(projector whirring) - Welcome back to Portfolio Rescue. Most people are outside enjoying the sun right now. We're in here talking finance, 'cause that's what we do. Today's Portfolio Rescue is sponsored by Innovator ETFs. Duncan, the second quarter of 2022 was one of the worst quarterly returns in the history of the US stock market.

John, throw up this chart here. I looked back, going back to the late 1920s. The worst quarterly returns, you can see, 16% and change as of 6/30/2022. Some of the worst ones are out a lot in the '30s, 1987. You can see there's only been, by my count, a handful of times that it's ever gone over 20%.

Going back to the 1920s, it's like 2% of the time, right? Now, Innovator ETFs has this defined outcome ETF called the Innovator Defined Wealth Shield ETF. Basically, it tracks the return of the S&P to a cap, and it's on a quarterly basis, so we're looking at a three-month outcome.

And basically, you get 2.4% of upside, but you're protected to 20% downside every quarter. So, their thinking here is, most of the time, the stock market goes up, and you're gonna get at least 2.4% per quarter, and you're protected to 20% downside, which, again, happens roughly, they looked back to 1950, and it happens 4% of the time.

Then, going back to 1928, it's 2%. So, basically, if you're looking just to get a smaller return and be really protected to the downside, you really think the stock market is gonna roll over again, right? You're one of these people that thinks it's gonna crash. This is your thing.

You're protected for a 20% buffer over a three-month period. Pretty interesting. Sorry, to learn more, InnovatorETFs.com to learn more about their defined outcome strategies. A lot of people have questions about these. A lot of people like how they define the ranges. Go there to learn more, they have a lot of tools.

All right, Duncan. - Yeah, and if you're interested in them, be sure to click the link. It makes us look good, yeah, right? Sending traffic their way, yeah. - Yes, Duncan likes it when you hit all the stuff below here in YouTube. All right, Duncan, since just before the onset of the pandemic, July 2020, think about much simpler times, right?

The S&P 500 is up since then, 27% in total. On an annualized basis, that's roughly 10% per year, right? Over the last two and a half years and change, 10% per year, right? Not bad, right? - Sounds good. - We'll take it. Just think about all we've gone through in that time.

Pandemics, lockdowns, negative oil prices, supply shocks, geopolitical crises, 40-year high inflation, all this stuff, and yet the stock market has returned 10% a year. People in the comments will probably say, "Yeah, we gave $6 trillion at it," whatever. But that 27% gain includes a 34% drawdown in February and March 2020, then a gain of 120% from those lows through January 3rd of this year, and then at its worst point, a drawdown of roughly 24% and the S&P caught 23, 24% at its worst point.

Now, I don't know, we're down 18% or something. The stock market, John Bogle once said, "The stock market is a giant distraction "to the business of investing." Think about that. In an almost three-year period, all that stuff we lived through, and we got 10% annual returns. - It's crazy.

Yeah, I think historians will look back at what happened with the market, specifically during the pandemic, like the worst of the pandemic, and be pretty wowed by that. - It is. It's been just a crazy time, but the stock market is just always tempting you to do something stupid and make a mistake, unfortunately.

And the stuff happening so much faster now, I think it's easier to make mistakes than ever. All right, we got a lot of good questions. I don't think we make many mistakes from our question people. We got a lot of people who know what they're talking about, but just wanna kind of help better understand their situation.

Our question inbox, Sean, our analyst, who kind of tracks these each week, pulled them together. We had a ton of good ones, so let's get into 'em right away. - Okay. So up first, we have, "I've been buying the dip for the past couple of months "in the market and feel pretty comfortable "with my positions.

"Should I continue to buy the dip or invest in my home? "i.e. new fence, additional rooms, bathroom, et cetera?" - Okay, I get the understanding here, but I look at these as two totally separate line items. The stock market is a place that people go to to build wealth over the longterm and grow above the rate of inflation and keep their standard of living up, again, over the longterm.

Does the stock market guarantee those outcomes? No, but is it one of your best, highest probability bets for that to happen? I think so. I hate to be the bearer of bad news, but home renovations do not give you that same one-to-one protection or even grow your wealth, right?

So Zonda is this housing research firm, and they put together this study showing the cost recouped from different renovations you do to your home, depending on how much you spend. So John, fill this up here. You can see it's a bunch of different stuff. Bath remodel, kitchen remodel. Let's pull in from an example.

