(beeping) - Welcome back to Ask the Compound. People seem to like the new name, Duncan. We made the switch from Portfolio Rescue to Ask the Compound, I don't know, a month ago, maybe? - Yeah, we definitely saw an uptick. - It makes sense. Plus it matched the email, so that was easy.

Ask the Compound show at gmail.com. We're still inundated with questions. Got a lot going on here. Today's show is sponsored by Bird Dogs. I used to think the Bird Dog shorts were my favorite, most comfortable piece of clothing. See, a little style tip for you guys out there. If you wear a bright shirt like me, then you wanna offset that with darker.

So I got the dark gray Bird Dogs on today. And if you wear the really bright Bird Dogs, then you wanna go a little, you know, white on the top, maybe. - That's called contrast. - I thought that the shorts were my most favorite. I think I'm starting to come around to the idea that the pants and the joggers and the sweatpants, they are so comfortable.

I just started wearing them this year. They're great. And because we've been going from 90 degree weather here to 50 degree weather, so I still have the warmup pants as part of my options here. It's great. I also have with me one of the Bird Dog tumblers, right? I'm not a coffee drinker, but I could use this for Coke Zero, I guess.

Maybe Diet Pepsi if the Coke Zero's not available. - I use mine for coffee, don't worry. - Okay, you go to birddogs.com/atc. Put in the code ATC. - Oh, news alert, news alert. I actually forgot to tell you getting ready today. We don't need the code anymore. They automatically are adding the Yeti style tumblers without the code.

- All right, great. Get it on your own. So, yeah, birddogs.com. They're the most comfortable shorts I wear all summer. I love the pants too. All right, we've got some great questions this week. We've got a great guest host, so let's get to it. - Okay, up first today, we have a question from John.

My wife and I are 42 with a 13-year-old son. We moved to Phoenix, Arizona as immigrants seven years ago with just a couple thousand dollars to our name. Since then, we have slowly progressed in our careers, and at this point, we have $350,000 of combined income, $230,000 cash, a $530,000 mortgage with 28 years left, $100,000 in retirement accounts, and $75,000 in a brokerage account.

We are currently saving $8,000 a month. We both plan to work for the next 13 years and then think about retirement. I need your suggestion on how I can better utilize our cash. Should I move this into ETFs or blue chips in a lump sum, or should I plan to invest it in real estate for some passive income?

- Okay, this is one of my most favorite questions we've got on this show. I love the story. This is honestly what makes this country great, the land of opportunity. This is an awesome, awesome story. Kudos to you for saving this amount in such a short period of time, starting with $1,000, your name or whatever, coming here.

So back of the envelope, it looks like they're saving almost 100 grand a year, which is almost a 30% savings rate based on the income. I'd love to see that. That's very nicely done. That's the hardest thing for most people. How do you get a six-figure income and 20 to 30% savings rate?

That's how you earn financial freedom, right? But obviously, they know they have way too much cash on hand. And before we get into that, I see in the comments here, people watching live, they're wondering how they can get fashion advice from someone who lives in Grand Rapids, Michigan. I will have you know, people in the comments, I was voted Mr.

GQ in high school yearbook, all right? - Oh, wow. - Just remember that. - That was your superlative? - I was, yes, I was Mr. GQ. Most likely to play a college sport, maybe something like that. - You know what mine was? Most likely to co-host a podcast with Mr.

GQ. - All right, see? We had a nice yin-yang here. So obviously, there's way too much cash in this portfolio. Here's the rough asset allocation by my calculations. 19% in stocks, which I assume is a brokerage account, 25% in retirement accounts, and then 56, 57% or something in cash.

That's an ungodly amount of cash to have on hand, especially if it's not earmarked for a future purchase like a house. And it sounds like that's not the case here. I would love to be able to tell you how to invest this money, you know, be it index funds or ETFs or blue chip stocks or real estate, but I can't really.

You have the savings part down, but here's what you need. You need an investment philosophy. You can't just wing it and throw your money into something without having some sort of overarching plan, and it sounds like you don't really have that. So there was a story a few years ago.

