Welcome back to Portfolio Rescue, where we take questions straight from you, the audience. Remember, if you have a question for us, askthecompoundshow@gmail.com. Today's show is sponsored by Innovator ETFs. Duncan is sporting a nice Innovator ETFs hat. He's got some swag. We saw them at the FutureProof Festival, which we're going to get into a bit.

So, this week, Duncan, Ray Dalio said if the Fed raises rates to 4.5%, which is actually not out of the question, it seems like, with inflation coming higher, the stock market's going to tumble an additional 20%. This is a very specific prediction, but I guess from the standpoint of discounted cash flow analysis, you figure, at least directionally, it kind of makes sense, right?

You increase the hurdle rate, the interest rate, the present value of future cash flows, yada, yada, yada, should be lower. So, let's say you think there's a possibility Dalio's right here. Maybe inflation remains stubbornly high. The Fed has to hike rates to 4 or 5%. Again, not out of the realm of possibilities.

That risk-free rate of 4 to 5% is pretty good competition for the stock market. But what if you think, I think it's a possibility, or it's a probability, but not a certainty? What if he's wrong, as well? Innovator ETFs has you covered. John, pull up the Defined Alchemy ETF list for September.

You can see they have these different buffers for losses, 9%, 15%, and then 30%, which is actually after you're down the first 5 to down 35%. And the corresponding caps for those on the upside are 24%, 17% and change, and a little over 14%. So, let's say you want some more certainty around the Ray Dalio scenario without simply shorting the market.

Because I don't think it makes sense to do extremes like that, if you really think he's right, right? So, maybe you look at the 15% buffer, which protects you against the first 15% of losses, but also gives you almost 18% on the upside in the event that Dalio's prediction is wrong.

Which could be. You never know. So, I'm never a fan of going to the extremes. So, I think their Defined Outcome strategies give you a range of outcomes that you know in advance, but it doesn't necessarily pigeonhole you into making a specific directional bet one way or the other.

If you're wrong, you still have a range in either direction, because you have that protection. To learn more, go to InnovatorETFs.com. So, Duncan and I just returned from beautiful Huntington Beach, California for Future Fest, what did I say? Future Proof. Future Proof. One of those. Thanks to all the Compound viewers for coming out.

I know we have Cliff Peebles here in the chat. Got to meet some people in person. We did a live Animal Spirits and a live Compound. We'll probably share some more thoughts on Animal Spirits next week about everything that happened there, but it was great to see so many people show up in person.

We've never done one like that in person before, right? Duncan, a live show. Yeah. I know you were worried about the audio, because it was very windy there. Yeah. We set up our podcast mics, and everything came out pretty well, all things considered. And if anyone listening has a little FOMO about not going, maybe next year we can do a live version of the show with all the questions coming.

But we did already actually pre-announce dates that we're going to do it again next September. It was fun. And because everyone was so busy, we had a lot of people. We had almost 40 people from Riddle's Wealth there. No expert guest host today. Duncan and I are doing it together.

It's just us. Everyone worked so hard. We're doing it solo. We emptied out the inbox. And let's do it, right? It's also why you have that old mic. So I forgot to give Ben back his mic. So he'll have his regular mic back next week. It's like our flu game here.

Yeah. Yeah, exactly. Yeah. Let's do it. Okay. So up first today... Also, my voice is still not totally back, but I think it'll work. It'll have to work. Okay. Up first, we have a question from Colin. "I'm a 29-year-old living in New York City paying high rent prices and cost of living expenses.

I recently graduated from a two-year master's program, which set me back financially, but I graduated with a job that almost doubled my income prior to grad school, currently $150,000. Even with this high income, my high expenses and debt have me feeling behind my peers who didn't take a two-year break from the workforce.

I see my friends in the suburbs buying houses while I have practically nothing in savings. I want to avoid becoming a person who only starts to experience financial relief when my income increases. What are some tips for a high income earner in a high cost of living scenario who can only save 10% of post-tax income to avoid becoming another rat in the rat race?" Is the rat race that bad?

