What’s the Investment Case for Bitcoin?

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00:00:11.440 | - Welcome back to Ask the Compound,

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00:00:49.840 | Today's show is sponsored by Rocket Money.

00:00:51.560 | Duncan, you slacked me this week

00:00:52.800 | and said I signed up for Rocket Money.

00:00:54.520 | What's your initial thoughts?

00:00:55.720 | - I love it.

00:00:56.560 | Yeah, that's why I slacked you, you know,

00:00:58.600 | and just said, like, Rocket Money's awesome.

00:01:00.600 | - It's slick, right?

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00:01:08.240 | "Well, what do I do now?"

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00:01:45.680 | It's pretty good. - Yeah, you can pick

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00:01:47.340 | - Yeah, rocketmoney.com/atc.

00:01:48.180 | - And for those that don't quite understand, too,

00:01:50.560 | the appeal for me is, like,

00:01:52.160 | you can see all of your finances in one place.

00:01:54.440 | So, like, you link all of your accounts.

00:01:56.000 | It's pretty useful.

00:01:57.600 | They give you a summary of your bills each.

00:01:59.080 | It is, as someone who's a spreadsheet guy,

00:02:01.800 | and a lot of people keep emailing and asking,

00:02:03.120 | can I see Ben's spreadsheet?

00:02:04.960 | Go to Rocket Money instead.

00:02:05.800 | It's easier.

00:02:06.960 | - Yep.

00:02:07.800 | - We still get a lot of those.

00:02:08.720 | And my spreadsheet will be useless to you.

00:02:10.520 | All right, let's do a question.

00:02:11.800 | - Okay.

00:02:13.000 | Up first today, we have,

00:02:14.980 | what would be the pros and cons

00:02:17.000 | of purchasing weighted amounts

00:02:18.320 | of the 11 stock market sectors

00:02:20.000 | and rebalancing your portfolio each year,

00:02:22.280 | compared to just indexing the total market or the S&P 500?

00:02:25.920 | One is obviously much more time-consuming,

00:02:28.300 | but could the juice be worth the squeeze?

00:02:31.060 | - It's kind of funny,

00:02:31.900 | because this seems like a very specific question,

00:02:34.000 | but I've received this exact question before multiple times.

00:02:37.280 | And I think I did the first one on my blog in 2014.

00:02:39.720 | So I found the old spreadsheet.

00:02:41.920 | I updated it a little bit.

00:02:43.000 | The premise makes sense from the perspective of,

00:02:45.960 | well, if I'm rebalancing these sectors,

00:02:48.120 | obviously there's gonna be winners and losers,

00:02:49.940 | but some of the winners are gonna fall back

00:02:51.840 | and beat the losers.

00:02:52.680 | And if I rebalance constantly,

00:02:54.260 | I'm buying into the pain.

00:02:55.980 | And that makes sense kind of, I guess, from theory.

00:02:59.560 | But let's dig into numbers first.

00:03:00.680 | John, throw up the first chart.

00:03:02.360 | This is from State Street.

00:03:03.720 | These are the current sectors

00:03:04.800 | for the S&P 500 or the SPI ETF.

00:03:07.580 | So if you did an equal weight strategy of the 11,

00:03:09.880 | you could see that you're obviously going

00:03:11.160 | to be underweight technology, financials, healthcare.

00:03:13.760 | You're gonna be overweight materials,

00:03:15.080 | utilities, real estate, and energy,

00:03:17.020 | maybe a little consumer staples,

00:03:18.120 | and then industrials, communication services,

00:03:20.400 | and consumer discretionary are essentially a push.

00:03:23.640 | Obviously the sector weightings do change over time,

00:03:26.040 | but you'd be adding some real tracking error

00:03:27.520 | to the S&P by doing this.

00:03:28.960 | So the asset allocation quilt

00:03:31.800 | is pretty fresh in my mind still.

00:03:33.000 | John, do a chart off.

