(audience applauding) - But just to start with a couple of questions from me, most overrated issue in investing. Let's start with the thing that you think people make way too much out of that at the end of the day doesn't matter a lot. What is the question you get again and again and kind of go, doesn't really matter.

- Is small cap value, can we include that in there? (audience laughing) But if we weren't gonna go down that road, I'd say rebalancing. By the financial industry, a lot of advisors say, well, we rebalance your portfolio and therefore we earn an extra 2% annualized return by doing it, which is nonsense.

So I'd say that rebalancing is kind of overrated. - Adam, rather, yesterday touched on this. I have an analogy that I often use about asset allocation. If you've ever baked a cake before, then you know that you start with basically some dry white powdery stuff, right? Flour, sugar, salt, leavening, and some butter and eggs.

And then when you mix them together in exactly the right proportions, cook it at exactly the right temperature for exactly the right length of time, magic happens, right? You go from butter, eggs, and powdery stuff to a cake. But if you mess it up, if you get the proportions wrong, the temperature wrong, you leave out the leavening, whatever, it's a disaster.

And a lot of people will tell you that asset allocation is the same way, right? If you get the small cap value tilt exactly right, if you use a 10% retail allocation, or you make sure to use short-term treasury bonds instead of a total bond fund, or whatever it is.

But asset allocation is not like baking a cake, it's like making a fruit salad, right? If you just increase your blueberry allocation a little bit, it's not a big deal. Like, there's no magic, it's no disaster, you just have more blueberries. And that might be good, or it might be bad, but it's not a big deal.

And if you go to the grocery store, and the raspberries and blackberries look kinda iffy, and so you end up with a three-ingredient fruit salad, that's fine. (audience laughing) (audience applauding) - I'm gonna say I, is this on? Yeah, I'm gonna say I actually agree with Rick. When to rebalance, and looking at history, you could see a whole lots of reasons when to do it, but I think as long as you rebalance, as long as you buy when stocks are on sale, and sell when they're high, you're gonna get a boost of a return versus that average asset allocation.

- Yeah, I'm severely disadvantaged here two ways. Number one is I'm the last to answer, so I agree with all three of these guys. And the second thing I've learned is to never match Sinalese with Mike Piper, so. (audience laughing) - We start on that side and go this way?

- Yeah. - So Bill, this one's coming right at you. (audience laughing) You are all intelligent and great money managers. How do you treat yourself or blow money? Is it a trip, car, knowing you have plenty of money? What is it, what's your splurge? - I just paid $100 extra to fly business class back to Portland, and that's, you know, that's the first, that's almost as good as the threads you see on the board, which, you know, can I buy my Rolex now?

Am I, you know, will I go to hell if I buy a Rolex to Boglehead L? - Do you pay for first class if you're going overseas? - That's a really good question. I haven't really faced that. I occasionally, we fly Iceland Air, and you can bib on first class, and sometimes I win and sometimes I lose.

- I have a dysfunctional relationship with money. (audience laughing) - And I even wrote about this. As an Uber saver, it's hard to start spending money, and I've done a little research on that, and I'm very proud. We flew premium economy to Europe. It's been two weeks there, and it cost $20,000, and it's the first time I bragged about how much something costs.

I'm usually bragging about the $1 tram ride from the airport to the hotel. (audience laughing) - I take a quick trip to Colorado Springs, have breakfast with Alan Roth, and then spend a little bit of time climbing. - So how do I splurge on money? - On yourself. What do you do?

- I have a wife. (audience laughing) She, we did go to Europe last year, and of course I was all about the economy class, even though I was gonna be in the middle in row 87, and she was gonna be in the middle in row 76. She said, "We're flying business class," or, "I'm not going." So we flew business class, which was great, by the way, and so we'll probably do that.

In fact, I know we're gonna do that. If I ever wanna go to Europe again, we're gonna be flying business class. But the second thing that I do for myself is I buy really expensive pickleball paddles. (audience laughing) - How much do they run, a really good one? - 250, $250.

