(beeping) (dramatic music) - Welcome back to Ask the Compound, where we have a new intro on YouTube. Pretty slick production. - Yeah, let us know what you think about it. - This is a show that's driven by the audience, audience asks us questions every single week. We go by what the audience does.

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Duncan, you slacked me this week and said I signed up for Rocket Money. What's your initial thoughts? - I love it. Yeah, that's why I slacked you, you know, and just said, like, Rocket Money's awesome. - It's slick, right? So we've received dozens of emails from our audience in the last couple months or so, because Intuit shut down Mint, and a lot of people are saying, "Well, what do I do now?" And I don't know why they did that.

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It's pretty good. - Yeah, you can pick how much you pay, yeah. - Yeah, rocketmoney.com/atc. - And for those that don't quite understand, too, the appeal for me is, like, you can see all of your finances in one place. So, like, you link all of your accounts. It's pretty useful.

They give you a summary of your bills each. It is, as someone who's a spreadsheet guy, and a lot of people keep emailing and asking, can I see Ben's spreadsheet? Go to Rocket Money instead. It's easier. - Yep. - We still get a lot of those. And my spreadsheet will be useless to you.

All right, let's do a question. - Okay. Up first today, we have, what would be the pros and cons of purchasing weighted amounts of the 11 stock market sectors and rebalancing your portfolio each year, compared to just indexing the total market or the S&P 500? One is obviously much more time-consuming, but could the juice be worth the squeeze?

- It's kind of funny, because this seems like a very specific question, but I've received this exact question before multiple times. And I think I did the first one on my blog in 2014. So I found the old spreadsheet. I updated it a little bit. The premise makes sense from the perspective of, well, if I'm rebalancing these sectors, obviously there's gonna be winners and losers, but some of the winners are gonna fall back and beat the losers.

And if I rebalance constantly, I'm buying into the pain. And that makes sense kind of, I guess, from theory. But let's dig into numbers first. John, throw up the first chart. This is from State Street. These are the current sectors for the S&P 500 or the SPI ETF. So if you did an equal weight strategy of the 11, you could see that you're obviously going to be underweight technology, financials, healthcare.

You're gonna be overweight materials, utilities, real estate, and energy, maybe a little consumer staples, and then industrials, communication services, and consumer discretionary are essentially a push. Obviously the sector weightings do change over time, but you'd be adding some real tracking error to the S&P by doing this. So the asset allocation quilt is pretty fresh in my mind still.

John, do a chart off. But let's look at the performance numbers of the various sectors. And I did these going back to 2008. And I did this for a reason 'cause I wanted to include a wide range of markets. So 2008 was a huge crash. 2010s, pretty big bull market.

2020s has been up, but it's been very volatile. Now here's what I did here, and I wanna highlight this. So I highlighted the S&P 500, and then the EW is equal weight. So I did an equal weight of the index, which is essentially just re-weighting each year. So it'd be like a rebalance.

And you can see the equal weight is actually pretty close to the S&P. They're both kind of towards the middle. So not too bad. John, you can do a chart off real quick, and I'll ask you again for a minute. My one problem with this asset allocation quilt is that they've added two sectors in the last few years.

They added real estate and communication services, and it makes it not look as good anymore. So it's not a perfect quilt. - You should ride them. - So if you eyeball it, John, throw it back up a little bit, you can see the equal weight is pretty close. So it looks like the S&P has outperformed in, this is 2008 to 2023.

The S&P has outperformed an equal weight of all the sectors in nine out of 16 years. I still remember how to do math from school. So that means seven out of 16 years, the equal weight is outperformed. So not bad, it's actually pretty close. If you go all the way from 2008 to 2023, John, I can do a chart off now.

We're talking 9.8% per year for the S&P, which is pretty good. Include 2008, you know, a 37% loss in the S&P. We're still up close to 10% per year. The equal weight strategy was up 9.2%. So it underperformed. It did have a 10% less volatility, so not too bad.

Now, this is interesting. From 2008 to 2023, there's three sectors that outperformed the S&P. Duncan, you gotta be able to guess at least one of them. - The outperformed? - Yeah, sectors that outperformed. Tech was one, healthcare, and consumer discretionary. So obviously, underweighting technology was a big pain, and you overweighted energy, which was up 3.5% per year.