00:03:34.720 | But let's look at the performance numbers

00:03:35.800 | of the various sectors.

00:03:37.440 | And I did these going back to 2008.

00:03:39.440 | And I did this for a reason

00:03:40.560 | 'cause I wanted to include a wide range of markets.

00:03:42.720 | So 2008 was a huge crash.

00:03:44.220 | 2010s, pretty big bull market.

00:03:46.400 | 2020s has been up, but it's been very volatile.

00:03:49.800 | Now here's what I did here, and I wanna highlight this.

00:03:51.820 | So I highlighted the S&P 500, and then the EW is equal weight.

00:03:54.740 | So I did an equal weight of the index,

00:03:56.600 | which is essentially just re-weighting each year.

00:03:58.200 | So it'd be like a rebalance.

00:03:59.780 | And you can see the equal weight

00:04:00.700 | is actually pretty close to the S&P.

00:04:02.140 | They're both kind of towards the middle.

00:04:04.300 | So not too bad.

00:04:06.700 | John, you can do a chart off real quick,

00:04:07.860 | and I'll ask you again for a minute.

00:04:09.120 | My one problem with this asset allocation quilt

00:04:11.440 | is that they've added two sectors in the last few years.

00:04:13.760 | They added real estate and communication services,

00:04:16.140 | and it makes it not look as good anymore.

00:04:18.380 | So it's not a perfect quilt.

00:04:19.940 | - You should ride them.

00:04:21.300 | - So if you eyeball it,

00:04:22.140 | John, throw it back up a little bit,

00:04:23.340 | you can see the equal weight is pretty close.

00:04:24.980 | So it looks like the S&P has outperformed in,

00:04:27.400 | this is 2008 to 2023.

00:04:29.300 | The S&P has outperformed an equal weight

00:04:30.840 | of all the sectors in nine out of 16 years.

00:04:34.420 | I still remember how to do math from school.

00:04:35.840 | So that means seven out of 16 years,

00:04:37.340 | the equal weight is outperformed.

00:04:38.300 | So not bad, it's actually pretty close.

00:04:40.300 | If you go all the way from 2008 to 2023,

00:04:43.340 | John, I can do a chart off now.

00:04:44.940 | We're talking 9.8% per year for the S&P,

00:04:47.420 | which is pretty good.

00:04:48.260 | Include 2008, you know, a 37% loss in the S&P.

00:04:52.820 | We're still up close to 10% per year.

00:04:54.180 | The equal weight strategy was up 9.2%.

00:04:56.140 | So it underperformed.

00:04:57.460 | It did have a 10% less volatility, so not too bad.

00:05:01.060 | Now, this is interesting.

00:05:01.880 | From 2008 to 2023, there's three sectors

00:05:04.460 | that outperformed the S&P.

00:05:05.460 | Duncan, you gotta be able to guess at least one of them.

00:05:08.340 | - The outperformed?

00:05:09.520 | - Yeah, sectors that outperformed.

00:05:11.140 | Tech was one, healthcare, and consumer discretionary.

00:05:13.520 | So obviously, underweighting technology was a big pain,

00:05:17.180 | and you overweighted energy,

00:05:18.740 | which was up 3.5% per year.

00:05:20.700 | - So how would you say TQQQ would have done

00:05:23.440 | during this period?

00:05:24.380 | - Probably not so bad.

00:05:26.860 | Yeah, it depends when you bought it.

00:05:28.400 | It did bad after you bought it.

00:05:29.940 | So my biggest problem with this strategy,

00:05:32.980 | so it underperformed, but my biggest problem

00:05:34.900 | with this strategy is it's just needlessly complex.

00:05:36.660 | I prefer simplicity in all things investing.

00:05:39.220 | So owning an S&P 500 index fund is simple.

00:05:42.900 | They do the rebalancing for you when new companies come in.

00:05:45.440 | You don't have to worry about holding 11 funds.