- Here's a question. I've heard that many people who win the lottery lose it pretty quickly. Why is that? What is the best thing to do if you get a sudden windfall like that? Bill, how about you? - Well, there's actually, I think that's urban folklore. I think there is now accumulating peer-reviewed literature that says that people who win the lottery actually don't do badly.

Obviously, some are going to, but they don't, they certainly, the peer-reviewed literature doesn't really support that, which is too bad. I mean, it's a great morality play to believe the urban folklore. - I don't know how they would get that data. I've heard other statistics that 25% of men on match.com are married, but I don't know how you get that data.

(audience laughing) I've got some professional athletes as clients who earned a lot of money, and they're not the norm. They're not the ones that typically blow it all immediately. I think it's very hard to convince somebody that has always spent to start saving. Catching up on FI is a wonderful tool.

- Mike, here's a question for you. Are reverse rollovers of IRA to 401(k) recommended, and maybe you can talk about what situations that that might be appropriate. - Sure. Number one would be if we are looking to do a backdoor Roth, so the problem, so if you have income that is too high to make regular Roth IRA contributions, and you can then contribute to a non-deductible traditional IRA, you can make that contribution, but if you then do a conversion, that's why we call it a backdoor Roth is that you would convert it immediately, but if you do that, when you have other traditional IRA balances, then you're gonna have to pay tax on most of that conversion anyway, so what we could do is take your existing traditional IRA balances, roll them into your 401(k), and then the new contribution, you have to wait a year, but the new contribution to the traditional IRA, the non-deductible contribution, then that's the only money there, so we can convert it right away, not have to pay tax, so that would be one reason.

There could be potentially other reasons. You get creditor protection in the 401(k) that might not exist in an IRA. It depends at the state level. There could be better investment options in your 401(k). Every once in a while, you do actually see some things that don't exist. That's kind of backwards of what is usually the case, but sometimes, so there are some reasons.

It's not something that you do usually, but yes. - I do wanna just pick up on something Mike said, and that is creditor protection, and this is state by state. There are some states where you have just the same creditor protection in your IRAs and Roth that you do in your qualified plan, like a 401(k) or 403(b), where creditors cannot attach to it, so there are a lot of states that you get the same creditor protection, but there are some states that you're in, and if you have money in an IRA, they might give you maybe the first 50 or 60,000 of that that you can keep, and the rest of it is open to creditors, so it depends on which state you live in.

There's a website that I go to. I don't know how updated it is, but I look at it, and it's just creditor protection by state website, and you could look and see your particular state. I mean, there are some states that are horrible. I mean, I don't think I'd have any money in an IRA, but there are some states where it doesn't matter whether you have it in the IRA or the 401(k), so you really gotta look into that for your state.

- It depends on a lot of things, but if I had access to the Government Thrift Savings Plan, boy, would I roll my IRAs into that incredibly good 401(k) type of savings plan. - Rick, just a quick follow-up for you on that earlier point about rebalancing being overrated. The question is, can you elaborate on that?

- Yeah, so I was talking basically about the financial advisor community who is looking for a reason to collect fees, you know? We charge you 1%, and what do you do for that? Well, we come up with the optimal portfolio, which of course is impossible to do, and then we're also going to rebalance your portfolio frequently because they show you some chart that shows if you rebalance every quarter that you're going to get some sort of an excess return, and it's really inflated.

So as I think Alan said it correctly, he said basically, you know, when the market's down, you probably want to rebalance, and when the market's way up, you probably want to rebalance. However, I'll caveat that with, if you're going to have to sell stock in a taxable account and you have no place, and you're going to have to take a gain because all of your retirement money is in bonds already, and your Roth money, you don't want to sell stock because, I mean, that's going to go to the kids, you want it to grow tax-free.

So now you're left with, well, in order to keep my allocation 60/40 between stocks and bonds, I have to sell stock in my taxable account, and it's going to generate gains. My answer would be, just do what's called a reverse glide path. I mean, don't worry about selling stock in your taxable account, unless you can do it at a very low tax rate.