Bath remodel recoups about 53% of your cost, right? Add a, do a bathroom addition, it's like 51%. Most of the ranges are in the 50 to 60% range. There's some that are a little higher. I don't know what manufacturer's stone veneer is. Apparently that pays off pretty well. But you can see, these are a percentage of your cost.

You're not gonna make more than you put in, right? So I think I kind of blame HGTV for getting people to think that if they fix up their home, it's gonna be worth more. 'Cause you see those shows like Flip or Flop or whatever, where it's like home value, $400,000.

Renovation budget, $50,000. Home price sale, $650,000. Profit, 200 grand. We are geniuses, right? Then they fail to mention that all the labor's free because these people want free PR and home on HGTV. And all the sales are probably finalized before it happens. Am I an HGTV truther, Duncan? Yes, I am.

I'm sorry. It's the truth. - I support you in that. - Do I still enjoy watching HGTV occasionally? Not gonna lie, I do. Even though I know all of this, right? The point is, not all cash outlays are created equally, right? There was this economist back in the early 1900s, Irving Fisher.

And he wrote this book where he laid out three different types of incomes. One of them is just money. You know, what we use to commence commerce, right? The other one is just stuff that you buy, physical stuff you buy with that money. So it's houses and cars and food and all this stuff.

And then the third one is psychic income. And he basically boils psychic income down to human enjoyment. Like, what is gonna make you happy? The best example I've heard of this is a wedding dress. There are women who will spend hundreds or even thousands of dollars on a wedding dress.

It's a dress you wear one time in your life on one day in your life. Now, the economist would say, "Why would you ever spend that much money "on something you're gonna wear one time?" And the bride would reply, "This gives me enjoyment. "This makes me happy. "This is one of the biggest days of my life.

"It brings me enjoyment." So not all financial decisions have to be made from the idea of there's a hurdle rate, right? Now, homes can be a decent investment depending on your timing, but they're more psychic income, probably, when it comes to renovations. Just this week, my brother is finishing up putting in a pool.

He lives about five or 10 minutes away from me. And there's no way he's gonna recoup the cost, especially in a state like Michigan. It sounds like it's basically a wash. It doesn't add to the value of your home, but it doesn't detract. So the money he's putting into this pool is not gonna help him very much.

By the way, side note, labor supply issues are hurting him. He could not find anyone to come spray the hydro seed stuff 'cause it'd dig the pool up and then it messes up the grass. So he got four pallets of sod and said, "Hey, can you come help me lay this down?" So I go help him lay it down.

I gotta admit, there's something about manual labor that is very cathartic. Seeing the fruits of your labor and seeing the progress you can make. I did this for two hours and not my whole career. - I was about to say, I feel like if that was your day-to-day you might have a different take.

- I did it for two hours and I got home and had some ibuprofen and laid it on the couch 'cause my back was sore. But I'm just saying, there's something about it. But my brother and his family are gonna get all sorts, and hopefully my family too, 'cause we live nice and close to them, they're gonna get all sorts of enjoyment out of this.

It's like a ginkgo. It's not gonna really help them if they went to sell the house, right? Now, I'm gonna give you one more option. What if I was to say it's possible to both buy the dip in stocks and do all your home renovations, right? Fix up your bathroom, add a bedroom, whatever.

- Leverage. - Well, kind of. John, show up the home equity line. I've used this one before. There's almost now, we're approaching $28 trillion in home equity. Now, you can take out a home equity line of credit, a HELOC. And honestly, the best reason to do this is to renovate your home, right?

Because you can write off that interest for tax purposes and then upgrade it in a way that increases your enjoyment of the house, right? Now, I will caveat this with rates are higher. So when I did my HELOC in summer of 2020, I think the rates were 3%. Pretty good deal, right?

Now, it's probably closer to 4.5% last time I looked at mine. And it's a floating number, so it'll probably go up a little more. So those rates are higher. But you do have an option to both borrow against your home, but then use that money you're pulling from your house to fix up that house you live in, right?

And you're gonna probably recoup some of the costs, probably not all of them. But I just don't think that the hurdle rate is the same when comparing fixing up your house and the enjoyment it could give you versus investing in the stock market. - How much lobbying did you do for that pool at your brother's house?