I was just on the subway. It's the rat race, right? Okay. All right. Duncan's making the case for the rat race. All right. So, Duncan, I watched Eyes Wide Shut recently. Tom Cruise and the Cole Kidman movie. Never seen that one. All right. I love Kubrick, though. So do I need to see it?

Kubrick, if you love him, you might want to see it. It was definitely more of a film than a movie. It was one of the few Tom Cruise movies I haven't seen. I thought it was just okay. It didn't blow me away. But in the movie, he plays a doctor, which is kind of an odd role for Tom Cruise.

But he has this enormous apartment. I think it's in 1999. He has this enormous apartment. At the beginning of the movie, they go to a doctor friend of his who has this just palatial penthouse condo. Today, this is a $50 million place. It just struck me that in the '80s and '90s, doctors, and I guess to a lesser extent, lawyers, were seen as these most glamorous professions.

That's how you got wealthy. Because if that movie was remade today, he would be a hedge fund manager, or a CEO, or have a tech company, or something like that. So what does it have to do with anything? This question made me think of doctors. So I was actually speaking to a financial advisor this week who said that he focuses on doctors.

His practice works with young doctors. And he mentioned how it's a unique financial situation because as a doctor, you go to school for 23 years in total, or 22 years or something. Then you go to your residency, and you don't make a lot of money. So you come out of your residency not making a lot of money.

You have six figures of student loans. But then finally, once you become a doctor, then you're making real money. You're making high six figures or something. That seems kind of similar to Colin's situation here, where he put things off. He did make a lot of money for a couple of years.

But then he immediately took a huge leap forward in his income. So he fell behind, but now he has to play catch up. And I think that's hard to do, because if you sort of set off that delayed gratification, and now you're making more money, you probably want to spend it right away, because for a couple of years later.

But I think if he wants to avoid falling behind even further than his friends, I think what you do is you learn how to live like a student for two years without a job. I think maybe you probably want to keep living like a student for a little while.

Give yourself a little cost of living raise, but maybe keep that baseline low. Because I think if you initially just start spending all the money you make, going back is going to be even harder. So you just lived on a low income for a couple of years. It shouldn't be that much harder to do it for a little bit longer.

So I think setting that baseline to your future income is pretty good. You just don't want to overdo it. And if you can't continue to live like a student, unfortunately, you're probably going to have to move. I know people don't want to hear this, but there's basically three legs for the personal finance tool.

You can spend less, you can earn more, or you can change your situation. And so those are kind of the things here. And luckily, he did find a way to earn more. I think it's glaringly obvious that making more money makes it easier to save more. But the fact that he put two years off and it doubles income, it's obviously a worthwhile investment.

But I think if you're in a high cost of living area and the money you're making allows you to save a certain percentage of your income, you're going to have to figure out your spending or where you live, basically. Right? Unfortunately. It's hard to save in New York. It also brings up the good question of what high income means, right?

Because it is so relative. It's relative. Yeah. To your cost of living. But I mean, doubling your income, obviously, again, it probably hurt for those two years. I wouldn't worry so much about falling behind your peers, because obviously that investment was worth it for you, because you're earning it back fairly quickly.

But unfortunately, there's not many easy options besides living like you were living like a student for a while. Right. I think that's a good way to play catch-up. All right. Let's do another one. Okay. So up next, we have a question from Matthew, who writes, "I'm a 29-year-old with about $330,000 saved, all of it in brokerages or IRAs.

Currently, I'm managing my own portfolio, all in individual stocks and cash. I feel like I do a decent job picking long-term businesses. I don't panic, buy or sell. And I've held my own during the recent downturn. However, I know that by now, that the right move is for the majority of my portfolio to be in low-cost index funds, with maybe a bit to play with.

Frankly, I just enjoy investing in stocks, but I know chances to outperform the market in the long-term are low. The question is, I found a financial advisor offering a 1.2% annual fee on my holdings. I do not currently have a home or really any complicated assets or financial plans.

I just want to accumulate. Is an advisor for 1.2% worth it? Or at my age, is simply finding low-cost index funds the right move?" We get this question a lot. "Do I need a financial advisor?" And I work in wealth management, so I'm kind of biased, but I've interacted with enough investors over the years to know that it's not for everyone.