Remember when the Seattle Seahawks played New England Patriots in the Super Bowl? There was a story about Seahawks coach Pete Carroll and how in the off season, he does speaking gigs, right? Me and Pete Carroll are very much alike. Remember, I was doing a speaking gig last week. Pete Carroll also does speaking gigs, so we're just alike.

In his talks, he begins with a simple question. He says, "Raise your hand if you have a philosophy "for your team or organization," 'cause he talks to a lot of business leaders too. Of course, everyone raises their hand. "How could you be a leader "without having some sort of overarching philosophy?" Then he says, "Can you describe that philosophy "in 25 words or less?" And then basically, everyone's hand goes down, right?

He's also, I guess, been known to use this as an interview question for assistants, and he's not really looking for like, "Here's the perfect philosophy." It's like, "Do you have one?" That's the whole point. So maybe we can try this with my philosophy, and I don't think you have to keep it 25 words or less.

That's probably a little too much, but let's try it with mine. So I believe less is more, costs and taxes matter, predictions are very unreliable, performance is mean reverting. I believe risk and reward are attached to the hip, time horizon is your friend, investing must be tied to goals to work effectively, and I really believe that behavior will determine your success or failure as an investor.

That's kind of my overarching philosophy. Might have missed a few things there, but that's pretty close. So I just view investing philosophy as like the simple set of principles that guide your actions to get you to a yes or a no quicker. The whole idea is like, you make a few big decisions up front, so you don't have to make a bunch of minor decisions along the way.

So I think without, the whole idea is, philosophy is required before you get to strategy. Like, what should I invest in? Well, I don't know, what's your philosophy in the first place? So the way I see it, there are really like four kinds of investors in the world. So there's people who have no strategy at all, and they're probably either going to give up or lose most of their money in the markets, unfortunately.

For every winner, there has to be a loser. The second kind of investor is people who just chase fat investments and no coherent plan beyond the short term. Third type of investor, I have a plan, I have an asset allocation, I have a strategy, but you pretty much fail to follow it when markets go haywire.

You get really greedy at the top or really fearful at the bottom and you give up, and a plan that you give up on is no different than no plan at all, I think. And finally, there's those who have a comprehensive investment plan and the ability to stick with it in manias, panics, and everything in between, right?

So this isn't really the answer you want to hear, but to put that cash to work, you have to have that overarching philosophy. So here's where I would start with this person, if you're sitting on a huge pile of cash and you don't really know what to do, don't have a philosophy, don't have a strategy.

First of all, make sure those future savings, you're doing almost 8,000 a month or whatever it sounds like, automate into your 401ks, IRAs, brokerage accounts, 529s, whatever it is, automate them, right? Get them automated so you don't have to have this problem again in the future with future cash piling up.

Number two, just start with a target date fund. Match it to your retirement date, either at the date, plus or minus five years, whatever it is in terms of your risk profile. Target date funds are not perfect by any means, but I think it's one of the simplest ways to just access a broadly diversified exposure to the market.

It rebalances professionally, it glide paths you closer to a more conservative portfolio as you reach retirement age. And then in the future-- - How do you not have a branded target date fund by this point? I just don't understand how there's not a Bing Carlson target date fund out there now.

- That's a good question. Yeah, I'm gonna get it tattooed on my back like Bill with the Roth stuff. So I think perfect is the enemy of good here. And then with the rest of that cash, I would, most people think probability-wise, investing it in a lump sum is your best bet.

And we're gonna have someone on the show later who has done a lot of work on that. But I think, especially when you're sitting in a huge pile of cash like this, for most people, I think, to go with the regret minimization framework that you dollar cost average it in over some period, weekly, bimonthly, monthly, quarterly, whatever it is, pick a strategy and stick with it and just get that cash invested.

And again, stick to something simple like a target date fund right away. And if you want to branch out from there eventually, that's just a good way to get started. Cliff in the chat says the Bend Forever Fund. That's not bad. - I like that. Yeah, yeah. It would be a target date funds of target date funds.