- Why do you think I helped out with the sod? I get to use it now because I helped him some manual labor. But yeah, I'd be lying if I said I'm not a little excited about it myself. - Yeah, no, it sounds nice. - Let's do another one.

- Okay, and that question was from Tony, by the way. So up next, we have a question from Scott. I'm an economics student and have been following your content for a while. Recent episodes of What Are Your Thoughts have placed Josh and Michael on opposite sides of a debate.

Is wealth destroyed or reallocated in a bear market? I would love to hear a deeper discussion of this topic. I assume the answer is nuanced and specific to different examples, such as an individual investing in an asset, having it grow to a high, then crash without liquidating their hold, so the wealth is first created, then destroyed and was not real.

On the other hand, I also see scenarios where a high is sold and the market bottoms, with those who have the profit reallocating into other assets. I'm very interested in both viewpoints and would love to learn more on the nuances, such as, this is my favorite part of this, is there more wealth on paper than global fiat currency or are global markets capped?

- Now, this guy's an economics student. This is the kind of thing you have a discussion in the dorm room and over a six pack of beer, and then you never come to a definitive answer. Now, there is certainly some money that comes out of the stock market when, in a bear market, when people are selling.

The reason stocks fall is because people are selling, and the reason people sell is 'cause they sometimes wanna get more defensive and move into cash or money markets or CDs or something that's, or bonds, whatever, something that's more defensive. But it's not a one for one for the simple fact that, and this kind of hurts your brain to think about, for every seller, there is a buyer of stock, right?

There has to be. Now, of course, there are things like SPACs and IPOs and stock options that are kind of created out of thin air, but for the most part, the vast majority of shares are trading on an exchange, and it's the laws of supply and demand. And there are times where supply and demand simply nuke paper wealth in the stock market.

Think about an example. So, Apple reports their earnings next week. Let's say Tim Cook came on and said, and after hours and said, "Airpods give you cancer," right? If that happens, I'm screwed, 'cause I listen to him all the time. But he says, "Airpods give you cancer. "Apple's stock falls 20% immediately "in after hours trading," right?

They're a $2.5 trillion company. If they lost 20%, that's what, $500 billion worth of stock. Does that mean $500 billion came out of Apple? No, of course not. A lot of it happens instantaneously, where people want to sell, and the only price they can get is 20% lower, so they have to sell, and that effective paper wealth has just been nuked.

It's gone, it vanishes. And this works on the other side, too, right? On the upside, when stocks, after hours, report really good earnings, and they go up 20%, the same thing. People aren't putting 20% more into a stock. It's just going up. Another way to think about this, money has to go somewhere, right?

Investors have to allocate between stocks, bonds, and cash, and whatever else. Pseudonymous blogger Jesse Livermore wrote what is probably one of the most popular fin-to-it posts of all time. He wrote this in 2013, and it's this blog called A Single Greatest Predictor of Future Stock Market Returns. Duncan said he tried to read it and didn't understand it.

I don't blame you. - Yeah, this is one of those where I was, as I was trying to read it, I was like, I need to just ask you to explain it to me like I'm five. - The funny thing is, he wrote this in 2013, back when everyone was sure stocks were in a bubble.

Those were the nice days, I guess. John, throw up this chart. - What this chart just shows is the allocation of all investors to equities. Right, you can see right now it's roughly 50%. Back in the '70s and '80s, it was closer to like 25%, and even dipped below there sometimes.

Now, the 1980s, the stock market was up 18% per year, yet investor allocations remained low throughout the whole decade. They remained at 25% or lower, pretty much, pretty much lower than 30% the whole time. They didn't really start going up until the 1990s. So there was a ton of wealth created in the '80s, but there wasn't a huge increase in allocations to investors.

Now, that happened in the '90s, too, but you can see that it finally went up and a lot of people got in, but it wasn't just a ton of money pouring in the '80s. The stock market was just up. So I guess what I'm trying to say here is the reason stocks go into a bear market is 'cause certain investors sell, but a lot of those losses happen so quickly that prices readjust in a panic.

So I'm on Team Michael and Team Joss here. So I'm sorry, I'm splitting the baby. They're like my children here, and I'll be like, I agree with both of you. Like, they need to settle this through paper, rock, scissor, is what I'm trying to say. Rock, paper, scissor? - It's one of those things, I feel like the more I've thought about it, the more confusing it kind of is, but-- - It hurts your head.

