

(laughing) I don't know if you were a pioneer, but you're certainly at this point one of the elderly uncles or the kindly grandfathers who's been around for at least 20 years kind of keeping things on track, and that's really valuable to some of us young people coming up and trying to figure out the lay of the land.

And so in episode 114, we talked in detail about some of the history, things I had never had an idea about, and it was well-received by the audience. But today I've got you back on, and we're gonna cover two subjects. Number one, angel investing, and number two, the rent versus own decision.

I know you've got some strong feelings and some experience with both. I thought we'd kick it off with angel investing, if you're willing to do that. And to start with, would you share a little bit about your actual personal investment history as it comes to investing in individual companies?

- Well, as most guys do, I consider myself to be a brilliant investor, and I've spent the last 30 years waiting for any indication that that actually has existed. - Are you thankful for your wife, like I am, that she helps me recognize that I'm not such a brilliant investor sometimes?

- There's a note of rationality involved in my investment. But I seriously have spent a lot of time on individual stock analysis and finance business analysis, and gone through all the traditional accounting, basic accounting classes, and tried to figure out exactly what I'm doing. And I accelerated that when I retired because I suddenly had the time in my life to do it.

When I was on active duty in the U.S. Navy's submarine force, I had no spare time at all. You would all sit around and talk about all the brilliant investor ideas you had when you were on watch or on duty, but you never really had enough time to do the serious research and tracking required.

When I retired, I had that time, and I started doing it again with individual stocks. And I found out that, in general, if you approach it rationally and you are able to understand what you're doing, it's a function of the amount of time you put into it. And after about five years of working my way through all the typical, difficult individual stock analysis methods and buying and selling and even looking at trading options, I found out that I was spending way more time on that than I really wanted to spend.

I decided I would rather spend my time surfing and enjoying life here in Hawaii than spending all my time tracking stocks. Having said that, there are a couple of ways to invest in individual stocks that don't take a lot of time. One of those is dividend investing. When you buy a dividend stock, you're probably going to do a lot of up-front analysis and then hold that stock for 15 or 20 years, and you really don't have to keep much of an eye on it unless they freeze their dividend or cut their dividend.

But it's a lot of initial work to analyze it and then not much work to sit back and collect the dividends and make sure things are on track. I'll also say that you, as an individual investor, need to be fascinated by the type of investing that you do if you want to go out and pick stocks.

If it turns into a chore, if it's no fun, you're going to have sleepless nights, and you're going to neglect your research and your other duties that are involved with keeping track of those individual equities. One of the reasons I do angel investing is because it still fascinates me.

I also have learned quite a bit about analysis of stocks and companies through angel investing. I've learned a lot more about analyzing individual stocks in publicly traded companies than I had when I was reading all the information available out there on the internet for individual stock picking. So angel investing made me a better investor overall.

And I've also found out that it's more than just showing up and watching an investor give you a pitch and writing a check. You're actually developing a relationship, almost a one-on-one relationship, with the companies you invest in, and that can be a little scary. But you also find out exactly what is going on in the company.

You find out what their concerns and their methods are, and you might even form friendships with these people, if not at least a mentor relationship. You'll also, from the advising you do, learn more about the company and decide if this is something you want to keep on doing. I will say that the investors that start angel investing are either tech entrepreneurs in their 20s who have had a liquidity event.

You know, they've cashed in on a startup or some other major life event, and they finally have enough money to do angel investing. Or it's guys like me. You know, they're in their 50s, they have enough money, they are retired or working part-time, and they are curious about this and get into angel investing as a sort of a business mentor.

And that's the way I got started into it. Certainly, it seems a lot more exciting, especially to be involved with a local... Exciting, yeah, that's a good word for it. Yeah, especially if you're involved in a local basis. I got somehow wandered in, in my wanderings in the financial world, into a local investment club, I guess, an investment organization.

And then I started getting interviews to all of these luncheon meetings at fancy restaurants. And so different CEOs would come in as part of their roadshow, while they're basically getting ready to... Whether they were getting ready for an IPO or whether they were in some of the... Still in the private stages of funding.

And I just remember kind of having... I had been trained in the world of mutual funds, and I had been trained in the world of discipline. Don't get involved in things. And all of a sudden, my eyes are opened to the wonder that is the next pharmaceutical company. And here you got the CEO standing in front of you, talking about, "Well, we just finished stage three trials, and look at our results, and this is so exciting." And you get the itchy fingers to start putting your money in, because it's exciting.

Been there. One thing I've learned is that the CEO is probably the best sales guy in the company. Founders have a special passion, all of their very own, that you've got to take into account. And there's nothing wrong with that. You can't start a company without that special passion that a founder has.

But they also will tend to be blinded to other dangers or risks that the angel investor-- the angel investor's job is to look out for that during the due diligence and feed that back to the founder. But you made a good point earlier. Angel investing is a great way to get involved in your local community with what's called impact investing.

And when you do impact investing in your local area, town, county, or state, you may also find out that there are other offsetting investments that will either match yours or give you some tax credits to help lay off the risk. And so the way I got started in angel investing seven years ago was when the state of Hawaii used to offer tax credits for your investments.

Depending on what companies you invested in, you could get a tax credit of 100% of the amount of money you invested into the company. Not every company, exactly. It was unprecedented. No one else in America was doing it at the time, and everybody thought Hawaii was nuts. Hawaii eventually came to its senses in 2010 and phased out that 100% tax credits program.

And today, there are different incentives, and most of them involve matching funds from the state. But when somebody starts angel investing, one of the things to check out right away is to see if there's any way to hedge your investments with tax credits or matching funds from the state or local authorities or other angels.

Going into angel investing is not something you should do by yourself. The best way to become an angel investor is to join a group, an angel group, and I can talk a little bit about that as we go through the topic. Let's start with an actual definition. In your mind, how do you define angel investing?

That's a very good question. And the next time our angel group gets together, we're going to have to ask ourselves just what the heck we're doing. There really is no strict definition unless your angel group has set that up in their charter. What we try to do here-- I'm a member of two groups, actually.

One group is Hawaii Angels, and the second group is Blue Startups. And Hawaii Angels looks preferentially at investments in the state of Hawaii or investments that would benefit the state of Hawaii. For example, somebody may come in from the mainland to do something here in Hawaii. When you live on an island in the middle of the Pacific, there are a lot of small market ideas that you can test out here without having to worry about rolling things out nationwide or having somebody compete with you.

It's not uncommon for a company to come to Hawaii and say, "Well, you guys have a tiny little electric grid, "so our amazing storage battery "will not take down the whole state's energy infrastructure "if this doesn't work out well." Or they'll work on some kind of advanced biopharmaceutical or biogenetic product, or they'll just try something in a very small market that they know they can work on without having to worry too much about competition.

We also favor investments that go around the Pacific Rim. If we have an opportunity to work with a startup that's going to impact the visitor industry or work with Asian countries, then we'll favor that. But we really want to try to make Hawaii a better state by improving the entrepreneurship and the support for founders.

Are you willing to sacrifice the potential financial returns in favor of some of those other social returns, or is financial return still king and that's just kind of nice to have? Well, judging by my record, you would think I'd be willing to sacrifice everything to the point where I'm an angel philanthropist, and we joke about that a lot.

I can't tell you that I've made any money from angel investing yet because I haven't, but what I have done is invested in a number of companies where you want to have an angel-type return. A founder, when he starts out, has two choices. The founder can start a business that will pay an income for the rest of their life and take care of them and their family.

