(beeping) (upbeat music) - Welcome back to Ask the Compound, the show where we get questions straight from you, the viewer, and even some feedback that we're gonna go over today. Ask the Compound show at gmail.com, that's your email here. Today's show is sponsored by Fabric by Gerber Life. Fabric by Gerber Life was designed by parents for parents, I'm a parent so I can understand, to help you get a high quality, surprisingly affordable term of life insurance policy in less than 10 minutes.

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She does, so she makes sure this kind of stuff is taken care of. I'm gonna have to introduce her to fabric, pretty cool. - Mr. Spreadsheet is not the worrier, interesting. - It is kind of funny, yeah. I'm more of a things will work out kind of guy. My wife is a worrier, so we balance each other out.

All right, Duncan, last week we talked to trucks, right? And I got some good feedback from people. A lot of people actually who are truck drivers drew to me. Daniel, throw the first one up here. We got a good feedback here. 32 year old truck guy here, he says, "This is exactly why I waited 10 plus years "to buy my dream truck.

"I waited until dividend income could cover the payment." That's even further than I went. "Also made sure he had a cash flowing business "to run with the truck." So he's using the truck for a business, not just driving it because it looks nice. He said he definitely advised the same to younger people.

That's all I was saying last week, is that just wait a little bit, right? Wait till you can actually cover it. I don't care if you drive a big truck, just make sure you can afford it. - When I met a lot of truck people totally agree with what we were saying.

I mean, it can't be more annoying to have someone who actually needs a truck to have to pay more for a truck because a bunch of people want them for vanity sake. - Yes, I had another one say, "Listen, I drove junky old trucks my entire career "and that allowed me to retire early "'cause I wasn't paying for the newest top of the line one." I think it makes sense.

One more piece of feedback. Daniel, throw the next one up. This is someone coming to Duncan's defense. He says, "We all have our Oatleys in our portfolio "and the guys give Duncan a decent amount of grief for it. "I want to know what their Oatleys are, past or present." Fair question.

We do. I also told you to watch the first 10 minutes of Curb, your enthusiasm, the new one. Did you see what Larry David did? - I saw, I saw. - He switched from what, soy milk to, or almond milk? - Almond milk to oat milk, yeah, yeah. - All right, see, you've been waiting for it.

- It's a sign. - It's coming into, it's a sign. I got a couple of easy ones here. The easiest one for me, and I think it's a good lesson too in understanding, you can be totally right on the thesis and still get wrong on the stock price. So the one for me today that finally round-tripped for me for the first time since 2019 is Disney.

My whole thesis was Disney+ is going to be huge, and I said that because I have kids. And it was a grand slam in terms of, they got way more subscribers than they ever thought imaginable, but they lost so much money that it didn't matter. And so I looked today, I think I bought it in 2019.

Since 2019, Disney is essentially flat, which after today, Disney's up nice. It's back to break even for me, basically. And the S&P's up like 105% of that time. So it's not that I was down, just that I was down 30% at one point or something. It's the opportunity cost that the market itself just totally left it behind.

- See, this is why I wish they'd bring back shareholder perks. You know, it wouldn't feel so bad if you got like a little discount at Disney or on Disney items or Disney+. - Give me a free lightning lane. - Yeah, there you go, yeah. - Something like that.

The other one for me was Zillow. I was bullish on the U.S. housing market, and I have been for years. And after 2021, Zillow fell like 30%, and I'm like, oh, perfect timing. I'm gonna get in on this. I'm bullish on the housing market. I bought in Zillow, and it fell like another 60% from there or something.

- That one's a little bad for you. - I'm still way underwater on that. I've been buying more, 'cause I'm still positive on home ownership because of young people. But that one didn't work out too well for me. See, so yeah, those are my recent Oatleys. Is that fair?

- Yeah, and I mean, it's all about when you get into a stock, right? I mean, you mentioned recently, Oatley's up a bunch over the last couple of months. If you've been holding it since the IPO like me, then things aren't great. But yeah, it's all about when you're in.