00:05:47.100 | You don't have to worry about adding a fund

00:05:48.400 | if they add another sector for some reason,

00:05:49.980 | and maybe they will at some point.

00:05:51.680 | Even if the Equal Weight Strategy outperformed

00:05:54.640 | in a back test, I'm not sure it would be worth the hassle.

00:05:58.040 | And if you wanted to break free from market cap weighting

00:05:59.900 | for whatever reason, there's already a way to do that

00:06:02.540 | in the Equal Weight S&P 500, ticker RSP.

00:06:06.220 | There's an ETF for that.

00:06:07.540 | So I actually calculated the returns

00:06:08.880 | for our Equal Weight Strategy that Sam asked for,

00:06:11.460 | the S&P 500, and then the Equal Weight S&P 500,

00:06:14.860 | which equal weights by stock, not by sector.

00:06:17.460 | So John, fill this next chart up.

00:06:19.300 | So this is the three various,

00:06:20.420 | and I did it over various periods.

00:06:21.620 | I did the 2008 to 2023, I did the 2010s,

00:06:24.740 | and I did the 2020 to 2023 timeframe.

00:06:28.080 | And the S&P 500 actually outperformed

00:06:29.940 | over all three timeframes.

00:06:31.860 | It was really hard to beat

00:06:32.700 | because market cap weighting did so well.

00:06:34.940 | The Equal Weighted Sector Strategy

00:06:37.500 | actually outperformed in the 2020s,

00:06:41.380 | but not the Equal Weight S&P outperformed in the 2010s.

00:06:45.180 | So, I don't know, it kind of, I just,

00:06:49.940 | there's going to be a time where the S&P 500

00:06:51.940 | underperforms in Equal Weight Strategy

00:06:53.260 | because value or high quality or some other sector

00:06:55.780 | or some other strategy does well.

00:06:58.140 | But I think there's way easier ways

00:06:59.700 | to break the market cap structure

00:07:02.220 | than trying to equate all the sectors

00:07:03.620 | and making your investing strategy needlessly complex.

00:07:07.260 | Invest in small caps or value or high quality

00:07:10.720 | or dividend stocks or some other non-market cap

00:07:13.300 | related to factor strategy.

00:07:14.980 | And when the S&P underperforms or tech underperforms,

00:07:17.180 | it's going to do better.

00:07:18.380 | You don't have to go back that far.

00:07:19.400 | So, John, for the last chart up,

00:07:20.540 | this is the early 2000s bull market before the 2008 crash.

00:07:25.540 | Equal Weight outperformed the S&P by quite a bit.

00:07:28.060 | It was up 97% from when this strategy started in 2003

00:07:33.060 | through the end of 2007 versus the 74% gain for the S&P.

00:07:36.200 | So, the Equal Weight Strategy

00:07:38.400 | will outperform at some point.

00:07:39.340 | I just think the proliferation of ETFs

00:07:42.300 | makes it easier than ever to gain exposure

00:07:44.100 | to different types of stocks.

00:07:44.940 | So, I don't think you would want to

00:07:46.660 | necessarily try to outdo the S&P 500,

00:07:48.820 | which is pretty darn tough to beat as it is.

00:07:51.700 | So, I just wouldn't get too cute

00:07:52.820 | with these portfolio strategies

00:07:54.260 | and don't make it more complicated than it has to be.

00:07:56.560 | If you want to break the market cap,

00:07:57.900 | do it a simpler way with another ETF,

00:07:59.860 | not trying to do it yourself.

00:08:01.840 | - I feel like a lot of these things, though,

00:08:03.180 | to come down to people that just enjoy doing this stuff.

00:08:06.780 | So, the question of like, is the juice worth the squeeze?

00:08:09.100 | Maybe not, but like, if you're just really into the market

00:08:12.060 | and you enjoy micromanaging every aspect of your portfolio,

00:08:15.940 | then, you know, okay, that's you do you.

