Welcome back to Portfolio Rescue after a short holiday hiatus. We're back. I'm joined, as always, by Duncan Hill. Duncan, do you subscribe to the Larry David theory that you can only say "Happy New Year" three days after the New Year, or are you still saying it? Hill: I'm a little more weeny.

I think you can say it for a week. Lewis: Okay. Alright. Remember, this is our show where we take questions straight from the viewers. So, if you have a question for us, email us, askthecompoundshow@gmail.com. We're also getting some good feedback. You might have missed it over the holidays. I think two days before Christmas, we had a show with Jonathan Novy talking about annuities and got some good feedback on this.

I think it goes to the psychology of investing. We were talking about annuities. Jonathan made the point that when you put your money with an annuity, the majority of the time, you're getting your money back for the first 15, 20, 25 years. Looking at it that way, a lot of people emailed in and said, "I've never thought about it that way." You could say, "That's a terrible deal.

I don't get returns until after my whole money is paid back." But a lot of it is just psychology. I think that's the whole thing about investing as it is. It's just so much depends on tricking yourself into sticking with a plan. It's not that annuities are good or bad.

It's just it depends how much you need that psychological component to help you stay on course. It doesn't have to be all or nothing, but I just wanted to touch on that because we had a lot of comments on that, surprisingly. Annuities, hot topic. Who knew? Anyway. Alright, Duncan, let's go.

What do we got? Okay. So, first up, we have a short and sweet one, but a very interesting one. Can you help me understand where we are with total market cap over GDP, the Buffett Indicator, and what this could mean for the market going forward? Alright, let's start with a definition here.

Good question. In 2001, in an interview with Carol Loomis, Warren Buffett laid out the Buffett Indicator. It was just comparing the market cap of the U.S. stock market to U.S. GDP. He said at the time, I found this old piece, and he said, "The ratio of certain limitations and telling you what you need to know still is probably the single best measure of where valuations stand at any given moment." And as you can see, nearly two years ago, the ratio rose to an unprecedented level.

That should have been a very strong warning signal. Now, that level was 150%. So, stocks were worth 150% more than GDP at the time. This is 1999, late '99, early 2000. The tech bubble had blown to epic proportions, and then it burst. And so, Buffett was looking back at it after the fact, saying, "Look, if we would have just looked at this level, everyone should have known.

Stocks were wildly overvalued." Now, John, let's do a chart on it and see where we stand today. So, this is the Buffett Indicator today. You can see, today's value just dwarfed '99. '99 is 150%. We're now well over 200%, something like 220%, I think, on the Buffett Indicator. So, a lot of people think, "Well, wait.

Buffett said this is the single best indicator of stock valuations, and now it's way, way higher." You can see, they drew like this, where I found this, they drew a historical trend line here, showing that it's just way off-trend. So, what is this telling us? Basically, the stock market is around $50 trillion right now.

$23 trillion GDP. Stocks are worth way more than the economy. I do want to preface this with the fact that Buffett was asked about this again in 2017, saying, "Hey, you said this in 2001. What do you think about it today?" Here's what he said, and I quote this.

"Every number has some degree of meaning. It means more sometimes than others. They can be important, meaning this valuation. Sometimes they can be almost unimportant. It's just not quite as simple as having one or two formulas and then saying the market is undervalued or overvalued." I think there's a reason Buffett kind of changed his tune on this one, because things have changed.

The question is, you could be one of those people saying, "Every time I see a valuation higher than the past, I think bubble, bubble, bubble. Get out, get out, get out." Other people say, "Well, context is more important than anything." And I'm a context guy. But you still have to wonder, why is this happening?

So, John, put this other chart on. This one is from J.P. Morgan, actually. And this shows the ratio of total U.S. financial assets, so this includes bonds and other assets, to GDP. And you can see, throughout the '50s, '60s, and '70s, and even '80s, it was kind of just staying in this band two to three times.

Now it's shot up to 5.6 times GDP. So even if you say, "Okay, maybe this doesn't mean we're in an epic bubble like '99," what is going on here? How is this happening? I think there's some reasons, if people are worried about the Buffett indicator, to kind of put it into context.

