It's Friday, that means live Q&A. Welcome to the Radical Personal Finance Podcast. This is the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in ten years or less. My name is Joshua Sheets and I'm your host and on Fridays we do live Q&A.

This is where the audience gets to call in, or certain members of the patrons of the audience get to call in and ask their questions and tell me their thoughts about anything they want to talk about. I love answering questions from all of you in the audience and those questions can happen in a number of different ways.

I get lots of emails from you and I have too many emails, I'll never be able to answer all the emails. So I do have a list of them and I keep them there and from time to time I'll pull the emails into a show. But if you would like to get my opinion directly on a subject at the moment, these Friday Q&A calls are your best opportunity.

So if you'd like to participate in them in the future, feel free to sign up to become a patron of the show. I think it's at seven bucks a month and you get access to these Q&A calls. So feel free to check that out. We've got, let's see, one, two, three, four, five people sitting on the line right now.

So we're going to start. Let's go to Matt in North Carolina. I know you said you had to go. So let's go to you. Tell me what your question is and let's see how we can work together today. Thanks, Joshua. I sure appreciate it. I guess my question today relates to the need for bonds or not having bonds in a long-term retirement portfolio.

Essentially with interest rates so low right now, I have concern about the capital value of the bonds in the event that rates go up. Also, stocks in general have better expected returns from a mutual fund standpoint. And so from an allocation standpoint, I'm pretty comfortable in long-term investments at like 90% stock funds and 10% cash.

And then, you know, with an interest long-term and just having my home paid off and that kind of having a bond-like effect in my portfolio. And I know that that's pretty heterodox from an allocation standpoint. And I guess I have some understanding of the academic literature on that, but wondered, you know, do you see any – what are your thoughts on that kind of strategy?

The big distinction here is with the academic literature, it's almost always primarily focused around a portfolio from a scientific basis, meaning we have this portfolio and this portfolio is trying to produce certain investment outcome returns for us. So what's the best way that we can manage just this portfolio in order for us to accomplish the investment outcome?

So the way bonds work in a portfolio is as you put in more bonds, you smooth the volatility of the returns in general. To some degree, stocks and bonds are supposed to be non-correlating assets. They're not a perfect non-correlation, but they are supposed to be and generally are somewhat non-correlating.

When stocks' values rise, in general bond values are not supposed to rise on the same exact trajectory. When bond values rise, in general stock values are not supposed to rise on the same trajectory. And so you can plot this out on what they call the efficient frontier and the curve of expected returns and expected risk.

And the way it works is very interesting. If you plot a portfolio – and I don't have any numbers in front of me, so we're just going to keep this very big picture and listeners can go and dig into it more. But numbers big picture, your highest expected return will come from a portfolio that's 100% stocks.

So if you're just going to go for highest expected return, 100% stock portfolio is the way to go. But if you start sprinkling a few bonds and you start plotting the curve, and let's say you come back to a 20% bonds and 80% stock portfolio, you get a little bit lower of an expected return, but you get a much lower variability of returns, much lower risk profile for that portfolio.

So by bringing in a little bit of bonds into the portfolio, you get a much lower risk reduction. And that's where – and there's a kind of a sweet spot probably around that 80% stocks number where you've only given up a little return, but you've gotten a lot of stability.

Now how do you bring that over and apply it to real world? Well if you are trying to run a scientifically managed portfolio and allocation such as we're sitting down and you say, "Joshua, Mr. Financial Planner, you've got a million dollars here. I need to make this million dollars last over the course of a retirement of this amount of time.

Here's my personal risk profile and I can go ahead and I can manage this much risk and I can have this variability of returns," well, then the computer will spit out a model and you're always trying to decrease risk. Now that's just a little bit of the academic background to cut straight to your question now.

If you can prove – and any risk profile questionnaire with any financial advisor, if you cheat the questionnaire by being very aggressive, it's going to spit out for you a portfolio that's basically 100% stocks on the back end. That's what's so interesting is that's the primary way that investment allocation is delivered is based upon your personal risk profile.

It's not that the profiles, the recommended portfolios won't come out as 100% stock. It's just that most people can't handle the risk of 100% stocks. For me, I look at that and say, "Well, is there a way that I can learn as an investor to be comfortable with a very volatile portfolio?" That's what you've described there.

If you can be comfortable as an investor with a very volatile portfolio, recognizing that the market value of your shares can wander around tremendously when you have an all-stock portfolio, then there's no reason necessarily why you can't go and establish a 100% stock portfolio. But most people aren't going to be able to build and maintain that level of comfort.

I think that the things that you've said can offset it. If you establish a large amount of cash and you keep a large amount of cash, if you have a paid-off house, something like that which lowers your need for money, those things can offset it. When you're in an accumulation period, I think that's different than if you're in a distribution period.

To give advice on asset allocation, Matt specifically would go past the bounds of what I can do without getting in trouble with the regulatory authorities here in the United States. I can just tell you that when I owned publicly traded companies, my allocation was 100% stock because I said I can handle the volatility of it by doing good financial planning.

I don't buy the concept that the only way to invest successfully is to approach it from a pension fund perspective, which is the way that most of the research is done. How do we make this pension fund produce this outcome? I think it's every bit as acceptable. Don't tell me that I'm not in a safe position if I own 10 individual stocks from high-quality companies and I'm living on the dividends.

Yes, my portfolio is 100% stock, but if I understand what I own, just because the portfolio values wander around doesn't mean that I necessarily have a problem. That's just normal investing. I wouldn't be scared of doing it if I understood all of the risks. The caveat is most people cannot handle what you're talking about, so you've got to be triple sure that you could actually handle it.

What do you think about that answer, Matt? Do you want to ask a follow-up question? Is that helpful enough? No, I think that's right on point. I just was looking for your thoughts on that. I've been a stock investor forever. I've never sold out on a downturn. I think that that has served us well.

I think also just the notion that the only way to control volatility is to reduce the volatility of your portfolio, but sometimes it's easier and more effective to reduce the volatility of your monthly outflows and maximize your potential for return in the portfolio. I guess I just appreciate your professional opinion on that approach.

I agree with you. I do want to make one comment when you were talking about bond values and concern about bond values. I think and I'm convinced that good financial planning, which is the term I use it, meaning controlling the variability of your outflows, setting aside cash in a bank account, training yourself, that's what I call good financial planning.

I think that's more powerful than just trying to do everything in the portfolio because if you were to go to a professional portfolio manager and you're going to say to him, "Hey, listen, I'm willing to accept a wide range of variability. I'm willing to accept a very high potential on the one side, but also I'm willing to accept some years where we can't pull income off of it." If you take the shackles of having to deliver a consistent income on a consistent time off of a portfolio manager, their total return, I think, is going to be much bigger over time because if they can dry down the outflows a little bit during rough times, they can sit through the difficult times.