Not everyone needs a financial advisor, right? Some people are prone to making emotional mistakes as an investor, and they need an advisor for that to help them make better decisions. A lot of people have complicated situations because of a life event or just their personal circumstances. They might need an advisor.

Some people are just really busy and prefer to outsource. They outsource a lot of things in their life, and they don't want to carry the load themselves, so they just lean on experts. One of them is, for a lot of people, especially if they've been a DIY investor their whole life and then they're getting close to retirement, there's that hit-by-a-busk risk where if something happens to me, what's going to happen to my spouse or my family, and I want an advisor to be there to take the place.

We talked to one guy once who had millions of dollars and said, "I'm perfectly comfortable managing one myself. I like doing it, but I have something in our estate plan that says, 'If I die tomorrow, my wife is going to call Rehability Wealth Management.'" It's like a backup plan.

Then I think when the stakes become too high and you're worried about making a huge mistake, but the people who don't need an advisor are the people who have put in the work, who pay attention to the stuff and just feel comfortable doing it themselves. Some people just find enjoyment out of it, and then there's a lot of the majority of young people who are simply looking to save and invest, like this person, probably doesn't need an advisor, especially if it sounds like it's something this person likes to do.

They already sort of have it figured out. They're in individual stocks and they know they have to go to index funds and they should. They haven't made the switch yet. Do you need to pay an advisor over 1% to put in index funds? No. Just build it up in your 401(k) or IRA.

If you don't have behavioral problems and you can stick with a long-term investment plan, and you're just accumulating assets and you're not in a complicated situation. Most people come to a financial advisor thinking, "I need help with my portfolio. I need investment management. I need someone to do asset allocation." That stuff is part of it, but financial planning is far more meaningful for the vast majority of the population.

We're talking comprehensive financial planning, tax planning, insurance planning, estate planning. Yeah, it's holistic. Yeah, it's holistic. It's not only asset allocation, but asset location and withdrawal strategies and ongoing planning. It's all this other stuff too, that investment is a piece of it, but it's not the whole thing. So if you're just in the accumulation phase, I don't think you need to pay an advisor.

No. I mean, you could pay for an hourly financial planner to create a financial plan for you if you really need that, but I don't think you need to be paying an ongoing asset management fee to people. A key thing they said there is that they enjoy it, right?

So that's, I guess, giving away some of maybe what would be best for them. But yeah, for most people, I don't think most people, they said they're in individual stocks. I don't think most people want to be worrying about what an individual stock does day in, day out, that kind of thing.

But if you enjoy it, then I guess that takes some of that pressure off. I've had this conversation too about getting to a place where you're comfortable, where if you need to scratch that itch and have 10, 20, 30% of your portfolio in individual stocks because you enjoy it, and then the rest on autopilot and index funds or ETFs, just figure out what that right balance is.

Yeah. All right. Let's do it. Good advice. One more. Okay. Danny writes, "I'm 39 years old and I've been running into more and more instances of this type of behavior from my parents and their friends. If I go down a YouTube rabbit hole and are conned out of money, whether it be for gold coins or to cancel phantom subscriptions, how do we talk to our parents about being conned out of money?" It's kind of funny because our parents always told us growing up that it was like video games and TV and movies are ruining our brain.

And unfortunately, it's probably the internet and social media that came for them. And I actually don't blame them because the baby boomer generation especially didn't have a lot of technology growing up. So I think they actually are easier to con. So I wrote a whole book about this called "Don't Fall For It, A Short History of Financial Scams." And the crazy thing to me is that technology evolves over time, but people were still doing the same scams in the 1600s as they are now.

It's just a different wrapper. So there's this old joke about a little boy who comes down on Christmas morning and he notices all around the Christmas tree, it's filled with horse excrement everywhere, just horse poop all over the place. And his parents see him and he starts jumping up and down for joy.

