Welcome, again, to Portfolio Rescue. This is a show where you, the viewer, give us the topics that we're going to be talking about. Remember, if you have a topic or a question you'd like us to discuss, send us an email, askthecompoundshow@gmail.com. Quick reminder, this show is for informational purposes only and should not be relied upon for investment decisions.

We're just trying to help you make better decisions here. I'm joined, as always, by my producer, Duncan Hill. Duncan, how's it going? Say hello. Hey, everyone. Good morning. Duncan and I would like to say thank you for all the feedback we're getting. Our inbox is full. Last week, we talked about a retiree who had a 90% stock allocation in his portfolio.

We got a ton of emails back on this. A lot of people saying, "He's crazy." A lot of other people saying, "I have a similar strategy for retirement." It's good to hear the feedback and it's good to know that there's no one-size-fits-all for anything. Remember, I'm going to be bringing experts on every week to help me answer some of these questions.

This week, we have a scalding hot take from our expert. I can't wait to get to that. But first, Duncan, first question, what do we got? Okay. First up today, we have a question from Leonardo. Leonardo writes, "I'm in my mid-30s and live in the Seattle area. Back in 2019, my wife convinced/forced me to buy our first house.

I was hesitant because I was worried that we were buying at the top of the market. But don't tell my wife, she was right about it. The house was about $750,000. I put 20% down and got a 30-year mortgage at a 4% rate. And one year later, I refied for 3.12.

Fast forward to today and the housing market is still crazy. It looks like I could sell my house and walk away with about $500,000 after cost. I'm not planning to sell because this is our primary residence, but it made me think, is there a point where it makes mathematical sense to sell your house and just start renting?" Frankly, a lot of people are thinking this right now.

Let's do a chart on John here of owner's equity and housing right now. 23, almost $24 trillion. In the last three years alone, U.S. homeowners have added $5 trillion of home equity to their bottom line. This is just crazy. So, I think, if you're not at least thinking, "Gosh, how do I pounce on this?" You're not paying attention.

I had a friend recently ask me, "Does it make sense to sell my home, lock in a gain here, maybe pay off some student debt, and then buy a house in a few years if prices fall? We'll just rent for a while." Unfortunately, there's two problems with this strategy.

One, you have to live somewhere, so you have to find a place to rent. And two, housing prices don't have to fall. Let's do a chart on the rents here. Let's say you did decide to sell your home. Housing prices are up far more than rent. This is just showing the Case-Shiller versus the CPI for rent.

You can see the Case-Shiller has deviated greatly from rent. Rents are going to catch up eventually. It's not like it's exactly free money that you're just pocketing. Your rent could also go up. My point here is that timing the housing market is different. Yes, housing prices could fall, but it's possible that they're going to just continue to rise.

I think probably an easier option for most people is, could I just pull some of that equity out of my house? Could I do a home equity line of credit? Could I do a cash-out refi? And also, I think this is a situation where, especially if you're living ...

Leonardo here said he had three children in the house. His wife forced him into buying the house, which is a good bet, because in Seattle, he's probably up way more than the national average. But this is a question where the finances matter way less than the emotions. You're talking about with a house, family, community, schools, neighbors, making it your own.

First of all, owning a home is not for everyone. But I don't think you sell your house just because it goes up in price. You sell your house because you're looking to make a change and you want to move into a different neighborhood. I also think that moving is about as fun as a colonoscopy.

It's a huge pain. There's frictions involved. You have a realtor's fee to pay. You have closing costs. You have all these frictions. You have to pay movers. Moving is not fun. Duncan, you've moved in New York City. I can't even imagine. It's terrible, yeah. That's what I was about to say.

That's the kind of stuff people don't often account for, I think. I've lived in five or six places in the last five years, and it's not ... It's no fun, right? And your house is not a stock. It shouldn't be tradable. Maybe it's a good thing that you can't move in and out of it.

This seems like a great idea. I'm just going to cash in. But there's probably easier ways of doing it and taking away some of the frictions and the problems involved, where you could just take out a home equity line of credit or cash out refi and take some of that money if you really want to do something better with it.