So the first one is easy. The stock market is not the economy. I think that's probably more true now than ever. I mean, just think about how powerful corporations are, especially now than they were in the past. Think about how important some of these companies were during the pandemic to keeping your life going, how big some of these companies are.

Apple, and Amazon, and Google, and Microsoft are basically their own economies these days. And they're not just based in the U.S. anymore, like they were back in the '50s and '60s. These are global companies. So we're dealing with global earnings now. It's not just the U.S. John, let's do the next chart here.

This shows the asset allocation by household to U.S. stocks. This is from an old post by the pseudonymous Jesse Livermore on philosophical economics. I come back to this often. This shows household allocation to equities. Now, you can see here where I circled. This is in the '70s and '80s, and the allocation to equities by households was like 25 to 30%.

Very, very low. Then in the '90s, it finally shot up, and now we're back to those levels, but still like 50, 55%. So still relatively low. So the thing is, a lot of people just didn't own that many stocks in the past. And there was reasons for this. There was higher rates back then, and higher inflation.

It was harder to invest. And then in 1978, we had the 401(k) plan was born. So pretty much before 1980, there was no such thing as a 401(k) plan. Target date funds are only 10 years old. Interest rates have fallen a ton. So it's easy to never be invested in stocks.

So it makes sense. People are pouring money in all the time. Now we have 50 to 60% of the country that's invested in stocks, where back in the '80s, it was like closer to 20%. I put this out to some of my finance people to understand, what is going on here?

A few of the reasons people gave were that we had this huge IPO boom in the '90s. And you think back to the '80s and '70s, you had all these private companies where all the wealth was tied up for rich people. Now all that wealth is in public companies.

The richest people in the world all own public companies that they started, and they IPO'd, and they've seen all their spoils from that. Think of how many mom-and-pop shops used to be around that are now just Walmarts and Targets and Starbucks. And also, it would be hard not to mention globalization here.

It's so much easier for foreigners to buy U.S. assets as well. So, it's more of a global world. I think you'd be foolish to say that stocks aren't way above previous valuation levels at any valuation metric you're looking at now. But I think trying to compare that number to '99 and say it's exactly the same thing is tough.

And even Buffett himself has said he's not quite as worried about it. And maybe you need some context with these things, especially as the markets and environment change. Duncan, have you heard of this one before? Buffett Indicator? Duncan: No. This was a new one to me. That's why I was asking the chat if everyone had heard of it before.

So, yeah. Interesting stuff. I didn't realize that Target date funds were that new. I thought that you were investing in them as a kid. I thought that was the jerk. Lewis: Well, they've been around, but it's probably only been eight to ten years ago that they were set as a default option for 401(k) plans.

So now there's $1.5-$2 trillion in these things, and they're automatically being invested and then rebalancing. I just think this wave of money that is so just on autopilot now didn't exist in the past. Buffett Indicator? Yeah. No, that makes sense. Lewis: Alright, let's do the next one. Buffett Indicator?

Cool. The next one is one that everyone's talking about right now, which is buying a car right now. I'm a first-time car buyer, and I've noticed that the prices in New York City are insane. A Toyota RAV4 costs as much to lease as a BMW with the markup on these vehicles.

I feel like it's almost impossible to justify purchasing right now. Any thoughts on what to do in this environment and what figures one should calculate to ensure a fair deal? Leasing terms are confusing, and I would appreciate any guidance you could share. Lewis: Alright, and this is not just new cars.

I think used cars are probably even crazier. So, John, let's do a chart on used cars. This is the CPI index for used cars and trucks. Look at that jump. It's insane. I recently had to turn in a lease at the end of last year, and the value they put on our used car that was three years old was more than we paid for it.

So, brand new. The used car value was more. Three years later, after all three of my kids demolished the car, they still gave us more than we paid. That's because new car prices have gone up. I want to get into the lease versus buy deal first, because personal finance people are going to hate me, but I've been leasing my car for the past six years or so.