The higher you put, and I can prove this with software. If I had financial planning software at my fingertips, the higher you put the must, the mandated flows off a portfolio in retirement planning software, then the less risk you can take because you've got to meet that need. There's a good financial answer to you.

One thing on bonds though, when interest rates rise, bond values will fall. However, it's not a catastrophic fall. Many people, it's difficult to calculate for yourself the impact of what would a rise of interest rates of say 40 basis points due to my bond portfolio. It's difficult for the average layperson to calculate that.

You can go and calculate that from an expected return perspective. It does make a difference, but it's not a catastrophic, necessarily a catastrophic impact. It's not as though your bond portfolio is going to plummet from a value of $100,000 to $20,000 overnight just simply because the interest rates increased by a few basis points.

I don't necessarily accept the narrative also on the other side to say, "Well, interest rates are at an all-time low, so when interest rates rise, the value of my bonds will plummet." That's not factually true, and you should do an actual calculation on your portfolio. All right, next caller.

Let's go to Haleshia in Denver, Colorado. Welcome to the call. Let me know how I can serve you today, please. I have a question about if a person has a 401(k), is there really that much value in also having a Roth IRA, or do you just put all the extra savings into funding the 401(k)?

Is there really a difference in having both? Is this scenario that ... First, let's ask financially qualified. Are you financially qualified to contribute to a Roth IRA, and do you have access to a 401(k) at your work? Mm-hmm. Okay. Second, do you have an employer match on your 401(k)?

Yeah, and I've already met that. Great. Now you've got some additional room in the 401(k), and you're considering, "Should I put more money in the 401(k) or into the Roth?" I haven't opened a Roth IRA yet, so I was thinking if I should open one. I don't know. Okay.

So, Matt, there's a couple answers. Mathematically, yes, if you can use these retirement accounts and your goals for your investment are going to fit within the construct of those accounts, you should come out substantially ahead by using those accounts. The most important one in the 401(k) is to first take advantage of an employer match, and then you can ask the question of, "Should I take the tax deduction now, or should I take the tax deduction in the future?" If you can max out both of them, you're going to come out ahead using a maxed out 401(k) and a Roth IRA versus a taxable investment account.

You're going to come out ahead of both of them. So do you have enough money that you could max out both of them? So the 401(k) maxed out is like $18,000 a year, right? Right. Yeah, no. Okay. Not. So then you're trying to decide... So then your basic question is you're trying to decide, "I want to invest a little bit more money, and should I put it into a 401(k) or into a Roth IRA?" Is that accurate?

Yes. Okay. If you invest the money, what type of things would you invest it in? Mainstream mutual funds, or would you want to do something else with it? Probably mainstream mutual funds. And if you were going to use the money, when would you use the money, and what would you use it for?

Probably retirement, so like 40 years from now. Do you expect... What's your household income right now? It's around... I think it'll be like 90 this year. Do you expect your income to increase substantially in the future? Yeah. Okay. That complicates my answer. So the accounts are different. One of the great benefits of the Roth, one of the things that I love about the Roth is that you can put in the money, and you can take out the contributions without any tax penalties.

And so I really like that from the perspective of access to money. My fear with many people when they're contributing to a 401(k) is they put all the money in the 401(k), and there are a couple of wrinkles with 401(k) plans. Number one, you need to be sure of the quality of the investments that you have.

Some 401(k) plans offer excellent investments, very low cost, well managed. Some 401(k) plans don't offer very good investments, very expensive, very poorly managed. So if you said, "I have a 401(k) that's very poorly managed," well, then I would tend towards go ahead and do the Roth IRA because you can choose any company out there, you can choose a low-cost investment provider, and you'll be better off.

So you've got to consider that. Number two is you've got to consider who has control over the money. In a 401(k), you do not have control over the money. And this is because the way that a 401(k) plan works is it's technically considered to be a profit-sharing plan. It's provided to you out of the goodwill and the good grace of your company and your employer.

It is a profit-sharing plan that has 401(k) provisions on it. Now this is different than the way that most people think of their accounts. Most people think of the 401(k) as my money. I have the right to it. Well, if you think that to be the case, go to your 401(k) provider with the job that you're currently at and ask for a $100,000 distribution.

You can't get it. And the reason you can't get it is because it's not considered to be your money. It's considered to be a profit-sharing plan that the company is allowing you to make a contribution into. So this is a big difference, and it's a big frustration for many people when they look at their 401(k) and say, "How do I get my 401(k) out of a plan that has bad investment options and get it into something else?" Well, you can't because it's not your money.

It's your employer's money. Now when you leave employment with that employer, then you can have access to the money. And if you're at the employer, there might be some options where your plan might allow some kind of in-service distribution. Your plan might allow you to take a loan against the account.

There are some options that your plan provider can do, but it is important to recognize that it's not your money. So if people are putting all of their baskets in the 401(k) and you don't have other savings, you don't have other investment accounts, I get nervous about that. I'd like you to have access to more money.

And that's one of the benefits of the Roth. If you put, say, $5,000 this year, $5,000 the next year into the Roth, and then all of a sudden you have a need for money and you need $10,000, you can go ahead and take that $10,000 back out of the account and you could take the money back out of the account and use it.

So it gives you a little bit more flexibility. If you instead put that $5,000 into the 401(k) and you needed money two years from now, well, you're going to be putting the money on a credit card or rating some other kind of asset. So you need to consider that within the context of your planning.

In general, I think at this point and with one of the other callers, I'm actually going to go to Rick next, we're going to talk about the question of what comes out ahead. I'm convinced that I probably think there's more value in using the 401(k) and paying the income taxes in the future than going ahead and opt and using Roth IRAs first from a tax perspective.

Now, this is a hotly debated subject. Many people disagree with me and I understand the arguments, but I'm convinced that, number one, I don't expect tax rates to change all that much in general because I don't think the population politically is going to accept them. I think that when you look at retirement and you look at taking funds out of a 401(k), it's really tough for you to be at the highest marginal tax bracket that you're going to be at during your working years.

So I would say my answer to you, Haleshia, would be, number one, if you don't have other money available to you, consider prioritizing the Roth for the sake of the flexibility. If you do have other money to you, consider prioritizing the 401(k) and accumulating the assets there along the way, and you can do some of each.

Is that helpful or too confusing? No, that's helpful. Okay, you had a second part of your question. Go ahead with the second part of your question, please. I do. So I'm thinking about quitting my job in about 2018 to go do some long-term travel. And I was wondering about how I should plan out ahead so that I don't completely come back to the US and then have nothing.