- So how would you say TQQQ would have done during this period? - Probably not so bad. Yeah, it depends when you bought it. It did bad after you bought it. So my biggest problem with this strategy, so it underperformed, but my biggest problem with this strategy is it's just needlessly complex.

I prefer simplicity in all things investing. So owning an S&P 500 index fund is simple. They do the rebalancing for you when new companies come in. You don't have to worry about holding 11 funds. You don't have to worry about adding a fund if they add another sector for some reason, and maybe they will at some point.

Even if the Equal Weight Strategy outperformed in a back test, I'm not sure it would be worth the hassle. And if you wanted to break free from market cap weighting for whatever reason, there's already a way to do that in the Equal Weight S&P 500, ticker RSP. There's an ETF for that.

So I actually calculated the returns for our Equal Weight Strategy that Sam asked for, the S&P 500, and then the Equal Weight S&P 500, which equal weights by stock, not by sector. So John, fill this next chart up. So this is the three various, and I did it over various periods.

I did the 2008 to 2023, I did the 2010s, and I did the 2020 to 2023 timeframe. And the S&P 500 actually outperformed over all three timeframes. It was really hard to beat because market cap weighting did so well. The Equal Weighted Sector Strategy actually outperformed in the 2020s, but not the Equal Weight S&P outperformed in the 2010s.

So, I don't know, it kind of, I just, there's going to be a time where the S&P 500 underperforms in Equal Weight Strategy because value or high quality or some other sector or some other strategy does well. But I think there's way easier ways to break the market cap structure than trying to equate all the sectors and making your investing strategy needlessly complex.

Invest in small caps or value or high quality or dividend stocks or some other non-market cap related to factor strategy. And when the S&P underperforms or tech underperforms, it's going to do better. You don't have to go back that far. So, John, for the last chart up, this is the early 2000s bull market before the 2008 crash.

Equal Weight outperformed the S&P by quite a bit. It was up 97% from when this strategy started in 2003 through the end of 2007 versus the 74% gain for the S&P. So, the Equal Weight Strategy will outperform at some point. I just think the proliferation of ETFs makes it easier than ever to gain exposure to different types of stocks.

So, I don't think you would want to necessarily try to outdo the S&P 500, which is pretty darn tough to beat as it is. So, I just wouldn't get too cute with these portfolio strategies and don't make it more complicated than it has to be. If you want to break the market cap, do it a simpler way with another ETF, not trying to do it yourself.

- I feel like a lot of these things, though, to come down to people that just enjoy doing this stuff. So, the question of like, is the juice worth the squeeze? Maybe not, but like, if you're just really into the market and you enjoy micromanaging every aspect of your portfolio, then, you know, okay, that's you do you.

But like, yeah, you might not outperform or it might be not enough to really-- - Well, at the very least, find a back test that looks good. Most back tests don't look as good in forward tests, but at least find a back test that outperforms so you can lie to yourself about the fact that you think it'll outperform in the future.

It probably won't, but you can tell yourself it will. - It's true, yeah. - All right, next question. - Okay, and that question was from Sam, by the way. So, up next, we have, let's see, who's this one from? This one's from TJ. I'm thinking about investing in Bitcoin, but the more I research it, the more speculative it sounds.

Worse, most of the Bitcoin proponents are very evasive when asked about Bitcoin, what Bitcoin does and what the future holds. People say Bitcoin is a store of value, but where does the value come from since the supply is limited and it doesn't produce anything? The only value seems to be, and they're using a lot of quotes here for people just listening, the only value seems to be the expanding size of money that more and more people are pulling.

Isn't this the same as two-up mania, or is the electricity cost of mining Bitcoin every time people transact calculated and added as value? And maybe just explain the two-up mania reference they make there. - First of all, my six-year-old daughter just kind of learned that if you put something in quotes, it means you're being sarcastic, so she does it all the time to me now.

She's like the little class clown of the group, and she goes around all the time, oh, it was an accident, and she puts quotes on everything. I don't think she quite gets it all, but. - Good for her, I like that. - Okay, the two-up mania thing was, and a lot of people compared Bitcoin to this, it's just these tulip bulbs in the 1700s in the Netherlands went crazy for some reason, the prices went up and it got to this fever pitch.