This would have been sacrilege to 25-year-old Ben. O'Reilly: People get really worked up about this. Lewis: Yes, people do. I want to give my reasons why I lease first. One of them, I just mentioned I have kids. They destroy my car. Cheerios and goldfish in every crevice of my car.

I like car companies taking that risk instead of me. I'm not a huge car person. I don't get a high-end model, but I do like to drive a newish car every few years. I think new car smell is one of the top five smells in the world. I mean, easily.

Duncan, right? I think technology is improving so fast in these cars that it's almost like averaging up in bonds with rising rates. You're getting better technology every time you get a new car. The other thing is, I don't put a ton of miles on my car. My office is like five minutes from my house, so I'm not driving it a ton.

It's a lower payment than if I bought. I know this is factored into it, but I'm not going to own the car and drive it past the date of the loan, which makes sense for a lot of people in terms of owning a car. I've driven a ton of used cars in the past.

They all cost way more money for upkeep and maintenance and repairs. I've gone through alternators and transmissions and new tires and radiators and new brakes and all this stuff. You name it, I've probably replaced it and spent way more money than I ever would have thought. So that's one of the reasons I lease.

I understand why people buy and own a car for the long term. If you don't have a car payment, if you own it past the length of the loan, you're essentially giving yourself free monthly payments. I get that. But there actually has been someone who did the numbers on this.

So this guy, Jesse Kramer, emailed us into Animal Spirits and we talked about this a few months ago. He wrote this blog post called "The Cost of Car Ownership." He decided to break down what is the break-even level here. When does it matter if you're buying a car and what are the things that you want to look at?

Here's a few of the factors that he said matter. How long you drive it. So of course, the longer you drive it, the more you want to own. The shorter you drive it, the lease makes sense. He said cars typically depreciate 10% per year. I think 10% when you drive it right off a lot, which good luck with that.

He said the average cost of owning a car, if you wanted to do this yourself, is in the range of 35 to 65 cents per mile over the life of a vehicle. That includes things like registration, insurance, gas, all this other stuff, maintenance. He said when you add in all this, the gas, registration, insurance, maintenance, you could be looking at an all-in cost over the life of a car if you drive it to 100,000 miles of, say, $90,000 versus a $30,000 vehicle.

He said that there's probably like a 5 cent per mile premium for leasing versus buying. But the upside is totally taken away if you have a catastrophic repair and maintenance, you know. So anyway, I think right now is probably the hardest time to buy a car. And if you want to find one thing in the economy that could be transitory for inflation, I think it has to be cars.

Because there's a reason there's so few cars on the lots when you go to look for inventory. They can't produce enough of these chips anymore to get the cars off the lot. So they have all these cars. I know this in Detroit. They have all these cars sitting there ready to go on the lots, but they don't have any of the technology to put in them to make them function, basically.

So eventually when that happens, you're going to see a lot of this come off the inventory. And this is one of the reasons used cars cost much right now, because there's just such a lack of inventory for new cars. So I think you have to ask yourself, like, are you going to drive a lot?

Do you want to trade up to a car every few years? Do you plan on driving it well past the time it's paid off? That's the only reason it makes sense to buy. If you're going to take out a six-year loan and get a new car in five years, owning it doesn't seem to make sense, because you get a lower payment with a lease.

I will say this. It's really difficult to negotiate right now, because inventory is so low. So you're probably going to have a hard time finding exactly what you're looking for. If you can put it off, I would probably wait. It's one of those things where if you wait to buy a house, maybe in a few years you're going to have a hard time finding it at a lower price.

But with a car, I think that's reasonable to think. So if you can wait, I think it makes sense. Duncan, do you have a car in New York? Yeah, I do. Parking for you probably costs more than your monthly payment, right? Well, we street park, so we just have to move the car every week for all street parking in the middle of the day.

It's a mess. It's terrible. I hate it. We looked for one for my wife, and the lot was empty. Usually you go inside one of these dealerships and it's full of cars. You can look at the new models, and they're spiffy and brand new. There were zero cars inside the actual dealership.