- Yeah, a fund of funds. - A fund of funds, that's it, yeah. - Right, next clip. But also, just awesome story that these people came to this country, what, seven years ago, they said, with not much to their name. They built up this huge saving. That's awesome. Love to hear it.

- Yeah, good job, John. Oh, one follow-up I have there that I just noted is they mention blue chips. That's just a concept that I hear a lot of, especially people new to investing talk about. And they seem to think that, oh, if you invest in blue chips, yeah, your returns might not be as good, but they're super safe.

And I was just gonna ask you your take on that. Today's blue chips versus a decade or two decades ago. - That's funny, yeah. - They change, right? - A lot of people would think that Dow stocks are blue chip stocks, maybe dividend stocks are blue chip stocks. It could change where companies like Apple and Microsoft and maybe Google are now considered blue chips eventually, or they will once they mature.

But yeah, just because you invest in a stock that pays a dividend doesn't mean there's no risk there at all. But it does sound very comforting. We say, ah, just invest in blue chips. It's easy. - Right. Like GE would have been a blue chip at one point, right?

- Yes. GE was definitely a blue chip. And it got crushed. - Okay. - All right. Next question. - Up next, we have a question from Mark. I'm 28 years old and self-employed living in South Carolina. I have saved around $11,000 across all accounts. Roth IRA, my wife's as well.

SEP IRA, self-directed 401k, HSA, physical gold, silver, and other regular brokerage accounts. Sadly, I spent a month in the hospital earlier this year and have been dealing with the bills. I used to put aside at least $400 a month for savings or investing, but now I'm saving no less than 10% of my income for savings.

My question is how I should tackle the interest-free hospital bills. Should I just ride them out and pay in time or try to zero it out sooner than later? - He might want to try to see if they'll take physical gold or silver. I've never heard physical silver before.

That's an interesting one. First of all, sorry to hear this. This is kind of a crappy situation. Here's a depressing stat for you. According to one study, medical bills reported to be the number one cause of bankruptcies in this country, causing more than 60% of all bankruptcies. - Crazy.

- I had a friend from college who did this who didn't get a job right out of school. She got very sick and racked up these enormous medical bills and had to declare bankruptcy at like 22, which is like on your credit report forever, right? It's crazy. Some other stats to consider here.

Per capita healthcare spending has quadrupled since 1980 in this country. Spending on healthcare now makes up 20% of GDP. John, do a chart on here. This is employer and worker contributions to healthcare plans. Employer contributions are up 43% since 2012. Employee contributions are up 41%, which is a lot.

It's crazy that you have to pay this much more. And it's not just you are paying more, your employer's paying way more too, which is kind of crazy to think about. Healthcare is part of your compensation if we're including benefits here. So I like to think that people's wages would be a lot higher if we didn't have to pay so much for healthcare.

I mean, I think the number is like 50 to 60% of workers are covered by a plan from their employer. - It is a little wild, but it's tied to your employer, yeah. - It is, yeah. There's a weird backstory there where this happened in World War II where they put some price controls on and people couldn't pay higher wages.

So companies actually had to start offering healthcare as a benefit to give people more money. And then it kind of stuck from there. I don't know what Marco's insurance situation is, but obviously he's feeling some pain if it's eating into his monthly savings. My advice here, if you said it's an interest-free loan they're basically giving you, I would be in no hurry to pay it off because why would you when it costs nothing?

It costs so much to borrow on other stuff these days and inflation is so high, right off the bat, you're doing way better if they'll let you borrow at 0% and just pay it off slowly. I'd pay minimum payments for as long as I could unless this debt's just hanging over you.

I'd make those minimum payments if they're gonna give it to you at 0%. That's an amazing deal these days. Alternatively, you could try to negotiate with them, right? Tell them your situation. Here's what I have, here's what I can afford. Can you work with me? What if I made smaller payments or maybe you cut some of it off because I can't.