People tried to debunk that one later, saying it wasn't really as bad as they thought 'cause it was in a few of the early bubble books, but it was essentially just like, listen, human psychology and the herd mentality caused this thing that has no intrinsic value to go up a lot, and people compared crypto to it because there's nothing really backing it.

I have a love-hate relationship with Bitcoin and crypto. I'll admit, I didn't really pay much attention to it 'til 2016, 2017, and it really started when everyone else did, kind of. I just didn't get it. All these people were talking about how it was gonna change the world, but the concept didn't make sense to me.

I read the white paper. That didn't help. It was frustrating 'cause to me there was no there there. Like, why do we need this? What's the point? And so I just bought some because I was sick of hearing people talk about how great it was gonna be, and I think I bought it at like, I don't know, $3,000 or $4,000.

I wish I could say that it's the best trade I've ever made, but I didn't put nearly enough money in for it to matter that much. I put some more money in since then, and my whole thesis has been I'm gonna buy and hold it forever and just leave it alone, or until it hits 150K, then I'll sell, maybe.

But part of the reason I bought it was curiosity, and part of it was FOMO, and part of it was that all these evangelists for it just were, I just didn't want them to get rich and not me. It's the only FOMO trade I've ever really made, and the strange thing is, all of these evangelists that started out in 2017 and before then, they were wrong about what they were predicting.

They were saying, the only thing they were right about is the price would go up, but they were saying, listen, the Fed, this is a continuation of the 2008 crisis, and we're gonna take down the Fed and the financial system, and Bitcoin's gonna take it over, and the dollar is done, and the government's gonna cause hyperinflation, and then it was more like, I'm bullish on blockchain, not Bitcoin, right?

We're gonna tokenize the world, tokenize everything, everything's gonna be a token. - That was the phrase. That's what you said if you wanted to sound smart. - Yeah, you tokenize, we're gonna tokenize your house, we're gonna tokenize your shoes and your car, and then it was decentralization, and then it turned into a macro hedge, and it's gonna hedge against hyperinflation and inflation in the Fed, and then it's, crypto's gonna take over the financial system, all the trading and settlement and banking, and now Bitcoin is part of the financial system as an ETF.

So we went from decentralization back to centralization, which kind of was necessary the whole time if it really wanted to get big enough. You can't do this without the finance system. Now it's more seen as this store of value, which TJ is asking about, something akin to millennial or Gen Z gold, right?

And I think this is probably actually the best narrative and the one that makes the most sense to me. Honestly, I think the fact that the narratives have shifted over time and this asset class won't die is probably one of the biggest and best parts of it. Like, I think that's actually a good thing that it's continued to survive all this stuff.

So the way to think about the store of value, gold is a store, gold has nothing backing it, it's just a shiny little rock. But the quote I've always heard is that back when Jesus roamed the earth, you could, for an ounce of gold, you could buy a fine men's suit.

And you can do the same thing today. - What did a men's suit look like back then? - It had to be a robe with like a rope tied around it, right? That was a pair of Tevas I think they wore. And I think it's the same thing with Bitcoin.

Bitcoin is the digital version of that. And the best explanation I heard when I still didn't quite understand it, first of all, Bitcoin or crypto is an incentive system, right, it's incentivizing these people to go on their computers and put these formulas in to get paid to keep the system running.

But if I handed you, Duncan, a $20 bill, and you took it from me, there's no financial intermediary involved in that transaction, right? I can hand you a $20 bill for some reason, just 'cause you're a nice guy. Here, Duncan, take this $20 bill, go buy another hat for your collection.

Where do you keep 'em all, by the way? Do you have like a whole closet for your hats? - I mean, my wife, it drives her crazy. They're everywhere. - Okay, that's me with shoes. But crypto is like the ability to give someone $20 on the internet without having a financial intermediary there.

And there's kind of an intermediary, but not like a bank or financial institution. That's the best explanation I've heard of Bitcoin. So I think in some ways, it's a religion. In some ways, it's a call option on technology in the future and having a digital currency, a digital way to transfer money.