We call that a lifestyle business. If the founder has a real good idea on their hands, then they may be able to grow that into a business, and the bigger the business gets, the more profitable it becomes, and the more they're running a corporation. In fact, if they get to the point where the company is worth, say, a billion dollars, if it was sold to another company, in angel investing, we refer to that as unicorns.

That's the next Facebook, the next Google, Twitter, LinkedIn, something like that. And in between is a sweet spot where an angel investor could reasonably hope that they would get a return of about six to ten times their initial investment. If you get 20 times of the return on your initial investment, then that might only happen once or twice in your entire angel investing career.

I know one famous founder in Silicon Valley, once he cashed out and became an angel investor, was very active and kept track. Not all angel investors share their track record, and this one did. And over 100 companies that he invested in, his returns came from just four companies, and every one of them returned six to ten, one of them returned 20 to one.

So he made a profit. He made a good profit. It wasn't overall six to ten times his initial investment. He got his money back and made some more in addition to that. The result, though, was that he did invest in 100 companies and greatly accelerate the startup scene in Silicon Valley, but his returns only came from those four companies.

- So we know from our past episode a little bit about your personal investment philosophy, and if memory is correct, you have a primarily passive portfolio built to provide your income. How do you approach your own personal asset allocation decisions, trying to figure out what's an appropriate amount of your net wealth to invest in this type of hands-on angel investing versus just buying index funds and leaving them alone?

- You mentioned being taken to fancy restaurants and getting to talk with fascinating people, and that's very seductive. And so as an angel investor, you have to have an iron discipline on your timing and the amount of money you're going to invest. And I made that decision early on.

In fact, the number one reason that I became an angel investor is so that when I'm older and when my cognition is no longer at its peak, that I'm not tempted by the idea of angel investing and getting me some of them startup companies. I'm doing angel investing now while I'm still, I hope, relatively rational and able to understand what I'm doing.

And by doing it now, I ideally will work through it all and understand it all, and the glamour will have faded and I'll have more or less immunized myself against the temptation when I'm in my 70s or 80s. That was the main reason I started angel investing was because I had an opportunity to learn about it while I was young and able to do it well.

And I quickly realized that, just like any other asset, it's part of your overall asset allocation plan, and I try to limit my investment to 10 to 15% of my portfolio in angel investments. I also, over the years, have led all the small cap value exchange-traded funds that we were invested in as part of our asset allocation head on down to a smaller level.

In other words, I tilted the portfolio a little bit toward angel investing with that 10%, 15% limit in my portfolio, and I also cut back when the time was right on the riskiest of our other assets, which was small cap value exchange-traded funds. So our portfolio overall is still over 90% equities.

It's still considered very risky, and I would advise anybody trying this at home that you want to join an angel investing group of trained professionals, but the other reason I got involved in this is because I do have a military pension, and if I completely lose my mind and blow all my money on the next Google or hoping to find the next Google, at least every month I'll still have my military pension check coming in to save me from my own stupidity.

I like your approach, and I love talking with you because you're one of the more rational people when it comes to investment and portfolio creation and specifically driving it off of your personal goals. That's my beef with much of the financial industry is that instead of driving it off of your personal goals and figuring out this is what's important to me, now what kind of portfolio will serve this lifestyle, then we flip it around and say, "What kind of portfolio should I have "before we figure out what's even important to us?" - Well, it is a function of the amount of time you want to spend on it.

For example, I spent my first few years simply going to angel meetings and learning everything I could and reading books and websites, but then after the first couple of years, I joined what in our organization is our screening committee, where the very first pitch from the entrepreneur comes in to a small group of the angels and we figure out if it's worth conducting the next meeting and having the pitch given to the full group.

And that screening committee was an interesting exercise in seeing pitches when they were still raw and relatively undeveloped and feeding back to the founder how they would have to tailor their pitch to make it attractive to the Hawaii angels. I learned a lot from the screening committee. And then when Blue Startups came along, I watched that for a couple of years and it looks like it's going to do a great job.

And I joined Blue Startups as an investor, but I also volunteer for some of the activities that they do there. Blue Startups is what's called an incubator or accelerator, and I join in when they need angel investors to come in and provide an audience or to provide some advice to the mentors on certain specific topics.

And again, every time you have to go step up in front of a crowd of founders, you have to have a good game and you have to be able to articulate what's important to the angel investors so that the founder can make sure that their company design and their financing matches those interests.

- What is the average size of investment that your group is pooling and how much do the individuals in your group need to be prepared to commit in order to get involved in the way that you guys are structuring it? - I'll say that compromises are made in order to keep the group at a comfortable size of people willing to join and hang around.

If you make it too expensive or if you set the minimums too high, you're going to find out that your angel investing group has come down to barely enough to fill a bridge table with four people. Having said that, when we founded Hawaii Angels back in 2002, the idea was that investors, the individual angels, would make an investment every year or two.

Today, we say vaguer words that say that the angel will commit to making an investment of about $50,000 to $100,000 over the next two to three years. We leave it at that. Nobody calls you up and checks on how many companies or startups you've invested in over the last two or three years.

Nobody tracks how much you've written to a certain company or how many checks you've written. There is voluntary data gathering and we all communicate what we've done so that we all can talk with each other and make sure we know who's invested in our startups with each other. We try to keep it loose and flexible so that more people can come in and just learn about Hawaii Angels and have some experience and get familiar with the concept.

We found out that if you welcome people and don't expect them to initially make a huge commitment, then within a year or two, they'll start investing and four or five years later, they may have invested quite a bit. Are decisions and investments made individually or are they decided on collectively?

The answer to that one is yes. There's many ways to structure an investment in a startup company. After the founder makes his pitch, we do the due diligence and the people that are still interested will make their initial investments and they're usually individual. For example, the company, the startup, will be looking for $250,000 and we'll have Angels who typically invest $25,000 in an individual company or maybe they're a little more affluent and they're willing to invest $100,000 in a company.

We do have a couple of Angels who have had successful startups of their own or they've been very successful in their careers and have quite a high net worth and if they find a company that is right up their alley and that they're fascinated by and that they really are interested in, it's not uncommon for one or two of the Angels to invest over a quarter million dollars in an individual company.

So when that startup comes to the Hawaii Angels, we are relatively confident that we can have the company get as much as about $300,000 to $400,000 from the whole group. We just don't know how many collective individuals we have to have that will put that amount of money together.

I'll also say that there are sometimes special aspects of a deal where several Angels will get together and form a little group and that little group will be its own limited liability corporation and LLC will take investments into the LLC and then track those investments from the Hawaii Angels and then make that investment as one big check to the startup company.

We generally do that for special tax situations or special Hawaii state issues that are different than what the investor or the startup company was planning to do when they first came to Hawaii Angels. To summarize it though, after the due diligence we say, "Who's interested? Thumbs up or thumbs down?" and then we start talking about how much you're going to invest.

And if the startup founder is looking for $250,000, then generally it's not too difficult to find five to ten people willing to write checks of $25,000 each. Are you subject to accredited investor limitations? Yes, those are all over the internet, but the SEC limits for any Hawaii Angels group, any Angels group, are the same.

You've got to have investable assets of a million dollars and that means that we're not going to count your home equity that you might have from real estate or rental properties. It's got to be money that you could reasonably expect to cash out and write a check for if your Angel investments went bad.

That's just what the SEC requires. Some high income individuals are also Angel investors because they'll make over $200,000 a year in salary or they, with their spouse, will make over $300,000 a year in salary. So those are the three requirements the SEC has. And the SEC is perpetually on the edge of raising those requirements.

The last numbers I heard were that Angel investors were going to have to have somewhere between $3 million and $5 million in investable assets, but nothing has come of that yet. Those accredited investor requirements, again, nobody sits down and goes over your books. Nobody requires you to come up with a list of the things in your net worth.