00:08:17.820 | But like, yeah, you might not outperform

00:08:19.860 | or it might be not enough to really--

00:08:22.140 | - Well, at the very least, find a back test that looks good.

00:08:24.980 | Most back tests don't look as good in forward tests,

00:08:28.000 | but at least find a back test that outperforms

00:08:29.900 | so you can lie to yourself about the fact

00:08:31.820 | that you think it'll outperform in the future.

00:08:33.100 | It probably won't, but you can tell yourself it will.

00:08:35.460 | - It's true, yeah.

00:08:37.780 | - All right, next question.

00:08:39.020 | - Okay, and that question was from Sam, by the way.

00:08:41.060 | So, up next, we have, let's see, who's this one from?

00:08:44.900 | This one's from TJ.

00:08:47.020 | I'm thinking about investing in Bitcoin,

00:08:49.000 | but the more I research it, the more speculative it sounds.

00:08:51.660 | Worse, most of the Bitcoin proponents are very evasive

00:08:55.260 | when asked about Bitcoin, what Bitcoin does

00:08:58.180 | and what the future holds.

00:08:59.540 | People say Bitcoin is a store of value,

00:09:01.420 | but where does the value come from

00:09:03.220 | since the supply is limited and it doesn't produce anything?

00:09:06.100 | The only value seems to be,

00:09:07.620 | and they're using a lot of quotes here

00:09:08.820 | for people just listening,

00:09:10.420 | the only value seems to be the expanding size of money

00:09:13.780 | that more and more people are pulling.

00:09:15.740 | Isn't this the same as two-up mania,

00:09:18.020 | or is the electricity cost of mining Bitcoin

00:09:20.380 | every time people transact calculated and added as value?

00:09:24.460 | And maybe just explain the two-up mania reference

00:09:27.560 | they make there.

00:09:28.660 | - First of all, my six-year-old daughter

00:09:30.180 | just kind of learned that if you put something in quotes,

00:09:32.580 | it means you're being sarcastic,

00:09:33.780 | so she does it all the time to me now.

00:09:35.900 | She's like the little class clown of the group,

00:09:38.040 | and she goes around all the time,

00:09:40.300 | oh, it was an accident,

00:09:41.580 | and she puts quotes on everything.

00:09:43.500 | I don't think she quite gets it all, but.

00:09:44.700 | - Good for her, I like that.

00:09:46.340 | - Okay, the two-up mania thing was,

00:09:47.900 | and a lot of people compared Bitcoin to this,

00:09:50.240 | it's just these tulip bulbs in the 1700s

00:09:53.060 | in the Netherlands went crazy for some reason,

00:09:55.340 | the prices went up and it got to this fever pitch.

00:09:57.900 | People tried to debunk that one later,

00:09:59.300 | saying it wasn't really as bad as they thought

00:10:00.820 | 'cause it was in a few of the early bubble books,

00:10:03.160 | but it was essentially just like, listen,

00:10:05.300 | human psychology and the herd mentality

00:10:07.260 | caused this thing that has no intrinsic value

00:10:09.340 | to go up a lot, and people compared crypto to it

00:10:11.700 | because there's nothing really backing it.

00:10:13.740 | I have a love-hate relationship with Bitcoin and crypto.

00:10:16.260 | I'll admit, I didn't really pay much attention to it

00:10:17.980 | 'til 2016, 2017, and it really started

00:10:20.780 | when everyone else did, kind of.

00:10:22.100 | I just didn't get it.

00:10:22.940 | All these people were talking about

00:10:23.760 | how it was gonna change the world,

00:10:25.360 | but the concept didn't make sense to me.

00:10:26.620 | I read the white paper.

00:10:28.360 | That didn't help.

00:10:29.200 | It was frustrating 'cause to me there was no there there.

00:10:31.280 | Like, why do we need this?

00:10:32.860 | What's the point?

