Welcome back to Portfolio Rescue. We always appreciate your comments, questions, feedback. Email us, askthecompoundshow@gmail.com. Duncan, yesterday you and I were talking offline. We both have some farming in our lineage. I think you said you have a beard, so that's close enough. But my great uncle owned a farm. He passed that down to my Uncle Patrick, who's actually the namesake of my middle name.

That's my middle name, Patrick. He still owns and runs this farm. He used to have a bunch of animals, cows, pigs, chickens, that sort of stuff. Now it's all fruits and vegetables. One thing I learned, he has 58 different varieties of apple trees on his farm, which I didn't even realize that there was that many.

Did not know that. I actually worked on the farm a little bit growing up. Tried to earn my keep. One of the oldest professions on the planet. Our sponsor today, AcreTrader, allows you to invest in farmland across the country. Michael and I like to call them the Zillow of farmland, because they're trying to take all these different factors and figure out water and soil and allow it to be better analyzed.

They say one of the benefits of investing in farmland is that it has little correlation with stocks and bonds, but it has very positive correlation to inflation. So, it's something of an inflation hedge. If you think about it, this makes sense. There's direct correlation between farmland, commodities, food prices, all that stuff.

When prices are going up, it would make sense that farmland would do well. AcreTrader makes it simple to invest in professionally-reviewed farmland and timberland. Visit AcreTrader.com to learn more and to understand the risks involved in investing in farmland. Please go to AcreTrader.com/company/terms. Duncan, welcome back. You were out last week.

Can I just say a quick thing about the sponsorship thing? Let's do it. You don't have to go do anything. Just sending traffic to these sites, it makes us look good. That's all you have to do. Click the link. You don't even have to do anything. Just want to throw it out there.

Okay. Nice plug. You don't have to do anything. Just click on it. We missed you last week, Duncan. You were under the weather. Last week's show, we talked about a reader of my blog that I'd become friends with who recently passed away. He had this strategy for asset allocation and portfolio withdrawals, and he called it the four-year rule.

We had dozens and dozens of people email in and say, "Hey, I'd like to get more information on this four-year plan." If anyone wants it, they can feel free to email us. I'd send it to a bunch of people. But I think this is just a good reminder, especially during a bear market, that everyone needs a plan.

And I think even a bad plan or a suboptimal plan is better than no plan at all, because this is the time you realize how important it is to understand what it is you're doing. We get all these questions all the time, like, "Should I buy this? Should I sell this?

Should I get rid of these losses?" And I think the biggest problem for most people is that they go into a lot of their investments without having a plan in place. Obviously, there's going to always be unforeseen circumstances in your life, in the markets, whatever, in the economy. But just having a plan, I think, can just make this a little bit easier to deal with in the stomach, even when we have these bad times.

Yeah. I think that was a really good post. I was looking at it, and I saw that the person -- I can't think of her name right now, but they had actually responded really, really substantially in a comment on your site back when you posted it. That was back when people actually interacted in the comments and stuff?

Yeah. I don't have comments anymore. I turned them off. It was too much. But, yeah. Feel free to leave one in the YouTube. So, all right. Let's get to our first question. Okay. Actually, I'm going to have you stall for one second, because I just noticed an issue. See, Duncan needs a plan for the show, because John, our behind-the-scenes producer, is not here today.

So, Duncan's flying solo. And we've had some technical difficulties today, but we're going to get through it. And if we can't show the first question, we'll just read it. Yeah. Believe it or not, it's actually a lot to do by yourself. Yeah. Okay. No, we got it now. So, here we go.

We are ready to go. Question one. "I'm 24 years old and have been putting money into stocks every two weeks for about 18 months now. I know it's always a good idea to diversify between stocks and bonds, but right now, I'm all in stocks. As I'm young, I know that in the long run, the bear market is a good thing for young people like me.

With the uncertainty of the market right now, do you think I should buy a couple of bonds, even if it's only $1,500 worth? Or would it be better to buy some of these stocks that are down significantly, and may list a couple of tickers, and seem almost certain to bounce back at some point, even if not for a while?" All right.

Good on you. Yeah, good on you. 24 years old, dollar-cost averaging, invests every two weeks. That's a great plan for someone that age. Here's the thing. A lot of investors, investors approach the markets from the standpoint of, "What can I put my money in that can earn the highest rate of return?" Obviously, there's nothing wrong with trying to earn a high rate of return.