So I was looking at what that should look like. Okay, perfect. So given that detail, you should definitely consider doing the 401(k), and then you should do what is called a Roth conversion during the time that you're traveling. And so what that means is you contribute to the 401(k), and then when your income is low because right now you're going to be at your higher marginal tax rate, when your income is low, convert some of the 401(k) to the Roth, pick up that income on that year's tax return, pay the tax at the low rate, and then you can go ahead and have the money accumulated in a Roth.

So with that additional detail, that makes my advice with regard to 401(k) or Roth relatively straightforward. That's what I would do if I were in your shoes. Now is your concern running out of money while you're traveling and not having any money to come back home? What's your specific concern?

No, I'm pretty sure I planned well enough to have money abroad. It's just more so I was wondering if there were any things I was overlooking when you go through a period of maybe a year without any income as to what to consider other than having cash on hand.

So you're going to pay for your travel with savings that you've accumulated? Mm-hmm. Okay. I would just do a couple of things. So doing something like that is an opportunity. Do you plan to continue in the same career when you get back from your trip? I think so. Doing something like a year traveling can be very, very simple.

If you're going to just go and be in the same career when you come back, all you need to do is make sure that you have savings to pay for the trip and then make sure that you reserve enough money to get established when you get home. You don't want to come home to an empty bank account and not have anything to pay first, last, and security in a new apartment or not have anything to buy, an improved suit to go to your job interview.

If you can line up your employment and have something set up in advance, that makes it even simpler to transition whether that's with the same company or with a different company, then those are good opportunities. When you cut your income, it opens up an opportunity for you to use some of the strategies we talk about here to use some of the strategies for tax planning.

Specifically, the biggest one for you is going to be to do that Roth conversion, but it also opens up the opportunity for you if there's any programs or things that you need to have a low income for to take advantage of, do it in that year. So if you had kids and you were trying to send your kids to college, well, line up the travel in the year that that lower income can be reported on the FAFSA.

If you need to do anything with income-based applications for any aid or anything like that, line that up so that you are doing that in the year that you're reporting the travel where you basically don't have any income. So I mean, those are your biggest opportunities. And my recommendation would also be keep some kind of nice record of the trip so that with the job hunt process, it's nice if you can just point somebody towards your blog or your Instagram profile or something where they can kind of see what you've been doing.

A lot of people have the fear that if they're out of the workforce for a year or two that they're going to fall behind. And then take advantage of the time that you're gone and don't lose contact with your industry. That would be if you want to do something while you're on the road, that would be a good time to make some moves in your industry.

Set up an industry-focused website, post some articles, things like that. Use that downtime if you want to do any work. People don't want to do any work, but use that downtime to really adjust yourself and establish yourself from a career perspective. Those would be just some generalized thoughts. Any of that spark a train?

Anyone ask any follow-up questions? - No, that was, you gave me a couple of things to think about. - Yeah, it's a real opportunity. If you have had any thoughts of changing careers, I don't know if you've already had your trip totally planned out, you're a few years out from it, but doing a trip can be a tremendous way to also change careers.

If you put a theme around your trip, so for example, you're changing from industry A to industry B, and you use, while traveling, you use your travel experiences to investigate the industry B that you want to get into. If you want to become a farrier, shooing horses, and you travel all around the world and you document farriers, how they shoo horses in every country and in every culture, and you use this to establish a presence online, this can catapult you into a new career.

You can use this time to reeducate yourself and to establish a new presence. It's a really great transition that you can participate in. Think about how you can use the fun of the travel and integrate it with any other life goals that you have. It can be a really great way.

We don't often get a lot of opportunities to do those long-term projects, and so taking a gap year can be a really cool way to do it. All right, Rick, I know you said you had a meeting, but I want you to weigh in on this question that we're talking about of which account to go with.

Quick background, Rick, on a show where I talked about Roth IRA versus traditional IRA, and I said if anybody wants to do the calculations, I can't do the exact calculations, but I think the benefit of the Roth is generally oversold for retirees. Rick went through the work of doing some of those calculations.

Fill us in on what you learned, please, Rick. Yeah, actually the tax side of it is the challenge is solving for that. What I did was want to solve for what the retirement income would be on an after-tax basis at retirement age. Some of the assumptions that you gave us was that this is someone that would contribute $15,000 a year, 7% a year growth.

I can't remember if that was your assumption or mine on those contributions. And then also with that, I went ahead and added in some assumed Social Security income as well. Essentially, the bottom line on this is that at retirement, which we said was going to be age five, the Roth account produced an after-tax income of $59,893.

And again, why this is important as an after-tax income, obviously the Roth is already after-tax. However, Social Security is not. So doing that total evaluation on the taxation, Social Security taxed totally different than other income. So they had a total take-home income of $59,893, whereas the person that contributed to the deductible IRA or 401(k) had an after-tax income of $60,031.

So basically it's a wash. What is it, a little actually like $60 difference between the two. So it really didn't matter. Another assumption that I made is that this splash deductible scenario was able to save an additional $3,750 a year because they received tax savings through their traditional splash deductible contributions.

And I did that in order to equalize the net spendable income during the accumulation years. In other words, it wouldn't be fair to say, in other words, I tried to smooth out the income in both scenarios for those years in order to make it fair. Otherwise, one guy would be living on more money during accumulation than the other guy.

Right. Yeah, so basically it came out, let me give a little quick more background and then we'll talk about what you think is the best move then, Rick. So real quick on a little bit of additional background if people weren't able to follow that. One thing that's important to recognize and very big picture is that if you pay taxes up front at the same tax rate as you pay taxes on the back end, the amount of money that you get to spend is identical.

So if you pay taxes at 15% on a Roth IRA up front and then you pay taxes at 15% on a 401k at the back end, the actual amount of spendable money is the same whether you pay them up front or down the road. So many people don't realize that and they think that they're getting a better deal by contributing to a Roth IRA.

Now there are other factors that need to be counted in, which we're not going to go into in detail here, factors such as what Rick said, he said he needed to equalize the spending. Well if you don't have to pay taxes up front, you can contribute more to a traditional IRA or traditional 401k than you can if you have to pay taxes up front in a Roth scenario.

So it can be easier to get more money into a 401k because you're not having to pay the taxes up front. But if you could pay the taxes up front and get more money into a Roth, then you can come out ahead because you're actually saving more money. But it's not because of the tax savings of the Roth, it's because you're saving more money.

Now the big picture thing that I look at is when are you having the highest income. Recognizing that you're going to be paying taxes and we always calculate tax deductions and at the highest marginal rate, I look at it and say it's very simple that most people are going to have more income during their working years than during their retirement years.

It would be an unusual circumstance to be in where you're earning substantially more in retirement than you are during your working years. So it's probably going to be better to take the deductions during your highest earning years which are going to be your working years than in your retirement years which is during your non-working years.