There's very few people in the actual crypto space that I would trust. Most of them work for traditional financial institutions. Those are the ones that I trust more. But I mean, the fact that these narratives are constantly evolving, I can see how that's annoying. I don't think that's a reason for you to or to not invest in this.

I think there's a lot of really, there's a lot of charlatans in the crypto space, but there's also a lot of marketers and evangelists. And I think that's just part of the, and if you think that's annoying, that's fine, but it's probably actually a good thing that there's so many people who just will never, literally never sell this asset.

Do you need Bitcoin or any other crypto asset to succeed financially? I don't think so, but can it play a role as this new asset class with different capabilities and parameters? Yeah, I think so. I just think you have to go into it with your eyes wide open and not expect it to be some miracle cure as like a macro hedge or a savior to the financial system.

I do think that millennial gold is probably a good way to think about it. The problem is the emotions in the asset are amplified, not only because of the religious aspect, but it trades 24/7. It's super volatile. It has a couple of 1987 crashes every year or something, but it also could go up 20% in a day.

It has these wild swings. It's not the kind of asset I would ever push on anyone, but I think for certain personality types, it makes sense. Probably younger people more than older people, I would say. That may be a stereotype, but I think it just depends on your emotional makeup as an investor.

And I was where TJ is five or six years ago, and I invested in it 'cause I got so annoyed. So I think you have to figure out what's gonna make you regret more. Like this thing goes to 100,000 and you're not in it, and you go, I still don't get it, but why is it doubling?

Or you put some money in and it goes from 50 to 25, and you go, ah, I'm an idiot. Why don't I believe them? I think that's the regret minimization framework you have to think about. And it could do both of those things this year. It could go to 100 and back to 25, and who knows?

I think those people that you mentioned, kind of charlatans, but also the shameless promoters of it, I think they've done more harm than good to the perception of it, though. It's immediately, it turns me off as soon as I see a bunch of people pumping Bitcoin, pumping crypto. It really kind of turns me off.

- Those are the people that-- - Whereas I'm interested in it by nature. I find it very interesting, but those people really turn me off to it. - Yeah, and those are the people that, those are the reason that when it does crash, people dance on the grave of it all the time because they don't like the, you know, have fun staying poor and all that stuff, which is, yeah, which is really, hurts the case of it.

So I actually think the fact that it's getting into the financial, the traditional financial system is probably a good thing. That it's like the adults are here, finally. I think it's a positive, so. - I have a question about that. I see everyone talking about, and you and Michael mentioned this on Animal Spirits this week, but everyone's talking about like, how is the price not gonna go up when they have to start buying for all these ETFs?

I mean, that's a legitimate question, right? How would it not go up because of that? Is there like a case where it doesn't go up? - Well, if every, I mean, the price has gone up, what, was it up 150% in 2020? - So it's already priced in, basically, you could, that would be the case.

- That'd be the argument. I don't know if it is, but that'd be the argument that some people would have to make is, how much do, does the market expect there's gonna be $2 billion in this, or 10 billion? Or that's like, does it go over expectation? That's how markets work in the short term.

Is it better than expected or worse than expected? That's what we have to figure out. - Also, lastly, I'll say, I find the, when people freak out about the security aspect of it, it kind of makes me laugh because I'm like, have you ever heard of cash? Like, that's the whole reason people rob people for cash, and that kind of thing.

- Yes. - Like, cash is kind of no different in that regard, in my opinion, but yeah. - Yes, yeah, the good and bad. Maybe it's easier to be a bad actor with this, but yeah, I think there's gonna be bad actors regardless. - Yeah, in some ways, for sure, yeah.

- Yeah, all right, next question. - Okay, so up next, we have a question from Riley. "I discussed Roth IRA contributions with my CPA, "and he mentioned that his firm, which is also an RIA, "could potentially reduce my tax payments "if I transfer my investments to them. "I'm unsure about having my accountant "handle my investments, as it might seem "like he's taking on too much.

"I'm questioning whether he can excel "as both a tax expert and a financial planning expert, "simultaneously. "I don't want to criticize Bill Sweet "if this is a common practice, "but I'm curious about your opinion. "Does this raise any concerns?" - Okay, ask for Bill Sweet by name, and he shall appear like a magic tax genie out of a bottle.