It's worth a shot. The other thing is what if I just paid it off now? I paid it in a lump sum, could I get some sort of discount? Most people just hate negotiating and I was one of those people too until I tried it. And so I do the same thing with banks and credit card companies and cable TV providers, of course.

- Now you enjoy it, it's like a hobby, right? - It's kind of fun because what's the worst that can happen? They can say no, right? You try to negotiate with them and they say no. So I would at least try that, talk to the hospital administrators or whoever's, or insurance company, whoever is dealing with these bills.

They would rather get something from you than nothing if you tell them you're in a hard spot. So I would at least try to negotiate. Otherwise, keep paying the minimum payments for 0% and hopefully once it's all gone, then you can start saving that money again. - Yeah, and having you even said before that you can even think of as inflation eating away that interest-free balance.

- Exactly, that's one of the great parts about, holding a bunch of debt is not a great situation, but if inflation is much higher than those future payments, you're paying back on a real basis lower and lower amounts. That's why owning a home and having a fixed rate mortgage is such a great inflation edge 'cause the one you're paying back is less and less especially.

I mean, the Fed this week held rates at what, 5% or whatever, 5.25% which is still two percentage points higher than my mortgage rate. Why would I pay it off in that instance, right? When the prevailing rates are so much higher. - Yeah, that makes sense. - All right, next question.

- Okay, up next we have a question from David. Ben, you've mentioned-- - Speaking of housing. - Yeah, exactly, nice segue. Ben, you've mentioned that you tapped your home equity in the past. This is something I've never considered doing. Despite being fortunate, not to brag, to be sitting on a lot of it, it's 19% of my net worth, which I track on Excel file stay true, Ben.

So, you have a-- - I track my finances in Excel as well. - Yeah, even when rates were low, I didn't see the point. If I can't pay cash for something, we don't buy it. Cars, cash, landscaping, cash, you get the point. I want to redo our laundry room, what Michael would call a mud room, but I don't want to do it until we have the cash.

Am I missing something? When would you advise tapping your home equity and why? Yes, I'm sitting on a lot of home equity, so what? I'll realize that gain if and when I sell the house and it'll be deployed about time. - So, the way we get growth as an economy, I know a lot of people don't like to think this way, but the way the pie gets bigger is people borrow money now and invest for the future.

They build houses, they build buildings, they start businesses. That's how things grow and expand. If we didn't have the ability to borrow, we never would. Obviously, paying for big ticket items in cash is a pretty good strategy if you can do it because it's kind of balancing saving now versus saving in the future.

The one thing is that it requires more patience, obviously. You could potentially divert money away from making investments now because you're building those cash piles. So, why would you do this? Because you're impatient and you don't want to wait around and you have the ability to maybe pay it back in two or three years as opposed to paying it off in 30 like a mortgage.

So, the only borrowing my parents ever really did was their mortgage and a HELOC. And their home was built in the '70s. We moved in in the early 1990s. They still live in the same house, 30 plus years later. So, over the years, it's a 50 plus year old home.

They've had to do some big renovations. New windows, new roof, new deck. They probably could have built a whole new house for the money they spent on this stuff. Don't tell them that. But every time my dad said the way that he did it is he took a little money out of his HELOC because he had the mortgage paid off and used it as collateral.

And then he'd pay it off over the course of one, two, three years. Like slowly pay it off in monthly increments. And in that case, the interest rate doesn't matter as much, right? 'Cause you're not holding the debt for very long. So, I think you're borrowing against a financial asset to make that financial asset more attractive.

Plus, HELOC interest, as long as you use it to fix up your house for renovations, that interest is tax deductible. And Bill Sweet notes that there's a cap on that. So, you're limited to $750,000 of borrowing total, including your primary mortgage. That's like the cap. So, Bill did tell me that.

So, I like the flexibility HELOC offers in that you can pay it back in your own terms. And the bank allows me to borrow for 10 years. I can write checks on that, pay it back, write more checks, and then after 10 years, you have to pay the principal and interest back over the course of 15 years, kind of like a mortgage.