- Just cut off that first part of the holding period. All right, let's get into questions. - Okay. Up first today, we have a question from YouTube. - Yes, this was a YouTube question from last week. I think I pulled it right from the comments. - Okay, let me see where we are here.

Okay, so actually, I don't have it pulled up here. - All right, just read it. - I'm just gonna read it. Okay, "Investing at all-time highs is counterintuitive. "Does it produce great returns "because the market is forward-looking "and investors are momentum investors? "It doesn't seem to make sense to buy "just before a long, severe bear market." - All right, so I understand the worry here.

The worry is, it's scary that we're back at all-time highs because literally every crash in history has started from all-time highs. So that means it's going to happen again. And we heard the same thing in 2013 when that happened. And I get it, it's been two years or so since we've had all-time highs.

We already actually hit, if we do it today, it'll be nine all-time highs. Otherwise, through the close on Wednesday, we've had eight all-time highs this year alone already. So my point is, the thing you have to understand about markets is they're always and forever cyclical. And sometimes those cycles turn on a dime, but most of the time, they tend to go longer than you can think in either direction.

The pendulum swings from one side to the other way too far. And the reason for this is because humans control the markets. And when things are going really well or really crappy, our emotions tend to get the best of us. And so that's why volatility tends to cluster during downturns.

I've talked about this before on this show. But new all-time highs tend to cluster during upturns. So Daniel, give us a chart on, this is S&P 500 all-time highs since 1950 in chart form. And you can see the blue is just the price. And then those little green dots on there, which I had Sean, a research guy, put in for us, is all-time highs.

And look at how they cluster. It's very rare that you see one all-time high and then a crash. The only time it really happened was in 2007. I think it was like nine all-time highs. The dot-com crash happened, stocks fell 50%, worked our way back from the bottom in 2003 back up to 2007, and then you had the peak that led into the great financial crisis.

But since 1950, you can do a chart off, Daniel, there have been all-time highs on 6.7% of all trading days. But during bull markets, those percentages are higher. So in the '90s, it was 12% of all trading days. And it took from 1929 to 1954 to take out those highs.

It was forever from the Great Depression. But if you start from 1954 through the rest of that decade when it was a huge bull market, it was one out of every 10 trading days. From 2013 to 2019, it was 14% of all trading days that you hit an all-time high.

So these things tend to cluster around each other, right? The new all-time highs tend to lead to new all-time highs. I know it seems scary, 'cause one of those is going to be the one that gets you. But most of the time, it's fine. And obviously, no guarantees with this stuff.

But new all-time highs are actually relatively bullish. Daniel, next chart on, this is from J.P. Morgan. J.P. Morgan did a study where they found if you had invested on any random day, going back to 1988, throw a dart at the board, pick a day, your average return one year later would have been roughly 12%, a little less than 12%.

But had you invested just on the days when the stock market hit all-time highs, one year later, your returns were nearly 15%. And they were higher three and five years later as well on a total return basis, investing dividends, which is totally counterintuitive to people. The average returns are better from all-time highs.

- Yeah, I can't wrap my head around that math, how that works. - Because bull markets tend to last longer than bear markets, that's the whole thing, right? And so, I think the reason these results are so counterintuitive is because, I think it's just like behaviorally based. And so, like the research, I can take all the Daniel Kahneman behavioral biases.

So the research shows investors hold on to losing stocks too long and hopes they're gonna come back, right? This is Oatly for you, Disney for me, Zillow for me. But people also sell winners too soon, right? Oh God, I got a huge return in a month. So we also anchor to recent results, right?

There's this anchoring bias. So people underreact initially to news. And then once that news becomes more apparent, then they overreact. That's why I think, that's why the pendulum swings to the upside and the downside, because people tend to overreact. So you add in all the fear, the greed, the overconfidence, the confirmation bias, all this stuff, this is what causes it.