00:10:33.720 | And so I just bought some

00:10:36.920 | because I was sick of hearing people talk about how great

00:10:38.780 | it was gonna be, and I think I bought it at like,

00:10:40.620 | I don't know, $3,000 or $4,000.

00:10:42.220 | I wish I could say that it's the best trade I've ever made,

00:10:44.020 | but I didn't put nearly enough money in

00:10:45.300 | for it to matter that much.

00:10:46.440 | I put some more money in since then,

00:10:48.740 | and my whole thesis has been I'm gonna buy

00:10:51.860 | and hold it forever and just leave it alone,

00:10:53.620 | or until it hits 150K, then I'll sell, maybe.

00:10:56.880 | But part of the reason I bought it was curiosity,

00:10:58.860 | and part of it was FOMO, and part of it was that

00:11:01.380 | all these evangelists for it just were,

00:11:04.180 | I just didn't want them to get rich and not me.

00:11:06.420 | It's the only FOMO trade I've ever really made,

00:11:08.580 | and the strange thing is, all of these evangelists

00:11:11.420 | that started out in 2017 and before then,

00:11:13.980 | they were wrong about what they were predicting.

00:11:16.100 | They were saying, the only thing they were right about

00:11:17.940 | is the price would go up, but they were saying,

00:11:20.780 | listen, the Fed, this is a continuation of the 2008 crisis,

00:11:25.540 | and we're gonna take down the Fed and the financial system,

00:11:27.420 | and Bitcoin's gonna take it over, and the dollar is done,

00:11:29.980 | and the government's gonna cause hyperinflation,

00:11:33.060 | and then it was more like, I'm bullish on blockchain,

00:11:34.940 | not Bitcoin, right?

00:11:35.820 | We're gonna tokenize the world, tokenize everything,

00:11:37.920 | everything's gonna be a token.

00:11:38.760 | - That was the phrase.

00:11:39.580 | That's what you said if you wanted to sound smart.

00:11:40.900 | - Yeah, you tokenize, we're gonna tokenize your house,

00:11:42.620 | we're gonna tokenize your shoes and your car,

00:11:44.900 | and then it was decentralization,

00:11:46.260 | and then it turned into a macro hedge,

00:11:47.740 | and it's gonna hedge against hyperinflation

00:11:49.540 | and inflation in the Fed, and then it's,

00:11:52.660 | crypto's gonna take over the financial system,

00:11:54.100 | all the trading and settlement and banking,

00:11:55.660 | and now Bitcoin is part of the financial system as an ETF.

00:11:58.620 | So we went from decentralization back to centralization,

00:12:02.220 | which kind of was necessary the whole time

00:12:04.140 | if it really wanted to get big enough.

00:12:05.260 | You can't do this without the finance system.

00:12:07.460 | Now it's more seen as this store of value,

00:12:09.340 | which TJ is asking about,

00:12:10.240 | something akin to millennial or Gen Z gold, right?

00:12:13.700 | And I think this is probably actually the best narrative

00:12:16.140 | and the one that makes the most sense to me.

00:12:17.220 | Honestly, I think the fact that the narratives

00:12:19.220 | have shifted over time and this asset class won't die

00:12:22.580 | is probably one of the biggest and best parts of it.

00:12:25.820 | Like, I think that's actually a good thing

00:12:27.900 | that it's continued to survive all this stuff.

00:12:30.200 | So the way to think about the store of value,

00:12:33.500 | gold is a store, gold has nothing backing it,

00:12:35.460 | it's just a shiny little rock.

00:12:37.460 | But the quote I've always heard is that

00:12:40.780 | back when Jesus roamed the earth,

00:12:42.500 | you could, for an ounce of gold,

00:12:43.580 | you could buy a fine men's suit.

00:12:45.420 | And you can do the same thing today.

00:12:46.240 | - What did a men's suit look like back then?

00:12:47.860 | - It had to be a robe with like a rope tied around it, right?

00:12:50.660 | That was a pair of Tevas I think they wore.

