Welcome to Portfolio Rescue. Each week we get tons of questions sent to our inbox from YouTube viewers, blog readers, podcast listeners, and we decided, "Why don't we make a show to answer these questions?" That's what this show is. Remember, if you have a question, email us, askthecompoundshow@gmail.com. With me, as always, is Duncan.

Duncan, how's it going, man? Good, good. How are you? Last week, I learned that Duncan broke up a fight in Brooklyn, and are we ready to start a neighborhood watch yet? Is that the next step? Yeah, I mean, we could. We could. Technically, I think it was an attack, not a fight.

I was thinking more about it. That's even better. Okay. One quick comment here, if you send us an email. We've been getting tons of detail from people, which is great. How much money they make, how much they have saved, different types of investment accounts they have. If you could do us a favor, if you're going to give us one of these three or four-paragraph emails, put it in a TL;DR at the end, three or four sentences, what you're looking for.

We can impart the details a little bit in the questions when we answer them, but if you can just break those down for us, that's helpful. Again, we love the details. I think the first one is actually a short question. Duncan, what do we got here? Yeah, on that note, we have a very short question from Patrick in Dublin, Ireland, which is very cool.

Patrick says, "I'm a 20-year-old college student from Dublin. My question is, how should young people like me balance saving money to invest with traveling and enjoying life in our 20s?" First of all, I'm very jealous here, because I would love to go to Ireland. My family is Irish. My parents have been there before.

This is the conundrum, right? You want to enjoy yourself a little bit, but you also have this whole idea of compounding when you're young. Everyone has seen the examples where you say, "Tom begins saving $300 at age 22. He saves for 10 years, then he stops altogether. Then Greg, on the other hand, begins saving $300 a month at age 35, but he keeps saving all the way through retirement at 65.

Who ends up with more money? Let's say an 8% annual return." I ran the numbers here. Tom wins by a wide margin, over $200,000 more, because he started early and you have that compounding effect. But, you're in your 20s. You don't want to look back and say, "Geez, that's great.

I saved all this money, but now what did I do with my life? I want to do that stuff now and I have more responsibilities." That's certainly something that I thought about in my 20s. My wife and I thought, "Hey, by our 30s, we'll have kids. We'll have responsibilities.

Let's travel as much as we can." Our whole thing was, we want to go to as many weddings as we can, because in our 20s, everyone has those three or four years where they have the wedding season. We said, "Let's travel when we can go to these places, and let's go on trips, too." There was one time when we took a trip to Mexico on a 10-day notice.

I passed the CFA, not to brag, I did. But, after I passed, I didn't want to plan out something in advance and then fail and go on a trip and be miserable. But, I passed, and within 10 days, we decided just to go to Mexico on a whim. That's stuff you can do in your 20s.

I want people to still have fun. I think a simple way of doing this is just starting out small. When I first started working, I made nothing. My salary was $30,000. I made no money. I started saving $50 a month in a Target Day Fund. Then, I worked my way up as I made more money, and I worked my way up in my career.

I think you also have to think about trade-offs here. I lived in a very shaky apartment my very first year out of school. It was not a great situation. I could have paid $200 or $300 more a month to move across town and go into a nicer, newer apartment.

But, instead, I wanted to have that money to save and spend and have fun with, so I had my $50 a month that I'm saving. Then, I saved some money by living in a crappy place. I think when you're in your 20s, you have to have some of those trade-offs.

If you want to enjoy yourself and also give yourself some good spending and saving habits, you can start out saving small and work your way up, but also have some trade-offs where if you're going to want to enjoy yourself, then maybe somewhere else in life you're going to have to cut back a little bit.

What do you think, Duncan? Do you think a lot of this comes from the FIRE movement? I see a lot of these questions coming in now. I think people feel pressure from a young age now to try to retire by 50 or something like that. I think there could be some middle ground between not saving anything and saving 80% of your income and making your own shampoo in your backyard using wheatgrass or something.

You don't have to take it that far. I think there has to be a middle ground where you still enjoy yourself. I certainly am glad that I did that in my 20s, because it's really hard for us to travel now that we have three kids. It's just not as easy to do.