All you do is you sign an affidavit that says, "I meet the requirements of being an accredited investor." You'll sign an affidavit like that when you join an Angel investing group and the individual startup founders are also required to make sure that they take money from accredited investors as well, so they'll have an affidavit too.

The whole reason behind all this is so that when you, the Angel investor, lose all your money in that startup two or three years down the road, that you're not complaining that they told you that this was a publicly traded corporation or otherwise misled you as an ignorant investor.

The idea of the accredited investor is that you're sophisticated enough, or should be, and well enough educated that you are able to be responsible for the investment and understand that it could go under any time. And we've seen that happen. So the accredited investor requirements are put together by the Angel group itself and by the startup.

Hawaii Angels is also a member of a national organization, the Angel Capital Association, and they require that the Angel groups be made up of accredited investors. - I was taught when I originally got into the investment business that the primary reason for the accredited investor rules was to protect the general public from, as you just said, being fleeced.

That was what I was taught. There are many alternative views on that, one of which is to say, well, this is a special item of legislation which restricts some of the more profitable markets to the wealthy, and those are the ones who've influenced the legislation. - That's right, to the elites.

- Do you have an opinion on that? - My opinion is that it's designed to minimize the litigation that goes on in a business. The startup founders want to have an access to capital without having to constantly defend what they're doing or even fight off lawsuits. A startup company really doesn't have enough money to fight off legal action.

The accredited investor requirements set a bar for entry so that the startup founder knows that the group they're talking to is relatively sophisticated and able to understand all the risks of Angel investing. I think it's there to protect startup founders as much as it is to keep the public from being fleeced.

If the public wants to go out and get fleeced, that is what the intent is of the JOBS Act and crowdsourcing and crowdfunding. Those initiatives are all very good. They're bringing more capital into the startup business and more people are able to tap capital to start their companies up.

But there will be people that will be fleeced by crowdfunding initiatives and by things that the JOBS Act is hoping to prevent, but there will always be people that get around it one way or another. I think, again, the best way to become an Angel investor is to meet those accredited investor requirements and along the way you'll become educated enough, experienced enough anyway, to be able to understand what you're getting involved in and to also be the right kind of Angel investor.

The right kind of Angel investor isn't necessarily the guy who's willing to write big checks. It's more the guy that brings some value to the startup along with their money. I'd love to hear a few stories of some of the investments that you've made. I'd like to start with the one that was the biggest surprise to you and, if possible, the company that you were the most sure of that the performance hasn't so far, at least, met expectation.

What would be the story behind that type of company? One of the very first investments I made back in 2008 was in a small cardiac company called Inovasc. That's Innovative Vascular Surgery. Inovasc started out as a better stent. Instead of the typical stent of the era of 2008, they wanted to make a stent that would do a good job without any of the drawbacks of typical corporate stents that were available from places like Johnson & Johnson.

The founder is pretty much two guys. One is a cardiologist, of course. He's a very talented doctor. He literally wrote the textbooks on implanting stents in people. The other guy is fascinating. He's never had a regular job. He has been on one contract or one startup job after another for the last 20 years, as soon as he was in college.

He's a materials scientist. He was able to develop incredible stent technology that let doctors of any specialty in implanting stents be able to use the system and implant the stent with a high degree of reliability. At the time, we expected this would be an investment. It had been 3, maybe 4 years before it was bought by a major company.

But as the cardiologist developed more of the techniques and the technology, and as they got better at what they were doing, they realized there were other applications for this stent other than just sticking them in people's heart arteries. Now it's moved into treating what's known as peripheral artery diseases.

That's essentially where the blood vessels in your lower legs and your lower arms don't necessarily pump enough blood to your toes and fingers. It's a very big problem for diabetics. So over the last 7 years, this company has improved its technology and made these stents smaller and smaller and easier to implant and more reliable.

They've been doing human trials for most of that 7 years. The company has grown over the years and has taken in additional investments and is doing wonderful. I think that's the one that's going to pay off. Now there's a couple of reasons I think it's going to pay off.

One reason is because it got a brilliant founder and co-founder. Another reason is because most angel companies in the medical technical world require about 5 to 8 years to pay off. So we are in the window where they're going to come to the attention of an Abbott or a Johnson & Johnson or some other major medical company that will buy them for the work they've done so far.

Part of that is milestones in medtech companies getting the European Union's certification or getting the American FDA's certification. They're just about there on the American side. They've already got the European certification. So all these are good things to see in a company as it goes along, but it still takes 5 to 8 years.

You don't really know what you're going to get back once the company is liquid. Once the liquidity event occurs, it could be an IPO, which is not very popular these days. It's probably going to be an acquisition by a larger company. Those are a good deal because the larger corporation sees something in your startup.

You don't know what you're going to get though in terms of whether you're going to be given cash for the company or whether you're going to exchange your highly illiquid startup stock for the less illiquid stock of a publicly traded corporation. If I was to get Johnson & Johnson stock as my share of the cash out, well, maybe that would be of value to me or maybe I'd sell it immediately.

I really don't know. So you don't really know how the payoff is going to work and what percentage you're going to see, and that's always a big factor in the investments. But again, that was my first angel investment, and I feel fortunate that I had good mentors in Hawaii Angels who helped me realize this is a good opportunity, and I've also been able to track it for seven years and get a better perspective and a better education as we went along.

Why are IPOs less popular now than in the past? Well, they're very expensive. When you do an IPO, about 7% of the money you raise goes to the financial firm that helps coach you through the IPO, and you have to have that firm. You can't do a successful IPO without it.

So Goldman Sachs or whoever you work with will take their cut. If an IPO goes well, then your stock is listed, let's say, at $25 a share on the initial day, and maybe it goes up to $26, $27, $30 a share. That's a good IPO. That means you priced it correctly.

If you go for $25 a share and the NASDAQ investors bid that up to $150 per share, you, the startup founder, and you, the investor, you had no idea what you were doing. You priced it wrong, and you left a lot of your money on the table by having it rise so much when you went public.

So that's a failure. IPOs are also subject to a lot of scrutiny, regulatory scrutiny. And from the investor perspective, once you've done the IPO, you still can't sell your shares in the stock. There's that lock-up period of six months after the IPO before the investors, the early investors, are able to put their shares in the market and sell their shares.

So it all tends to be a little more difficult. It's exciting, and it's fun to watch, but it all tends to be a little disappointing in the end financially because of the lock-up period and the volatility in the stock after the initial public offering. I would much rather be bought out by Johnson & Johnson for hundreds of millions of dollars in an event that has a known figure on it.

We know exactly what we're getting, and as soon as we acquire the shares from the acquiring company, then we can sell those in the open market or keep them for ourselves. Have you had a total loss yet? Oh, yes. Let me run by some numbers here. And again, keep in mind I'm a military retiree with a pension.

If I completely mess this up, I've still got a pension check coming in every month. With that disclaimer, I'll say I've invested in a total of nine startup companies. Every one of the checks that I've written to those startup companies has been an initial investment of $25,000. So we're already almost a quarter million dollars into it.

And of those nine companies, four of them, and over the last eight years, have failed. One of them failed in less than 18 months. It was an unforeseen disaster, of course. I don't have any disasters that I anticipated. But this one had a wonderful idea in biofuel, and it looked like a great idea in 2008 when oil was $140 a barrel.

But it's not such a great idea when oil is only $60 a barrel. We didn't see what would happen in the market with the price of oil and how that would affect this company's ability to raise funds. So it's a case where a startup had wonderful technology, and it still is wonderful.