And his parents say, "What's wrong with you? There's horse manure everywhere." And the boy says, "With this much horse shit, there has to be a pony somewhere." Right? And that's financial fraud. It just--it has to be true. Right? There was a--in my book, there was this woman and I think she was a boomer unfortunately.

And Jason Statham, a person who was posing as Jason Statham in between "Fast and Furious" movies said to her, "Hey, I'm a little short on cash because I'm paycheck to paycheck between movies. Just front me a couple of hundred thousand dollars to make it." And this woman thought she was friends with Jason Statham.

You're not--you're going to be shocked, but it wasn't. Like, and that kind of stuff. So, it's--one of the hard parts is a lot of people don't want to talk about this if it happens. And so, I looked for a good estimate of like how often--how much money is being scammed from people in a given year.

And every study I found said, "Whatever money--whatever estimate we have, multiply it by two or three because the number of people who get scammed then don't say anything because they're embarrassed is enormous." So, there was a study I looked at in the book and they look at two groups of people.

One group had gone through--they'd been the victim of financial fraud and they admitted it. Another group who wasn't the victim of financial fraud. And they gave them these--this test and it was like an eight-question test. It was fairly in-depth, all about the markets and investing and stocks and your finances.

And they found the average score among victims of fraud was like 60%, which sounds bad, but it was actually way higher than the non-fraud victims. The people who hadn't been a victim of a fraud were like two out of eight. And so, what they figured was like the people who were victims of fraud were actually more informed about investments than those who weren't.

But the conclusion of the study was like everyone gets taken, but it's the most sophisticated investors who get taken the most. And that's because they're either overconfident, but also because they have the target on their back, right? Older people, the baby boomers especially, they have the most money. So, they have the target on their back.

That's why people go after them. So, I did this thing where I looked at six signs of financial fraud in the book. One of them was--this is the Madoff thing. When the investment manager takes custody of your assets, that was like the biggest--that should have been the biggest red flag for Bernie Madoff people.

He was not only managing the money, but also holding onto it for people. That made it easier to falsify the records and stuff. I think the biggest one is--especially for these smaller ones that this person is talking about going down like a rabbit hole on the internet--when there's like an aura of exclusivity in the pitch.

So, it's like this is especially tempting for the wealthy people because they want to think like, "Well, that's not available to other people." For me, if there's this like secret door that I can go through--and I think scammers often use time as a sales tactic too. Like if you don't act now, you're going to miss out.

So, people want to believe like they have to do it now. I think anytime it's too complicated to understand, that's a good red flag. If it sounds too good to be true, when the promise returns are ridiculously high. I think Charles Ponzi, the original Ponzi scheme, he was offering like 40% a month.

Not bad. Yeah. The risk-free rate at the time was like 5%, not too far from now. And then when they tell you exactly what you want to hear. So, I think the simple way to tell your parents--so, I've heard a few people now. Nick Magiulia wrote about this a few months ago, and I actually heard about this someone personally.

With remote work being a thing, people would contact someone on LinkedIn and say, "Hey, I've got a job for you," and go through like a back and forth interview process all on the internet. And then say, "Okay, job is yours. Give me your social security number, your bank account number." And then they looked into it and there's no job there.

People are just scamming them, right? Right. I've heard of that. So I think some simple ones to tell your parents, never give out information like that over the internet, especially. The other one, never click on a link that an email sends you to reset a password, right? Or a text.

Or a text. Yeah, any time, click on this. Go to the actual website yourself if you want to reset something. Don't click on it yourself. Otherwise, I think you have to prepare them a little bit and tell them that people are looking to get you in this stuff. If you have a question, ask me before you do something.

You don't need to be in a rush to do anything, especially when it comes to your finances. Yeah, it's sad because you don't want to make people super jaded and untrusting of everyone. But yeah, I mean, it really has gotten pretty out of hand. I get texts all the time now.

The latest one that I've heard a lot about is USPS or UPS couldn't deliver your package, and so you might actually be expecting a package. And so you click the link and it's a scam. Sometimes it's not. And so it's one of those things where now it's like, I never click any of them because I just assume it's a scam.