- A lot of people realize that, like when we're talking about taxing unrealized gains is when I think people really start to understand this, right, is like, well, wait, just because it's gone up on paper this much doesn't mean I actually have that money. It's not real. - It's hard to, yes.

It's not like there's a dollar for dollar, this is why the stock market grows over time and your wealth compounds, right? You hope that you have more money at the end of it than you put in. But yes, I'm willing to say I'm team Josh and team Michael here.

They're both right. - I highlighted one line that I thought was a super hot take from that article. It says, "Buy and hold is painted "as the informed, responsible, pro-American thing "to do with a portfolio, "but in terms of financial stability, "it can actually be very destructive behavior." Isn't that a hot take?

It sounds like a hot take to me. - A little bit, yeah, we'll take it. All right, let's do another one. - Okay. Up next, we have a question from Ben. "Question about changing risk tolerance. "I've been invested fairly conservatively for my age, "age 40, at about 50/50 bonds and stocks.

"I've been through a few bear markets "as I started saving seriously just before the GFC "and feel more comfortable hanging on "through awful markets like we're in. "I stressed out during the GFC, "but held on and my stomach is getting stronger "each time I go through a downturn. "My question is, if I'm more comfortable "hanging in there with a relatively conservative portfolio, "is this a good opportunity to rebalance "and dial it up a bit?

"Maybe more of a growth portfolio "of 75/25 stocks to bonds? "This is all long-term blue hair retirement money, "mainly index funds, diversified, et cetera. "Job is stable and all that. "Thanks a ton. "Also for our super young people, "GFC is global financial crisis." - Yeah, that's pretty crazy that someone might not know that.

I'm sorry, but it's fair. We're old, Duncan. All right, so this is essentially an over-rebalance, right? I actually think a bear market is a better time to do this than a bull market if you're gonna take more risk, but you have to still be careful 'cause you don't know if there's another leg coming down at some point.

But asset allocation is definitely one of the most important decisions that you have to make as an investor. And this is something we spend a lot of time with clients on. So I wanted to bring one of our financial advisors on here to give some guidance on how they handle these type of situations 'cause not all portfolios are set it and forget it.

There are times when you can switch, whether it's your risk profile or your circumstances or money changing. So Alex Palumbo, actually one of the first advisors we brought into Ritholtz Wealth back in what, 2016, Alex? - January 17th, 2016. But who's counting? - Same day as Bill Sweet. - Okay.

So I was a few months before you guys. - Shut up, Bill. - He's an OG. He's been here for a while. - Can I shut up, Bill, real quick? - If you want. - So I want a controversial hot take here. Bill and I actually came up with this exact show idea four years ago and we got shut down.

So then you copied us. So right now we're in the process of filing a class action lawsuit. I wanted to let you know, and my attorney's gonna reach out to you after the show. I just wanted to give you a heads up on that. - Okay, remove his feet, John.

That's how you get him out of here. - Yeah, see you later, Alex. Nice talking to you. Okay, so Alex, a client's come to you and says, "Listen, I think I've been a little too defensive. "My risk profile, I can handle it. "I want to dial up my risk." How do you approach that conversation?

How do you, and then if you agree with that and say, "Okay, we're gonna come to an understanding. "You're gonna go from 50/50 to 75/25 or 60/40, "whatever it is." How do you handle that transition, assuming it makes sense for their plan? - Right, so I think you hit the nail on the head here.

It definitely, you prefer to hear this from a client when stocks are going down versus when stocks are going up, right? That's just like better investor behavior. But to this particular listener's question, he said he feels more comfortable hanging on through awful markets like we're in. Of course you do, right?

You're in 50% bonds and that's really not the only time, but that's the main time that bonds actually show their benefit. We know that equities will 100% perform better in the long term. So objectively, of course, this is a good time. The one thing that I would take some caution in for this particular client, if it were a client, is that this person is 40 right now.

Their dollar amount in terms of their investable portfolio is going to increase exponentially, not linearly. So like, yeah, you have 100, 200, 500K, 50K right now. By the time you're 50, you should have two to three X times the assets. And in that concept, the drawdowns are more magnified, especially from a dollar perspective.

So yes, this is objectively a good time. - I do think that's an important point as you age. Even if your portfolio is a little more defensive, because you have more money, it could take a smaller drawdown percentage terms, and in money terms, it's gonna hurt a lot more, right?