That's the whole point of investing in the first place. But there are tons of other factors involved in trying to allocate what that next dollar is going to do for you. There's this old saying in personal finance that when it comes to budgeting, you should give every dollar in your budget a job.

Meaning, when you get your paycheck, everything should be allocated to something. Whether it's rent, car payments, student loan, utilities, phone, Netflix, gym, savings, whatever. Everything should have a job and go to its rightful place. I think investing should have a similar rule of thumb. And the main determinants are usually your time horizon and your goals.

So, what's the point of this money in the first place? Are you saving for retirement? Is this going to be for a down payment for a house, a wedding, emergency fund? Is it going to go in a tax-deferred retirement account? Are you putting this in a brokerage account? When do you need to spend the money?

So, it's not just what's the best use of this capital. It's what's the best use of this capital, given my circumstances, constraints, and goals, and then time horizon. So, I think once you begin looking at your investments through this personal lens, rather than a market lens, your job as an allocator becomes a lot easier.

It's not just, "Well, what's the best risk-adjusted return between stocks and bonds right now over the next six to nine months?" You don't have to be a person on CNBC or a hedge fund manager that manages money this way in terms of, "What's the best risk-adjusted return right now?" It's, "What do you want to do with your money?

How long do you want to invest it for? And what's the purpose of the investment in the first place?" And only once you have that figured out, then you can figure out where to invest it. And the great thing is, as an individual, you don't have these constraints of being marked against some benchmark, or risk-adjusted returns, or alpha, or whatever it is.

That's a constraint individuals don't have. So, I would not try to make it so difficult in terms of, "What's the best thing right now over the next three to six to 12 months?" It's, "What's my time horizon? What's my risk profile? And then, what do I do with those dollars once I have that stuff figured out?" O'Reilly: Yeah, that sounds like good advice.

I mean, they name some massive companies as potential stocks that they could invest in. I guess that's better than it being a bunch of former SPACs or something. Because, some of those might not come back, right? Whereas, you think the big ones, the blue chips, are going to come back at some point.

Lewis: And they could, but I wouldn't say they're certain to bounce back. There are stocks like, GE was the biggest stock on the planet for decades. O'Reilly: With that dividend. Lewis: Yeah. And that stock, since the turn of the century, has just gotten crushed. I think it's down 70-80%.

And yeah, the dividend gets cut. And so, yeah, you'd assume those stocks are pretty safe. But, we don't know for sure. It's not certain. O'Reilly: Right. Lewis: Alright, let's do another one. O'Reilly: Up next, we have a question from Tanya. "I've been minimally invested in bonds as a long-term investor, but if I can get 5% or more interest, I'd love to allocate funds and lock that in for as long as possible.

I'm looking at corporate investment grade and new issues, and they largely seem to be callable in a year. While I would be happy if rates came down and I got my principal back in a year, I'd also be happy holding them if they're not called and I keep earning the less competitive but acceptable coupon.

I'm anticipating bond index ETFs won't compete on yield over the next year with their current basket full of low coupon bonds until they mature and are replaced over time. Can you speak to the intelligence of buying individual bonds in today's market if an investor feels investment grade has acceptable credit risk and wants competitive yield short, or more ideally long-term, versus dividend or bond ETFs?" Lewis: Okay.

As someone who has been writing about finance for a long time, I know there are always certain topics that people have very strong opinions about. Paying down the mortgage versus investing the money, the CAPE ratio, the Federal Reserve, of course, passive versus active, crypto, all these things. You write or talk about these things, and people have very strong views.

I'm of the opinion that most financial decisions exist in a state of gray. There are very few black and white decisions. Most of it is gray, but a lot of people have very strong opinions. One of the ones that surprise me the most is that people have very, very strong opinions about buying individual bonds versus buying bond funds.

I wrote a piece about this in 2014, and my inbox was full of people saying, "You're an idiot," or, "You're right," or, "You're wrong," and people have very strong opinions. Let me lay out the case for and against owning individual bonds. Here's the thing right now. People think, "I buy an individual bond, and I hold it to maturity, so I get the regular payments of income every six months or a year, however, depending on the bond, determined by that initial yield, and then at maturity, I receive my principal back," which makes sense because a bond is a debt instrument, right?