And if oil gets up to $140 a barrel, that entrepreneur may jump right back in with a new startup company. The other three failed for another variety of reasons. But one of the reasons, again, a common factor, I invested in a company that made solar power systems that were based off of heating fluids, using the sun to heat fluids instead of using the sun on photovoltaic panels.

And this alternative solar energy company, again, was doing wonderful things for isolated islands and third world countries where they had a lot of sunshine but not much electrical infrastructure. Again, though, we didn't anticipate that the large solar photovoltaic panel market would crash the price of solar hardware so quickly or so deeply.

And this company just couldn't sell any of its gear because everybody could buy photovoltaic panels for a relatively cheap price, and they didn't need this more advanced technology. So when you start with a company as an angel investor, you look for two things. You want to have a company where everything has to fail for that company to shut down.

You want to have a company where they've got a founder who you know and you can work with, or they've got a great idea that's already got traction among customers, and it looks like only a total meteor strike extension event could take that company down. The other company you want to watch out for is the company where everything has to go right for it to succeed.

And for that, you generally will walk away with a lot of regrets because it's just too risky, but it could be the next 20 to 1 payoff like Google or Facebook. So a company where everything has to succeed for the company to do well is a very risky investment, but it's generally very attractive.

They look like a great idea. There's just a lot of risks and it's difficult to quantify. I am at an angel investing point in my education where I would prefer to invest in a company where everything has to go wrong for it to fail. And I look at those other companies and I say, "I'm not going to be greedy.

I'm going to be disciplined. And if everything has to go right for that company to succeed, then I'm going to just keep an eye on it, let somebody else invest in it, and enjoy their success vicariously." Is the idea of playing those extremes just simply recognizing the risk that you face and either something has to have--knowing that we're going to have a certain percentage of companies that's going to fail, we know that we have to get, like I said, the 20X return.

We have to get that to compensate us for all of the ones that have lost, or we want this to be--we're willing to settle for a lesser risk just simply--we're willing to settle for a lesser risk or a lesser return as long as there are a lot of moats around this business, good management, existing employees.

It's just a risk management idea, right? Exactly. And you've got a line there where you turn from an angel investor into an angel philanthropist too where you want to do impact investing in your local community. For example, you may be trying to do something to benefit the local industry.

In Hawaii, we do a lot of work in medical technology and visitor industry and also in alternative energy, clean tech. And some of those investments, they may or may not pay off with a return, but you may know that you'll advance the industry and generally make everything better in the state and for your life and your kids.

So there is a strong component of impact investing there. And the risks, as you pointed out, they tend to be fairly binary. You're either going to get a 20 to 1 or 10 to 1 return or you're going to get nothing. And so the big returns, the big results, the big rewards take a little longer to come out.

I think also if you fail quickly, you've learned your lesson in a relatively prompt manner and you're unlikely to repeat that mistake. Whereas if you succeed immediately where you invest in a company and 18 months later it gives you 20 to 1, you've learned nothing. You've just been along for a very fascinating and rewarding ride, but you really haven't had a chance to struggle with the prospects of failure or the other difficulties of starting and growing a business.

So I guess you would say that I have learned the equivalent of a very expensive MBA education and the investments I've made so far. I still have five companies. A couple of them are too close to call, but the other three look very healthy and look like they're eventually going to give us a return.

As an angel investor, too, the returns, again, you generally would want to have a 6 to 1 or a 10 to 1 or even maybe a 20 to 1 return. A 20 to 1 return would be wonderful, but you're probably only going to see that once in your angel investing career.

Other angels have grown accustomed to a dividend model. By a dividend model, I mean that the startup never actually cashes out. Instead, they pay you a dividend share of their profits. What will frequently happen is that you'll get all your money back over the next 5 to 10 years as the company grows and it earns revenue.

Then after that, you'll be on a special dividend like a preferred stock dividend of a publicly traded company. Of course, it's a private stock, but you'd still get a dividend check every year. That's quite attractive, especially in Hawaii where many of the investors have made their accredited investing money from real estate.

We're all accustomed to earning rent checks on a dividend model. If you can invest in a relatively successful local company that's making money and handing it out as dividends, that makes you feel good. You know you've got an income stream you can count on. Is that kind of the model that maybe goes between those two things?

Here's my personal question. I'm kind of cheating here and asking a question that applies to me. Some months passed, I've made changes in my own personal portfolio, and at the moment, I don't own any publicly traded securities, which is unusual for a former stockbroker and someone who's-- Well, maybe you know more than we do.

Not a timing call in any case. I've sold a lot of securities. It's not a market timing endeavor, although who knows? I've certainly sold at a good time, and who knows? I don't make market predictions. My primary issue was not having a sense of control and not having any impact from the companies that I own because they were all owned through mutual funds, and primarily, I'm uncomfortable with some of the business models of the largest companies in the nation and some of the business practices that they regularly engage in, everything from the consistent lobbying of politicians to their practices throughout the world.

A lot of it is disgusting to me, and so at the end of the day, I'm responsible for where I invest my money. So I've pulled out, and right at the moment, I'm just sitting in cash on the sidelines, and my primary outlet at the moment is building the business behind radical personal finance, and that's my major focus.

But concurrent with that, I also desire to start investing again, and one of the things that I'm very attracted to as a model is investing here locally in my community. In my time as a former financial advisor, I stumbled across some local entrepreneurs and local business people who seem to have a network of local businesses, and this guy over here, he's managing the family wealth, and he invested in a chain of supermarkets, and this guy over here invested in this type of local business.

And to me, it seems like if I can build up the skills -- I'm not confident in my own skills at the moment to start making those types of investments, but that's just a matter of education and learning and practice. But if I can build up some of those skills, I see a lot of benefits from just simply investing in my local community with real businesses here locally.

But I'm not necessarily looking for the 20X return, and I'm also not necessarily looking for the company that has perfect business. I think there's almost that in between of maybe a business that can just simply help build some dividends and has some of that additional social capital benefits from it.

In your experience, is that a reasonable -- like, is that possible? Could you do that if you wanted to there in Hawaii based upon your experience? Absolutely. The analogy is -- the metaphor is a mastermind group. As you're building your business as a podcaster and online, you're probably working with other podcasters and other entrepreneurs, and the group gets together regularly, and you challenge each other and talk through your problems and succeed better as a group than you would wandering around on your own.

And an angel group is exactly the same way. It's the best mastermind group you'll ever find for angel investing because some of the angels in there are already successful. Others are entrepreneurs who've cashed out and know far more than you. You run across the occasional angel investor in your group who's got a net worth of eight or even nine figures, too.

They find it still fascinating to participate in angel investing, and they're there to mentor not just the startup founders, but they're also there to mentor the other angels in your group. So it's an absolutely wonderful way to do that in your local area. And you, yourself, you would benefit from just going out and joining your local angel investor group.

If you're an accredited investor, it's easy. If you're not an accredited investor, then they might have some sort of affiliate or mentoring program where you would at least be able to understand the information that's going on or go to a free lunch or two or a free meeting with some of the founders.

So angel investing has made me a much better investor across the board. On the other hand, though, if you're looking for impact investing, you've still got to figure out your own asset allocation plan. And I'm not trying to give specific advice here, but I would say that you would want to limit your angel investing to about 10% to 15% of all of the money you have available to invest.

If you're not willing to invest in equities, then you're going to look at things like real estate, which is quite good, not just rental properties for tenants, but commercial real estate as well as residential real estate. You might also take a look at commodities, for example, if that was of anything attractive there.