And that's why these trends tend to persist longer than people think, and why this stuff tends to cluster together. The good times tend to go on for a little longer than you'd think. The bad times tend to go a little lower than you think. So, and the simple explanation too, is just that, guess what?

The stock market goes up most of the time, right? Three out of every four years, on average, the stock market is up. So that's why all-time highs are actually perfectly normal. If you're a long-term investor, you're gonna see plenty of all-time highs throughout your career. There's gonna be times where there's gonna be breaks.

Again, we had two-plus years between time for an all-time high. But, you know, a handful of new all-time highs will lead to a crash. Most of them will lead to more highs. - The market usually goes up, but how many single stocks end up going down or going away?

It's a lot, right? - It's a lot, more than-- - We've talked about before. - Well, yes. - Right, yeah. So yeah, that's why it's like, don't do drugs and don't pick individual stocks. - Well, that's the thing. This works for the stock market as a whole. This does not necessarily work for individual stocks themselves.

- Right, yeah. - All right, next question. - Hey, up next we have a question from, who is this? Brian. I'm in my mid-30s and married with a second child on the way. My wife is quitting her job at the end of the year to be a stay-at-home mom for the foreseeable future.

We max out our Roths, get the max 401(k) match, put a couple hundred towards a 529 each month, send money to support my mom, and put the rest in savings. We've saved $125,000 in a high-yield savings account as a sort of emergency fund or future house/vacation, car, et cetera fund.

Savings have mostly come from my wife's income and we live off of my income. When we transition to a single income, should we save as much as we do now and just reduce our discretionary expenses, or should we maintain our current spending and save nothing for the time being?

The thought is that maybe we make up some ground in the future with promotions and raises, or if my wife goes back to work. - All right, great question. - This doesn't sound like it has to be in either or, though, right? That's my first-- - No, so the way that I see it, though, if you don't have a grandparent willing to step up, and Brian is sending money to his mother, so maybe his mother will pay him back a little bit if she lives close by and help pick up the childcare, but you basically have two choices.

You pay up for daycare, and daycare's really expensive, as I mentioned on the show before, right? I said that it's pretty close to paying for college without having 18 years to save for college, and number two is you have one of the parents stop working, so one of the ways, you're either shelling out money or you're making less money, unless you have someone who's willing to help or you have a really flexible work schedule, right?

So we had three at one time for a couple of years in daycare and it was just brutal, but here's the thing. That situation is temporary, right? And we knew there was a light at the end of the tunnel, so for a couple of years there, we had to rein in our savings a little bit, but I knew that light at the end of the tunnel, all three kids going into public school was probably the biggest raise I've ever got in my career, because that line item was off of the book, so I realized, yeah, we're gonna have to cut back for a couple of years because the kids are in daycare, but then once they go to school, then that money, you can make it back up.

So I would say, see how it goes in terms of cutting back. It's probably gonna be hard to cut back with two kids, 'cause kids can be expensive. Everyone always talks about how expensive they are. One of the things is you don't spend as much money on yourself, but yeah, having two young kids is gonna be expensive.

The diapers and the wipes and all that stuff, and clothes, and it's a lot. But it sounds to me like Brian and his wife are way ahead of the game in terms of saving already. They have a 125K bank, they've been maxing out their retirement accounts. The way that I did it is I actually saved enough money to pay for the first full year of daycare when our twins were coming, because I did not wanna have to deal with that hanging over our heads.

So it was there, it was taken care of, we didn't have to alter anything, and then we had to alter things down the line a little bit. So Brian's already shown the ability to save. Maybe his savings takes-- - Can you use a 529 for daycare? - Would be nice, wouldn't it?

So maybe his savings takes a hit for a couple years while his wife's home with the kids, but I don't know, the personal finance side of your brain is gonna go, "No, no, no, we can't do this." But I don't know, that sounds like a pretty rational trade-off to me.