- Hey, Bill. If you say my name three times, they let me out of my cage. - Oh my God. All right, so Bill, we do have a tax practice at Ritholtz Wealth now. We didn't have one before. - We did. - We do what most of our clients love, and actually, we mentioned this on Animal Spirits this week.

We have so much demand from clients that we actually need help. So if you're a tax nerd who wants to work with Mr. Bill Sweet, you have to get a Roth tattoo on your back. - It's true. - Not as big as him. You can get it smaller if you want, just your shoulder blade.

But we are hiring if you're a person who wants to work on the RIA side of things in the tax practice. So what do you think, and is there a difference between I have a CPA who says they can manage investments, or I have an RIA who says they also have CPAs?

Is there a difference there, or do you think those are kind of the same thing? And how do you go about evaluating the synergies involved in having someone do investments and tax together? - Yeah, Riley, great question. I would put Ben, Bill Artzaronian, who's the gentleman who runs RDBM Tax, or Internal Tax Practice, as the case study of how we can get this right.

So I would posit him as evidence that a CPA can be a great financial planner. Bill's also a CFP. He's a triple threat, too, 'cause he gets to the hole every time on the basketball court. He's got a great drive and rebounds like Robin. But I think, like anything else, Ben, it depends.

That's a sad and unfortunate answer. And my observation in investments and tax is that people hate paying taxes more than they like making money, right? So if you're a financial planner, an advisor, a tax person who can deliver value to your client, above and beyond your average Joe, and you can get them to stick to our portfolio, I think it's perfectly acceptable for your tax gentleman or lady to handle an investment portfolio as well.

However, where it'd be a concern for me are two areas. Number one would be a service model. Is this somebody who's doing tax work primarily and they're trying to bolt on investments or trying to bolt on mutual funds on top of that? That, to me, would probably be no.

Is this a serious thing or is it an add-on to the business? And I think, Ben, the way you can tell is this a once-a-time meeting that we're gonna meet around April 15th or so to talk about taxes and investments together? That's probably an indication you're not gonna get ongoing financial planning investment management services.

However, Ben, my observation would be if you have an investment person who's gonna meet with you, set up a schedule, 12/4/2, is Ritholtz Wealthway, and we're gonna meet throughout the year and talk about how to practically save me money in taxes, that, to me, reads like somebody who can handle their business.

And then if they demonstrate a proficiency in tax, that would be somebody who I'd consider investing in as well. - And the thing we've heard from clients is, listen, I have a great CPA, but they might not understand the rest of my whole financial plan and what I'm trying to do and what's going on in my investments.

And they look at this stuff once a year, and that's not good enough to do planning and figuring out what should I do throughout the year and what lever should I pull. And that's the idea of the synergies involved here. Sorry for the buzzword. - Ooh, yeah, that hurts.

That stung me. But, Ben, I would argue that the difference is, for most of the accounting industry, for most of the tax industry, they are driving, look at the rear view mirror. You're meeting them in January, February, March, and they're talking about what happened last year. The tell for me is whether your CPA is talking about this year.

Hey, let's talk about some charitable planning. Let's think about a Roth conversion coming up in the future. I noticed that you had a lot of capital gains distribution from this actively traded mutual fund or Oatly stock. We've got some capital losses there. Sorry, Duncan, it hurts. Let's loss harvest.

That, to me, would be the indicator that you're dealing with somebody who's gonna handle this correctly. - And do you agree with the way that they manage money? Does it make sense to you? Are you comfortable with the way that they manage money and their process? If you're comfortable with them doing your taxes, maybe it makes sense.

But I would make sure I get a holistic view of how are you gonna do this? What's the process look like? What's the communication going to be? But for the right practice, it certainly makes your life easier. I think it should. - What's the service model, too? Are they getting a commission for a sale?

That I would run out the door from. Is this an ongoing relationship that they're gonna be managing your assets as an investment fiduciary? Like Ritt Holtz Wealth Management, I'm a company man. That's what I would look for. Incentives matter, Ben. They drive behavior. And that's what I'd be looking to screen out.

- But yeah, to your point, if you're someone who's managing a portfolio and you can help people save money in your taxes and you're doing it the right way, that's a client for life. - Amen, amen. - 'Cause people hate the tax stuff. They hate it. - And so if you can rebound on the basketball court, too, you've got Bill Arts, and you got a job here at Ritt Holtz Wealth.