I think that is something that a lot of people don't think through, the differences between percentages and dollars. That can make things way more painful. - You cannot believe the amount of conversations I have with retired clients with, you know, five, $10 million. They're like, "Do you see how much money I lost?" And it's no fault to them.

And I'm like, you have to try to focus on the percentages. If only from a behavioral and psychological perspective, it's so much easier to be like, "Hey, I'm up 15% last year. "I'm down 8% this year." Once you start looking at the dollar amounts, if you're down 10% with $10 million, you are on paper just lost a million dollars.

And if you have no income coming in, it's really painful to deal with. The last thing I'll mention to this particular listener and commenter and questionnaire, is that working with an advisor helps with this a lot. I've seen this time and time again, is that if you're managing your own assets, going from 50/50 to 60/40 seems like a big leap.

But if you have an elite or competent team behind you, who's managing the portfolios for you, who can add context to your situation and show you the ramifications of increasing risk over the short, intermediate, long-term, it's much easier to deal with a more risky slash more volatile slash more equity-heavy portfolio.

- Yeah, I agree. And by the way- - Plug for Red Hole 12. - Yeah, and you saying that you came up with the idea for Portfolio Rescue is kind of like the Winklevi twins saying they can't get up with Facebook. I mean, come on, right, Duncan? He's trying to- - Yeah.

Yeah, or Grantham saying he called the spare market back like eight years ago. - I kinda wish that the Winklevoss did come up with Facebook. I mean, did you watch the movie? It was pretty clear that Zuckerberg stole it, but I don't want our whole thing to get shut down.

- All right, let's do another one. - Okay. - This is the not to brag of the year so far, by the way. - Yeah, no, this one actually had me thinking that we need to add a button, a not to brag sound effect, and so we might actually do that.

So this one is, "My wife and I received," I've never heard of anything like this, but let us know in the chat if you've heard of this. "My wife and I received an unexpected wedding gift "of $200,000 in Microsoft stock. "As a general rule, I don't own individual stocks, "and the bogel in me wants to transform this "into a diversified index.

"However, I don't want to create a large tax event "just to hold equities. "My thought is to slowly diversify over time, "sell 5% per month, considering that Microsoft "is a relatively stable blue chip. "Is it better to rip the Band-Aid off all at once? "Is there another creative solution that I'm not considering?

"To further complicate the issue, "about 40% of this might be used as a down payment "for a house in the next few years." - All right, this is from Adrian. - Good job, I mean, you really lucked out with that. - This is from Adrian. "Who the hell did you invite to your wedding "that gave you $200,000?" Alex.

Alex is gonna get married in what, two weeks, Alex? - 15 days, but who's counting? - 15 days. I'm gonna give you $75 in VTI stock for your wedding, okay? I know it's not Twitter, K and Microsoft, but. - That's more than what you've given me so far, so.

- I think I got like a ladle and some steak knives from Bed Bath & Beyond for my wedding. This is awesome. Now, great problem to have. Not a bad way to start out as a new layabouts. Alex, I know that you've had a lot of clients come to you with concentrated stock positions, whether they work for a company, they have Amazon shares or Google shares, whatever it is, or maybe we've had clients in the past who have invested in IPOs very early on and have huge capital gains, unrealized capital gains in these stocks, and they come to us and they say, "I know I needed to diversify "'cause I have 80 or 90% of my wealth in this one stock.

"How do I do it?" So how do you typically structure these sales when you have a concentrated position to deal with from a tax perspective? - Yeah, this actually was a really great question. There's a lot of nuance here, and I have a ton to say. Shocker to you, Ben, I'm sure.

I will say, I don't think this was that much of a brag, but wait until the next question, spoiler alert, for the big time brag. But to answer this, this is a really good question. So first of all, right off the bat, 5% per month does sound like a reasonable strategy, right?

Just like baseline. Here's the two things that really stood out to me in terms of concepts to consider. If you do this over two years, you're pretty much attempting to spread out your tax liability, right? However, if the stock is valued at $200,000, you just got married, you listened to Portfolio Rescue, assuming you're doing okay for yourself, you're most likely always gonna be in that 15% tax bracket in terms of the capital gains, right?

So like, if you can sell some now within that 0% tax bracket, that's great. But I would take an educated guess that this married couple probably doesn't make that little of earned income to be at that 0% capital gains rate. - Well, here, how does this, so how does this complicate matters?