Two young kids at home. Once the kids are a little older, maybe your wife can go back to work, or as you said, you might be getting raises and making more money, your income's higher and you can save more. So I think you'd probably do the catch-up thing. Your financial life would be way easier if everything worked linearly.

Easier said than done. That if everything worked in a straight line, you could save the same amount every year, but sometimes you're gonna have to cut back. Life events get in the way. It's happened to me before. You buy a house, you remodel your basement, you have something like this come into play, you have a wedding, whatever it is.

Making more money certainly helps, but having an expiration date in your childcare expenses and maybe your wife going back to work, that's okay. And also, it's okay to change your financial plan. I think that's where I kind of fall on this. 'Cause it's gonna be temporary. - Yeah, that makes sense.

Sounds like good advice. - All right, next question. - Okay, up next we have a question from Eric. We moved to Florida from New Jersey in 2011. In 13 years, we've only had $8,000 in claims on our home insurance. In the past four years alone, our rates have tripled.

Our auto insurance has doubled. We love living here, great weather, good schools, beaches, et cetera. But what are we supposed to do? Self-insure, move somewhere else, suck it up and pay the higher rates? - Okay, so this is some feedback we got from Animal Spirits because Michael and I have been talking about this, that the highest home insurance premiums in the country are Florida.

I think they said the annual average is like $9,200, right? And the number was, I think, something like 15 to 20% of people in Florida are choosing to forego paying insurance. And we actually got some good feedback on this from a colleague of ours. Bill Duke, he actually wrote a blog post at the Bell Curve.

Bring Blair in here. - Hey, guys. - Hey, Blair. - You checked with Michael and I, you said, "I wanna do some feedback on this," 'cause you had a lot of thoughts. And it's interesting 'cause the feedback we heard from people was, first was, tell them to suck it up and just do it, it is what it is.

You're taking a risk by living in an area like this. And some of the people were saying, "No, I would take the risk and not pay the insurance." So you live in New Orleans, which is a place that had some natural disaster in the past. So where do you fall on this?

'Cause some people say, "I could never go without home insurance. "It would just scare the daylights out of me. "I can't even imagine." Other people are more willing. - Yeah, so I feel the pain from this question because Louisiana must be number two in the nation for homeowners insurance rates.

We've also seen a tripling of rates in the last few years. And there's reason to believe that hurricanes, at least, are still cyclical. So there might be some relief coming up soon. So if we wanna pull up a chart of the most costliest hurricane seasons in history, three of the top 10 were 2020, 2021, and 2022, right?

So three in a row was really tough for the overall insurance market. Insurance companies buy reinsurance, which is insurance that kicks in after they hit certain amounts. And the reinsurance market was really tapped out. So that's a lot of the pressures we're seeing. Then we had the double whammy of, it costs more because of recent inflation, right?

It costs more to buy the materials to replace the house, and it costs more for labor. So double whammy with insurance. We had a really bad string of bad storms. 2023 was a year where we got a little bit of reprieve. So there may be some more insurers that can come into the market.

At the end of the day, though, the market is telling us something. It's expensive to live in these areas. And so you really have basically four choices as I see it. Suck it up and pay the higher rates. You can sell your house and try to rent and see if you can push some of those costs off to the landlord.

You can move away. And it's hard to imagine for people who don't live in these areas what it's like. They say, "Oh, that's just easy to live somewhere else." But that's not what we wanna do for the most part. You could self-insure, but most people cannot self-insure. The bank is not gonna let you self-insure if you have a mortgage.

They need protection for that mortgage loan. - Yeah, so you gave an example in your post about someone who decided to forego the insurance. Why don't you tell us how that one worked out and what the thought process was. - Exactly. The other thing is you can't self-insure if your home equity is part of your financial plan because you have to be willing to lose some of that equity to self-insure in a total loss.