Usually commodities are what I would call even less socially responsible than the general equity market, but there might be something there for you. - Less socially responsible than the general market. - Well, you know, the first few commodities that come to mind are oil, gas, and diamonds. - I understood.

Okay. It's just funny. That's the first time I've ever heard the commodities market referred to like that. That's funny. - It has nothing to do with the actual commodities brokers, but the temptations are there. And you have to look around in your local community for other opportunities. There are times when we will get a pitch from an investor in our local area who is putting together a wonderful product.

It's going to benefit the state of Hawaii. It's somebody who lives here, not somebody from out of town. But we, for whatever reason, in good conscience, can't ask that founder to pitch it to Hawaii Angels. We don't want to waste their time. If they go to the Hawaii Angels meeting and pitch to 70 Angels and nobody's interested, then the Angel investor group doesn't look very good, right?

We've led somebody on and maybe wasted a lot of their time. But also the founder loses a lot of confidence and begins to wonder about their business model and whether they really want to raise money that way. What we will do, though, is we'll sit there and mentor the founder and say, "Look, what you've got is a wonderful plan, but it's just not suitable for the Hawaii Angels as a group." Or that may come out during the due diligence.

Again, wonderful idea, but not suitable for Hawaii Angels as a group. But we'll also work with that investor and introduce them to other people in the industry or other Angel investors who may not be a member of Hawaii Angels or even people in corporations in Hawaii who would be interested in investing in that startup simply because it offers a return.

Maybe it's a dividend model. Maybe it's a little more than a lifestyle business. And they could be a silent partner or they could be a mentor to the founder. I'll give you a good example of that. One is a number of sectors in the visitor industry here are not going to return six to one or ten to one.

They might not even return two to one. You might be investing in what essentially is an entertainment business, either a restaurant or a nightclub or some kind of visitor industry attraction. And again, those don't necessarily pay off with a big acquisition by some huge national corporation, but they hire a lot of people.

They attract a lot of capital. They get people excited and interested in the visitor industry, and they're a vital part of what makes Hawaii a wonderful place to live. And so you may accept what is a much smaller return as a silent partner or as an investor who's getting a dividend check or who gets all their money back and maybe another 40% or 50% profit in addition to that.

I want to ask a final question on angel investing, and I'll make it a compound question, and then we'll pivot to discussing renting versus owning. Number one, you mentioned that you're a better investor because of angel investing. Are you able to identify anything specifically of how it's affected you?

And then also, if you were starting over again this process of learning, what would the advice be that you would have liked to have had as far as where you should focus, the books you should read, the clubs you should join, and how you should proceed? Well, I'll start right off with the books.

There's a book by an author called Scott Shane called The Illusions of Entrepreneurship. He wrote a second book called Fool's Gold. Both of those are what I feel a very analytical look at angel investing from all the data that's available. You always hear about that legendary angel investor who invested $5,000 in Google when it was just Sergey and a couple other guys and who has made him a billionaire.

And what Scott has tried to do in his books is gather all the available data, analyze it, acknowledging that it's incomplete, and make some logical, rational conclusions from it. So I would start with those two books even before joining an angel group. One of the founders of Hawaii Angels has also written a book on angel investing.

It's by Dr. Robert Robinson. That one's out there in Google and maybe in some public libraries. And again, it talks about what angel investing is and how to do it. The number one regret of all angel investors ever in the entire world is that they wish they had done more due diligence.

They wish they had done more analysis, understood the finances a little better, but not just understood the risks to the company itself but understood the risks to the whole industry, to the whole sector. It might look attractive, as I mentioned earlier, to invest in alternative energy when oil is $140 a barrel.

But you also have to consider the fact that oil may someday be $40 per barrel, unlikely but possible, and how is that going to impact the company and what are they going to do about it. And you don't personally have to know all the numbers and come up with a conclusion on your own.

You just have to be able to ask that question of the founder. "Hey, great idea. I'd love to invest. But what happens to you if oil goes down to $40 a barrel? How long can you survive in that world? How fast is your money going to do it? How are you going to be able to pivot your business model?" Those kind of questions need to be asked.

The other thing it's done to improve my investing skills is it's made me much more rational and much less emotional. When you first start sitting through angel investing pitches, you feel like a 4-year-old running around a candy store. Everything looks yummy. That's exactly my experience going to that investment club.

You should do three pitches per meeting and I'm sitting there saying, "Man, where can I come up with money? This is exciting. Look at these companies." You haven't made the first pitch. And you're also having your ego stroked a little bit because you are sitting at a very nice place with very nice people and everybody is telling you all the wonderful things that are going to happen to you if you invest in this corporation.

So you learn to--you're not cynical but you certainly are skeptical, maybe even bordering on pessimism. And after you see about 200 or 300 angel pitches over a period of about five years, you begin to see some common elements in the pitches from the founders. And you either say, "You're doing that wrong and you need to change the way you word that slide," or you're saying, "I've seen that pitch before and I know how that ends.

Don't do that." So you give that mentoring to the founder or you also know what to avoid right away when you see it coming. So it's improved my analysis abilities. It's improved my control over my emotional response to the whole fascinating involvement with angel investing. And it's made me a better financial analyst.

When I see financial projections now, I have the appropriate degree of skepticism and I know that you can make very logical mathematical assumptions about how your business plan is going to work out and none of that really matters. What matters is how well your customers respond when you first roll out your product and how they use your website or how they use your product.

Founders design and create and market products all the time and then find out their customers have no plan to use them the way the founder thought. They're using them in the way they want to use them and it's completely different from what the founder thought. It happens all the time.

And that means that the founder has to be able to be flexible enough to pivot their business plan and come out with a better product that meets exactly what the customers are doing with it. This is notorious for guys that are running websites and software as a service. But it also happens occasionally with hard products that people will use them differently than the founder's expected.

You've got to be able to respond to that. You've got to understand what's going on with your customers and give them what they want. Interesting. So let's pivot now to renting versus owning. And I know that you come from a military background. I don't know how much you were moved around since you were in the submarine force and how much time -- wait, were you in the sub force or surface ships?

Submarine force. My daughter is in the surface Navy now. That's where the confusion comes from. And my spouse was in the active duty and reserve communities as a meteorologist and oceanographer. So we're a Navy family. And my wife and I have moved 13 times over 20 years. Our daughter is racking up her own impressive accomplishments right now.

She's already had three moves in the last year and she's got a lot more ahead of her. So you get a lot of experience at blowing into a town and having to make a choice on whether you're going to rent or own. And also you've been connected with the early retirement community, which is heavy with people who think carefully about every financial decision.

So you've got a lot of experience in this. If you're deciding should I rent or should I own, where do you begin with that decision-making process? The question comes up most frequently with my military readers. And so your military listeners would want to understand that in general, if they're on active duty, they're moving every two to three to five years, they should rent the whole time.

They should never buy a house on active duty. And that's my bias. The risks outweigh the rewards. If you're going to buy a house when you're on active duty, then everything has to go right for you to make money. If you're renting when you're on active duty, then everything has to go wrong for that rental to be a miserable failure.

So renting is a much safer approach to having real estate when you're in the military on active duty. Now your listeners that aren't in the military will listen to that and say, "Well, how does that apply to me?" And the answer is how much time do you have? How long are you willing to hold on to that piece of property?

And is it worth the time that you're putting into it? One of the popular statements of property investors is that you make your money when you buy the house, not when you sell the property. And the idea is that you've bought at enough of a discount that even if everything goes wrong, you still won't lose too much money.