All right, let's do the next one. Yeah, good advice. Okay, so next up we have a question from Dan. Dan writes, "My wife and I are going to have our first child in April of 2022. I've heard you guys discuss buying stocks for a kid at birth, but what's your recommendation?

Set up a 529 plan, a regular brokerage account, or something else? Also, I'm wondering if you would lean towards a target date fund, index, or just picking your favorite thing for that investment. My wife and I are going to convert savings bonds we got as kids to initially fund this account, so probably between $1,000 and $2,000." So, I feel like all the viewers are expecting you to say, "Target date fund." They know me so well.

First of all, my biggest gripe here is the fact that you can't just open up a Roth IRA for your children at birth. Why can't we do this? I guess they're worried about rich people just tax-sheltering gains for their kids or something, but I would love it if the government would fund a Roth IRA for every baby in America, put $1,000 in there, let it grow tax-free to age 21, and then they're doing much better for themselves, and everyone can take part in the stock market.

Okay, I'll get off my soapbox. Here's what I did. I decided to open up a 529 for each of my kids at birth. Yes, there's tax benefits there, but I also thought there were psychological benefits, because I know that that money is specifically set aside for college for them.

I'm not going to touch it for anything else, so I like having that barrier there. Also, a couple years ago, I decided to open up a Liftoff account. Shameless plug here. That's our partnership with Betterment, where we have the ability to do automated investing. The cool thing is, you can open up an account, and you can set these sub-goals under each of them.

I did one for each of my kids. There's one for Libby and George and Kate, each of my kids, and then there's one for my wife and I. We each have our own goals, and you can set your own different parameters for each goal. I just like the idea of getting something started for my kids.

When they're old enough, I can help them use this account to learn about saving and investing and compounding. Maybe when they turn 21, I can turn the money over to them and help them get started as they become adults for a down payment for their house, a wedding, their first place month's rent, or whatever.

Selfishly, it could help my own finances, because I'm going to let compounding do the heavy lifting here, and hopefully that money is more now than it would be if I gave it to them at the time. I'm still angry about no Roth for children, but I think that's the simplest way.

There's no easy accounts. I've had bloggers tell me, "You could give your children a job by including pictures of them on your blog, and then pay them in income, and then put that in a Roth." It sounds like a huge pain in the butt to me, so I just did it through a Liftoff account.

I did it through a 529. That was easiest for me. I know there's other ways of doing it, but I would love it if there was easier ways to do this for people. Yeah, I feel like that has to happen at some point, right? I hope so. I guess they're worried about the tax implications and people sheltering taxes, but all right.

Let's see the next one. Okay, so question three. Jeremy writes, "My wife and I make a combined income of about $256,000 annually. We live a good life, but well below our means. We are doing this on purpose because we want to retire as early as possible. We are on track to be able to retire when I'm about 46 or 47.

We are currently saving and investing about 50% of our after tax income and have no debt except for our home. My problem is that I've developed an aversion to spending money on anything other than necessities. I wasted all of my money from 22 to age 30, and I don't want to revert back to that way of life.

My biggest worry now is I look back on life and regret not buying some of the things I've always dreamed about," and they said, you know, like a nice car or watch. "I have an emergency fund, backup emergency fund, stuff fund, vacation fund, and I never spend any of them.

What's the point of having money if you can't spend it?" And we've seen a kind of, we've seen similar questions in the past, so this is something that other people I think, you know, are wondering. Obviously, a lot of people would say good problem to have, but it's still a problem, right?

Like what is the point of having the money if you can't psychologically make yourself do it? So I'm going to bring in Nick Majuli, who's our COO at Riddle's Wealth Management. He writes at Of Dollars and Data. He's written a lot about this in the past, I know, especially from the idea of people in the FIRE movement.

Now, I think this is a great thing to have this mindset, this person's going to retire in their 40s, but the problem is what's going to change between now and then from your spending? If you have all this money and you can't spend it, then what's the point of retiring early in the first place?

Nick, what do you think about this, the FIRE stuff? And I'm guessing this is kind of down that same, same path. Yeah, so I think a lot of the stuff with FIRE, it's like there's a lot, I mean, there's a lot more to life than just like having money and being financially free.