So I was at an event in New Orleans. I met an elderly woman. She's been in her home for over 40 years. There's no mortgage. The amount of money that she paid for her home is way below what it's worth. It's below even lot value, okay? So she's on a fixed income.

Her insurance on this $300,000, $400,000 house was jacked up to $9,000 or $10,000 a year. She just doesn't have the money to pay for it and she's willing to accept that risk. She's gonna pocket that money that she would put in insurance in a savings account or an investment account.

Hopefully she'll have many years or maybe never have a claim, but hopefully she'll bank some savings. If she does have some damage from a storm, she'll be able to pay for it. And in a total loss situation, she is willing to walk away and sell the lot and move somewhere else.

And that's a risk that she's willing to take in order to stay in her home. But again, she doesn't have a mortgage. She doesn't have huge, she didn't have a lot of money that she paid for the house. The house value is not predicated on success of her financial plan.

Very, very few people fall into that category. So it is an option in some cases, but you have to be willing to take that risk and you have to be financially able to take that risk. So otherwise, yeah. - And maybe do something to those savings. Like the point, especially if you have a really old house, I can see it making more sense and your mortgage is paid off because then the land is probably worth more than the house anyway.

- Or at least enough to recoup what you paid for the house, right? So it all depends. You've got to run your own numbers. Most people are not gonna be able to self-insure, but there really are instances where it might make sense because if you're insuring for the 100-year plan, your insurance should be about 1% of the fair market value of your home.

If it's running higher than that, which it is in a lot of areas, if you don't have a mortgage and you can take a loss, you might wanna consider it. Most people are not in that situation. - So Michael in the chat here says he's also from New Orleans and he said that his insurance is more than his mortgage now.

- I could see how that's the case. Yep, absolutely. It's wild and it's mind-blowing to people who don't live in these areas, but that's the reality we deal with. Unfortunately, the market is telling us something. These weather events, whether it's fires, floods, storms, it looks like they're gonna be here to stay.

And so you also have to think long-term. We think about this as well. We definitely wanna raise our kids through high school in New Orleans, but we may not be long-term owners of expensive property in New Orleans, just saying. - Is it worth it to shop around at all or are the rates pretty similar anywhere you go?

- I got to a situation where I'm on the insurer of last resort through the state because I have an old slate roof. So in some cases, insurers are dropping out of the market. You don't even have any alternatives. The one caveat is if you can get in, USAA actually still has fair rates, but of course you have to qualify to be a member.

- Okay. - I think the scariest part of this to me is yeah, what, you know, insurance, they've done their research. They, so they're kind of telling you if they're not willing to insure or they're charging a lot, that's a little scary, right? - Yeah, they're pretty good at weighing the risks, right?

They run the numbers. - Yeah, so. - Yeah, interesting. All right, let's do another question. - Okay, up next we have my mother passed away and each of my brothers will get $300,000 to $400,000 from the estate. Sorry for your loss, just to start off here. My brother is 35 single and has a good job making 75,000 Canadian dollars, but it's not permanent.

He has $5,000 in retirement savings and previously worked in restaurants making 40 to 50 K a year. He has a rent controlled unit at about $1,100 a month. I worry about his financial security, but to his credit the past few years, he's been investing and eliminating debt. He could buy into a co-op or older condo for $200,000 to $400,000 and not have a mortgage, been saved for retirement.

This would essentially eliminate any concern with unemployment, homelessness, or retirement. All he would have to worry about is maintenance. Or he could stay where he is, rent, and have a very good nest egg for retirement. What do you think he should do? - All right, so a lot of stuff going on in this one.

We've had clients like this in the past who have come into money, if parents pass away, and then it ends up being one of the siblings kind of ends up being the person overseeing everything. So how do you think about this in terms of not only managing this money for yourself, but managing money for someone else potentially and trying to help them, especially if their financial habits aren't in the best shape?

So how do you think about even starting to help someone in that situation? - Yeah, the concept of sudden money, which is what we have here, right? Sudden big chunk of money that's coming to you through an unfortunate event, a family member has passed away. People tend to not make the greatest decisions when faced with this.