Maybe, Alan, maybe you want to comment on that. - Yeah, there are a lot of moving pieces here, and Rick just touched on one of them, namely that you certainly don't want to be doing rebalancing selling in a taxable account. That would completely more than wipe out by an order of magnitude any rebalancing bonus.

And, of course, it's a risky process as well. I mean, there are places, there are asset class pairs that you certainly wouldn't want to be rebalancing U.S. versus Japanese stocks, for example, for the past 40 years. I think that the benefit of rebalancing is not financial, it's psychological. It gets you used to buying low and selling high.

It keeps you in financial condition, and I put that in quotes, the condition being that it basically builds up your discipline, and it's a muscle that you need to be using from time to time to be able to act properly. - I've got a bit of a differing opinion.

Asset allocation comes first. Asset location comes second. So if you're out of your investment policy, and you have no room to sell stocks in the tax-deferred or tax-free accounts, don't let the taxes wag your asset allocation. Go ahead and pay the taxes. Now, I mean, use common sense. If today it's a short-term gain, and tomorrow it's a long-term gain, I'd wait that day.

But it's just like you don't move somewhere because there's no state tax. You don't pick an asset allocation to minimize the taxes. You want to maximize the probability that you can do what you want for the rest of your lives. - So here's a question I'd like each of you to tackle.

What has been your biggest change of heart since you first started investing? Rick, let's start with you. - You know, we're talking like way back when I bought Dolly prints that were fake. (audience laughing) I'd say, okay, let's move forward then. (audience laughing) Or buying that timeshare that I had to give up.

No, okay, my biggest change of heart has been moving from complexity to simplicity in a portfolio. I mean, you know, I listened to John Bogle and I had the epiphany of indexing back in 1996. I fell in love with the idea that it was great. But then I got a kind of overly wrapped up in the slicing and dicing of it all.

And, well, we could have, again, small cap value. We could have international small cap value. Let's split Europe and Pacific. And, you know, it got to be this indexing, was all indexing, but it was all, it got to be an overly complex portfolio. And then I had a second epiphany, which I call simplicity.

Which means, you know, getting back to Jack Bogle, he was right, and the three fund portfolio works. And you really don't need much more. And so my second epiphany with this was simplicity. - Similar answer in that I think that's kind of a normal progression for a Bogle head, is that you get into it, especially if it's a Bogle head who's hanging out on the forum, you can't help.

I mean, you're bombarded with this information about I could do this or I could do that. And so you kind of dig into it a little bit. And it looks promising, which is not to say that any of these various things you could do with your asset allocation are a bad idea.

But recognizing that this is not the most important thing. And investing, we can keep it simple. And that's beneficial 'cause it makes us less likely to make investing mistakes. But it's also beneficial because it frees up our time to, I mean, just deal with any other thing you want to do in your life.

But also just within the financial planning picture, right? Like, you can keep the investing part simple, the tax part's never gonna be that simple. Estate planning's not necessarily gonna be very simple. So if you can keep one piece of it simple and that frees up your time and energy to tackle all the other parts, that's great.

- I've changed my view on safe spin rates. A bit of a pessimist, I would say, 25, 30 year safe spin rate a few years ago was about 3% increasing with inflation. I even wrote a piece, why I disagreed with Morningstar's safe spin rates study, and two conferences ago, I apologized 'cause I no longer disagree.

Suddenly, real interest rates shot up from minus 1% to over 2%, and that changed everything dramatically. And I agree with Morningstar's safe spin rates. - Yeah, two things that I've changed my mind about. One is a long-term concept, which is thinking about the riskiness of stocks. And I've come to realize over the decades that that's the wrong question unless you ask for whom.

If you're a young person, stocks aren't all that risky because you're deploying a constant stream of savings, and eventually you're going to hit the jackpot in terms of buying low. The second thing I've been turned around about, and I really owe this to Jim Dolley. I used to think that real estate investing was three-mile island toxic you should stay away from.