So, do it in your 20s when you don't have as many responsibilities and things holding you back. Yeah, I think that's good advice. Alright, next one. Okay, so next up we have a question from Ender who writes, and I left the compliments in, you know, but, "Hey guys, thanks for the dope content." I think there was an expletive too, but I took that out.

"I watch and re-watch like it's Breaking Bad. My mom has $50,000 of cash that I just found out about. I wonder if she's the real Walter White." Dot, dot, dot. "She's 62 and still working as a nurse. Healthy and an amazing person. I would like to help her invest this cash, but I can't decide if I should do something like a dividend ETF for her or 70% VTI and 30% QQQ or something else altogether.

It definitely needs to be something that she can set and forget. If anyone's going to be checking it, it'll be me. Thoughts?" So, Duncan, before we hop down here, you admitted that you've never seen Breaking Bad before. Yeah, I quit like one or two episodes in because of that bathtub scene.

I couldn't handle it. Okay, so just since we're on the subject here, I went back and looked and found some great money quotes from Breaking Bad. So, John, show the picture here. This is in the storage container where Skyler, his wife, says, "There's more money here than we could ever spend in 10 lifetimes.

Please tell me how much is enough? How big does this pile have to be?" And of course, for him, it was too much. One of my favorite lines, "Jesse, you asked me if I was in the meth business or the money business? Neither. I'm in the empire business." That's like a businessman, business comma man kind of thing.

Here's my other favorite one. "I am not in danger, Skyler. I am the danger." I thought that was a good investing one, too, because it kind of works for this idea, right? "It depends" is a good way of thinking about this, but I think that there could be potential toxic relationship issues when investing money for your family.

Here's something that happens. I've worked in the nonprofit endowment foundation space my whole career, and those funds are typically run by a committee. The biggest problem I've seen in those committees, besides all the politics that's involved, is that the individuals on the committee try to invest the money like it is their own personal risk profile and time horizon, instead of using the one for the organization and the beneficiaries of where that money is going.

Because a lot of these foundations and endowments are set up to run in perpetuity. They're supposed to last forever. There's this great story where BlackRock CEO Larry Fink once said he's having dinner with one of the largest sovereign wealth fund managers in the world, and the fund's objectives, the manager told him, were generational.

"We're saving for future generations," and Fink asked, "Well, how do you measure performance?" He said, "Of course, quarterly." That's the idea, that you can mix up your own time horizon and risk profile. I think the most important thing here is understanding your mom's risk profile and time horizon. What has she done in the past?

How does she handle losses? How does she handle volatility? Did she sell out in the past? When does she need this money? I think you have to understand what the money's for, the purpose of it. How much risk does she need to take? How much risk does she want to take?

I think the simplest boring bent answer is figure out a target date fund, potentially. But I think you have to understand what is going to work for her and not just work for you. Because I think if you make the wrong decision here, and your mom gets angry with you, you're the one where the buck stops at if you're making this decision for her, even if you're the one looking at it.

Because she's certainly going to look if things go bad. So I think you just have to figure out what's right for her, not what's right for you. Yeah, it could make Thanksgiving very uncomfortable, right, if a portfolio's been cut in half or something like that. Yeah, for sure. All right, one more.

Okay, so next up. "As we get closer to the end of the year, I'm debating the true value of tax loss harvesting as a strategy for my portfolio. I appreciate the ability to lower my tax liabilities this year, but the strategy seems more like a tax deferral than a tax write-off.

If I believe taxes will go up generally, and my personal tax bracket will go up, for context, I'm in my early 30s and expect to have a higher tax bracket later in life. Does tax loss harvesting make sense for me? It seems like I'd be passing on taxes at a lower bracket today to potentially pay them at a higher tax bracket in the future." All right, and as we're getting on the end of the year, we got another one that's similar to this, right?

So let's do them both. Let's run it back. Yeah, and so then we also have, "I'm buying a house closing on January 13th. I have to sell stock to pay for it. I'll have the same income in 2021 and 2022. Should I sell in 2021 or wait until 2022?" Now, Duncan, this is something that surprised me.