It was empty. It looked like the place had been ransacked. So yeah, I think it's a really hard time. I think if you can wait, it probably makes sense. Yeah, it seems like it, with all that in mind. All right, let's do the next one. Okay. Up next, we have a long one, but a good one.

I think a lot of people will benefit from this. What's the difference between a wealth manager, a financial advisor, a premium banking/brokerage rep, and an accountant? How does one know which of these they need? For instance, I've been pitched by financial advisors before, but never really considered it. I'm in my 40s and have a middle to upper middle income.

Could someone like me benefit from an advisor? What about an accountant? Should I not be ignoring the calls and emails I get from premium division units of my bank and brokerage? Are there other types of financial services that a person like me ought to consider? The gist of this question is basically, when should you seek out help from a financial professional, and then how do you gauge which one to use?

I think a lot of that is circumstantial, but I have some thoughts here. I wanted to bring in an actual financial advisor to help here because she's dealing with this on a daily basis. Blair Duquene, who's been on the show before, is going to come help. Blair is dealing with clients on a daily basis, her current clientele, and then prospects as well.

Blair, if you had to sum it up in four or five different buckets, I guess, what are some of the main reasons people come to you for financial advice? What gets them to make a decision to do this? Yeah, absolutely. I think the number one reason not to hire a financial advisor is because somebody is trying to sell you on their financial services.

That is not a reason. We do see a few reasons for why people want to have a professional helping them out with those financial decisions. There's really no magic age, no magic net worth, no magic circumstance in which you must hire a financial advisor. In fact, Vanguard found years ago that 25% of investors are already do-it-yourselfers and they do just fine.

Today, there are plenty of tools and software out there where if you are that do-it-yourselfer, you can probably make it all the way through. It's a matter of preference. With TurboTax, I could do my own taxes. I prefer not to. I see many high net worth investors still doing their own taxes and they're not really making mistakes.

At the end of the day, you may be one of those people who never needs financial advice. Here are the reasons that we see people coming to us. The number one is their life has become too complicated. They're too busy. Working parents fall into this, busy professionals. I've seen people with cash just piling up in their bank account simply because they didn't have time to invest it.

If things are just becoming overwhelming from a time perspective, that's when an advisor can come in and make sure that they're taking care of that for you. We all have administrative duties, whether it's work, family, household chores, and all those administrative items, especially finances seem to get pushed to the back.

If it's not getting done, that's probably a good reason to look out for help. Maxwell: I think people like us in finance probably take for granted that some people just don't care about this stuff as much as we do. We pay attention to this stuff on a daily basis.

Some people, it's like watching paint dry. They just don't care and they would rather outsource it to someone, right? Craig: Exactly. Another reason that people come to us are major life changes and events. Marriage, birth of a child, divorce, death of a family member or spouse, even personal health issues.

Those reasons can trigger wanting to bring in an outside professional to help with a more complicated situation. Maybe the spouse has died. They used to handle the finances. Those types of reasons are pretty common. Another one that we're seeing a lot recently are retirees who are sick of spending the time to do it themselves and they want to hand that over and go and enjoy their life.

It's really just taking up too much time. They don't want to watch CNBC anymore. They're tired of being tied to the markets and so they want to come in and bring a professional. Then I think the last one is really the people who know that for behavioral reasons, we all succumb to fear and greed and emotions, but there are some people that just know themselves and they know that they are going to need an advisor to help them not make a mistake.

That can pertain to anybody at any income level, any asset level, at any age. Unfortunately, sometimes it takes making mistakes for people to really have that realization about themselves. It doesn't apply to everybody, but there are some that really do value that behavioral component that an objective professional can provide to them.

Those are common reasons. Yeah, some people aren't ready until they do make those mistakes and they realize, "Okay, I need to get my hands off the steering wheel." I think another one, a good one is, especially even for those DIY people who have all the tools today, if they have the rest of their family, so they're planning for their kids or their spouse that doesn't pay attention as much as they do, especially as you retire, "What happens if something happens to me?