That's great and all, but like your life is still like work. Work means something to people. There's something to do with your life. And I think one of the best books I read on this was how to retire happy, wild, and free. And he talks about like, and he doesn't talk about money.

It's a whole retirement book and there's no discussions of finance. It's the best retirement book I read. And he says, it's not about, you know, what you're retiring from, but what you're retiring to. Like, so what's the next step of your life? What are you going to do with all that?

And so, yeah, you want to retire at 46, 47. That's great. But what are you going to do with your time now? If you haven't thought about that, that can really mess with you, I think in a big way, because one day you wake up, you're like, I have no purpose anymore.

I've had people DM me on Twitter with that type of stuff. And I'm not saying that's every person that does fire, but that's a small minority of people who chase this dream. They get there and they're like, why did I do this? Right. Yeah. So I think John case.

Yeah. What were you saying? John, give me a cartoon on here. First time. So this is one of my favorite cartoons on investing. And it says, explain to you again, why enjoying life when I retire is more important than enjoying life now. And of course there has to be some balance there, right?

You have to find a way to enjoy it now, but also in the future, because I've always been, frankly, a saver. And I think my viewpoints have changed on this over time, but I think having some rules in place and you have, what did we call this? The Nick Majulie rule?

Did we come up with a better name? I call it the two X rule. It's much better. It's a little bit, a little bit catchier than the Nick Majulie rule, but the two X rule is very simple. And I kind of, I've, I've heard of this in various aspects, different people have said it, but I kind of just call it the two X rule.

I've kind of named it. Basically, if you want to buy something, if you want to splurge on something, so I don't do this with every one of my purchases. Like when I go to the grocery store, I don't use this rule, but if I want to splurge on something, for example, I used to buy these like cheap shoes every year for like $60 from Amazon.

They were like rubber. They would break after six months and I would keep buying them over and over. I was like, you know what? I need to get a real nice pair of leather shoes. So I went and spent $400 on a nice pair of shoes, but when I did that.

Give us the label, what kind, what's the brand? Yeah. So no, we're going to get into all that right now. I'm not, there's a bunch of different, it was like, it was like Allen Edmonds back in the day. It was, that's what I was into back then. Um, but yeah, so I spent $400, but when I did that, I said, you know what?

I felt like I need, I was like splurging on this. So I said, I'm going to save another $400. So I saved 800 in total. And the second 400, I invested, you know, in the stock market. So for me, it's like, if you want to splurge, you want to spend a thousand, 2000, 5,000 bucks, whatever it is, you take the same amount of money and invest it for your future.

So half of it goes towards your current consumption. Half of it's in theory, future consumption. Right. Which is a great way to balance things out, right? Yeah, exactly. Now there's another, you don't have to just, you don't have to invest it. For example, if you're, I think in the case with Jeremy, um, you know, and his wife, it's like, they have plenty of money invested, right?

So they don't even need to probably invest more. So another alternative is to donate the money, do something good with it, you know, kind of give back to charity or something. So there's a lot of different things you can, you can kind of create these tricks. The whole idea is you want to get rid of guilt.

It's all centered in guilt, right? So I under, I understand that guilt. When I was younger, I didn't have money. I felt guilty, you know, spending $9 for a beer at a music festival. And I'd be like, why would I do this? But today I would never think of it.

Right. It's like, I'm with my friends. I should enjoy my life instead of, you know, obsessing over money. But I understand when, you know, when you're younger or where you don't have as much money, I can understand that feeling. But as you kind of succeed more, you know, you can start, you know, moving out a little bit more.

And I have my own helps. You talk about guilt. I have my own guilt free spending category. So there are certain things that I just won't think twice about. So books from Amazon, I never think twice. I used to go to the library all the time to get books.

Now I'm going to buy it on Amazon and put it on my Kindle, like workout gear, anything that creates memories with my kids, paying for time, especially like I pay for my lawn to get mowed and people say, why don't you just do it yourself? Well, it saves me time.