You're being paid back your original, so let's say you put $10,000 into a five-year U.S. Treasury bond. The yield's 4%. Every six months, you're going to receive $200, and then in five years' time, you're going to receive that $10,000 back, right? Now, the reason many people like holding individual bonds right now is because interest rates are up, and a lot of people say, "Well, my bond funds are getting crushed.

I'm down 10% or 15% on bonds. If I just held individual bonds, I could just hold to maturity and get my principal back, and I wouldn't have to worry about any of these losses, and so even if rates move up and down in the meantime and my bonds are fluctuating every day when they're getting market-to-market, I still receive that par value at maturity." Now, here's the other side of that.

Now, that makes some people feel really good and warm and fuzzy. Here's the thing. Bond funds literally hold individual bond securities that are market-to-market every day. How can a bond, how can a fund of individual bonds securities be any different than you personally holding individual bonds, right? This whole getting your money back at maturity might be a wonderful emotional hedge, but are you really any better off?

When rates go up, the value of all bonds goes down, whether you're holding an individual bond or a bond fund, and while holding to maturity does allow you to get your money back at par, if the environment is higher rates and higher inflation, like it is now, you're going to still be getting back nominal dollars that are worth less at the time of maturity.

So, let's say, for example, you own a bond fund that yields 2%, and then the yields go to 4%, which is basically what happened in a lot of bonds. If the duration of those bonds is five years, you would expect that fund to fall somewhere in the range of like 10% in value.

That's happened to a lot of them. It's not any fun. Now, let's say, okay, I'm going to sell this bond fund, but I'm going to buy all the individual bonds in that fund, all the single issues, and those collectively now yield 4%. Are you really in a better position?

Of course not. You're in the same exact place, right? Now, let's look at the other side. Let's say you own one 2% five-year bond. Rates go to 4% in that one bond. Sure, if you hold it, you get your money back at par, but now you're just earning 2% less than the market return.

So, either way, you're going to be losing money. So, you could sell that bond at a loss and now buy the higher yielding 4% bond, or you could hold it, yielding 2%, get your par back, but then you're earning 2% less than. So, you're losing money either way. This is just how bond pricing works.

There are no free lunches here. So, it's kind of the same thing. And it's a little bit of a pet peeve of mine that people think that holding them is like this holy grail of you don't have any losses, but it's the same thing. Having said all that, there are pros and cons to each approach.

So, if you do hold individual bonds, you can potentially have higher trading fees, because on the bid-ask spread, it's harder. You're not PIMCO. You don't have trillions of dollars of bonds that you're trading. It typically requires more money in terms of minimums, depending on where you're trading. It's much harder to diversify, obviously.

In a bond fund, you can own hundreds or thousands of bonds. If you're buying them on your own, you might need a lot of money to do that. It's much harder to rebalance with single-issue bonds. But there is that peace of mind, if rates do change. Now, it's mostly in your own head, as I explained, but some people need that emotional hedge.

The other thing is, if you own individual bonds, your duration and your maturity is constantly changing. If you own a five-year bond, in a year, that's a four-year bond. In another year, that's a three-year bond. So, your duration and your maturity could be changing. A lot of people might get around this by owning a ladder of bonds to keep that constant, but that's kind of the same thing.

There is much more complexity. Although, the one big positive, I think, besides the hedge of holding to par, is that it's much easier to match your assets with liabilities. If you have something that you know you have to pay in five years, and you buy a five-year bond, you know at par you're going to get that money back.

That's something that you can use to then invest when you need to spend that cash. So, how about holding a bond fund? Bond funds are easier to diversify and rebalance. They're low in minimums. You do have to pay an expense ratio, which you don't have to for individual bonds.

You have professional management trading them, and hopefully getting lower trading fees because of scale. You have that constant maturity and duration, because a lot of bonds are benchmarked, and they'll keep some sort of constant 1-3 year duration, or 3-5 years, or whatever it is. But it does make it harder to match assets with liabilities, unless you own different bond funds that have different types of maturity.

So, obviously, each strategy has its pros and cons. And I didn't even get to the part about callable bonds here, which seems like that 5% yield might not be worth it, because that's just another added level of complexity if they do call the bond and bring it back to you.