We've gotten a lot more questions about taxes than I ever would have assumed we would, and I think there's one simple reason. People hate paying taxes. You could make tens of thousands or hundreds of thousands of dollars or millions of dollars for a wealth management client that you work with, but if you save them $500 on their taxes, they are your client for life.

People hate taxes. So for this one, because I always think, "Do you make tax decisions? Do you let that be the tail that wags the dog and make these decisions explicitly on taxes, or do you think about the other ramifications?" So I want to bring in my personal tax consultant, our CFO, Bill Sweet.

Gentlemen, welcome to suburban New York where the trees are big and the coffee is warm. I agree, Ben. People generally hate paying taxes more than they like making money. That's something I've observed throughout my career. But listeners spot on. I mean, tax loss harvesting is simply a deferral mechanism.

What you do when you tax loss harvest is you step up your basis from the respect that you generate a loss. In theory, sometimes using that to offset gains, sometimes using it to offset ordinary income up to $3,000 a year. But the problem with that is if your future expected tax rate is higher, you could effectively be doing some negative arbitrage, sort of realizing a small gain in the future in exchange for a larger pain in the present in the future.

And that's not a good thing. So John, can you pull up the chart for me, a little chart we put together here? So if you take a look at the tax brackets, focus on the blue here. The tax bracket for capital gains, if your joint married income is below roughly $106,000, it's actually zero.

So more or less at that tax rate, it doesn't make any sense. If I'm going to deduct 12%, but my income's going up in the future, I'm going to be paying 15, 18, maybe 24% of my gains in the future. Tax off hard loss harvesting, generally not a good idea.

So I think this list is spot on. That's why we don't advocate a TLH for every single client that we have at Rittenholz Wealth. It really depends. And this is why tax does not scale. It's something that I think needs to be specifically analyzed for each individual client and situation.

How hard do you think it is for people to actually predict their taxes in the future, unless they're in the lowest income tax bracket? That helps if you know where you are now, but I always see this where people say, "Well, I know I'm going to be paying more in the future." And we just don't know, right?

Correct. Yeah. The future is not just unknown. It's unknowable. So a lot of things could change. The Build Back Better plan could come in and raise taxes. That was something discussed that we had an episode back a couple months ago on that very topic. So you're exactly right, Ben.

But that would probably lend itself to things like this strategy, because if you know you're getting a benefit today, the indeterminate future, who knows? If the taxpayer takes a year off, maybe that's a great year to realize that gain in the future. It really depends. It depends on each specific client, and there's no real way to predict it in advance.

What do you think about this person who's got to sell stock to pay for a house that they're closing on in a few weeks, it sounds like? Does it make sense to do it now and rip the Band-Aid off? Or can it potentially be better to wait and then put those taxes off to future you, right?

Yeah, future me. Exactly, future me take care of it. Yeah, I think it goes back to that chart. So again, if my income for the year is $80,000, if I'm married, I can realize up to $20,000 a gain is completely federal tax-free. Maybe there's some consequences at the state, but that's not usually that large.

So I think splitting it amongst tax years makes a lot of sense. But Ben, you brought up a great point before. If you don't have visibility of this, there's two weeks left here in the year to make any changes, right? And you have to make these decisions relatively quickly.

So that's why I think working with a professional always makes some sense, especially if they're forward-looking. My big criticism of a lot of the accounting industry is they're always driving like the rearview mirror. They don't care about what's going to happen next year. They care about what's happening now.

So finding a good tax advisor, I think, is part of this process. All right. Yeah. Talking to your own book here, but you're right. Exactly. I'm a company man. We got Bill here. Let's do one more tax question. OK. I was going to say, I think we might be getting so many tax questions because people like hearing Bill's answers too.

It's true. I'll take it. The flattery will get you everywhere, Duncan. So this is a really long one, but bear with me. I live in the San Francisco Bay Area where homes are very expensive. We've heard this a lot from viewers. In the state of California, if you own a house for five years and use it as your primary residence for at least two years during that time, you don't need to pay taxes on the first $500,000 of capital gains when selling your home for a married couple.