It wasn't an investment, it was a job. And I like to say that if you liked dealing with fixing toilets and drug-addled tenants, then go for it. But Jim did turn me around on that a little bit. So if you know what you're doing for a small subset of people, it's probably inappropriate activity, maybe 5% or 10% of people.

I got a very interesting email from someone who was actually going to become a finance professional, and he thanked me for writing my books and convincing him that there was no way in the world he was going to be able to successfully pick stocks because he was competing against people with vast databases, IQs of 160, who were working 90 hours a week.

But it was possible to make a good living dealing in real estate because there he was dealing with dentists from Lubbock. And so he knew who was on the other side of his trades and he could pick those trades. I thought that was a fairly profound observation. - Mike, here's a question for you.

Can you please talk about mega backdoor IRA conversions? We just found out my husband's 401(k) plan allows these, I guess an after-tax 401(k), but it was never advertised as a benefit. Can you talk about what that is? - Yeah, so the mega backdoor Roth is a backdoor Roth that happens in a 401(k) instead of an IRA.

So we have our regular, with a 401(k) we've got our regular deferrals, right, which you can make as pre-tax or Roth, and that's up to you. And then catch-up contributions, potentially, depending on your age. And then there's another type of contribution that the tax law allows you to make that your plan might allow you to make or might not allow you to make.

And just like the person who wrote in with this question said, they don't often advertise it. In many cases, you are allowed to make this type of contribution, but they just don't tell you. And this is called an after-tax contribution. And so it's after-tax because you don't get a deduction for it.

So it's a non-deductible contribution to your 401(k). And the contribution limit is much higher. I actually don't, I never memorized any of the limits. - It's like 65,000, I think, all in. - Okay. - Okay. - Thank you. So much higher contribution limit than the regular, even including catch-up.

And so you can put all this money in, you don't get a deduction for it, but the mega backdoor Roth part of it is that then you're allowed to convert it immediately if, again, if your plan allows for one of two things. Number one is an in-plan conversion, which means that immediately after putting that after-tax non-deductible money in, you move it right over into the Roth 401(k) side of the plan, and it's not taxable.

So you basically just got to make a enormous Roth 401(k) contribution way beyond the normal limit, with no downside particularly. The other thing that the, so sometimes the plan doesn't allow for that, but it will allow for you to roll that portion, and only that portion, over into a Roth IRA.

So sometimes that's allowed, and again, it just depends on your plan document. And so the idea is you're just able to make much larger Roth contributions through a 401(k) than you would normally be able to. - So a 401(k), you can contribute currently, the total amount that can go into a 401(k) is 69,000, and if you're over the age of 50, I believe it's 76,000, okay.

So you're putting, if you're under the age of 50, you're putting your 23,000 in as an employee, and then there's this bucket that's left that goes all the way up to 69. However, if your employer is putting money in, that uses up some of that bucket. So what's left, if you're able, is the amount that you could do this mega-backdoor Roth.

I'll also say that if you're self-employed, you can do this with a solo 401(k), but you need a special type of solo 401(k), and Harry Sitt wrote a fantastic article that I refer to all the time. You can look it up, Harry Sitt's solo 401(k) mega-backdoor Roth, Google that, where he talks about as a solo, self-employed, if you open up a solo 401(k) with a kind of a custom firm, you could also do this mega-backdoor Roth.

But generally, if you're just doing a prototype plan with like a censure, or fidelity, or Schwab, you can't do it. So it takes a custom plan. - It's one of those laws that's too good to be true, but it is true. If you have that option, seriously look at it.

- I have a question, actually, that I'd like to direct to the three of you about this, 'cause this really is my area of expertise, which is, to the extent that you wanna prioritize charitable giving, and you are worried about long-term care expenses, should you be careful about Rothifying too much?