But the way I see it, you can get 5% to 6% in most corporate bond ETFs right now. So, I don't know if going to a 5% individual corporate bond really makes sense. I guess that depends on if you really need that emotional hedge. But, again, it probably depends on your tolerance for complexity and then how dependent you are on giving yourself that emotional hedge of holding bonds to maturity.

But again, maybe I'm going to get some more hate mail, but owning individual bonds is not different from owning a basket of individual bonds. It's just like owning a stock ETF is similar to owning individual stocks. Either way, your performance is going to be similar. It could just depend how you can make it through those strategies.

So I have a question as a civilian non-financial professional. How do you even go about buying an individual bond? I don't even know where to begin, other than like high bonds. You can do it at a brokerage. If you have TD Ameritrade or E*TRADE or whatever, you can buy bonds there, but the minimum might be $10,000 or $25,000, depending on the...

So you have to buy it in some... $10,000 is probably the minimum for most places. But you can also go to Treasury Direct, which we've talked about, if you want to buy treasuries straight from the US government. I'm pretty sure there's no fees there. So you can do that.

It's just your minimums might be a little higher than it would be for bond ETFs. But yeah, you can do it. And again, some people really like that peace of mind they get from buying individual bonds. I'm just here to tell you that it's mathematically... You still own bonds either way, whether it's a fund or an individual bond.

Right. Yeah, that makes sense. That was kind of nerdy, but I think it's, I don't know, just a little pet peeve of mine. We've had people write in before asking about being able to buy their own mortgage or stuff like that. People make this super complicated. Again, I think it's funny how people think that it's different.

And again, bonds are driven more by math than the stock market is. But that's also why the movements in interest rates affect the prices of bonds you're going to buy in the future and the ones you hold now. It's not like you can all of a sudden find this bond that's paying more money and you get money back at par at maturity that's going to make you better off.

It's not going to make you better off unless you can actually hold on to the strategy, I guess. Cool. So that sounds pretty definitive. So I like that. I'm putting this one to bed. That's what everyone... If you read a blog post, you say, "This is the definitive post about individual bonds versus bond funds." The only post you ever need to read.

And then people will still be arguing about it in a month. All right, let's move on. Question three is from Aaron. "I adopted my son recently. Being in foster care before adoption means he'll get $400 a month until he turns 18. He's currently two. Plus he gets free college.

What can I do with that money to turn it into a big chunk he'll get when he turns 18?" I honestly didn't know this either. I had to look it up a little bit. I think that it varies by state in terms of... But it sounds like that $400 per month is at a lot of states and also the scholarship piece for free college is a thing for foster care in a lot of states.

So I don't know where Aaron's from. But kudos to you, Aaron. I've talked about this before. My wife and I went... Yeah, congratulations. First and foremost, right? Yeah, congrats. That's awesome. My wife and I went through IVF and it took a long time for that to work. And in the meantime, we went down the adoption path.

And I will say our personal experience, it's not an easy experience. So I give Aaron a lot of credit for going through this and pulling it off because eventually the IVF worked for us. But we went down that path pretty far and it's not easy. So here's the thing.

Your son is two and he gets $400 per month until age 18. So we're talking 16 years of compounding. My first rule here is just do no harm. If we're talking $400 a month, that's $4,800 a year. And that's also what? $77,000 over 16 years, if my math is right there?

That's almost $77,000. That's pretty good. So back of the envelope, if you've got a 5% return on that, we're talking, I don't know, $113,000. If you've got 7%, we're talking over $130k. So that's real money. So unless the system completely falls apart, if you invest this in any sort of diversified portfolio of financial assets that aren't completely insane and some really smart 30-year-old billionaire walks away with them, I think you're gonna be okay.

So my one piece of advice would be just don't try to shoot the moon with this. Don't go like, "You're gonna be offering six figures to your son at age 18?" And that's an amazing gift. So I've talked about this before, but what I do with my three kids is a couple years ago, I opened up just a Lyft off account at Betterment, and I just make monthly contributions to diversified portfolio.

And the account is technically in my name. I didn't want to get fancy because doing a Roth IRA for your child, unfortunately, is not very easy. They have to have some earned income. I think there's some back doorways around it, but I didn't want to go through that. So I just opened an account for myself in Betterment.