Now, this was a much sweeter deal when my HELOC was 3%. I checked the rate today, and it's effectively eight. It was actually 7.99% on my website. So, I wonder if it was really 8%, and then some manager said, "Hey, can you just knock that down a basis point?" 7.99 looks way, way better than eight.

So, I like to use my home echo line of credit in a pinch if I'm ever writing a large check for something, because then I don't have to shift money around from other savings accounts or brokerage accounts or whatever and interrupt those accounts. And I can always pay off the balance if I want to move things around from other sources, but listen, if your strategy is to pay for everything in cash, that's fine.

I just think HELOCs offer some financial flexibility, and especially for a financial asset that's illiquid like a house. Like, it's more flexibility where you can provide yourself some liquidity, even if you're having to borrow money and pay little interest. - See, I'm literally the opposite. I'm like, how can I pay for everything with a credit card, get those points?

You know, I'm like, that coffee, that $2 coffee, no, it's gotta be on a credit card, I need those points. - Yeah, I wish I could get some points for borrowing from a HELOC. Again, the rates today make it not quite as good of a deal as it was a few years ago, but I still think if you're gonna pay it off in a relatively short amount of time, the interest that you're gonna pay on it is not that much, and it gives you some more flexibility, especially if you want that mudroom or laundry room now, and you're not gonna wait three years to save up for it, you can borrow now, build it, right off the interest, it's gonna help a little bit, and then you have that and you can pay it off slowly over time for that savings you were gonna make anyway.

That's the whole point of borrowing. - Yeah, you make a compelling argument, and you get to be using that laundry/mudroom in the meantime. - Exactly, you just, it's, yeah. We don't like to delay gratification in this country, so that's what a HELOC line of credit is for. - Yeah.

Okay, up next we have a question from John, another John, two Johns, and we have John in the background here working on the show, a lot of Johns today. Okay, has there ever been a study of the optimal time to take a distribution in retirement? For instance, does it make sense to withdraw the cash you need monthly, or take a full year and park the excess cash in laddered bills for monthly income?

I might need a refresher on what laddered bills means. - Okay, well, so we, I think that the laddered bills they're talking about is like paying off their bills. This isn't like a strategy, they're saying. So we get a lot of questions on dollar cost averaging. I think this is kind of the reverse of that situation.

So let's bring in our DCA expert, Nick Maggiuli. Nick even wrote a whole book about this subject. Just keep buying. Nick, a lot of people email us about the tough transition from going from accumulating assets, which is pretty straightforward, right? Because most people just invest out of their paycheck, right?

So they dollar cost average, not 'cause they want to, because that's just the strategy they have to take. So this is kind of the opposite of it. You're sitting on a big pile of money, now how do you take that money out? And we have so many boomers that are retiring on a daily basis now.

A lot of people are coming to this. So is it just dollar cost averaging in reverse? Is that the idea? - I mean, yeah, statistically, that's gonna be the thing that's gonna generate the most money for you, right? Like if you imagine something that just keeps going up over time, like over a very long period of time, you'd want to buy that thing as soon as possible and you want to sell it as late as possible, right?

So in this particular instance, you'd have to be selling monthly. The problem with this though is there is more risk, right? 'Cause if the market goes down, something like that, when you go to sell, you're now selling a larger percentage of your portfolio, right? So, and it also depends on rate.

So that's why someone brought up the ladder T-bill option where you're like, okay, I'm gonna take, I'm just gonna, let's say I need $10,000 a month. So you take 120K out, you sell that at the beginning, you invest 10,000 to a one month T-bill, 10,000 to a two month, right, et cetera, throughout the rest of the year.

- Yeah, it's like liability, asset liability matching. - Yeah, yeah, and you could definitely do that. And so I could see how that would make income. And so that might make more sense and it's also less risky. So I, it technically, you know, it's better to wait as long as possible to sell, especially assuming this is equity risk you're taking.