The worst situation is when you overpay for a property, whether it's for appreciation or for rent, cash flow, and everything has to go right for you to earn money. So again, if you're looking at real estate as an investment, as a way to put some of your assets to work for more than a low return in certificates to deposit or savings accounts, that's not a bad idea.

But again, it pays to be patient. It pays to take your time and do a thorough analysis of the market you want to invest in. And I really enjoy the information I get from your podcast, Joshua, but I'd also say that another podcast that helps a lot of people with rental properties is Bigger Pockets.

They do a great job. And they are all over all the different sectors of the market, and everybody has a good business model for it, and everybody understands the risks and the rewards and can bring a note of rationality. Again, when you start out investing in real estate, whether you're renting or buying, everything looks good.

Then you run around like a four-year-old in a candy store with a realtor who really wants to sell you something. Again, it's very difficult to avoid buying a property. I would say that for military, it's especially risky because the cost of buying and then selling again on the other end, that 6% transaction costs and all the costs of cleaning the place up or fixing it up before you sell and buy, those take away all your profit.

That immediately wipes out your profit. So when you're in the military, there's just no way to make any money unless you know that you're going to be owning that house for 30 or 40 years. Now, when I tell people that, there's always that guy, and it's almost always a guy, but there's always that guy who says, "Yeah, but --" Why is it always a guy?

Have you figured that out? I either have no women listeners or they are not prone to bragging. I'm not sure. There are a couple of women who have stepped up and said, "Hey," but most of the time, it's the guy who says, "I invested in this, and I made a ton of money out of it." Yep.

And they're there. In fact, one of them is half a chapter in the book I wrote on military financial independence, and he wasn't just buying a rental property and turning it into his home. He and his wife together were in the military, and they were buying properties everywhere. And at one point -- this is back in the early 2000s -- at one point, they had over 40 rental properties across the southeastern United States.

Wow. And they're in the military. And they're on active duty. Now, they managed to see what was coming in property values, and by the time 2007 rolled around, they had already liquidated most of their properties. And the situation -- they did it with mortgages and cash flow, and of course today's lending guidelines, they would never have been able to tap into so much capital.

But there are people who are able to do quite a good job with real estate, whether they buy their house or whether they buy properties to rent out. And in general, those people are hardwired to succeed. When I tell somebody, "Rent. Don't buy while you're on active duty," they're immediately going to ignore me because they grew up in a family where everybody owned rental property.

They might have even grown up as teenagers helping out with a rental property with the books or the maintenance, and they know that they're going to be able to succeed because they understand it already. And there will be those people, and to them I say, "Great. If you are hardwired to succeed at real estate and you have the experience, go ahead and do it.

But if you are earning a good income and you feel like you're just wasting money, burning rent checks, don't get sucked into that. Hold off. Make sure you're going to be in the area long enough to realize a profit on buying something at a discount. I think another aspect that I think is important for military people but also for non-military people is just simply creating the lifestyle all the way through that you're going to be happy with.

And one aspect, at least my observation--my dad was in the military for many years and in the submarines--that job is all-consuming. And the idea--when you're shipped out, you're gone completely. And then when you're home, to make up for the time that you're gone, if you're going to have any chance of keeping your family together, if you're going to have any chance of maintaining sanity, you've got to be fully home.

And just the cost on your time of owning a home yourself and the work associated-- as I sit here today, I've got a massive dump truck load of mulch in my front driveway. And I got it for free. I saw the tree trimming down the yard, and I need to use it in my yard to improve my soil.

And yet here I am busily building a business. And frankly, owning a house is a major hassle at this stage in my life. And I'm in the middle of building a business, and it would be far easier and simpler if I were just renting an apartment where I went there, I sat down at my computer, and then when I clicked "Done" on my workday, I was completely free.

But as it is, I have to fix my water softener and go up and get the algae off my roof or hire it done. It's just a big cost of time. And it seems like it takes a little while for people to perceive that. So if you've got a stressful, all-consuming job, like a military job or any kind of non-military job that is that way, recognize just simply the cost of your time and factor that into the financial calculations.

Absolutely. Don't get suckered into buying just because you have a generous housing allowance and the prices look cheap and you look like you can get a low-interest mortgage. Don't worry about that. Just keep renting. And in fact, if you do get a generous housing allowance, then rent at the cheapest price you can find for the quality you want and pocket the rest and save your money for a down payment when you're off active duty and out of the military.

Another book that I've read that does a very good job of analyzing all the risks and rewards is called Rent vs. Own. It's written by a woman named Jane Hodges. She talks about her own personal experience and then builds on that to make a checklist that anybody can use when they come into town.

Again, when you're in the military, you try to race into town and buy the house over the weekend, get the kids into school before you report to work on Monday. It's not quite that fast, but within 30 days, you're making major life decisions that are probably best made over a period of months to years.

She talks about that for everybody, not just military. She talks about coming to a town and learning the town and really understanding the area you're about to live in before you buy and taking the time to understand what neighborhood you would want to live in and then waiting until bargain houses pop up for sale in those neighborhoods.

For her, it takes months to years to properly buy a place at a discount in an area where you want to live. Again, she talks through all of it. Sometimes she says there are situations where you desperately need to buy the house just to be able to live there.

Other times, it's better to rent and be safe and be mobile. It's a good book. It's sitting here on my desk, actually, as a backup. There you go. Good. Sitting right there as a backup in case I needed ideas to move the interview forward. I was going to steal some of her ideas.

She does a pretty good job with it in the book. What about actually analyzing the financial state of affairs of a market and actually looking at a local housing market? I would agree with you in the sense of, yes, if you're going to be moving, then that's a fairly straightforward way to consider it.

But then you get into more difficult situations. For example, the situation I face here in West Palm Beach in the local housing market. I have gone out, and I'm still going out sometimes and kind of looking-- virtually gone out, looking at the rental market, trying to just see what are houses and apartments renting for and what are my needs and would my situation be optimized if I were to move and sell my house.

I've got a good bit of gain probably in the house in the current market. I could capture that gain. I'm at the point now where I could go ahead and capture that gain tax-free. So I consider should I move and capture the gain, trying to judge the market just a little bit, kind of get a feel for what's going on.

But then I go and look at the rental market, and I look at the price-value scenario of the rental market, and it's not compelling. So how would you approach it from an actual financial comparison model? Well, I do what you're doing, and that's you're doing your research. Every Sunday afternoon when you go out to an open house, you're doing an hour or two of market research.

And it not only helps you understand the factors that you're facing in the neighborhood where you want to live or in the town where you're living and you're trying to pick a neighborhood, it also helps immunize you against the real estate agent or the mortgage broker or the other people who are there to facilitate the purchase, whether that's in your best interests or not.

And so every time you go out to an open house, you learn a little bit more than you learned before. When my spouse and I were getting started in homes in Hawaii when we had bought a house, we were also looking for ideas on ways to improve the home we were living in, and we went to a lot of open houses.

And over the years, we got better and better at figuring out what kind of neighborhood we wanted to look at open houses in, what kind of open houses we wanted to look at, what size or what type of property. We got very good at locations and neighborhoods. And I would say that we probably spent about six or seven years of going to open houses at least twice a month, sometimes every Sunday during a month, just for our own entertainment.

And we would get great ideas on things we wanted to do with our own house. We'd learn more about a neighborhood. We'd learn about school systems. We'd learn about all the things you need to learn about to buy a property. So we were doing our market research even as we were looking at cool properties or watching Home & Garden TV.

And when the time came when we found that dream property, it was because we had invested all those months of hours of open houses. We had gotten to the point where we could walk onto a property and within five minutes say, "Whoa," and understand that this had a lot of potential and that there was something worth looking at.