Yes, don't click the links. Remember when the internet first came out, no one ever wanted to give their credit card information? And now you become more trusting of it. And now you think everything's going to be fine and you have to be a little more discerning. And send an email.

I'll send your parents a copy of this book. Maybe that'll help. Yeah, good idea. Come in your way. All right, let's do another one. Okay. Oh, and for any boomers who were offended by any of that, it's not just you, first of all, but second of all, you can leave your best Gen Z and millennial jokes in the chat and we'll take a look at some of those.

Yes, but the whole point, though, is everyone gets scammed. I mean, think about who's getting scammed on the NFT crypto stuff. Guess what? It's young people. That's not boomers. That's like what you just said too, right? You can't get scammed on an NFT project unless you know what an NFT is, right?

You're probably not going to put money into it unless you actually know what it is. So it's not people who don't know anything. It's people who actually know something that often get scammed. Yeah, and they're overconfident. Exactly. Okay, so up next we have a question from Jared. My wife bought some land in New Zealand a few years before we met, with vague ideas of building a house.

Turns out its value has appreciated by four or five times, so she asked me if she should sell it while prices are high. We don't really need the money for anything, so I thought the tax burden sounds like a hassle, and I don't know if the money would be better off in stocks.

One wrinkle is that she has stage four lung cancer and probably only has a few years, so it's unlikely she'll ever build on it. Should she just sell it? You know, we get a lot of these emails, and I actually thank people for sharing this kind of stuff, because obviously it can't be easy to ask this kind of thing, and I can't even imagine what it's like to go through.

That's a sad one. So there's this guy, George Kinder is his name. He's generally known as the father of financial life planning, and his whole thing was, it's not financial planning, you're planning your life. And he does this thing where he asks three questions. This is pretty well known in the financial advisor community.

So he is asking these questions to get people to dig deeper into their goals when they're creating their financial plans. So the first one is, imagine you're financially secure both now and in the future. How would that change your life? What would you do differently? Second question is, and this is kind of a progressive set of questions.

Second question is, your doctor tells you you have five to ten years left to live. You won't feel sick ever, but you won't know exactly when you're going to go. Just sometime in the next five to ten years, and then the question is, how will this change your life and what you do with it?

And then the third one is, drilling down even more, now the doctor tells you you have one day left to live. What are your biggest regrets? What do you wish you would have done, and what would you have done differently? And he uses this as a framework to help people kind of drill down to their goals and dreams and get better.

Now for most people, these questions are theoretical in nature. For Jared and his wife, who's asking this question, this is real life. And now it sounds like they are financially secure, so that number one is kind of checked off. And wife maybe only has a few years to live, so it's like, now what?

So I could offer you a breakdown of the pros and cons between owning land or owning stocks or the timing of this or anything else, but really, I don't think finances should be the priority here. So we, I introduced a financial advisor named Joe McClain this week at the Future Proof Festival, and he manages money for professional athletes.

And they asked him, how do you go about setting a financial plan and allocating their assets when they have millions of dollars? He said, well, one of them is like the safety security bucket, one of them is the growth bucket, and one of them is the dream bucket. And he said, when he lays it out like this, of course, the first one everyone wants to go to is the dream bucket.

And so I think that's probably, that's probably where you want to start here. With the understanding that we don't know the rest of your financial circumstances, that's where I would start too, is, I don't know, maybe your wife wants to build a house in New Zealand and enjoy her last few years.

Maybe you want to cash out and take some amazing vacations together. Or maybe make her feel better to give the money away, or make your financial standing more secure before she goes. So, it's hard to say. Obviously, this has got to be extremely difficult with that hanging over you, and it can't be an easy conversation to have.

But maybe having a talk about your wife's dreams and what she wants to get out of it, and using that framework, might be a good place to start in terms of figuring out what to do next with that. Yeah. Yeah, I like that. That's what I was thinking too, is, yeah, I mean, maybe something she would really like to do with that money.

Yeah, otherwise, yeah, maybe it's not worth the hassle. Yeah. Now is the time to not, like, throw the financial out of the equation, and just think about, like, what would I actually do with this money if I didn't have a lot of time? And obviously, that's the situation they're dealing with.