So let's do it. - But yeah, and I think the first sign is looking at something that is in your financial plan or your portfolio or your taxes that there was a mistake on in the past. And that's the kind of stuff that people just love to hear. Like, hey, we found that you weren't doing this in the past.

Maybe someone misses. That's the kind of stuff that you want to see that's like a positive, what are they called? What's the opposite of a red flag, a green flag? - Yeah, a green flag, yeah. - Checkered flag? - Yeah, yeah, let's go. - All right, next question. - Okay, up next we have, I've changed my stance on mortgages over time.

Before 2022, I was adamant about not paying it off again, even telling my friends that paying off my previous M was a mistake, especially in a low-rate environment. Now that rates have soared, I've had a change of heart. The interest payments have become much more significant, and I doubt I can consistently outperform an 8% annual return.

Living in a high-tax state, I have a relatively straightforward tax situation, which often leads me to choose the standard deduction over itemizing. This means the mortgage tax deduction isn't as advantageous anymore. We'll have to wait and see how it plays out in the coming years as it may expire or get extended.

I'm interested in hearing Bill's perspective on this. - All right, ask for my name again. - Oh, do I see a hand-drawn chart? - Bill, I think you were the one who guided, did you do another hand-drawn chart? - No, I didn't, I didn't, I let him down today.

- I think you were one of the voices that really guided me on this a few years ago. We had a conversation, and you told me, I may never pay off my mortgage. And I, 'cause I had a 15-year mortgage, and I thought, what am I doing? Why am I doing this, especially with a rate so low?

And I refinanced back to a 30 at a 3% mortgage or whatever. - You're welcome, by the way. - Yes, but it made a lot of sense to me. Like, why the hurry? Obviously, I think that calculus changes a bit when we're talking about 8%, but how should taxes fit into the equation here, regardless of when you're paying it off?

'Cause I do think, yeah, if you have a 3%, if you take inflation away and the tax break, I mean, I don't know, you're paying nothing, essentially, on your mortgage, after. - I wouldn't say nothing. Yeah, there's still some frictions, but let's just start with first principles, Ben. Like, would it make sense to pay off an 8% mortgage faster than a 3% mortgage?

Like, you don't need to have a tax program at your access to do the math there. John, can we show-- - Yeah, that's easy. - Can we show a quick chart? Cumulative mortgage payments on a $300,000 loan, which, again, if you're putting 20% down, that's probably a $400,000 house or so.

30-year fixed, you're looking at an extra $300,000 of mortgage interest. And the way this works, it's inverse compounding, right? That something that is compounding debt, paying it 5% differential, like, that's the gap. And it works similarly to compound interest, except it's compound debt, right? So it's the same principle, just in reverse.

John, can we take the chart off? - I know this in theory, but seeing that as a chart is insane. - Yes, and that was, you know, December, 2019, December, 2012, and then there was another dip, Duncan, in 2019. But yeah, seeing it in real numbers, that's the difference between a $1,200 mortgage and a $2,000 mortgage, right?

It's $800 every year for 30 years. These things add up on long timeframes, right? So that's the math there. And yeah, 100%. So, but what the listener is getting at is for a standard deduction, just to put that into context, guys, a standard deduction in 2012 is almost $15,000.

And so that means that your mortgage interest, real estate taxes, and charitable contributions should have to exceed $15,000 for a single filer, or almost $30,000 joint, in order for you to get a dollar of tax benefits. - Which is probably easier to do at 8%, though, than it is at three.

- At 8%, it's a little bit easier hurdle to cross. However, again, I think the market has a lot to do with this, too. Ben, what is the risk-free rate right now? It's somewhere around 5%, right? Maybe 4.5, maybe it's 5.5, somewhere in that neighborhood. I haven't checked the US Treasury rates today.

But at that rate, yes, you're losing money every year relative to what you can earn in cash. And so I think at an interest rate of that high, 7.5, 8%, it makes sense, Ben, to inverse the thinking that we had back in 2012 to 2019, which was, hey, this 3% mortgage is an asset, I actually wanna hold onto this for longer time periods, because the investment universe has shifted.