What if I get hit by a bus tomorrow? Who's going to handle the finances for my family?" I think that's another thing where it's almost like a backup plan where you have someone waiting in the wings to help out if you can't do it anymore. Exactly. I mean, I just traveled with my husband together on a plane.

We left our children behind and I realized I needed to write down a list of just in case. Yes, there are people that have the foresight to say, "I'm handling this for the whole family. If something were to happen to me, that's a big risk. Let's go ahead and bring in an outside objective professional advisor to help us out with that." I think if my wife and I were on a plane and it went down, the number one thing my kids would be looking for is who can get them a snack fastest because that's what they see is my job for them is who can get them a snack.

All right, let's do one more question here, Duncan. Okay. Last but not least, question about 401(k) loans. If I have $40,000 in my 401(k) and choose to take a loan of $20,000, does my active balance continue to be $40,000 or does it drop to whatever my balance is as I repay?

In other words, do I continue to grow the original $40,000 or does the working balance drop to $20,000? I've never actually taken out a 401(k) loan or gone through this, so I'm a little unfamiliar with it. I know the reason a lot of people say that it makes sense to do this because you say, "Well, I'm borrowing from myself here.

What's the harm?" Blair, how does this process actually work? Yeah, this questioner hit the nail on the head and this is the part of taking a 401(k) loan that many people miss. Everybody says, "I know I've got to pay interest, but I'm going to be paying it back to myself.

It's all good." But you are taking that money out of the market. So not only are you having to make payments on the loan with interest, you are missing out on the growth of that investment in the market. So that's probably the number one reason and the reason that we say the 401(k) is probably the last place to tap.

It's still a good resource in a crunch if it's really the last place you have to tap. The interest rate is going to be lower than credit cards. You are paying the interest back to yourself. But at the end of the day, you're taking a chunk of money out of the markets where it could grow and taking it off and then also adding in the extra payments.

And then if you want to still continue to save on top of the loan payments, now you're taking away from your monthly income just to pay the loan back. So it can be a nice alternative to taking higher interest rate loans. But you have to remember that that's a big factor that a lot of people miss.

There's no phantom balance. That money is actually coming out of the market. It's not going to earn returns. You could get lucky. It could be when the market goes down. But these are long-term retirement savings. So for the most part, you want to stay away from 401(k) loans as much as possible.

If this is like your last resort, what are some better alternatives? Yeah, that's a tough one. That cash reserve in financial planning, we always say you want to have a minimum of maybe three to six months in cash. You can look at after-tax savings and investments that you already have.

And then what are you using the loan to buy if it's a home? You can look at creative financing with home equity loans. Banks have gotten a little bit better. It depends on your income situation. But yeah, that's the reason that people do end up taking these 401(k) loans, is because there really are no better options sometimes, unfortunately.

But just keep in mind, you are taking that money out of the market. Alright, Blair, I have one more question for you here. We talk a lot about behavioral bias in investing and behavioral psychology. What is a behavioral bias for a guy like me believing that the Big Ten could actually beat an SEC team in the college football playoff?

Because your Georgia Bulldogs just put an ass-whooping on my Michigan Wolverines. And for some reason in my brain, I thought, "Wait, we can probably hang with these guys." What is that bias called? I don't know what the bias is called. But unfortunately, you are not seeing your team week after week beat every other team in the SEC.

And there's just no conference that compares to the SEC, unfortunately, Ben. I'm so sorry. The Georgia team that played through the regular season undefeated showed up that day. The team that played in the SEC championship and lost to Alabama terribly did not. We're going to see who has to show up Monday night, and I hope it's going to be the team that beat yours.

Good luck in the next one. My heart is broken, and you ruined my New Year's Eve. But I'm happy for you. Sorry about that. If you have some thoughts about the questions today, if you're a big Buffett Indicator person, leave us a comment. If you have a question for the show, askthecompoundshow@gmail.com.

Don't forget to subscribe here. Hit the Like button. Duncan likes seeing those numbers go up. idontshop.com for Portfolio Rescue t-shirts. We are going to be back next week, same time, same place. Thanks for watching. Thanks, everyone.