- Should you be, in other words, concerned about using up all of your traditional IRAs, which you can basically pass tax-free to whatever charities you want at death, or to be able to use your traditional IRAs, that you're gonna get at least a partial deduction for if your long-term care expenses are high.

- Well, the mega-backdoor Roth is using after-tax dollars to convert to pre-tax, convert to tax-free dollars. I think that's hard to go wrong. Could the government come up with laws to prove me wrong? Absolutely. - Well, Bill, as far as I'm understanding your point, though, is the long-term care costs are oftentimes quite deductible, and so the traditional IRA can be a really elegant, traditional pre-tax account can be an elegant asset to use to address those expenses.

Is that what you're thinking about? - Precisely, and that goes double for charitable giving. If you give money out of your traditional IRA, that money has never gotten taxed at any point. - Yeah. - 'Cause if you Rothify, you've paid taxes on it. - With the charitable giving side of things, yes, it is very helpful to maintain, if you have charitable intent, to maintain some traditional IRA dollars, because charitable giving basically lets you turn a traditional IRA into an HSA in the sense that you got a deduction when the money went in, it grows tax-free, and then it comes out tax-free also, so that's a fantastic deal.

And so, yeah, if you have charitable intent, eliminating your tax-deferred balances is not a good idea. Save some money for that purpose. I think it's a little different for the long-term care side of things. The long-term care costs, if they are deductible, then, yes, in those years, that can be bringing your taxable income down and letting you pull the money out of the traditional IRA at perhaps not a very high tax rate, but I struggle with explaining this.

The deduction you get, it's fungible in the way that the money is fungible. You're gonna get that deduction even if you aren't pulling the money out of traditional, like, the deduction is because of the healthcare expense, not because you're taking money out of the traditional IRA, and so that deduction would be available to save money on other things regardless of where the money's coming from.

So I think saving money in a traditional IRA or other tax-deferred place for charitable giving down the line makes a lot of sense. I don't think that's the case for the long-term care thing, although it is true that if you are going to be having significantly deductible long-term care expenses, yes, that is gonna be some tax savings.

- But I agree with you, Bill. Tax diversification is important. And having some taxable, tax-deferred, and tax-free because we never know what life brings us, and we really never know what politicians are gonna bring us. - Here's a question just following up on long-term care. What is a basic strategy for financing long-term care?

So assuming someone doesn't have insurance, and they're setting aside funds, presumably for long-term care, where, how invested, maybe even how large? Can you all talk about that? - Well, we guys don't live very long in long-term care. Women, you've got the bigger problem. You live a lot longer. You know, with most of my clients and for myself, we self-insure.

I think if you don't have much in the way of savings, you're probably going to be in a Medicaid place. It's somewhere in between. You can buy long-term care insurance, but you can, a temporary policy, or pure long-term care, rates have increased incredibly, and that's just too much risk, in my opinion, and a permanent long-term care policy is mixed with a permanent insurance, whether it's whole life, or universal, or something like that, is very expensive.

My clients tend to be very wealthy, so we self-insure. - You also have your home. Generally, the first person who goes into, if they have to go into assisted living or a nursing home, a lot of that could be self-funded, at least from a lot of the people who might have a couple million or more, you self-fund that portion of it, but you do have your home.

You have the equity in your home. By this time, a lot of homes are paid off, so you could do a reverse mortgage. I don't know if we got a chance to talk that much about it, but they actually are useful for some people because you don't have to sell the home, and therefore, the equity in the home, if both spouses die, gets a step up on debt, so you could borrow from the house to fund the long-term care for one spouse or the other, if needed, so that's another option you have, or you could sell the house.

Take the gain. You got $500,000 in gain for, if it's two people, filing jointly, 250,000 if it's a single person, after two years of death of the spouse, so you have the equity in the home that can be used towards long-term care, and I think a lot of people use their home, or could use their home, as a long-term care insurance policy, the equity in the home.