Does allowance count as income? Yeah, maybe the two's vary. So I just have a bucket for each of my three kids. I don't know why I'm gonna turn it over whether it's 18 or 21, but there's two reasons for this. One is I save a little bit now, and I can give them a head start when they're adults, and then maybe for their first down payment or their wedding or buying a car or whatever it is when they need money when they first start out.

But I also want to use these accounts to teach them about the power of compounding and dollar cost averaging. So I'm using these as a teaching tool to help them understand the importance of saving and investing. And I'm also trying to incentivize them to save. So I told my daughter when she starts getting money for birthdays and holidays or whatever, she gets $20, and I say, "Hey, if you put that $20 into your investment account, I'm gonna match it dollar for dollar." So you put $20 in, you get $40.

So I've worked on her a little bit. She's putting like 50% of all her cash in there now, which is kind of great. No two and 20. Yeah, I'm not charging fees on that. So I think you could also do like a custodial brokerage account, but I think the best thing you can do is just dollar cost average this into some sort of diversified basket.

Use that money as a learning tool. I was gonna bring him in for the next question, but let's bring our guest on for today, Kevin Young, who is an advisor with us at Ritholtz. Kevin, any other financial planning aspects I'm missing here in terms of taxes or accounts that you could use?

Anything else I'm missing here besides the big building blocks? Yeah, Dave in the comments said, "Don't forget the taxes." Okay. Yeah, that's a good point. I think broadly though, Ben, I'm in total agreement with you. I think do no harm is a great way to put this. Low cost, dollar cost averaging every month, it's gonna be a home run.

Couple of things to think about from a planning perspective. I had never heard of this either. So upon some Googling, it seems like the rules vary state to state. And just make sure that while you might think, "Okay, college is taken care of. I'm all set." Just read the fine print and make sure you know exactly what that means.

Because if it means that it's free as long as they go to a state university and you live in Ohio and your child says, "I don't want to go to Ohio State. I want to go to Michigan," let's say. Nothing wrong with that. Nothing wrong with that. Then you're now in a bind because maybe that tuition is not covered.

So I think the UTMA accounts are a really good way to do it. The taxes piece of it, you do get a little bit of an advantage in that the first $1,100, I believe it is, there is no tax on it, the first $1,100 of gain. So whether that be capital gains or income or distributions from a fund you might invest in, the next $1,100 is taxed at your child's rate, which probably is going to be effectively zero.

I think it's technically 10%, but effectively it's zero. And then over and above that would be at your rate. So there is some tax advantage to that. The other piece is when they do reach age of majority, which it depends the state, it could be as low as 18, as high as 25, there's nothing stopping your child from getting access to that money outside of you basically hiding the account.

But once that child does reach the age of majority, they call whatever custodian you have it at and say, "Cash me out. Send it to my bank account or send me a check." There's nothing stopping them. Yeah. Which is probably why it makes sense to use it as a learning tool as well.

So they understand this is a big responsibility when you get that much money at that age. Exactly. But what it does at that point that just opening a brokerage account in your name and kind of just mentally putting that to the side for your child is if Ben's assumptions are correct, and let's say there's $130,000 in there at 18 or 20, whenever it is, and you want to give that money to your child, you've got gift tax considerations.

Right? So we don't want to eat away at your exemption or as little as possible anyway. So by having the assets in your child's name, that avoids having to technically transfer those assets from you to the child. So a custodial brokerage account might be the best option then? Yeah.

I think that's a good way to go. And the only other consideration, again, with the college piece is if the child doesn't end up going to a school that would qualify for these tuition waivers or grants or however they're worked out, is that would be your student's asset. That would be your child's asset on student aid applications and things of that nature.

So things to keep in mind from a planning perspective, but I think you're in a great position to set your child up for a really great future. Yeah. This was a cool one. I've never heard this before, so this was a neat question. It also made me feel old because I was just thinking like 18.

I feel like maybe they should get it at like 21 or maybe 25. I don't know. You could just hide it. We get a lot of our clients come to us and they'll be 35 years old and say, "My parents just told me about this." So if you can beat the kid to the mailbox every day for the next couple of decades, that's one way to do it, I guess.

That's funny. Let's do another one, Duncan. Okay. Up next, we have a question from Charles. I have ulcerative colitis and know that I may not live as long as most other healthy people, but an online search shows most people of my condition have a normal lifespan of around 75 years.