And when rates shift as much as they have in the last two years, your thinking should shift, too. - And one of the questions we've been asked from people now that mortgage rates have come off of 8% is when do I refinance? So that's something we'll get into in a future show, but people are asking that as well, 'cause you showed the 30-year chart.

Hopefully, people that have an 8% mortgage aren't gonna be paying that the rest of their life, they'll be able to refinance, and that would be part of the equation, too. And then maybe you can rethink, if you're paying extra now for 8%, that's great, but maybe you refinance down to 5% or 6%, and then you can rethink this equation.

- Exactly, and that was the process, Ben, basically for my entire lifetime. Ben, quick trivia question, unprompted. What was the all-time mortgage high in the United States for a 30-year fixed loan? Any idea, guess? - 18, did it get to 18 or so? - Duncan, what do you think?

What was the high? In 1981 or something? - 15? - Ben is on freakin' point. October 1981, 18.6% was the all-time 30-year interest rate high. - But houses costed $1,600. - Well, they were giving away for free, right, to you guys coming home from the war. But no, from Grenada, I guess, in 1981.

But no, but again, yes, it really, really sucks to see that big of a shift, but however, things have been quote-unquote worse in history. Yes, mortgage prices are much lower, but Ben, that was a pretty gnarly inflationary environment coming out of the 1970s. Things could always get worse. So if you don't like the current interest rate environment, just wait.

- Yes. - I mean, is there any reason to think that we could never see that again? Like, would there be government intervention? Like, would they prevent that from happening? - I don't know. That's a great question. - The ghost of Paul Volcker comes back, and inflation is at 15%.

- Yeah, one thing, if I was an economist and I had some time to write a paper, I would take a look at the relationship between population growth and inflation rates. That's an interesting hypothesis. But no, if you kind of study Duncan, this stuff over like 6,000 years or human history, I mean, mortgage rates have hovered between 3% to 6%.

Right, this is not crazy. So would that be low? Yeah, probably. But are we gonna see 18% any time soon? I really doubt that. - Are Bill and I ever going to get rid of our 3% mortgages? No. - Well, in 20, 26 and a half years. - I guess if your savings account paid 15%, then 18% doesn't sound that bad.

- And that was the case. Yeah, look at the U.S. Treasury rate in 1981 as well. Great question, though. Great topic. - Our final question is a challenge to Bill Sweet's manhood. (laughs) - All right, this one's from Scott. I was listening to episode 86. Wow, thanks for listening.

We're now on 106. I was listening to episode 86, and Bill Sweet mentioned the possibility of taking early withdrawals from retirement accounts penalty-free if following the 72(t) rules. One hair to split is that he said you have to be 55. But I didn't think 72(t) had any age restrictions on when you could start taking withdrawals.

I'd appreciate clarification, because I'm considering an early retirement within the next few years at around age 50. And I was considering this option. I've never heard of 72(t), so you gotta, that sounds like a Star Wars thing. - I think Bill talked about it before. No not to brags this week, but we do have a nerd alert question of the week.

But I think it probably makes sense, 'cause we do have a lot of people who ask, people who want to retire in their 50s. That is a thing. - Yeah. - So what do we think, Bill? - Well, I just added Scott to my list. Sam Bankrentfried was at the top.

Vlad Sheetan is next. And Scott, I'm coming for you after him. But no, great question. But Scott, you got me. Guilty as charged. I was talking a little bit fast and loose with the tax code. I inadvertently confused 72(t) with the Rule of 55. The Rule of 55 kicks in if you retire at 55 or later.

The Rule of 72(t) is a slightly different game. And to describe it, guys, for those listening at home, 72(t) is a separate but equal periodic payments. And anybody at any age can turn these things on. But there's a huge catch to them. That's once you turn on a SEP distribution, thou shalt not turn it off until age 59 1/2 or a minimum of five years, whichever is longer.

So if you start these things in your 30s, you're signing up for 30 years, 30 years of distributions. The game, the goal, Ben, of 72(t) distribution is to avoid the 10% early distribution penalty. That's the goal. That's what people are trying to achieve. - So the whole thing about getting them early is, okay, fine, we're not going to charge you a penalty, but you still are going to have to pay the taxes on this stuff.