Because they said 40% of it, they wanna use for a down payment. So does having a goal attached to it make you think, do you at least rip the bandaid off for that 40% and just sort of get that into something and then slowly with the rest? Does that make sense at all, where you're kind of doing a hybrid approach to dollar cost averaging out of this?

- Yes, and I was, yes, of course it does. That, everything I was about to say gets thrown out the window when you wanna use this for a new home within the next few months. However, from working with clients, when you might wanna buy a home in a few months, that tends to be like, I'm not gonna buy a home for a few years.

You don't want this money invested in an individual equity if you're gonna buy a home within the next three to nine months for obvious reasons. But the one thing I'll say regarding the taxes, these people are probably not gonna be in the 20% capital gains rate. So you're probably always gonna pay 15% capital gains tax on these sales.

So you don't wanna let the tail wag the dog in the sense where it is good to space it out because you will have to pay taxes on this. That's a slight benefit. But one thing that's important to consider is over the next 20 months, if you sell like 5% of this stock over the next, 5% over the next 20 months, there's almost 100% chance that that stock is gonna move much more than 5% differently than the index, right?

And so you don't wanna let the proverbial tax tail walk the dog, that's what Bill always says. So keep that in mind is that Microsoft for better or worse is gonna perform much differently than the overall index most likely. And you're probably always gonna pay 15% capital gains as well.

Last thing I'll mention, Ben, 'cause I know you don't like when I ramble is one thing I like doing for clients is like, don't sell in October, November, and December because you're like, let's say you sell something December 31st, you're guaranteed to pay capital gains on that unless you already have losses to offset this year.

What I do a lot of the time, let's say we get a new client in like October and their portfolio isn't extremely risky or there's not a lot of nonsense going on. We'll wait until January 1st to recognize gains. That gives us 12 months to tax loss harvest on the portfolio.

- You have a budget that you can work against basically for the rest of the year. - Exactly. So like sell 10% in July, August, September, stop and see if you can harvest losses from there. Now you might be thinking, Duncan, this is gonna be very difficult for your average retail investor.

That's exactly why you work with a comprehensive financial planning firm who can execute all this for you. But in all serious, another RWM plug, there's a lot of nuance to this question that from like the layman eyes, you might not consider, but there's a lot going on here. And if you do it correctly, you can probably save yourself a lot of money and be more informed in your decision-making.

- Just an awesome wedding gift though. I will say whoever did this for them, kudos to you, Bill Gates or whoever did this. - Ben, I'm holding you to that $75 in VTI 'cause that was just said, but that's more than you've given me so far. So I'm holding you to that.

Thank you. - I'm still waiting for my invite to the wedding and then you'll get your 75 bucks in VTI. - All right, this is very fair. - Sounds fair. - All right, one more, Duncan. - Okay. So up next, we have a question from Alex and this is a two pager, so hang in there.

My wife and I-- - So this is one of the better, sometimes people give us emails and there may be some spelling errors and I'm not averse to do that myself. And there may be some people that shorten things. This is a very well-written email. - Yeah, it was.

And they also have, they have a certain way with words. - Yes. - As people will see. My wife and I are in the process of getting our financial lives together and I have been going through the process of talking to financial advisors. I've come out the other side of this process wondering what the value of a financial advisor is.

My wife and I have been extremely blessed over the past couple of years and we both find ourselves in a sexy ass tax bracket and are fortunate enough to be able to put a significant amount of money to work now and for the foreseeable future. We are fairly young, I'm 33 and she's 27.

Don't have kids, no debt, and we're both maxing out our 401ks. At this point, we are not worth much, but over the last couple of years, we've seen our incomes grow and haven't had time to amass enough wealth to get wealth managers with white wigs and soft rumps to have any interest in working with us.

I gotta say, I don't even know what that means, but I don't fault them for this. - But it's provocative. - Yeah, no, I mean, it sounds like shots fired. I don't fault them for this, but recognize it as the reality of the situation. I enjoy learning about the market and feel like if we continually put our money in an S&P 500 index, we might see the same or similar performance as we would see with any financial advisor.

Part of me wants it to be more complicated than that, but as I've listened to you guys and your peers in the market over the past few years, I can't escape the impression that if you were to put your money in the market continuously and keep it there, you'd be hard-pressed to make it grow better with less stress.