With new medical breakthroughs coming out every year, how should someone living with an autoimmune disease like me be thinking about life expectancy and how that relates to when we should retire? Is that even a consideration? This is a good one. Okay. Heavy question here. Yeah, heavy question, but a good question.

I mean, death and taxes, right? Something we all have to live with eventually. Duncan, throw out my charts here. This is from Our World in Data. In 1800, the average life expectancy globally was 29 years old. Go ahead to 1950, we're talking global average of about 46 years old.

By 2015, now we're talking 71 years old. That is still a relatively new concept. In the past, most people simply just worked until they died. So, this longevity piece is something that a lot of people have to deal with. Kevin, you've built a lot of financial plans in your career.

Most of the time, you're making an educated guess. You're going to retire at age 65. Based on your health data and family history, you could live to age 87, whatever it is. It sounds like Charles is going to be fine, but if he wants to plan for the potential for health problems and autoimmune disease, how do you even begin to take that into account when building a financial plan in terms of setting your time horizon, how much money you should spend, and how do you go about updating that as you get closer to old age?

Yeah. This is a really good question, one I certainly haven't seen before, but one that we address constantly in financial planning. There's a couple of things that when we're building plans and we're talking to clients about this process, there's a few things we cannot control. One is what the markets are going to do, and two is how long you're going to live.

Whether you have an autoimmune disease or disorder or you think you're going to live to 110 or anywhere in between, that is a piece that we just can't control. My default is I always run plans to age 95. Unless somebody is pounding the table saying, "No, no, no. All four of my grandparents lived to 102.

It's going to be longer," or, "None of my grandparents." Duncan doesn't eat meat and he drinks oat milk, so he's going to live to 115. Yeah. Duncan's going to have a very different portfolio than I will because I very much enjoy meat. Steak is a staple. But regardless of that, we want to be conservative in those assumptions in the sense that we want to assume you're going to live past some given date.

Because the last thing we want to do is plan for you to live to 82 years old and say, "Okay. Well, based on 82 and your withdrawal rate, you only need 5.2% rate of return. Great. Let's build your portfolio that historically should average around 5.2%." Well, what happens if you live an extra decade?

And if you run those projections, the rate of return that we might need might be 6.2%. So ultimately, I think being conservative with the projections on how long your retirement is going to last is a good way to do it. Are you also a little quicker for someone in Charles' situation to say, "But if you're on the fence about a vacation home or a trip or whatever early on in your retirement, go ahead and do it and we'll build that into the plan because who knows what's going to happen." Right.

Right. Yeah. You also, as it's been said, you can't take it with you. So I think there's a book out now that's becoming more and more popular in our circles called, I think it's, forgive me if the title's wrong, but it's basically Dying With Zero. The idea that you can't enjoy this money once you're gone.

And I think for a little bit of an older generation, it was always, "I want to leave my kids and grandkids money after I'm gone." Well, wouldn't you want to enjoy that money or see them enjoy that money instead? And so I think this kind of ties with that and that if you do have things you want to do, to bend your point, build it into a plan and see how it affects things in the long run.

And that's ultimately, I think, going to tell you, "Okay, this is how I should invest." I mean, generally speaking, we know that academically that equities should do better over the long term than almost any other asset class, at least any other common asset class. And so it makes sense that if you're going to have a really long retirement, that you're going to need to be maybe a little bit more equity-based than fixed income-based.

Good. All right, Duncan, last question. Okay. I was just looking at that map again, that map that we shared. If you go back, you can pause and look at each of them a little longer, but it's pretty cool how much that's changed over the years. Yeah. And someone in the comments mentioned a lot of that was infant mortality, but we have now more people over the age of 65, I think, than under the age of 15 or something ridiculous like that.

We've never had a demographic this big live this long before, and just getting longer every year. Okay, go ahead. Okay. So, last but not least, we have a question from Micah. "Looking for some help on how best to structure finances over the next few years. I'm currently working as an analyst at a bank with a relatively average salary.

My wife is a third of the way through a three-year CRNA program. Once she finishes school, our household income will increase by roughly three to four times. At that point, we will both be in our late 20s." Wow, young. "I've been funding our Roths for the last few years, and I recently bumped up my workplace IRA to 10% to take advantage of current market conditions, but we are still taking on a decent amount of loans for her DNAP program.