And then we were able to step back and dispassionately, objectively analyze all the things that were wrong with that property that had to be fixed. And then we were able to put in an offer because we had already filtered through our brains over all those months of going to open houses what we wanted, where it would be, what it would look like, and how much we were willing to pay for it.

So it's research disguised as entertainment, but it's very profitable because, again, you see a different pitch every week when you go look at somebody's open house, and you become a little more skeptical, you become a little more understanding and objective, and you're able to do better analysis. It's the kind of process that can take months or even years to find that property selling for 75 cents on a dollar.

But when you see it, you know it because you've done all the work that goes into being ready for the opportunity. Doug, I think you're giving away all your secrets to early retirement here. That's right. Your cheap date idea of entertainment is to go look at open houses and not buy.

Your hobby of choice is surfing, and even if you buy a new whip every year, what is that actually going to cost you? You're giving away your secrets here. Craigslist, yes. But I will say that walking into many of those open houses cost us a lot of money. One time we did walk into what we thought was our dream house early in the process, and we collectively, after looking back on this many years later, we lost our minds.

But we learned a lot during the process. We ended up not buying the property, and that was a very useful lesson, and it was a painful lesson at the time. We lost $5,000 on the process, but it paid off years later when we did finally find the bargain we wanted.

And I agree that when you walk into a rental property or a place for sale that you might end up walking away from it again. You probably should. But we would walk into many of these places and say, "Wow, we ought to do that at our house." And so you can end up spending quite a lot of money as a result of an open house just because you find a great idea for renovating a room or something you want to do to your living room or your family room.

But we managed to do a lot of sweat equity, so that's the key, is that you spend your money where it brings you the value, and if you're willing to learn by doing the labor, then it's the hobby that will pay back for years. Good point. It seems like there's not really any way to short-circuit that learning process in any aspect of finance.

You need the expertise to be able to make those quick decisions, and the deals come. I know for me, I've generally been a timid person in fear of making a mistake from the perspective of actually saying, "This is a good deal. I'm going to buy it." Usually I see a car or I see a trailer or just like some thing.

I've not been historically quick to move on things, but I've recognized that I need to be. And so I've tried to be more careful to know my market, but then to go ahead and buy when there's an opportunity there. And it seems to me like that's something that good investors need to know, is to trust themselves and to have confidence, and that comes from knowledge of a market.

I wouldn't have a clue when it comes to buying and selling fancy tennis shoes. I don't even know where to start, but there are some things that I pay attention to, and housing is one of those things, because all the effective real estate investors I know can walk into a house and basically say, "This one's going to sell for about this based upon these factors." And I don't know the way to short circuit that learning process.

Well, a lot of fear is based in a lack of knowledge, even ignorance. And the more you learn, the more you study, the more you practice, then the less ignorance you have. You've wiped out your ignorance, and when you see something, your fear is also much more manageable. I remember I'm sitting in the dream house we've lived in for the last 15 years, and it looks substantially different than it did the day we first saw it.

But I remember when we were walking around the property and looking at the view and looking at the location and the school system, I remember I must have said to my wife about four times during that 30 minutes, "Oh, we have to buy this." And she was of the same opinion, and it was very clear that we were walking into a property that was selling for 75 cents on a dollar.

We knew we were going to work for it. We knew there were a lot of things that needed to be done to that property to make it useful. I mean, it was already a house, but to make it into a home was going to take a lot of effort.

And we knew all that with our eyes wide open going in, but we had that background. We had that experience. We knew the risks. We could see the rewards. And we knew that sweat equity was all that stood between us and success, and it was all based in all those months of open houses and talking with people and doing the research.

So it's quite common to be afraid. It's quite common to feel the remorse or the fear. But the better you get at it, the less that will happen. It's also a factor of interest. You mentioned that you're interested in looking at real estate, and that will pay off someday.

You've also mentioned that you're not interested in owning publicly traded corporations anymore, so it makes no sense for you to try to learn more about it. If you're not interested in it, you're not going to be enthusiastic, and you're not going to do a good job. Right. With regard to the impact of housing on financial independence, I get questions sometimes from listeners.

"I'm interested in pursuing financial independence. I have this amount of money. What should I do with it? Should I buy a house? Should I invest it?" How do you approach the thought process of the impact of a house, a personal residence, on the ability to achieve financial independence early?

It's like any other big, large, leveraged purchase. It's least risk. It's the safest thing to keep renting until you find a bargain. And then when you find a bargain, if it meets all your criteria, you're going to buy it. And that's difficult to hold back. Again, there is a lot of emotion wrapped up in a real estate purchase, and there's also a lot of lifestyle wrapped up in a real estate purchase.

You may find a gorgeous home that's in totally the wrong neighborhood or even in the wrong city or state. You may find the home of your dreams, but it's just not a good place for your kids to go to school. The safest thing to do in general is to rent and to not get suckered into buying a property until you're ready to commit to that property for a number of years.

I would say the minimum should be five years in the expectations that you might get back the money you put into it. I don't even think there would be profit in living in a place for five years. But if you are interested in real estate and you are interested in going to open houses and learning more about the market, you'll be able to recognize those bargains when you do see them someday.

And in the meantime, the safest thing to do is to continue to rent. When I got involved in angel investing, I not only limited my asset allocation to 10% of my portfolio, I also said, "I'm going to make two investments a year, and I'm going to have to burn an opportunity and deprive myself of the ability to invest in anything else for the rest of the year if I find my first two investments in January." So as I would sit there listening to a very effective pitch from a very articulate founder in a very attractive company, I'd have to say to myself, "I'm going to do two investments this year.

Do I want to burn this investment right here in January?" And what I found out, what I had not understood at all when I started in either real estate or angel investing, was that many of those opportunities were still there next year. You would hear that pitch in January, you'd get all excited, you'd eventually get yourself under control and decide to pass.

A year later, the founder would be back, or the property would be back on the market, or your situation had changed, your criteria had changed, and you had a lot more options available to you. And so that apparent lost opportunity was actually a great way to go through the process and do a dry run, try it on for size, do everything short of actually spending your money, and that opportunity would come back around a year or two later.

I think it's the same way with real estate, especially if you are starting a family and have kids. The house that we bought 15 years ago was a wonderful place for the school system and the neighborhood, and we really enjoyed raising our daughter here. Now it's still a wonderful location, but we don't have to worry about the school system anymore because our daughter is done with school, and it's something that we could probably sell someday if we wanted to.

It's still a wonderful location, and I really enjoy living here. I don't think I'd ever sell it. But on the other hand, our criteria have changed because we're not raising a family anymore. And that's something that's a long-term view that's difficult to appreciate when you're just starting out, and every piece of real estate looks great.

I'm starting to understand a little bit more, and I've always had the challenge of filtering advice of other people through my own personal experience due to my age. And I remember years ago reading authors writing about wealth, and they would say, "Always remember that investments are like buses. A new one comes along every few minutes." And I was so anxious at the time.

"No, they're not. I've got to get going." And now at this point, I don't know whether I'm having my quarter-life crisis. I'm almost turning 30 this month. But I'm starting to recognize the truth of what they said. I acknowledged it intellectually, but emotionally I didn't understand it. And I'm starting to recognize investments are like buses.

Another one always comes along, and the key is just simply being willing to move quickly if you're confident in it, but also just simply being willing to wait. And even if you miss this one, there will be another one that comes along. It's very hard to wait. But after 30 years of investing, I can assure everybody that, yes, there will be another opportunity.