Now there are so many ways that this can be changed. You can't answer it on a general basis. But the reason why it's so difficult of a nut financially to calculate is because you have to calculate, okay, what are the credits, what are the social security income. You have to project all these things out and then figure out which come out.

So that's what Rick did and basically the results of the calculation and I'll link to it. It's in episode 332 was his comment, radicalpersonalfinance.com/332 if you want to see all the numbers and he came out and said the difference is relatively inconsequential. So Rick, I know you're a financial planner.

Did this surprise you doing the math or was this about what you expected? It's pretty much what I expected just because the math, well in some ways it surprised me, in some ways it's what I expected. So it's what I expected because I totally agree with your first comment that the Roth contribution versus traditional is not a question of increasing your wealth.

It's just this whole idea of pay the tax on the seed versus the harvest is just kind of a case that doesn't really accurately portray the situation of what's going on. So I always have viewed it as kind of a wash. However, with that said, in retirement there are more nuances, particularly the taxation of social security and then also RMDs as well.

And so it's really, as anything in personal finance, a case-by-case situation because if you have a traditional account, presumably you're going to have a higher balance and therefore a higher RMD. And if you don't want or need that high of a withdrawal rate, then you could be bumping your bracket by having that higher RMD and also bumping the taxation of your social security and potentially bumping the cost of your Medicare.

So all of that is to say that I think there can be a compelling story for Roth in the future. However, for most people, I totally agree with you that for most people, go ahead, take the tax deduction today and then you have some flexibility in retirement and before retirement to do some conversions if it makes sense.

The only other way I would say go Roth as far as a clear answer is someone says, "Hey, I want to contribute $5,000. I'm going to do it. I've got $5,000 tax refund or inheritance or extra money, whatever. Should I do Roth or traditional?" Well, if they do Roth, obviously it's the equivalent of just adding more money at that point.

So in that case, it's more of a behavioral finance rather than a numbers question. I think there's a lot of value of having – when you get to retirement, there's a lot of value of having multiple accounts so that you can manipulate a little bit where the funds come from and you can manipulate a little bit, "Okay, the Medicare cost, let's see.

Can we fit it under a bracket and figure out how this goes?" The only kind of clear takeaway I would take from this is I don't think – a lot of people get – because they mistake that – you phrased it very well. Should I tax the seed or tax the harvest?

That's one of those things that seems intuitively better to tax the seed, but the math demonstrates that it doesn't matter. The tax is the tax. So I would discourage people from jumping to the Roth 401(k) for the bulk of their investing. That's the thing that I see that I'm concerned about.

Many people now are having the option to participate in a traditional 401(k) or a Roth 401(k), and they say, "Well, I know that Roth is better. I know I'm going to have less money in the end, so I'm going to go to a Roth 401(k). I think that's a bad move." But if you can – go ahead.

Now, I'll push back with you a little bit on that, just to add a little more nuance. I have some 401(k) plans that I manage, and some of the employees – actually, a lot of them are in non-profit education at the lower income level, basically preschool, day school kind of thing.

And anyways, a lot of them, I counsel, "Hey, go ahead and go for the Roth. You're probably paying little, if any, tax right now on your tax bracket. Go for the Roth. And oh, by the way, you're automatically diversifying your taxes because the employer contribution is traditional. They never put employer into the Roth, so you'll automatically end up with both accounts in that scenario." So I think there is sort of a missed opportunity where some people, and quite a few people who aren't high-income earners, whether it be just a lower-income area or a second wage or whatever, second earner, whatever the case may be, they're taking a deduction automatically in their traditional 401(k), and they haven't really looked at the tax and seeing, "Oh, wait, I'm a net recipient due to the earned income tax credit and everything else that's going on, so therefore I'm basically wasting a tax-free scenario here." Yeah, that's a great point.

100% agree with you. If you're at a low tax bracket, if you can look forward and imagine your life and see that in the future you reasonably expect to be earning substantially higher, then use the Roth now, especially if you're at those bottom brackets. Use the Roth to get the money out of the taxation world and wait on the 401(k) or traditional structure until you're in a higher earning.

I think just some of the other factors that you've got to look at, I love the flexibility of the Roth for what we went over earlier in the call, to take the contributions out if you need them. I like the ability to choose investments. I think ultimately most people are going to wind up having both, and both being the plan, but use some of this data to calculate.

So Rick, I appreciate you doing those calculations. Thank you very much. My pleasure. Thanks, Joshua. For sure. I've got two more callers online. I've got Sean and Jay. Sean, let's go to you. Sean in Chicago. What's your question? How can I serve you today? Thank you, Joshua. My wife has recently been able to be hired to work for a nonprofit, which she founded and loves dearly.

Currently, she's the only employee and likely will be for the next few years. They're considering setting up benefit plans and are in the process of setting up a retirement plan. She wants to present a plan that's both as appealing to our circumstances as possible, but also to the nonprofit since she'd never sacrificed its good given that she's found it and it's her life's work.

So currently, we max out 403B, mine's 403B, her simple IRA, backdoor Roth, and have some in taxable investments. If she were to max out a 403B, we'd still have some for the taxable investments. That's important to us because we both kind of think we may start our own business in the future.

So my question to you is, are there any considerations for setting up a retirement plan for a small business or nonprofit like this that you think people may often overlook when they're concerned not just about the employee side, but also the employer side, that it's a mutually beneficial setup?

I don't know if it matters, but we do file our taxes, merit filing, separately since she qualifies for public service loan forgiveness given her salary. Okay, that does matter, but let's come back to that in a moment. Is the nonprofit well capitalized? They're pretty well. They're on a good trajectory and in a strong but small position.

It's an interesting question and I'm not sure that I can remember my details clear enough to answer it as well as I would like. I'm making a note of it and if I can dig into it a little bit more, I'll need to check a couple of books. So just recognize that it's such a nuanced question that I wish I could give a better answer off the top of my head.

I'm not that good. So the reason I say merit filing separately does matter is because merit filing separately hurts you with a couple of, I think is it IRA contributions? Or is it? Yeah, it's IRA contributions. That if you're using an IRA, the limit for a deductible IRA is like, I need a tax table at my hands.

It's like 5,000 bucks, something like that is your income if you're married filing separately. It doesn't sound like that's appropriate to you, but there are a couple places where the IRS really doesn't like people who are married filing separately, especially when it comes to retirement accounts. But if you're using the public loan forgiveness program, then that's probably compelling enough that I wouldn't necessarily just say you need to change it.

With regard to the reason I asked if they were capitalized, she's expecting more employees in the future and things like that. So you're probably not going to want to try, you're not trying to structure this in just a way that's just going to benefit her. You need a plan that's going to be consistent across all of the employees in the future.

And so that's going to send you in the direction of just some of the normal plans. The first thought I had was, and I'm not sure that you can do it, but I need to research it. But the first thought I had was, could you set up a 457 plan?