Obviously, the calculus would include comparing the loan rate to the expected rate of return if I were to prioritize the market, but I was hoping to get your guidance on what to truly prioritize over the next few years. What are some considerations for those expecting an income jump to keep in mind to best set themselves up for the long term?" They're really thinking about everything here.

Yeah, wife is in a nursing program, going to be making more money when she comes out, but she also has the debt to deal with. So, Kevin, with the caveat that there are no right or wrong answers to something like this, how do you help clients think through this type of decision where, "I'm going to be making more money, but I also have more financial responsibilities to deal with as well?" Yeah, I mean, ultimately, this is kind of what you hope for, right?

You're making an investment in education that is going to bump your income up. And so, that's excellent. And clearly, we've got some forward-thinking folks here as far as what to be focusing on. And yeah, there is no right answer. Ultimately, I think personal finances, as you guys have said, as we've said a lot, it is personal.

And so, what exists on a spreadsheet doesn't necessarily, and what makes sense on the spreadsheet may not make sense in your head or your stomach or your heart, right? And so, I have clients that have a 3% mortgage, and they are making extra payments to their mortgage to pay down the principal.

And they've got 20 years left on the mortgage. Well, if we assume that over the next 20 years, the market is going to return more than that 3%, the spreadsheet, the math would suggest, you absolutely don't put more money into that mortgage. You put it in the market. But I also, those same clients say, "I feel better knowing that my debt is being paid down faster.

I don't like debt. It makes me uncomfortable. I want to get out of it as soon as possible." And so, yeah, the math says don't do that. But ultimately, I think the plan that you can live with and the plan that makes you happy, as long as it doesn't derail the goal, is going to be the right answer.

So, if you're somebody who, if you and your wife are people that really are uncomfortable with debt, you can tilt a little bit more of that income towards paying that debt down faster. If it's going to gnaw at you that this money should be invested and getting a higher rate of return, then that's the way to go.

I also give them credit for, they've already been investing in their Roths while she's going to school. He's already, he's still contributing to his plan. My main thing about getting an income bump, if it's a bonus or a jump in income, I like the idea of doing some sort of allocation on it where you say, "I'm going to save 50% of this bonus or this jump in income, and the other 50% I'm going to use for debt repayments or increased savings." And so, some ways you give yourself a bump in standard of living, so it's not all for nothing.

But then you figure out, "Okay, with 20% of this I'm going to repay debt, and the other 30% I'm going to save more." And sort of figure out some sort of set allocation there. And then you can kind of adjust going forward, depending on what happens. And as you guys get bumps in income going ahead in the future, since you're still pretty young, you can figure out which one of these made us happier.

Is it growing our retirement accounts or paying off this debt and seeing it go down? So, I think splitting the difference in some ways can be a good way to test it out, doing an A/B test to figure out which one is going to make you happier anyway, because some people just don't know either.

Yeah, that's true. And I also think another thing to consider here is that it's always nice to have a little bit of extra liquidity, right? So, even if you are really hyper-focused on paying debt down, you don't want to get into a situation where you've paid your debt down and that's great, but you have very little liquid assets.

And then something happens, something changes, a career change, God forbid, a disability, anything of that nature that while everything looks good on paper right now, and the trajectory is solid, you really want to make sure that you do have funds set aside for if things do change. Yeah, give yourself a margin of safety.

Yeah, absolutely. And whether that's having six months to a year's worth of living expenses in cash or just knowing that, "Hey, I want to have some extra liquidity in a brokerage account if something changes." That's always a good thing to consider as well. Perfect. Okay. No show next week because of Thanksgiving, obviously.

It's too bad we're going to argue about what our favorite Thanksgiving sides are like they do on social media. I was hoping we'd have a political debate. All right. Thanks to Kevin for joining us again. We always appreciate those insights. Yeah, thanks, Kevin. Thanks for having me, guys. Thank you for watching this on YouTube.

Remember, hit the subscribe and like button. Leave us a comment, leave us a question in the comment section. If you want some Compound merch. Do we still have the Fed shirts, Duncan? We do. We do. I don't know how much longer Josh is going to have them up there, but yeah.

The Fed Godfather shirts. They're not going to be up much longer. Those are pretty sweet. Keep the questions and comments coming. Remember, if you have an email for us, askthecompoundshow@gmail.com and we will see you in a couple of weeks. Take care, everyone. Bye. (upbeat music)