But, you know, at the end of the day, a lot of people are worried about risk and they don't know what's gonna happen with markets. I know we're in a new bull market now, but I don't think we're out of the woods yet. So, you know, there's, I think, you know, selling early and just, and doing a ladder T-bill given where rates are is not a bad idea right now, actually, when rates were at zero, I could have seen someone waiting, but because rates are higher now, I think it could make sense to just-- - Okay, so maybe this person was talking about a strategy.

Duncan, maybe you're right and I was wrong. But I guess, so the idea is, let's say you want to have a year's worth of cash in something and you're right in the past, you would have taken that year's worth of cash out and go, oh great, I'm earning nothing on my cash.

Now you can earn something on it. So you know what your 12 months or 18 months or 24 months of spending is gonna be. You can plan that out, you know, pretty close these days. It's not as far out. Then you put that into a T-bill and as it matures, you kind of can spend it, right?

'Cause you buy the T-bill at a discount and then it matures at face value. - Yeah, exactly. I mean, it's a little more tricky because, you know, you have to like plan out exactly what you're gonna spend and spending's never so linear. It's usually more lumpy, right? So it can be difficult, but you know, that would definitely work, though, if you can kind of try and anticipate your spending a bit.

- Yeah, and we've talked about this before where the way that I like to think about like an asset allocation in retirement is like, how much money do you want in safe assets? And that can be tied to how much, so if you use the 4% rule to spend and you have a 60/40 portfolio for current spending needs, you have roughly 10 years worth if you're in that 40%, right?

If it's some sort of short-term bonds or cash or, you know, not long-term bonds by any means. But I think that's kind of a way to think about it. And then getting into your micromanaging is, then how do I deal with this short-term cash? And I'd love to see a study on how many people actually do.

I'm guessing most people sell at the beginning of the year, right? Or the end of the year. Some periodic time point where they lock in and say, I'm gonna have my spending there 'cause I don't want it to move around in the meantime. - You actually know what most people do?

They've done a study on this. So people with portfolios, right? So 40% of retirees don't even have a portfolio. They basically, Americans, they just live off social security, right? Which is unfortunate in its own right. But of those that have portfolios, the other 60%, you know, five and seven actually never touch their principal balance, right?

They actually just live off their investment income. So it's a very simple rule. It's like, okay, if my investments are bringing in X dollars a month, I live off of that basically. And the principal balance usually keeps growing. So they never spend, very rarely do people spend down principal.

It's a very small percentage of retirees that are actually spending down principal. - And this is the hot take from your book where you said most people, if you're a big saver, you're probably saving way too much money. And because of this idea that most retirees never spend it because they can't force themselves to spend it.

So spend more now. - Yeah, that's exactly it. So it's kind of, it's not die with zero, but I'm saying die with zero is like directionally accurate. I actually hadn't read the book at the time or otherwise I would have thrown it in there. But yeah, it's like, it's moving towards that idea.

- Your book would be like die with 25%. - Yeah, exactly. I think die with zero is a little rough for a lot of people. So I think there's some negative reactions to it, but I think he's directionally accurate. Like we are just like moving too much in one direction versus the other, right?

And I think one more, one quick thing. Michael Kitsies did this study, right? He found that over, you know, over a 30 year time period using the 4% rule on a 60/40, you're more likely to 4X your portfolio than to go below the beginning balance. So if you start with a million dollars, you're more likely to have $4 million in 30 years than you're to be below a million.

So, and that's with you spending money in everything, right? So I just, upside surprises happen. And I think people don't realize that when they go into retirement. - Well, people don't realize that also, like the 4% rule studies, those are looking at worst case scenarios, right? So you're right, that's on like the extreme left tail.

Most of the time you're going to grow your money because most of the time markets go up, right? Okay, since we have Nick here, let's do a, we put him to work here. Let's do a more data-heavy one as well. - Okay, up next we have a question from McFly_Marty, so I'm guessing this is social media.

- Great Twitter handle there. - Yeah, does the S&P 500 dividend yield keep pace with short-term treasury interest rates during a Fed hiking cycle? One would think that these corporations have to compete with the government to attract investment dollars, and there should be a correlation. - I like this, I like this question.