I am personally not a fan of putting a huge chunk of money into real estate versus investing it, because I just ran quick numbers. If you invested 300,000, he's 35, let's say he works until the retirement age of 65, just at a 6% return, it's gonna be over $1.7 million.

And buying a condo or a co-op doesn't solve the problem of joblessness or homelessness. It still costs money to own property. You have to pay the taxes, the insurance that we just talked about, there's upkeep. So that's not gonna necessarily solve the problem. - You lose your liquidity, yeah.

- Exactly. So I would be more of a fan of invested for the long term, use it to supplement some of the problems that might come along. But at the end of the day, I think he's gonna be way better off by investing this money than spending it on something like a property or any other thing that you might be tempted, of course, to spend sudden money on.

- How helpful is something like a financial advisor in this case, where it's someone who's coming into this new money to help provide some guardrails? - If willing, a financial advisor can be great, but all we can do is lead the horse to water. We can't make them drink.

So you have to be truly willing to accept that advice. And if the financial advisor is the thing that's gonna help keep you accountable, absolutely. - Yeah, and I've even seen cases where there's a trust involved or something where they kind of dole out the money more slowly and it acts as almost an income stream and it's invested as opposed to just having this big pool of money, like you said, that can be really tempting to do something with right away and you blow it and then what?

- Exactly. Most people do this on the front end if they have children and grandchildren that they know they're gonna leave large sums of money to. They go ahead and title that in a trust or a trust that comes from their will. It's giving you, the person who's passing on the money to your heirs, control past the grave, essentially, and helping them with guidance, putting a trustee in place and rules and parameters as to when and where the money can be spent and how.

That's great estate planning 101 basics for anybody. It looks like it's too late for this one, but at the end of the day, it's a good thing to have a financial windfall. And if treated properly, this could really set him up, even with no additional savings. We're talking about almost $1.8 million at a pretty conservative 6% rate of return in 30 years.

- Yeah, I'd say rule number one here is do no harm. Just don't screw it up. - Exactly. - That's how I look at it. All right, one more question. - It sounds like they're pretty concerned about their sibling here. Is this kind of like the airplane thing? You've got to secure your own oxygen mask before taking care of other people?

Is that the way you have to kind of think about this stuff? - Certainly, you have to look out for yourself first. Family dynamics are really tough, especially when people are dying and passing away, and there's complications around money. It's a whole topic. There have been books written about this.

It happens in lots of families. I feel for them. At the end of the day, you can't do something for your sibling that they're not gonna do for themselves. So as much as you want to help, you're gonna have to let them stand on their own two feet. - And some people don't like to be lectured to, even if they are bad with their finances.

So it's a tricky situation if you're almost policing them. It's kind of, you're walking a fine line. - Yeah, don't let money ruin your relationship either. - Right. - Good advice. Okay, up next, we have kind of a tone shift from that one. We have Jack writing in, starting off with, my wife, in parentheses, Borat voice.

- You have to do it, Duncan. - My wife, I can't do it. Is it okay to imitate a made-up comedy character? - I think that's fair. - Okay. Anyway, so my wife and I recently-- - I didn't know we were still doing Borat jokes, but not bad. - No, I mean, classic, right?

It's a classic. - That's true. - My wife and I recently married. We have steady government jobs that we expect to keep for the foreseeable future. Our combined annual income is 180K. Naturally, we're thinking about buying a house. I like how he says naturally, because it's true, everyone is trying to buy a house.

- Yeah, that's the next step. - We want to continue to live in the college town where we've been for a few years, but housing is limited. Someone at a local credit union told us the median home price was $850,000, and they put in parentheses, "Honestly, I thought it would be higher," which is out of our price range, unless Oatly stock makes a run pretty soon.