- Pay the tax. And then again, you can't turn it off. That's the key, right? - Right, you have to stay with it. It's almost like an RMD thing that starts early. - Exactly, and so if you turn them off at any point, you have to go back and pay the penalty, the extra 10% going back to the start.

- So Scott's going to retire around 50. - Yeah. - He follows this rule of 72, which is what? Do you have to fill out some form or something? - 72(t), you basically make an election on a tax form, to the best of my understanding. You tell your IRA custodian, hey, this is what I'm doing.

And then it's up to you to follow up and make that distribution every year. - But what are the required minimum distributions? Is it its own schedule? - I'm so glad you asked. So there's actually three different criteria to calculate them. But just to make it simple for listeners, it's somewhere between three and 6% of distributions at age 50.

So it depends on the age and it depends on the prevailing interest rate. Today, the AFR, 130% of midterm AFR is 5.4%. So at that interest rate for Scott at age 50, he could sign up for either $3,000 a year or $6,000 a year per $100,000 in an IRA.

So if we have a small amount of retirement balance, it probably isn't enough to live on, right? $500 a month per 100K. But at $1,060,000 a year, that's not nothing, right? That's right around the medium income for a household today. So that's not terrible. It's not a bad option.

And then one quick planning point, you can actually change the method once. So you can dial down from a $6,000 or $3,000 or three to six. There's some really funky complex rules on how that works. But ultimately, it's an interesting option for people looking to access retirement funds early.

My opinion, not as flexible as rule 55. And that's why, again, Brain Soup got him a little bit confused on the show. Credit to you, Bill, for, yep, he gotcha. Hey, when you're wrong, you own it, you fix it, you move on down the road. Well, it's part of the fun of all this tax stuff.

You know, they keep it convoluted, so it's kind of like a game. There's a lot of numbers involved. And it changes every year, yeah. So back to hiring, for me, the type of person that this work appeals to, people who like solving complex puzzles, except every once in a while, the IRS, the SEC, whoever, they just come and they shake the whole board up, right?

So you have to start all over again, and they change the picture. Got to keep it fresh. Exactly, exactly. But it is a challenge, it's a fun, and I'm glad to be working with you guys. I think it is kind of funny, though. Retiring in your 50s now seems early.

I feel like our kids are going to live till they're 100 or something. So I feel like retiring in your 60s is going to be considered early at some point. It's going to shift. Is that the Rick Edelman thing? People are going to go back to school, like in their 50s and 60s, and kind of reboot their career?

That's why they need Bitcoin. Because they're going to wish to be 100. This is not investment advice, do you know that? Not investment advice, a jerk. All right. Yeah, thanks, Tim. The Bitcoin explainer, yeah, that was a wild-- I do have a follow-up on that, Ben, I meant to ask you.

Are you really still holding from $3,000? Yes, but again, I didn't put that much money in then. I mean, you're a hodler. I haven't sold-- anything I put in, I haven't sold. I don't know if you knew that, but you're a hodler. You're a hodler, Ben. I guess so.

Diamond eyes or diamond hands, something like that? I sold too much in the $20,000 range. Listen, I probably should have sold before and rebalanced it a little bit. But I did so much tax-loss harvesting when it was at $14 or $15, now that I'm sitting on huge gains, so now I don't want to sell.

I'm still laughing from the-- Because it's in a taxable account. I'm still laughing from the free show, Duncan leaving his Oatly stock to Ben at his own timely passing. Yeah, well, it's not happening now. Maybe Ben can leave you. I know it's not safe with Ben. Bill's going to write a will out, and we're going to have you sign it or-- yeah.

Cost bases step up on death, but I don't wish that for any of you guys. So let's keep this man together. All right, so last week, we tried to record early and put a different time. We didn't like it. Now we're going at a different time for production schedule wise.

We're going 50 minutes early, so thanks to everyone who showed up live, as always. We'll be going 115 Eastern to mix it up with the regulars. If anyone wants to hop in here in the live chat, we'd appreciate it. Yep, keep sending those questions. Askthecompoundshow@gmail.com. Leave us a comment on YouTube.

Send us an email. And check out Rocket Money. Rocket Money, yep. And we'll see you next week. I'll take you off my list, Scott. See you, everyone.