I would love it if you guys could blow some holes in this thesis, as it seems like there has to be some value provided by good people out there, that I need someone smarter than me to weigh it out real nice. - All right, I will say-- - Basically, they're saying that you shouldn't exist, you shouldn't have a job, Alex.

- Well, Alex is-- - Please put me in, Ben. - Hang on, Alex. - I'm not on this one. - Hang on, Alex, before I let you lose here. I will say there are now advisors who work with people who have higher incomes but don't have a lot in assets.

There's hourly financial planners now. A little plug, we have an advisor dedicated to our lift-off program that people who have, don't meet the minimums for the other wealth management that have the ability to automate it, invest it through Betterment, but then also talk to one of our younger advisors, Matt.

But I will say, hiring an advisor is not for everyone. I think there are some reasons that you wanna do it, right? A lot of people make some mistakes, some people have a life event, Alex is getting married, I talked with a client of ours who was a young person, young people, a young couple who was just having their first child and they have an advisor with us and they were having a hard time working through some decisions that they were making financially and having this first kid and having an advisor can help.

Not everyone needs an advisor. I know there are a lot of smart people who can do it on their own and don't need one. But Alex, what are some of the main reasons people have come to you to kind of give this listener a reason for getting an advisor in the first place?

With the understanding that you're probably a little biased. - I mean, sexy ass tax bracket, soft rumps. I mean, should we mark this not safe for work? I mean-- - This is probably an English major. By the way-- - Soft rumps. I thought you want hard rumps, right? - That's why we do squats and lunges here.

All right, so-- - That's why I'm the director of fun, all right, so-- - What are the reasons that people come to you? What are some of the main reasons people come to you and say, I need an advisor, I wanna hire you? - Yeah, initially I definitely wanted to eviscerate this guy Benny Market style, but then I took a step back.

One, 'cause you told me I can't rip apart our viewers. But secondly, because he's actually probably right, right? For the reasons that you mentioned. If he was, he 33 years old, 27 years old. This is one of the unfortunate truths in the industry, right? It's like younger folk who don't have the investable assets could benefit from some holistic financial planning advice.

They can't find good advice. The Northwestern Mutual guy is right around the corner, the insurance guy. But other than that, there's really no good place to look. So right now, what I would recommend to this nega Alex, this anti-advisor other Alex, is listen to RWM content, what she's doing, right?

The fact that you're listening to Portfolio Rescue makes me believe you're probably are perfectly fine with whatever diversified index investing strategy you are in. However, ways that a good advisor can help you even when you don't have a lot of investable assets, but you have a high income earning, financial goal planning, right?

It's very helpful to set yourself up on a pad and not just invest blindly, having no idea what your short, intermediate, long-term net worth is going to be. When you can retire, when you can part-time work, can your wife dial it back? Education planning, if you wanna have kids.

Tax planning, not just filing taxes, but the tax loss harvesting example I just mentioned, right? Also access to strategies that you can invest in on your own if the price is right. Lastly, and I think this is important and I'm gonna get more nuanced than we typically get, behavioral assistance, but not in the sense like, did you panic in 2020?

Did you buy crypto in 2020? Did you get meme stunked in 2021? Did you sell anything this year? But did you buy this year, right? Did you rebalance this year? Like those are things that they actually don't show up in time-weighted returns, but they can really add to your bottom line if you do them correctly.

What you don't need is insurance planning, especially 'cause you don't have kids. Like, you need insurance, but not insurance planning. You don't need complex estate planning. And then can I go a little in depth on like hiring an advisor real quick? - Yeah, but I mean, so one of the reasons that people come to us is because sometimes they wanna outsource it and then they just don't wanna do it themselves.

They have more important things to do with their time. If you were interested in this stuff and you follow us, you probably are, then that's fine. But it could come to a point of your life when you go, you know what? I've been doing this on my own the whole time.

My spouse doesn't pay attention to it as much as I do. I'm worried if I got hit by a bus, what's my spouse gonna do, right? - Contingency plan is good here. Let me quantify for this here real quick, Benny Buckets. All right, so let's say you spend three hours a week doing this, right?

That seems reasonable if you're managing your own assets, right? Times 50, that's about 150 hours a year. If this guy's in a sexy ass tax bracket looking for soft rumps, he's probably making at least $25 an hour, right? He probably values his time at $25 an hour. I think that's a low number.