I conservatively expect to put up a down payment of 125,000, but I'm worried it's still not enough. I'm considering borrowing about $7,000 against my retirement plan through the state, but there are pros and cons for sure. Dan, next slide. On the one hand, this account will have time to grow for 30 more years, but a loan at 9% variable interest over 15 years sounds painful if it won't make that much of a difference in the down payment.

Am I missing something? We're better off than most people our age, but I still fear we're gonna miss the last helicopter out of Saigon boat if rates go down and we're crowded out of the market. They have a way with words. - Yeah, this is a well thought out email.

So actually, this is from Jack, and Jack wrote us in and said, "Hey, I thought you were gonna use my question. "I decided not to borrow against a 457." So they already are having, you know, six figures in a down payment. I think people overestimate the amount they need for a down payment sometimes.

I think a lot of it depends on the bank you're working with, but even if they got up to 850, which he said might be too high for them, that's what a 15% down payment for 125. That seems plenty to me. People don't, unless the bank is forcing you to come up with the money because you have a poor credit score or something, you don't have to go to 20%, right?

What do you think about coming up with smaller down? I think my first house, I did a 5% down payment. - Yeah, I think it's more about the income to debt payment ratios here than the down payment necessarily. There are different loan programs, depending on the age of the house and all different down payments that are available, but I just ran some quick numbers and I'm trying to figure out which college town you're in.

I don't think it's Palo Alto or Berkeley. I think that's a little higher, but it's certainly not Tuscaloosa or Athens, Georgia. So I'm just trying to figure out where the median home price-- - A little cheaper in the South, huh? It could be Ann Arbor, it's pretty expensive there.

- It might be, yeah, you're right. So if we're looking at the median purchase price of 850, and I put some numbers together on a very simple spreadsheet and a down payment of 175, that means you're borrowing 675 to buy the house. I looked up 30-year mortgage rates yesterday, 6.375 was the rate that I was seeing.

That means your monthly principal and interest payment on the note is gonna be just under $4,200. Now, you're gonna have to do these numbers yourself. I don't know what your insurance rates are, I don't know what your taxes are. I used one half of 1% annualized on insurance, 1% on taxes.

That gives you a total monthly payment to be in the house of just over $5,200. If we look at your income, and you said you have steady jobs, steady government jobs, gross monthly pay here, if you're making 180,000, is 15,000 a month. I don't know what your effective tax rate is, so you're gonna have to go in and do some work here.

But let's just say it's 20%, and your net pay is $12,000 a year. If you're just looking at the mortgage note for this 850 house, you're a little over what we use as a rule of thumb, which is housing shouldn't be more than a third of your take-home pay.

But when you add in insurance and property tax, you're way over the line. So I think it's more about the purchase price of the house, especially if 175 is a stretch for you on a down payment. Because you don't want 43% of your take-home pay going towards just living in the house.

- That's pushing it pretty high as far as the budget goes. - Exactly. So I ran another scenario. What if your house price is a little lower? And I think I'd use 650 if we wanna put that up, Dan, with the same down payment. And that's gonna be a much higher percentage down payment, same mortgage rate.

Your monthly payment drops total in this analysis to about 4,100. And if we look at that compared to your net take-home pay, your numbers are a little more in line. That was a $700,000, sorry. Your numbers are a little more in line. Even with your property tax and insurance, you're close to that third.

Government jobs are stable, but you're probably not gonna get huge raises. But over time, I think you would grow into a house like this. So that's kind of the way I would think about it, more so than how much of a down payment you can put down. - Yeah, and I do wonder if the bank likes that more stable government income as well, where that will be kind of helpful for getting a loan as well.

- They just want you to have those W-2s in place, honestly. They just wanna prove the income. They're gonna be willing to lend you way more money than those numbers I just showed you. They will lend you up to 38% of your gross income. So don't take the maximum loan that the banks will allow.

- I feel like everyone does that, though. They give you a range, and everyone always says the highest, whatever it is, that's where we're going. - Yeah. - That's our range. - I like that this is all kind of in the hands of Ovaly, you know, based on what they said here.