As you can imagine, depending on where you live in the Bay Area, it doesn't take long to have a home appreciation of $500,000. If I live in an expensive area like this, am I crazy for trying to move every five years or so to minimize my tax burden? I suppose I can just buy a neighbor's home as to not switch communities or school districts for my kid.

What other considerations are there to such a strategy? I feel like this is pretty ingenious, but there's got to be a catch. My one initial thought on this, the catch is, it sounds like a lot of work. A lot of moving. A lot of moving. Moving is terrible. There's a lot of frictions involved when you buy and sell a house.

There's closing costs, there's realtor fees, there's all these things. I understand the idea here, but Bill, from a tax perspective, aren't there better tax advantage ways of making real estate work for you, like cashing out refinance or a HELOC where you can take some money out? Is it really that big of a deal if you're trying to take these gains quicker than try to offset some of it?

Does that make sense to you? It does from the respect that assuming that you're able to generate a $500,000 capital grant on your property, I get that that's been the case in the West Coast specifically, but that's it. This is a unique thing in the tax code. That's a very large number for a joint couple.

It's $250,000 for an individual. These are large numbers, but Ben, I think you hit on it. It's really transaction costs in real estate that are really painful. I did a refinance recently. I know you and Michael talk about this all the time on the Animal Spirits podcast. It's expensive to purchase and sell a house.

Just talk about the real estate commission alone. If you happen to be lucky enough to get a $200,000 to $500,000 gain in your property, it probably means it's worth a million dollars. You're paying somebody $50,000. You need to run the math and make sure the tax consequences actually outweigh the benefits, but it's not going away, I don't think, in the tax code.

It hasn't for as long as it's been in the-- at least it's since '86 to my knowledge. The problem is that number's indexed for inflation, or it's not indexed for inflation. It's been around that number since I've been aware of it. But yeah, I think that's it. The thing that I might add as a planning point, which is kind of interesting to think about, is you could potentially leverage this arbitrage with a rental property, a business property, in that if you happen to move out of your primary residence, and let's say rent it for two years, again, as long as you're within the window and the timeframe, you're able to effectively convert that to a real estate residential property.

You need to adjust for the fact that it's part use, but that to me is the most interesting thing. And that's where I see the most innovation in this space. But would I move simply to take advantage of this every two years? Absolutely not. You and I both have young kids.

I moved all the time in the Army, on average, every two years. I don't ever want to do it again. So if the personal price is worth the tax benefit, sure, I guess, but I wouldn't recommend this as a strategy, no. This also shows just how strong the real estate market has been, that someone thinks getting a $500,000 gain can be managed every five years.

I mean, I don't know how much- More power to you. Yeah, I'll drink to you tonight if you can pull this off every two years. All right, one more question for Bill. This is a big one. Real tree or fake tree in the background? A hundred percent fake. Have you guys ever, at the end of the year, taken that thing out to the fire pit, thrown a match in that?

I mean, it is gone in like 10 seconds. I told this story in Animal Spirits. I'm a real tree person. My family's always been a real tree, and we got one, and it immediately died in nine million pine needles all over the house. Every time the dog walked by it, it was like a big version of the Charlie Brown Christmas.

But it smelled awesome. They do. They smell good. But yeah, you're right. My wife said, "All right, that's it. We tried it. We're getting a fake tree. We got one now." I got a bunch of candles for the smell. That's good enough for me, man. We're a fake tree family now.

I can't believe it, but we are. I'm a big real tree person. That's awesome. And Bill, I thought you would literally go out and cut it down with that saw that you displayed in the past. It's in the basement. It's ready to go. My chainsaw, though, needs a little bit of work.

So if you're a small parts mechanic, small machine, give me a shout. I need some help. All right. Thanks to Bill, as always, for his helpful tech expertise. Remember to have some thoughts on the questions today. Leave us a comment. A bunch of people are already in the live stream giving some comments.

Have a question for the show, email us, askthecompoundshow@gmail.com. Don't forget to subscribe. Check out idontshop.com for all of your compound shopping needs. We're gonna be back here next Wednesday for our last show of 2021. We'll see you then. See you.