I put this one in here because I've never really thought about it, but it makes sense. So John, do a quick chart on here. This is stock bond and cash returns by decade. I just have this chart, but it also shows earnings growth, annualized earnings growth. And you can see 2010s were great, which wasn't a lot of inflation or interest rates hiking, but the other high decades were the 1970s and 1940s.

So what those two decades have in common is inflation was high and interest rates were rising. So it would make sense to me that if earnings are rising, that dividends will be rising too, but I've never really looked into this. So Nick, we put you to the test here.

What did we find? - Yeah, so I did a quick analysis on this, and basically it's a difficult question because there's a lot of moving parts, but generally when the Fed goes to hike really quickly, like stock prices do drop a little bit. And so if you think about what is a dividend yield, it's like dividend over price.

So let's say if a stock was priced at 100 and it's paying $5 in dividend per share, that's a 5% dividend yield. So if prices drop by, just because of that, how that ratio works, like the dividend yield is gonna go up. So generally you see, I know I put together a graph that looks at this.

I looked at a bunch of different hiking cycles, like going back to like, I think the 1970s. So the Fed target rate is there on the X-axis. So as the rate's going up, so in every one of these colored things, the rate is going up. So what should we expect with dividend yield is like, is the dividend yield moving up as the dots are moving to the right within each color?

And the answer is generally yes, but it's not always perfect. And so what you're seeing is like, as the Fed's raising rates, like dividends yield tend to go up only, I think some of that is because of the price impact, right? So yes, it's true that like, you know, corporations are like, oh, I wanna offer more dividends to be attractive.

But the fact is if your price drops and your dividends don't change, your dividend yield has gone up, right? And so because of that, like just naturally through this process, and we saw this happen in this hiking cycle, right? Stock prices got hit as the Fed started to hike.

And guess what? Dividend yields went up, right? Because all else equal, if they didn't cut dividends, dividend yields went up, right? So that's-- - It probably operates on a lag too. If earnings are rising, it's not like companies are automatically increasing dividends right away. They do so on a very slow stair-step approach.

They probably don't do it very quickly, right? - Exactly. I would love to look into this more, but you know, it's a quick analysis, trying to get an answer. But yeah, I think generally they are correlated just through that mechanism of like, as price drops, a dividend yield tends to go up just very quickly.

But yeah, over the long haul, I don't know, like I don't think corporations are thinking, oh, treasurers are paying this, we have to pay more now. I don't think that's the, I don't think that's a thing that like, is going through a lot of, you know, the minds of those in corporate strategy and things like that.

- It's funny because that-- - We're gonna do what's best for the business, right? - That used to be the case back in like the 1920s, '30s, '40s is that stocks offered way, like five, six, 7% dividend yields 'cause they were competing with bonds. 'Cause no one knew what the actual price returns were, so they had to.

And now you're right. They don't care about that as much anymore. - Yeah, the data's out there. And so people know that stocks generally return more than bonds, so they don't have to pay as much now to do that. - Yeah, well, that was a pretty chart. Nick makes some of the prettiest charts in all finance.

- Thank you. - So that was nice. - Yeah, I was just telling everyone in the chat to be sure to check out, Nick just wrote a good piece about how housing prices got to where they are. So go check that out. - Thank you. - Perfect, okay. Thanks, Nick, for coming on the show.

We always appreciate it. And if you haven't yet, check out Nick's book, "Just Keep Buying." He's got a really tiny copy over his shoulder. - I'm plugging it. (laughing) We're in the spare office. I'm like plugging this thing. - It's perspective. It's not a tiny copy. (laughing) - Remember, you can email us.

Yeah, that's like the Leaning Tower of Pisa kind of thing. - Right, exactly. Yeah, thanks, guys, for having me on. It's always great. Always great to chat with you guys. - AsktheCompoundShow@gmail.com. Thanks again to Bird Dogs, and we'll see you next time. (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music)