I think, I wish I had read my book recently. If you could set up a 457 plan at a nonprofit, then that could give you some flexibility with your other accounts. Because you already have the Simple IRA, you already have the 403(b), you have your Roths and you have your taxable.

If you could set up a 457 plan, then that would give you some options where you can contribute money, have the tax deferred, but not have to pay the tax right now. And it's a little bit of an arcane area. I just found an article on it here. And it's one of those things I'd have to check into and get back to you.

So I'll just leave it at that for a moment. Otherwise, just the normal options would apply. I can't pull the answer out of my head right at the moment, so we'll leave it at that. I apologize. I'll make a note and we'll see if I can get back and answer the question for you properly.

So I'm kind of failing you on this one. Any follow-up clarification or things that I might be able to help with? No, I mean, I think that's it. Any thoughts you find or if anything comes along, that'd be great. But thanks for mentioning that 457 plan. We'll look into that a little further.

Yeah. Okay. So just one article here as I was desperately trying to pull through my notes and through the internet. "Non-governmental plans can be established by qualified 501(c)(3) organizations that also offer 403(b) plans, but they can only be offered to highly compensated workers, although the exact level of income for qualifying employees is not stated precisely.

However, it must meet some sort of ascertainable standard set by the employer. These plans have therefore been given the nickname of 'top hat plans.'" So with a 501(c)(3) organization, if the board were to set up a 403(b) and then were to offer a 457 plan, if they could jump through the hoops and you need to work with a consultant, with a qualified plan consultant on this to get it right, you might be able to set something like that up.

And yeah, you might be able to set something like that up. That's the best idea I've got for you right now. If I can find a couple of these articles that are helpful, I'll also link them in the show notes for today's show. All right. Next I've got Jay, New York City.

Jay, go ahead with your question. I don't know how I can serve you today. Hello? Yep. Go ahead. I can hear you. Hey, Josh. Oh, great. Hey, Josh. First thing, great show. I've been listening to you for a long time. Pretty honored to just be able to talk to you now.

So regarding my question, 2008 impacted a lot of people, including myself and my family. We ended up, story short, I ended up filing Chapter 13. We're in the process right now that we're actually exiting Chapter 13. Great. And I would like to be able to kind of move forward in a better path in terms of my financial lifestyle or my financial life and how do you see or what suggestions you may have in terms of kind of reengaging the financial system now that we've spent so many years on our own, living off the dollar that we make and nothing else, which I'm happy to continue to do so.

And we're fine with it and we're pretty stable. But we do want to be able to in the future recreate or reestablish credit and be able to move forward in different avenues. So just wanted to get your opinion on how is best to kind of exit this type of situation.

Describe the circumstances that led to the Chapter 13. What was it that put you in the hole so bad? Sure. I was, it was 2007, 2008. So when the market crashed, I was in the middle of a construction program for my home. So my primary home, we were building a second story home.

We had a construction loan, an equity loan on the house. And I had probably in personal savings of about 50 grand that I was also going to use in the home. Unfortunately, because of what was happening with the market after demolition, so I already had no roof over us and we were already in the process of construction, the loans that had committed for the construction, the HELOC, as well as construction loan, I had two different loans, were frozen, which led me to pretty much fund the entire $100,000 to build construction.

A lot of which I trimmed down by doing a lot of the work myself with my family, but also fund the entire cost pretty much out of my pocket and through credit cards, which was not what I wanted to do. Those ended up being frozen too, so my credit just went to crap.

And we were kind of in the spiral of the market, where we ourselves put ourselves in, but unbeknownst to what was going to happen. So unfortunately, we had to proceed with the construction, which was already demoed. Trimmed down a lot, but we still had to proceed and then kind of had to deal with the impact afterwards.

Sure. So basically, it was one big house deal that went bad, and then all of the associated construction costs that got put on credit cards, that was what put you under ultimately? Did you have a lot of other credit card debt or a lot of other car payments, a lot of other debt outside of the construction debt before that that also hurt you, or was it just construction debt?

No, it was pretty much all associated with this. I was probably utilizing credit cards at 20% or less of availability, but I did have a lot of credit cards available to me at the time, because they were coming in pretty easily. So I had a certain amount of costs that I couldn't put into the credit card, which I ended up doing.

And as cards and banks started freezing accounts or cutting accounts, that was kind of just turning in and reducing my availability of funding, which kind of destroyed my credit. And then I tried to re-engage the system and negotiate some things. I couldn't do it. Suggestions came into trying to do the HAMP program, which kind of just destroyed me even more.

I ended up not doing that and choosing not to do that. But after that, by the time I decided, I already had months that I was not paying on my home because of the suggestions to get in order to get into the HAMP program, I had to not pay my bills, even though I was paying my bills.

So it definitely was a year plus journey that put me in that position. But it all started on the fact that I was on the construction when the market crashed and all my loans I had for the construction were taken out. Right, right. So a couple of thoughts for you.

First, I would recommend that you, if you haven't done it already, I'm sure you've learned a lot of lessons. I would recommend that you sit down and write some of them down. Just kind of make a list of the things that you've learned from this nightmare. Because we all go through difficult circumstances and the biggest waste is to go through a disaster and not learn anything from it.

If you go through a disaster and you learn something from it, then at least you could gain some value out of it. If you don't learn anything from it, then it can have some major problems. And I appreciate it. I heard in your statement, I heard you correct yourself and take responsibility for the things that you could take responsibility for.

And you corrected a couple of times when you were talking, you corrected and used responsible language. I chose this. I made these choices. To me, I commend you for that because that's a very important starting point. A lot of people say, "Well, the market crashed and I couldn't do anything about it." Well, no, you can't do anything about a market crash, but you can foresee and consider that things might happen.

Now, if you were considering, say, a 30 or 40% decrease in value or decrease of credit lines or things like that and they cut it by 75%, sure, that's a little harder to perceive. But you're a little wiser now and you can plan and count on those things. And I think it's an instructive story for all of us who are listening to it that sometimes things that seem so great, "I've got these lines of credit, everything's going to be good to go," sometimes things change.

And that's where you need to understand the terms of your agreements. You need to read the terms of your loan agreements. If you're going to take out a construction loan, a home equity loan, etc., do they have the right to reduce those things? Many people had this happen. Many people had their lines of credit decreased and they didn't realize that that was possible.

So I commend you for that and I encourage you to just learn from it. So you're already doing that, but just for the sake of the audience. At this point in time, do you live in the house? Do you love it? Have you sold it and moved on? What are you doing with the house?

It's still ours. We love the neighborhood. We love the town. And the house is exactly what we need in terms of what we ended up doing with it. I ended up part of the situation. I ended up needing to house the two-family home, but I ended up also needing to house my in-laws full-time at my expense.