I like, I like-- - It's a lot of pressure on you, Duncan. - I like depending on what I stock. - And roll the dice. - And someone in the chat did say, like, listen, the reason a lot of people do wanna put 20% down, and we talked about this a couple weeks ago on the show, it's a private mortgage insurance.

If you don't put 20% down, you have to pay that. I did look at the process. - I hear a lot of people very afraid of that. Like, a lot of people - It's low. - find that as a deal breaker. - Yeah, it's not very much. - It's like $100 a month.

It's not a lot of money. - Yeah, it's not terrible. - If you put down, yeah. It's not terrible. And then you can grow out of it, and you don't necessarily have to pay off the full whatever percent, because your home price will appreciate over time, so you can get a new appraisal.

So I would not be afraid of private mortgage insurance. - Yeah. - But on the other hand, you should be buying a house that you're gonna live in for the foreseeable future, because you don't wanna put 5% down, need to sell it in three years, and the housing market's actually down, because there's a 5% commission to sell it, yada, yada, yada.

You don't wanna put yourself in a situation where you're underwater on a house. - Yes. - Speaking on behalf-- - Make sure you're gonna be in this for like seven to 10 years. - Speaking on behalf of millennials, I just have to say, this is why young people are mad.

The idea that $125,000 down payment isn't enough to be able to get a decent house somewhere is kind of infuriating. - Yes, I get it. And to his point here, he made it sound like naturally, we have to buy a house, and I get that feeling, but I would run the numbers on does it make sense to rent a little longer too?

You don't have to buy a house just because you think you have to. No one's forcing your hand here that you have to buy a house. - Nope. - True. - It's not for everyone. - It's not required. - Yeah, you could find maybe better places to use that $125,000 to invest the difference if you're gonna keep renting, and you don't have to.

- Yeah, if you are a homeowner and you ever wanna make yourself sick, especially if you've bought in the last 15 years, take your down payment and see what it would've been worth if it had been invested in the S&P 500. I bet that will give you a little bit of heartburn.

- True, but yes, I feel like this whole episode is kind of like a PSA against home ownership because insurance costs are rising. - It's too expensive. - Yeah, it's expensive. - Don't do it. - But yeah, but that's the thing is you really have to run the numbers.

You can't just say I'm gonna do this because everyone else is doing it around me and I have to because it's the biggest investment I'll ever make. You have to run the numbers and make sure it works for you, and if it doesn't, then it's not worth it. - Yeah, on the flip side, I love my house.

It was worth every stretch, everything I don't get to spend money on, but you have to just weigh the pros and the cons. - Yeah, I feel like it's more about the control, right? The finances, I think, in a lot of cases, you guys have proven, it doesn't actually make more sense to buy, but just the peace of mind of this is mine.

I don't know, I can do whatever I want. - The psychic income. - Yeah, yeah. - It weighs on you, but yeah, you don't wanna get in over your head and totally regret it 'cause you can't do anything else in your life 'cause the house is eating up everything.

- Right. - Yeah. Well, I gotta go, guys. It's Mardi Gras. I'm gonna put on my beads. It's Mardi Gras here in New Orleans, so we're gonna have fun, but thanks for having me on. I really enjoyed it. - It's fine. - Speaking of fun, I was gonna ask, are you gonna organize a firm-wide trip to the sphere to see the dead?

I don't know if you saw it. - I wanna talk about that presale. It was really tough, but if the firm wants to cover it, I will definitely be the team lead. - I think we should push. - And we'll all go out there and we'll have a great time.

- All right, well, have fun at Mardi Gras. I'm jealous. - Thank you. - I've never done it before. Thanks to Blair for coming on. New TCAF tomorrow, as always. Send us your emails, askthecompoundshow@gmail.com. Leave us a comment on YouTube, subscribe, like, all that good stuff, and we'll see you next time.

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