00:12:53.660 | And I think it's the same thing with Bitcoin.

00:12:56.100 | Bitcoin is the digital version of that.

00:12:58.660 | And the best explanation I heard

00:13:00.520 | when I still didn't quite understand it,

00:13:02.760 | first of all, Bitcoin or crypto is an incentive system,

00:13:04.980 | right, it's incentivizing these people

00:13:06.400 | to go on their computers and put these formulas in

00:13:09.860 | to get paid to keep the system running.

00:13:13.020 | But if I handed you, Duncan, a $20 bill,

00:13:16.720 | and you took it from me,

00:13:17.780 | there's no financial intermediary involved

00:13:20.100 | in that transaction, right?

00:13:21.100 | I can hand you a $20 bill for some reason,

00:13:22.840 | just 'cause you're a nice guy.

00:13:23.820 | Here, Duncan, take this $20 bill,

00:13:25.140 | go buy another hat for your collection.

00:13:27.180 | Where do you keep 'em all, by the way?

00:13:28.300 | Do you have like a whole closet for your hats?

00:13:30.580 | - I mean, my wife, it drives her crazy.

00:13:32.620 | They're everywhere.

00:13:33.600 | - Okay, that's me with shoes.

00:13:35.620 | But crypto is like the ability

00:13:37.460 | to give someone $20 on the internet

00:13:39.740 | without having a financial intermediary there.

00:13:41.660 | And there's kind of an intermediary,

00:13:42.740 | but not like a bank or financial institution.

00:13:44.620 | That's the best explanation I've heard of Bitcoin.

00:13:47.860 | So I think in some ways, it's a religion.

00:13:49.980 | In some ways, it's a call option on technology in the future

00:13:52.500 | and having a digital currency,

00:13:54.240 | a digital way to transfer money.

00:13:56.140 | There's very few people in the actual crypto space

00:13:59.540 | that I would trust.

00:14:00.380 | Most of them work for traditional financial institutions.

00:14:02.460 | Those are the ones that I trust more.

00:14:04.300 | But I mean, the fact that these narratives

00:14:07.740 | are constantly evolving, I can see how that's annoying.

00:14:10.020 | I don't think that's a reason for you

00:14:11.100 | to or to not invest in this.

00:14:12.560 | I think there's a lot of really,

00:14:15.260 | there's a lot of charlatans in the crypto space,

00:14:16.940 | but there's also a lot of marketers and evangelists.

00:14:19.740 | And I think that's just part of the,

00:14:21.300 | and if you think that's annoying, that's fine,

00:14:23.780 | but it's probably actually a good thing

00:14:24.900 | that there's so many people who just will never,

00:14:26.500 | literally never sell this asset.

00:14:28.780 | Do you need Bitcoin or any other crypto asset

00:14:30.580 | to succeed financially?

00:14:31.540 | I don't think so, but can it play a role

00:14:33.580 | as this new asset class

00:14:34.780 | with different capabilities and parameters?

00:14:36.780 | Yeah, I think so.

00:14:38.100 | I just think you have to go into it with your eyes wide open

00:14:40.460 | and not expect it to be some miracle cure

00:14:42.780 | as like a macro hedge or a savior to the financial system.

00:14:45.680 | I do think that millennial gold

00:14:47.180 | is probably a good way to think about it.

00:14:48.900 | The problem is the emotions in the asset are amplified,

00:14:50.900 | not only because of the religious aspect,

00:14:53.220 | but it trades 24/7.

00:14:54.660 | It's super volatile.

00:14:56.420 | It has a couple of 1987 crashes every year or something,

00:15:01.120 | but it also could go up 20% in a day.

00:15:03.340 | It has these wild swings.

00:15:05.100 | It's not the kind of asset I would ever push on anyone,

00:15:07.140 | but I think for certain personality types, it makes sense.

00:15:10.000 | Probably younger people more than older people, I would say.