So that's kind of also hampered my ability to move forward with some of the financial constraints due to financial constraints. But yeah, we're happy with our current situation. I wouldn't change anything because you learn more from your hardships than you do from your wins many times. And we have a happy family.

We're doing well. We are... I could potentially, part of my progress moving forward, I could potentially... I'm probably still owed about $350 plus on the home. It's pretty high rent or cost of living in this area. But I could potentially put a plan together that I see myself within 10 years paying that off completely.

So we are financially stable now and in a better position where it's more about what do we tackle. Now, I never wanted to get into some type of bankruptcy, but now that I'm out of it, I'm glad that I was able to keep my home, keep the roof over my head to my family and my in-laws and still be able to kind of figure out ways to feed us.

We're doing fine now. It's just how do we move forward? And I should financially be able within 10 years to pay off the entire house if I move forward that way or look at other ways. But I just kind of just want to pick your brain as well, how would you envision best way to kind of emerge out of this type of situation.

So two lines of thought that we should go down. One is how to move forward and build wealth. And the second is how to improve your credit. Those are two separate things because your credit is not necessarily indicative of your wealth. They don't necessarily correspond. So between the two, if you have to choose between building wealth and having a great credit score, obviously you're going to choose building wealth.

That's what actually matters. But the credit score is important. It's going to make a difference in your life, a dramatic difference. It's going to make a difference in the terms at which you have many things from your car insurance to some of your banking opportunities. It will make a difference.

So you do want to deal with the credit score. So first, building wealth. The great thing is in Chapter 13 when you come out of it on the back end here, you will have paid and satisfied your debts. You'll have satisfied all your creditors and you'll be coming out with basically a clean slate.

You don't have anything else that you owe and you're coming out with a clean slate. You're coming out with years of building some new habits of living just on the income and making that big Harry Chapter 13 payment. And so when that thing is gone, you're going to feel like you're rolling in money.

The difference of building wealth is no different than it was before. It's a matter of saying there's no difference for somebody who's coming out of bankruptcy than it is for someone who's not coming out of bankruptcy. I need to save money. I need to establish my financial goals, figure out what's the clear path towards those goals.

So how does paying off this house help me get those goals? Can we pay it off in 10 years? What are the numbers going to be to get there? What's going to be the primary financial engine of our plan? How's my income doing? Do I need to, now that I'm getting rid of this big Harry payment, do I need to invest in something that's going to help me earn more money?

Is there something that's associated with your business? So you start to build an investment plan and you build a financial plan that's going to have your income coming in, keep your expenses under control. You're going to have those debts cleared and then you're going to focus on what's the investment plan and you're going to start working towards that investment plan.

And so all of the investment plans, any investment plan is open to you coming out of Chapter 13 as is open to anybody else. So if you are going to invest using stocks within a 401(k) at your job, that doesn't matter whether you've come in or out of bankruptcy.

If you're going to invest in real estate, you can do that whether or not you've been out of bankruptcy. I have a couple of guys here locally who 2007, 2008 put them into bankruptcy and they just kept right on going right through it and worked their way through and came out the other end millionaires.

And they never gave up their real estate plans. Being in business isn't going to be affected by bankruptcy. So your wealth plan is not affected by your bankruptcy. When you have this thing paid off, you'll have satisfied all your creditors, you've done the honorable thing, you've paid your debts and you'll be starting with a clear slate.

So your wealth plan is everything is not connected to the bankruptcy. You're just simply working your way through exactly like we talk about every other day, increasing your income, decreasing your expenses, investing wisely, avoiding catastrophe, optimizing your lifestyle. Now given what you've learned, the only thing that's going to be impacted on your wealth plan by your bankruptcy is that some lines of credit that other people might count on are not available to you.

So you can't have a small emergency fund and a credit card as your emergency plan. You've got to have a big emergency fund. You can't plan on a home equity line of credit being your backup. You've got to have a bunch of savings. And so you've got to be more conservative than other people, recognizing that you can't necessarily rely on the things that other people rely on for some of their plans.

But that's okay. You've learned a lesson. And just because it takes you a little bit longer and you've got to save $50,000 instead of $15,000, that's okay. You'll feel better with the $50,000 in the bank. Now with regard to the credit score, that process is relatively simple. Go and get a good book from the bookstore on building a credit score.

And there are a couple of things that are associated with it. Number one, the biggest thing that's going to drive your credit score is paying your bills on time and paying the debts on time. So after this is discharged, yes, the bankruptcy is there, but you'll still be able to work your way through and pay your bills on time and that will start to build a stronger credit history.

And then that bankruptcy will fall off. Was it 10 years for bankruptcy to fall off the credit report? Is that right? I believe that's what I was told. Yeah, that's what I think it is. So you don't have to wait 10 years to have access to credit after a bankruptcy.

But you're not going to have access to credit immediately after bankruptcy. Do you foresee at this point in time that you need credit for something in your financial life in the coming years? Not directly. I'm building my emergency fund, so that's fine. My kids will be heading off to college starting in two years.

So that's probably going to be more of a constraint. But they already know that they have skin in the game. I'm going to provide for half and they got to provide for the other. And I have avenues to provide for my part, so I don't think that's going to be too insane for me, for us personally.

So I mean, everything else we've been for six years, we've been off our own dollar. We're fine with that. We'll probably need a car here and there to replace the existing old cars that we've been running down for a while. Sure. But I could probably fund those directly. Yeah.

I don't see really any use for credit except for houses. Houses and maybe businesses. Other than that, I don't see the point of borrowing money. So the credit score game is just simply a game because so many things are based upon the credit score. It's useful to build a high credit score.

And if you have a high credit score, it can be useful for some of the games, the travel hacking and the mileage games and all that, to travel for free. You can do that. I've seen people that do that very successfully. But in terms of building wealth, the only time that you need credit is basically for mortgages and possibly for businesses.

I don't think there's any reason to ever borrow on anything except one of those things that's going to go up in value. So the path to improving the credit score is pay the mortgage payment after you come out of the Chapter 13 and you'll have paid the Chapter 13 payments.

Pay the mortgage payment on time and make sure that that's set up and it's always paid on time. Next, you'll go and establish a secured credit card with a local bank, credit union, et cetera. Secured credit card is where you give them $1,000 and they give you a credit card with a $1,000 limit and it's backed by the money in the account.

You take that, use that for just your normal expenses, paying it on time, consistently over time and you work your way forward with that for a while. Then after a while, you go ahead and you apply for another credit card and you pay that one on time. You can borrow money for a car but really I don't see the point of it.

If you want to get a small car loan to establish another car loan and a credit history, you can do that. But I don't see the point of it because when you borrow on things that go down in value, that's a recipe for poverty and you don't want to do that.