But then there's stuff I also won't overspend on. So like nice cars, I'm not going to ever get a high end car brand. I don't like, I don't care about nice furniture because my kids would probably ruin it anyway. And then like high end restaurants. The only time I go to high end restaurants is when I come visit you guys in New York and you take me out to a nice steakhouse.

And so, and I do think that having kids, maybe it's just because I'm reaching middle age has changed my thoughts on this. Uh, finding like a number for yourself because I've, I've heard stories in recent weeks and months from clients and friends and friends of friends of friends and family friends who say they got to retirement and then they get this life shattering news of a disease that's going to change their life.

Alzheimer's or Parkinson's, uh, or they find out they have months to live because of stage four cancer or something. And they, they get to retirement and they've spent all this time saving and investing and they think they're going to have these next two or three, three decades to spend it and have fun.

And then it gets taken away from them. So I've certainly changed my thinking on this in terms of, I'm not just going to save and try to get this mythical number. If I get this number, that's going to make me happy. I'm also going to spend more now to enforce myself to do that on the things that, that matter the most to me.

Yeah, I completely agree. I think also COVID was a big wake up call. Like imagine all those people that are out in Italy, vacationing they're 65, right? Or at least they're doing something nice, you know, with some of their money, but they probably had millions saved up and then one day you're dead.

And it's like, it's so crazy. Like you could have no, you, there's no way you could predict that. So that's why I say you gotta, you, so for, for Jeremy and everyone who's kind of has this guilt, like, don't worry about it so much. I mean, you only get one life to live, you know, obviously don't go excessive and, you know, draw yourself into debt and do all that.

But like, there's clearly like a balance in your way on this side versus being way on that side. So kind of get more towards the middle. - It's tough because it's psychological. All right, Duncan, next question. - So to, to paraphrase Parks and Rec, sometimes you have to treat yourself.

Is that what you're trying to say? - Yeah. Is that a Chris Traeger one or what? - I don't even remember the genesis of that one, but I just, I have that one firmly embedded in my brain. - Classic shot. - Okay. So question four, Ryan writes, "For years, my wife and I have maxed out our Roth IRAs and I've been maxing out a traditional 401k.

We're 31 and have almost $250,000 in retirement funds with an additional 61K in other investments, mostly brokerage and 50K in cash earmarked for an emergency fund, house down payment and travel. We save about 40% of our income and are not big spenders. Am I crazy thinking I should lower my 401k contributions to just give a company match and invest the rest in a brokerage account for flexibility?

Every calculator I can find says we should be just fine letting the retirement accounts grow over time, but no one on the internet would dare write an article that says stop saving for retirement, except for Nick Majulie." And then they go on to say that's what made them think of this question.

- All right, John, let's do blog post on here. - Max out your 401k could be the dumbest advice that I've ever heard for anyone that wants to take financial control of their future. Why? But Chris, it... - All right, Nick, you wrote this post and I think you shared it with Michael and I and said, give me your feedback on this before I put it out there.

When I first saw the headline, it said why you shouldn't max out your 401k, I thought you're nuts. But then you explained yourself and it actually made a lot of sense under the right circumstances. So let's hear this scalding hot take about not maxing out your 401k. Let's hear it.

- So the scalding hot take is very simple. I know it's going to trigger a lot of people right now. People are like, even in the comments, they're just, I can already hear the typewriting. The take is this, right? So mathematically, if you look at like, I mean, obviously you change the assumptions, a lot of this changes, so I don't want to give you an exact point estimate.

I did put a point estimate in that particular post, but that's not what's important. The idea is on average, a 401k is going to get you somewhere between 50 and 70 basis points a year. So 0.5 to 0.7% a year in extra return due to the after tax, you know, the tax-- - Because your funds are going tax deferred, right?

- Yeah. So what that becomes is about, yeah, half a percent to 0.7% a year. Obviously it depends on your 401k fees. If your 401k has a fee of 1% a year, then like you're actually, it would be worse to put more money in your 401k past the company match, right?

Because you still want to get the company match, because that's like free money basically, but past the match. So that's the question, is past the match, that marginal dollars, you're getting, as I said, 0.5 to 0.7% a year. That's based on current tax law. If capital gains doubles, that would change.