00:15:12.420 | That may be a stereotype,

00:15:13.420 | but I think it just depends

00:15:14.780 | on your emotional makeup as an investor.

00:15:17.100 | And I was where TJ is five or six years ago,

00:15:20.820 | and I invested in it 'cause I got so annoyed.

00:15:23.540 | So I think you have to figure out

00:15:24.660 | what's gonna make you regret more.

00:15:27.060 | Like this thing goes to 100,000 and you're not in it,

00:15:29.700 | and you go, I still don't get it,

00:15:30.740 | but why is it doubling?

00:15:32.220 | Or you put some money in and it goes from 50 to 25,

00:15:34.660 | and you go, ah, I'm an idiot.

00:15:35.540 | Why don't I believe them?

00:15:36.620 | I think that's the regret minimization framework

00:15:38.820 | you have to think about.

00:15:39.660 | And it could do both of those things this year.

00:15:41.380 | It could go to 100 and back to 25, and who knows?

00:15:44.060 | I think those people that you mentioned,

00:15:46.060 | kind of charlatans, but also the shameless promoters of it,

00:15:49.460 | I think they've done more harm than good

00:15:51.320 | to the perception of it, though.

00:15:53.020 | It's immediately, it turns me off

00:15:55.580 | as soon as I see a bunch of people

00:15:56.700 | pumping Bitcoin, pumping crypto.

00:15:58.700 | It really kind of turns me off.

00:15:59.700 | - Those are the people that--

00:16:00.800 | - Whereas I'm interested in it by nature.

00:16:03.140 | I find it very interesting,

00:16:04.140 | but those people really turn me off to it.

00:16:06.420 | - Yeah, and those are the people that,

00:16:07.420 | those are the reason that when it does crash,

00:16:09.380 | people dance on the grave of it all the time

00:16:11.220 | because they don't like the, you know,

00:16:13.660 | have fun staying poor and all that stuff,

00:16:15.140 | which is, yeah, which is really, hurts the case of it.

00:16:19.140 | So I actually think the fact that it's getting

00:16:20.540 | into the financial, the traditional financial system

00:16:23.620 | is probably a good thing.

00:16:24.580 | That it's like the adults are here, finally.

00:16:27.060 | I think it's a positive, so.

00:16:29.340 | - I have a question about that.

00:16:30.500 | I see everyone talking about,

00:16:31.740 | and you and Michael mentioned this

00:16:33.020 | on Animal Spirits this week,

00:16:34.060 | but everyone's talking about like,

00:16:35.700 | how is the price not gonna go up

00:16:37.980 | when they have to start buying for all these ETFs?

00:16:41.140 | I mean, that's a legitimate question, right?

00:16:42.940 | How would it not go up because of that?

00:16:45.120 | Is there like a case where it doesn't go up?

00:16:47.380 | - Well, if every, I mean, the price has gone up,

00:16:50.140 | what, was it up 150% in 2020?

00:16:52.580 | - So it's already priced in, basically,

00:16:54.020 | you could, that would be the case.

00:16:55.500 | - That'd be the argument.

00:16:56.340 | I don't know if it is, but that'd be the argument

00:16:58.460 | that some people would have to make is,

00:17:00.500 | how much do, does the market expect

00:17:02.940 | there's gonna be $2 billion in this, or 10 billion?

00:17:06.300 | Or that's like, does it go over expectation?

00:17:08.620 | That's how markets work in the short term.

00:17:09.980 | Is it better than expected or worse than expected?

00:17:12.140 | That's what we have to figure out.

00:17:13.940 | - Also, lastly, I'll say, I find the,

00:17:15.700 | when people freak out about the security aspect of it,

00:17:18.900 | it kind of makes me laugh because I'm like,

00:17:20.300 | have you ever heard of cash?

00:17:21.660 | Like, that's the whole reason people rob people for cash,

00:17:24.020 | and that kind of thing. - Yes.