So yes, getting a secured credit card to start to have just that plus your mortgage, that should be enough with a history of payments. When you're getting the credit cards, the keys to the score is one of the four parts, the utilization of credit, your payment history, the type and nature of accounts that are open to you, et cetera.

I would do is I would keep it simple. I would just simply pay cash for everything except the mortgage, pay the mortgage consistently over time and I would get one secured credit card and then after I've had the secured credit card for a while, I'd probably get one or two more.

Keep the balances on them, pay it off, pay them on time every time. You need to use them and so from time to time, you should carry a balance through to the end of the statement date. You need to have that there as demonstrated that these are being used.

Don't just pay them immediately. Let them go through to their statement date and that over time will raise the credit score, just that consistent period of payment. From talking with people who come out of bankruptcy, if you needed to borrow money and buy a house a few years after bankruptcy, you could do that again if you needed to switch.

So all those options are there for you. The big thing is to pay a little bit of attention to the credit score, get a book, do that, but focus primarily on the wealth plan and recognize that it's not connected to your credit score. It's a separate deal. That's great.

Thank you. You're welcome. I'm glad you're coming out of it, man, and I'm glad you've learned some lessons. Analyze what puts you there and then resolve in the future, as I'm sure you have. I tell you, I have made some huge business decisions, business mistakes in the past that have cost me a lot of money, and I am very sensitive to making those mistakes again.

So it's a good teacher to learn the hard way. Yes, sir. All right. I think that's it for callers. I've got one more email here that I'm going to take before we wrap up, and this was from Megan. She wrote me this and said to Joshua, "I was going to call in on the Q&A today, but I'll be at work, so hopefully this reaches you in time because I can't call in.

I'm in my last year of grad school and I saved up just about enough money to pay for it out of pocket and still have a four to six month emergency fund left over. But beyond that, it will wipe me out. I was approved for loans covering over 100% of my tuition cost based on need, and I already have about $35,000 in student loan debt.

My question, should I use the loans for school and increase my debt so I can open an investment account with the money I have saved up so I have it as capital for a future business or real estate endeavor? I'm employed full time, but I plan to start a side business.

When I finish my degree next year as an integral part of my plan for financial independence. I'm typically very debt averse. I live mortgage and car payment free. I pay off my credit card every month, and I've only accrued $30,000 in loans in a degree program where many of my peers came out six figures underwater.

So my initial plan was to use my savings and not increase my loans at all. Since listening to your show and further research of my own about financial independence and how debt leverage can be a powerful tool when used properly, I started to wonder if taking the loans so my capital could be put to use doing something else is a better option.

My conclusion so far is that if I can earn equal to or more than my interest rate, I should take the loans. My current loans range from 3% to 7% interest, so I'm planning on the high end of a 7% interest rate. I don't have time to actively manage an investment account right now.

So if I go this route, I plan to open a Vanguard account and invest in the Total Stock Market Index Fund (I'm also a Jim Collins fan) which tracks that market at approximately 8% to 12% average returns depending on the economy and just leave the money there until I need to invest in a business.

At the low end of 8%, I'm still coming out slightly ahead of my loan interest accrual, so it seems like a good deal. I am aware, of course, that that is not a guaranteed return and the market could tank the day after I invest and lose everything, but since that money is not a part of my everyday survival, I could afford to lose a portion or all of it and ride out the stock market ups and downs as necessary.

I'm curious about your opinion on this as well as if there are other factors I should consider apart from the interest rate vs. investment return disparity and legalities. Legalities as in you cannot use student loans to fund endeavors beside school so the loans will only go to school expenses.

Even though I was approved for more than I need, I will only take what I calculated my school expenses to be this year and use those funds appropriately. So Megan, two aspects to the answer. I see two questions here. The first question is should I take out student loans and keep this extra money aside for a capital as investment capital or should and then the second question is if I'm going to keep the money aside as capital, should I invest the money in stocks or not?

So there's two questions. Let's handle them separately. First you have enough money to pay out of pocket for that schooling and still have a four to six month emergency fund left over but beyond that it'll wipe me out. In general, how to answer this, in general I think minimizing student loans is the right idea.

Minimizing student loans is the optimal path. I can't stand student loans and minimizing them I think is fantastic. Being completely debt free is ideal, is fantastic and I think that forcing yourself to pay the money and avoid those student loans has a lot of benefit to it. It'll make you feel proud of having the loans gone.

It'll have a tremendous amount of benefit. So in general I love that plan. I especially love it when it forces you to adjust expenses. When I was in college, my first year of school I didn't borrow any money on student loans. I did four years of college. My first year I didn't borrow any money on student loans.

I worked three jobs concurrently and I worked hard and I was able to come out the other side without any student loans. My second year of college I decided I had been working too hard and during that year that I was working too hard I decided to stop working at a job for income and I decided to start using student loans.

So I used student loans to pay for my expenses and for my living expenses. So my class expenses and for my living expenses and I started accruing student loans. During that process, my second year I learned less and I got worse grades than I had my first year. My third year was a little bit unique because I studied abroad the first semester then I came back, dropped out of school and I went back in the summer.

So set that aside for a moment. My senior year was when I decided to get out of debt and I wanted to get out of debt before I graduated. So I set my entire focus on paying off the student loans just as quickly as I could. During that process, I worked like crazy.

I took 18 hours of class, worked 40 hours a week and it was the hardest year of my life. But the amazing thing was I came out the end and I had the student loans paid off completely and I had gotten straight A's. I got better grades that year that I was working 40 hours a week, taking 19 hours of class and saving like crazy.

I got better grades and not only did I get better grades, but I learned more because I was intense about it, because I was focused. I was putting in much more effort into my studies and I was putting in much more effort into being prepared for class and all of a sudden, the same teachers who a few years previously I had been quite negative about saying, "I don't know what they're talking about." All of a sudden, the same teachers became much more knowledgeable.

It wasn't that they changed, it was that I changed. So I learned that when you put the screws to yourself with a clear, focused goal, you can make some great stuff happen. I regret that decision I had made that second year where by starting to borrow money on student loans, I became lazy, I didn't work, I didn't do well in school, I didn't work very hard and I suffered for it.

I started to spend more money. When you have a clear goal of, "Hey, I'm getting out of grad school," and you're paying out of cash, cash out of pocket, you're going to spend less money. When you're paying cash for things, you have less of an incentive to spend money and that's one of the reasons why you want to avoid debt like crazy, because when you're using debt, it's so easy to just go ahead and buy the thing.

It's so easy to say, "Well, this is my last year of grad school, so I'm going to go ahead and spend all this extra money on A, B, C, D." It doesn't matter what it is. So that'd be one of my big concerns, that if you don't pay cash, you'll wind up spending more money.

Now, is it possible that you're a robot and these emotions don't affect you and that you can just spend exactly the same amount? I guess it's possible. I mean, I don't think you're a robot, but perhaps you have that financial outlook. I think there are people that can do that.