That's about $3,700 a year of his time that he's spending on managing his own finances. Now, if you hire someone and pay them that exact fee, you're getting that value back. And now that's assuming he can get the exact same returns and do the exact same processes and elite strategies that financial planning groups can give you.

So just assume that you can get a few basis points of value on top. That's when you can start to quantify why someone in his situation would hire an advisor. - I think what Alex is trying to say is that if you give him an email, he'll give you a 20 minute call about what it is to be an advisor and he'll walk you through.

And then when you're ready to hire an advisor, if you want to, go talk to him. - Do you value your time? But to your point, Ben, and this is the last thing I have, there are those guys at Planet Fitness that pay $10 a month. They are super jacked and they are an elite shape.

Like they don't need to hire a nutritionist or pay 200 bucks a month for CrossFit or do all these things. There are the outliers, but those people, and just like the do-it-yourselfers who are 50 with 5 million bucks, they're the outliers. They're not the median or the mean, though.

- By the way, I used to have a membership at Planet Fitness, so thanks for that. - Well, there can only be so many guys like me at the gym, you know, but what I was gonna say is I feel like a lot of our audience are definitely more in the maybe inclined to be do-it-yourselfers, that kind of thing, right?

They're watching financial content, they're trying to learn, they're reading you guys' blogs and stuff. And so, yeah, I feel like we might skew a little more that way, but yeah, I think the best explanation I have heard before is just when it's too complicated, stressful, time-consuming, your situation, then that's the time maybe you would go to someone else.

- And if you're thinking about it, there's nothing that can hurt from having a conversation, and if you have a conversation and the financial advisor lays out all the things they can do for you, which they should be doing, these are the different things I will do for you, if you don't think that those are worth the money, then don't do it.

But you can at least have the conversation without completely handing over your life savings before beforehand, right? - Two other things. - An hourly advisor is a good idea, and paying a one-time financial planning fee is a good idea for these people. - That's what I was about to ask you.

Can you explain to people how you're charged, typically? That's something I feel like no one really, I don't even quite understand. - Yeah, so typically it's an AUM fee, right? Assets under management. We charge you 50 basis points, 0.5% of your overall assets, and we do everything for you.

But for someone who has, it's actually, it's a good question. For someone with like $50,000, if you charge them 50 basis points, that's $250 for the year. Like, that's not a lot of money to pay for services, but you can pay, that's under the AUM model. But younger people can pay, "Hey, I'm gonna pay you 500 bucks to 1,000 bucks.

"Talk to me for an hour or two. "Tell me what to do." The problem is you have to go and implement that yourself, but that can be really valuable if you do have the technical abilities to actually implement all of the things that I mentioned. And someone who's in their 30, 33 years old who's listening to Portfolio Rescue probably can.

And there's almost no doubt that if you go to the right place, it's worth paying 500 bucks. - By the way, and I also think it's okay. Someone in the comments said, "I won't pay for a golf coach "that can't beat me on the course." And I haven't found one yet.

Tiger Woods has a golf coach, right? All the best golfers in the world have coaches. Michael Jordan had trainers and coaches. Even the best people know when to outsource. So you just have to understand if outsourcing is right for you. - Can you tell this guy to reach out to us so we can hire him?

It sounds like he's really good at this. - Can I follow up with one more question? Do you have one good red flag that someone should look out for if they're interviewing financial advisors? - Yeah, I mean, I already said it. If you go to an advisory group or a financial planning company and during the first meeting, they mention insurance, that is a huge red flag, right?

That's always a part of the puzzle, but that's never like, oh, you're 50 years old, you could really benefit from some indexed universal life insurance policy or, hey, you could really cover your spouse's income by buying this whole life. That's the biggest red flag. - Yeah, it shouldn't be selling you products, it should be offering you solutions.

- Right. - So, yeah. All right, Alex, after you get married, you can come back and give us some advice financially on how to be a newlywed. Remember, if you're listening to this in podcast form, leave us a review. Watching on YouTube, hit that subscribe button. Compound merch at idontshop.com.

We're gonna have a new compound and friends tomorrow, as Michael calls it, TCAF. That hasn't, not growing on me yet, sorry. - Yeah, I'm not 100% in on it. - All right, keep those questions and comments coming. Wanna thank Alex again for offering his advice today. If you have a question, askthecompoundshow@gmail.com and we'll see you next week.

- See you, everyone. (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music)