All right. One more question. Okay. Last but not least, we have a question from Michael. "My wife and I are in our early 30s, and have our first kid arriving in December. I have about $32,000 left in student loan debt, but they are refinanced at great rates. $5,200 at 3.5%, and $27,600 at 3%.

Both are fixed rate, and we pay a little over minimum payment, $500 a month to the $5,000 loan, and $900 a month to the $27,000 loan. I've always thought anything under 3% is basically free money, and usually wouldn't think to pay it early. But for some reason, student debt really annoys me, probably because we've been paying for a decade.

We built up a decent emergency fund by putting $1,000 a month into it. However, now that it's a decent figure, I plan to only contribute $500 a month. Does it make sense to use that extra $500 that would normally be going to our emergency fund to pay down student debt, or would you invest any extra money and assume long-term, the investments will outperform the interest rates on the loans?" What's the gif of the little girl where she's, "Why not both?" I don't think these decisions have to be all or nothing.

I agree that there should be no hurry with rates that low. My student loans were sub 3%, so I used the entire 15-year period to pay them off. But I'm not one of those people who's totally averse to holding debt. It doesn't bother me, especially if the rates are so low.

For others, it doesn't even matter what the rates are. They just can't take it. And to put it in perspective, I think the average rate is like 6%. Yeah, so these people obviously have a very good loan rate right now. The other good thing is that these decisions don't have to be set in stone.

You can tinker a little bit. Maybe try to split the difference for a year, put half in your student loans and half of it is in savings or investing. Obviously, if you've got a new child on the way, maybe giving yourself a little buffer and keeping that emergency fund higher is probably going to be helpful.

Then at the end of the year, you can check your student loan balance after making some extra payments, check your investments and where they are, and decide which one of these made me feel better, which one of them has helped my financial position better. And I think you can kind of change, and you can tinker a little bit and see.

And I think you can also compare rates, as well. Who knows, if the Fed keeps raising interest rates, you could have a rate on your savings account that's higher than this 3% loan, right? Like, six-month, one-year, two-year Treasury bills right now are higher than my mortgage rate. Not to brag.

Actually, very much to brag. But it's possible. So, you could be looking at that rate, and it's going to look even better maybe three, six, nine months from now, where you go, "I really don't want to change," especially with inflation being so high. So, from a financial perspective, holding that low-rate debt on a real basis, it's negative right now, big time.

We're talking -5% or something. It's very appealing. So, I wouldn't be in a hurry to pay that, from a financial perspective. I understand from a mental, psychological perspective, it feels like it's just hanging over you. But that's almost more of an asset than a liability now. I'm in no rush to pay my mortgage off.

And if I could take out more debt at that 3% rate right now, I probably would, right? So, yeah. I'd be in no hurry. But again, you can always split the difference and then see how it goes for a little while. Yeah. No, that sounds like good advice. Yeah, I'm jealous that that's a very good interest rate.

But yeah, if you refinance, I guess, for people who are working in public service, that kind of thing, you lose eligibility to do the 10 years where you get your loans paid off or whatever that's called, ESLF. Yeah. And if this person actually, if they're part of the thing that got the $10,000 off, you know, they just have some savings there too, right?

Right. Okay. Oh, I finally got my Chardon shirt here. I noticed. I got an email. So, remember, if you want one of these, we're people wearing them out at Future Proof, Duncan and John and Josh, I think, and Michael. idontshop.com. Again, thanks everyone for coming out and checking it out.

John, did you throw up that picture yet from Future Proof? Check that out. Look at that. That's our live podcast booth. Look at their shirts. Yeah. We had a lot of people in the crowd with Hawaiian shirts. We appreciate that. Michael, if you're listening in podcast form, leave us a review, give us a five-star rating.

If you're on YouTube, leave a comment below, leave a question, subscribe, idontshop.com for compound merch. Keep those questions and comments coming. If you have something to ask us, askthecompoundshow@gmail.com. We will be here next week and we'll bring a guest host next week, but we'll see you then. See ya.