- The people who bought it 20 years ago probably got a pretty good deal before the insurance companies discovered how or figured out how to price it properly, but I think in 2024, if you need it, you can't afford it, and if you can afford it, you don't need it.

- It sounded to me, and maybe I was wrong, but maybe a part of that question was about if we are self-funding and setting aside, either mentally or literally, a part of the portfolio for potential future long-term care costs, how do we allocate it? And to me, that is a question that, I think it can be helpful to mentally set aside this money in the sense that we don't want to count on using it for other spending, but as far as asset allocation, I don't think there's a particularly useful way to say, oh, this money should be allocated that way, because we don't know when it's going to happen.

If we knew when it would happen, then we could pick some asset allocation that's a perfect match, or tips that mature in exactly that year, or whatever, but we don't know, so I don't think there's a need to segregate it out from an asset allocation point of view. - And by the way, often, if the second spouse goes into long-term care, it's very expensive, but you no longer have a house, you no longer have a car, insurance, traveling, so there are some expenses that offset that.

I have a question for whoever wants to jump on it that's related, I have heard from other financial planners that when clients don't have any sort of long-term care insurance, that sometimes those are the ones who dramatically underspend what they could spend, because they are very nervous about these potential costs hanging out there.

What do you think about that, that even though the financing aspects of insurance aren't great, that there's a kind of a peace of mind allocation there that could help someone live well in those years that they're well? - Well, there's two sides of that. You've got a very expensive premium that could be going up, which might cause you to spend less as well, but it's like any insurance, the insurance company expects to make money from it, so your expected return is negative.

Absolutely, if it makes you feel better, allows you to spend more, then yes, you should do it, even though it may not be economically optimal. - I will say for the young people in this room, okay, when you get to our age, not Mike, just have a lot of children, right?

(audience laughing) I mean, one of them will take you in. Speaking of children, this question says, my son selected T. Rowe Price High Yield Bond Fund in his 401(k). He is 29 years old, so now he has 90% stock, Vanguard 500, and 10% junk bonds. Please give info of pros and cons of high-yield bond funds, junk bonds.

- I did a talk on the language of investing, and the one term my industry got right are calling high-yield bonds junk bonds. Don't buy junk, take your risks with stocks, have your fixed income be the most boring part of your portfolio. - And I'll give you the other side of that.

Okay, so it is part of the bond market, right? High-yield, Vanguard has a wonderful high-yield corporate bond fund. It's not C-rated, double C-rated. It's double B, B double B. And if you look at the risk and return of that portfolio, it has actually done very well relative to the risk.

Now granted, Alan is right, it does have higher correlation with economic risk. So it does go down more than, say, a treasury bond fund when the economy goes down. But if you're gonna have this portfolio, if you're gonna add high-yield bonds to your portfolio, I think that Vanguard has probably one of the best high-yield corporate bond funds out there.

And there is a little bit of an inefficiency in where they're investing in the market because they're buying B-rated, double B-rated. And so when something becomes a fallen angel and it drops from investment grade, which is triple B, down to double B, you've got a much bigger pot of people, a pot of portfolio managers who have to sell that bond.

You get an awful lot of selling going on. And so it depresses the price. Vanguard is buying double B-rated bonds. They pick this bond up, and I think they actually get a premium for liquidity for being able to buy these bonds when that happens. And I think this is one of the reasons why I think that fund has done well.

- Yeah, I mean, I think we're arguing angels on pinheads here. How much extra juice do you get from the equity risk premium you're actually getting from junk bonds versus you would actually getting from junk bonds? I mean, I used to play that game. I used to wait for the spread to increase to 10 or 15%, and then I would load up on junk bonds until I realized I would have done a whole lot better investing in stocks at that point.

- Okay, we are right on time here. I think we are going to do this kind of ask us anything session at future conferences. I've loved this. We have a huge stack of things that we could have gotten to and didn't have time. So many great questions. We are going to have to leave it there.

Please join me in thanking Rick, Mike, Alan, and Bill. - And Christine. (audience applauding) (audience applauding)