But basically, assume that's true. Assume you're only getting 70 bips a year, right? It's like, is that worth it to lock up all your capital? You're 65. You don't know if you're going to-- or actually 59 and 1/2, I apologize. You don't know if you're going to make it there.

There's a bunch of different things. And I'm like, I think the flexibility matters, especially for people who are young, aggressive savers. And I think in this case, you had 250k in retirement at 31. I mean, that's pretty aggressive for savings. I think they'll probably be fine to just take more flexibility.

And yeah, it sounds like they're saving 40%. This could be another fire situation here. So yeah, your point is that it gives you more flexibility. If you're a long-term buy and hold investor, you're going to get basically to the same place, as long as you don't step in and mess it up.

It could offer you more flexibility. That actually makes sense to me, especially you talk about using index funds and low-cost funds for this. And yeah, some 401(k) providers have egregious fees, not only on the fund administration itself, but also the funds within it, right? So obviously, the first step is always, always, always get the match.

That's 100% return. You always have to get it, no matter what your funds are. And then potentially, if you don't have the best funds, then you go to a brokerage or an IRA from a fund provider, and you might have better options at lower costs and more flexibility, especially if you're going to retire early, right?

If these people aren't going to make it until 59 and a half, I agree, then you fund more of that taxable account. It makes sense to me. Yeah, it also depends on your goals. As they said, they're saving up for a down payment for a house. It's like that extra money, if it's not much now, but if you keep doing it for a few years, that's how you can get to your down payment more quickly.

So for example, I live in Manhattan, so it's one of the most expensive places to live, and housing prices are crazy right now. But a down payment for even a one-bedroom apartment here is going to be something like $200,000 to $300,000, which is a lot of money to have in cash, right?

That's a lot of money. And so if I was maxing every year, it may not seem like much, but that's another, you know, whatever, $10,000 a year I could be going and moving towards that goal, right? So it's small stuff you have to think about. I just think people don't think about it.

Across the board in personal finance, everyone says, max out your 401(k), no questions asked. And it's like almost, it's like culty almost. It's like no one's actually asked the question, well, no, there's a trade-off, and we should think about the trade-off. And for some people, it makes sense, right?

Like the fact that you can't access the funds, you can't trade it, that's good for some people who might screw it up, as you said, Ben. But I think for a lot of people who are a little bit more financially minded, I think they're adults enough, and they can figure out they're not going to go and screw up their whole lives.

Like they can have the money in their brokerage, and they'll be fine. And by the way, I drank the Kool-Aid. I'm part of the cult. I maxed out my 401(k). I like the psychological barriers there, but I totally get what you're saying for the flexibility. It makes a lot of sense to me.

So as with most of this stuff, it's circumstantial. It depends. All right, Nick, let's see. John, throw up Nick's book here. We want to make sure people pre-order Nick's book. Just keep buying. Nick, when is it coming out? Give us a release date. It's coming out in April. It was supposed to come-- I'm going to tell the story.

It was supposed to come out in February, but because of the supply chain crisis, we're now moving it to April 12, 2022. Yeah, supply chains are hitting everyone. Yeah, so there's no paper. I guess there's no paper on the planet or something. Are they on a shipping container somewhere?

Yeah, it fell off a boat. The paper's gone. I don't know. We're going to have Nick back on when he has his book coming out to talk about it. Again, he's got a lot more good hot takes that will change your mind on personal finance. If you have some thoughts about the questions today, leave us a comment.

Rob in the comments says that it was Aziz Ansari on Parks and Rec that said that. So good call, Rob. Have a question for the show? Email us. Askthecompoundshow@gmail.com. Our inbox is overflowing, which is great. Feel free to like and subscribe if you feel so inclined. Check out idontshop.com.

I got this sweet Portfolio Rescue t-shirt here. We've got a bunch of other stuff there. Next week, we'll be recording on Wednesday, because Thanksgiving is on Thursday. So we'll still be here Wednesday morning. We'll see you then. See you, everyone. See you.