And I'm quite a bit past 30. I'm 54 years old. But you're absolutely right. Realizing that in your 20s is priceless. Second to the last question, a corollary of the one I just asked regarding the impact of housing on financial independence. The other question that's often discussed from the perspective of financial independence is, "OK, I've started to accumulate some capital." People that are pursuing early retirement and financial independence are generally savers, and they're starting to accumulate capital.

How should I look at the idea of getting a mortgage, paying cash for the house, making a minimum down payment, making a big down payment, kind of approaching that problem, recognizing that I have some cash, but I also have other places to invest it? How do you approach that particular problem?

That's a trick question, and I see that a lot. And the tricky answer to that trick question is that you should have an asset allocation plan. And an asset allocation plan is not just deciding what percentage of stocks and bonds you're going to invest in. The asset allocation plan is also deciding when you're going to own a home.

And that's a goal. If you're in active duty, you're probably not going to own a home until five or ten years from now. And so you say to yourself, "Well, my asset allocation plan is going to include a goal of having a 20% down payment ten years from now." And so you start saving money for that.

If you can't predict where you're going to want to buy a house, then you can still say, "Well, I'm going to start thinking about buying a house somewhere in the next five to ten years, and I'm going to start saving up cash to buy a house." The reason that you would set a goal of saving up cash to buy the house is two reasons.

You get a better interest rate on a mortgage if you have a substantial down payment of, say, 20%. The other reason you do that is because when you buy the house, you can walk in there and tell the seller that you have a big down payment and that you're much more likely to be able to get a mortgage and make the sale go through than somebody who's trying to arrange financing with zero money down.

And that entitles you to a cash discount. I make this point about deferred gratification because everybody is frustrated at saving money for their down payment fund for ten years from now in certificates of deposit or short-term bond funds at maybe 1.5%. The idea of saving money at low interest rates to have liquidity is that when you do decide to buy, you're going to get a substantial discount for using cash.

And you may have only been earning 1 to 1.5% on that money for the last five or ten years, but when you buy that property with that cash discount, you're going to earn 15 to 20% right then because you have the cash to be able to make the big down payment and get the lower interest rate and get the property because you've got the money to swing the deal.

So that's the whole idea of asset allocation and setting those goals is that when a time comes, you know you've gotten ready for it and you have the money and you're ready to buy. Now, once you buy a house, let's say you did put 20% down and you got the world's best mortgage rate, I would say that getting a 30-year low-interest fixed-rate mortgage is a known factor that you can put in your budget and figure out your forecast expenses for a very long time, 30 years.

If you know what your expenses are for the next 30 years, then you can plan to save enough money, invest enough money to be able to handle that known liability, and you can match your investments to it. I'm quite comfortable with having a mortgage in early retirement because I've got a military pension.

My military pension pays the mortgage and buys groceries and utilities on the side. So I know right away that my liabilities of mortgage, fixed low-interest mortgage, are matched by my pension income, and it's a reliable pension income from the federal government. As an early retiree who's not in the military, I'd try to do the same thing with liability matching.

My asset allocation would have a high percentage of equities or an aggressive bond portfolio that would ideally throw enough income to pay the mortgage every month. Whether or not the stock market was doing good, I'd want to have a steady flow of monthly income from my investments so that I would be able to pay my mortgage until my mortgage was gone.

That's the cold-hearted logical financial analysis. Of course, we're all human beings and we're all subject to behavioral financial psychology, and we all have to sleep at night. So if you've bought that home for that 20% down payment and you're not comfortable with a mortgage, then you would be willing to continue working for as long as it took to pay off that mortgage.

Maybe you could go into early retirement with a mortgage when you're 35 years old if that made you comfortable and you were able to sleep at night. That's a financially sound decision. If you're not comfortable, if you're having trouble sleeping at night, if it worries you carrying that debt into early retirement, then maybe you want to stay on the job for another few years.

Maybe you don't want to retire at 35. Maybe you want to stay on the job and earn a salary until you're 39 or 40 years old, knowing that you can pay off that mortgage and be completely free of all debt, entering financial independence, entering early retirement, not having to worry about that.

So there's a big emotional component to that decision. I tend to favor the financial liability matching side and asset allocation because I find that when I'm not sleeping at night or when I'm worried, I can worry constructively by whipping out a spreadsheet during a couple hours of analysis. You're the same, Ben, if I can tell already.

My wife makes fun of me. When I get excited, I make a spreadsheet. It's a lot better than reaching for a blankie or a bottle. For sure. Last question. I think the audience has noticed probably in the background while we've been recording this interview, the beautiful sound of the birds chirping around your house.

You're a Hawaii transplant, right? That's right. I grew up in Pittsburgh, but I came to Hawaii as soon as I realized what the Navy was willing to do for me. I was just going to say, the last question is this. Should every person move to Hawaii? Is that your proposed lifestyle recommendation for everybody to move to Hawaii?

Of course, you have to say no, otherwise there would be an onslaught of people. What are the benefits and disadvantages of Hawaii as a place to live? My answer to that is everybody should move around as much as they can while they're younger, especially if the military is willing to do it for free.

I find that travel and living in different places all around the world helps you figure out what's important to you. If you grow up in your hometown and you go to high school and you graduate with all these people and ten years later everybody is still living in the same zip code and you really haven't met anybody new in your life, maybe that's a big comfort factor.

Maybe family is very important to you and you want to stay around all these people for the rest of your life. But that's not the family I grew up in. I've learned to move around a lot and that has broadened me personally, but it's also helped me understand what kind of place I like to live.

By the time we got to Hawaii, courtesy of the Navy, we had lived in a dozen different places over the years and we had learned that we like warm weather. So that was a fairly straightforward decision to live here. Again, there are a lot of other advantages to living in Hawaii, cultural, financial, lifestyle, surfing, did I mention surfing?

Those are all the kinds of things that somebody should experience at one point in their life. So I'd advise everybody, if you get a chance, come visit here. If you really like it, try to come live here for a few months and see if that's the kind of thing you're looking for.

You may enjoy living in Hawaii, you may become a lifetime resident like me, or you may stay here for a few months and decide that the things that you miss or the things that you don't like outweigh the advantages of living on a tropical island in the middle of the Pacific.

But again, you've done the research, you've experimented with it, you've figured out what works for you and what doesn't work for you, and then you can go somewhere else confidently knowing that you have a bunch of criteria and you're still looking for the place that's right for you and you've figured it out and you won't spend the rest of your life wondering, "What if?" But to answer your question, should everybody move to Hawaii?

Yeah, they should come try it out. Just visit for a couple of weeks and if that works out, stay for a few months. And if that works out, stay for a few years. Hawaii is one of three states I have not yet been to, and I will be there soon and I'll look you up when I come.

I've got a longboard and I've got an extra rash guard. Perfect. Exactly. It's got to be a double XL, but perfect. I'll bring one. We'll make it all work. It's exactly the size I wear. Doug, thanks so much for coming on today. This has been super fun. I really appreciate your generous time when the waves are calling at you.

Thank you so much. Anytime, Joshua. Told you it was good. Now, we've got to go and put it into practice. That's always the key thing is to go and put it into practice. So, that's up to you and that's up to me. If you're not familiar with Doug's work, check out themilitaryguide.com.

Links in the show notes today. Feel free to read his book. He's written a book and I think he's working on a second book, if memory serves correctly, that will be coming out when he gets it done. And so, he's definitely one of the good guys in the financial space.

I think you'd enjoy reading his writing. And if you know anybody who is involved in the military, send them to his site, themilitaryguide.com. It's the-military-guide.com for details on things that they can do to enhance their own personal situation. Thank you all so much for listening today. If you have benefited from this content, if you would like to support the show directly, I would be thrilled and grateful for your patronage.

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