I would tend towards saying, "Pay cash for that year of school." Now what's the argument on the other side? If you have a clear goal for that future business and real estate endeavor and you want to have that capital, and if that were going to start right after grad school, then I couldn't argue that you would need to have that capital available to you.

If you were in grad school and coming out the backside, you had to say, "I have this business. I need $15,000 of startup capital available for that," and by keeping this money aside, you're going to have that available to you and that's a clear plan, not just a vague, fuzzy wish, but that's a clear plan.

Given that wrinkle, I think I would do what you're saying. I would take the money on the student loans and I would keep the capital aside, but you've got to figure out a way to cover yourself, to keep yourself focused on not spending the money and not wasting it.

Given if you had a clear goal and a clear action plan, clear business, clear real estate, etc., I would do that because I think that if you were to invest the money in something like that and if it were to work, you could come out substantially ahead. Think of it like this.

You mentioned real estate here, so let's say you could perform one successful real estate transaction that had a very high profit or a decent profit out of it. It's possible that by having the capital to put down on the property, bring it in, fix it up, flip it, and secure profit, you could with a deal or a couple of deals, you could make enough money to pay off these student loans completely.

Capital is so valuable that if you've accrued it and you have a clear plan, I would probably do that. I would probably keep it aside, but only you know how clear that goal is. Now, you're almost done with grad school. What I question, and this is where it's hard to answer from an email, I wanted to get to it because you said you were going to call in, but my question is, why are you going to grad school if you're trying to pursue this business or real estate?

Grad school is usually related to a job. If you're planning to go into a job and out of grad school you're going to keep working this job and let's say you're hoping to make more and it's going to be a few years. Well, if it's going to be a few years and you're going to be working the job and this business or real estate idea is not clear, it's not something you're going to be focusing on, then I would say pay off the debt and make it a focus of first clearing the debt so you can build from that simple perspective.

Hope that's a useful answer to question one. It's hard for me to know which one of those is correct. So there's both sides and you'll have to choose. Your money, you're responsible for it. Now, question two, would I invest the money? Let's say I chose, if I were in your shoes and I chose to have the money and I were going to take out student loans to cover my tuition for that final year and we're going to keep that money in cash, would I put the money into stocks?

Absolutely not. I would not do that. I would not do that for a couple of reasons. Number one, if you're saying I'm going to put the money in stocks until someday I might do something with it, then that would prove that my answer to question one is that you should just simply pay the money down in student loans.

You don't have a clear plan. You don't have a clear goal that I'm going to open six months from when I graduate, I'm going to open this retail store for this product that's very needed. You're just kind of generally starting to think about that. Well, in that case, paying off debt is the right solution because paying off debt will free you up, it'll minimize risk, and it'll save you money on these interest rates.

That's the first reason. The second reason, student loan interest rate at 7% and stock returns at 8% average returns are not the same thing at all. If you adjust for the volatility of the stock market and you adjust for the risk factor, there's a substantial difference there. I would not borrow money at 7% to invest it for 8%.

Now, I know that you were saying 3% to 7%, 8% to 12%. I wouldn't borrow money at 3% to invest at 10%. When you adjust for the risk of the volatility of returns of a stock portfolio and you adjust for the risk of the student loans, which is a consistent interest, those numbers are far closer than it might appear.

I haven't done the mathematical formula, but those numbers are closer, and especially the risk in your own life because what happens is you're not counting on things happening in your own life, and those student loan payments are going to be there every single month. Now, you're not planning to spend the money in the stocks, but in that situation, I would still keep the capital aside, and I would just keep it in cash, in a savings account, in a CD, something short term.

The other big thing to recognize is that when you're in this short range, you didn't give me a time of range. If you said, "I have student loans that are 20% 20 years long, and I've got this investment account over here, and I'm not going to touch it for maybe 30 years," well, now we're out to a time range that maybe we could start to figure out.

But I'm seeing in your question here just a range of a few years, and the standard rule with stock investing is when you get under five years of time horizon, you want to make sure that you're adjusting your asset allocation and selling your investments. If I've got a financial goal that I'm going to be using to fund with stocks, and it's coming up in about five years, I'm going to be looking very closely at my portfolio and probably starting to transition out of stocks into cash, if not completely, partially, during times that the market is high, during opportune times, because you've got to be prepared in stocks that in any random year, your portfolio debt will be down 14%.

One out of three years, your portfolio will be down by a third, and it's very possible and likely that a couple or a few times in your investment lifespan, your portfolio will be down by 50%. So you've got to hedge that when you've got a clear need for the money, then you've got to hedge that.

So when I put these two answers together, my answer to you is given the fact that the second part of your discussion shows that you don't have a clear, specific goal, because if you did, you wouldn't be putting it into stocks. You'd just be keeping it in cash and saying, "I'm going to open this store six months from when I graduate," or "I'm going to do this real estate deal over here, and I've already found the property, and I'm just waiting to make it happen." Because you're thinking about, "Oh, I'll just put the money in the stock market and it'll return," then my answer is a very clear, "Pay off the student loans, pay cash for your senior year of college, and make it a goal that one year out of college, you've got the rest of them gone.

Then save up the money and put it into something else." Hope that's useful. Hope that's helpful. It's always hard to ask these questions or answer these questions, but hopefully that at least gives you a couple of ways to think about it. Thank you to all of the callers who called in for today's show.

Thank you to Megan for writing in your question. I don't intend to take written questions on these shows. I just wanted to do it for her today, because she emailed me at 12.03 PM, right before the call started. So thank you for the questions. If you would like me to answer your questions on a show like this, I would love to do that.

I do my best. Some of them, like the one on the retirement plan for a non-profit, I'm not good enough to pull that stuff off the top of my head, but I do my best. I'll at least try to point you in the right direction. To do that, become a patron of the show at radicalpersonalfinance.com/patron.

Thank you to those of you who do that. I really, really appreciate it. I love talking to you. I love these phone calls. I really enjoy them. So join and ask a question there. If you have additional resources or thoughts for this show, for the listeners, or you have an answer to a question, please come by the blog at radicalpersonalfinance.com and answer that question on the blog post for today's episode.

In the past, the blog posts were being delayed from the website by a few days. I did that for a few reasons, because it really helped me with my production workflow. But at this point in time, we've tried to speed that up, because one of the things that was happening was when it would show up in your RSS feed on your phone, but then it wouldn't show up on the blog until a few days later, there wasn't a good place for comments.

So I was getting all these emails from you guys saying, "Hey, we've got this comment and it's coming in via email." Well, I don't need it by email. I need it on the blog page. So we fixed that. So now when the shows go out, they go up on the website basically a couple hours later, very, very quickly.

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