00:17:24.860 | - Like, cash is kind of no different

00:17:27.060 | in that regard, in my opinion, but yeah.

00:17:29.020 | - Yes, yeah, the good and bad.

00:17:31.020 | Maybe it's easier to be a bad actor with this,

00:17:33.160 | but yeah, I think there's gonna be bad actors regardless.

00:17:34.940 | - Yeah, in some ways, for sure, yeah.

00:17:35.780 | - Yeah, all right, next question.

00:17:37.700 | - Okay, so up next, we have a question from Riley.

00:17:41.060 | "I discussed Roth IRA contributions with my CPA,

00:17:43.900 | "and he mentioned that his firm, which is also an RIA,

00:17:47.760 | "could potentially reduce my tax payments

00:17:49.720 | "if I transfer my investments to them.

00:17:51.940 | "I'm unsure about having my accountant

00:17:53.700 | "handle my investments, as it might seem

00:17:56.280 | "like he's taking on too much.

00:17:57.880 | "I'm questioning whether he can excel

00:17:59.380 | "as both a tax expert and a financial planning expert,

00:18:02.140 | "simultaneously.

00:18:03.500 | "I don't want to criticize Bill Sweet

00:18:05.080 | "if this is a common practice,

00:18:06.760 | "but I'm curious about your opinion.

00:18:08.480 | "Does this raise any concerns?"

00:18:10.540 | - Okay, ask for Bill Sweet by name,

00:18:12.740 | and he shall appear like a magic tax genie

00:18:14.780 | out of a bottle. - Hey, Bill.

00:18:15.920 | If you say my name three times,

00:18:17.660 | they let me out of my cage.

00:18:18.980 | - Oh my God.

00:18:20.060 | All right, so Bill, we do have a tax practice

00:18:22.680 | at Ritholtz Wealth now.

00:18:23.520 | We didn't have one before. - We did.

00:18:25.720 | - We do what most of our clients love,

00:18:26.940 | and actually, we mentioned this on Animal Spirits this week.

00:18:29.040 | We have so much demand from clients

00:18:30.580 | that we actually need help.

00:18:31.820 | So if you're a tax nerd who wants to work

00:18:33.380 | with Mr. Bill Sweet, you have to get

00:18:34.980 | a Roth tattoo on your back.

00:18:36.340 | - It's true.

00:18:37.180 | - Not as big as him.

00:18:38.000 | You can get it smaller if you want,

00:18:38.840 | just your shoulder blade.

00:18:39.880 | But we are hiring if you're a person

00:18:41.900 | who wants to work on the RIA side of things

00:18:43.740 | in the tax practice.

00:18:44.580 | So what do you think, and is there a difference

00:18:48.700 | between I have a CPA who says they can manage investments,

00:18:51.580 | or I have an RIA who says they also have CPAs?

00:18:53.860 | Is there a difference there,

00:18:54.700 | or do you think those are kind of the same thing?

00:18:56.140 | And how do you go about evaluating the synergies involved

00:18:58.940 | in having someone do investments and tax together?

00:19:01.580 | - Yeah, Riley, great question.

00:19:02.980 | I would put Ben, Bill Artzaronian,

00:19:05.020 | who's the gentleman who runs RDBM Tax,

00:19:07.220 | or Internal Tax Practice, as the case study

00:19:09.740 | of how we can get this right.

00:19:11.260 | So I would posit him as evidence

00:19:12.880 | that a CPA can be a great financial planner.

00:19:15.300 | Bill's also a CFP.

00:19:16.500 | He's a triple threat, too, 'cause he gets to the hole

00:19:18.580 | every time on the basketball court.

00:19:20.740 | He's got a great drive and rebounds like Robin.

00:19:22.880 | But I think, like anything else, Ben, it depends.

00:19:25.220 | That's a sad and unfortunate answer.

00:19:27.020 | And my observation in investments and tax

00:19:30.620 | is that people hate paying taxes

00:19:32.480 | more than they like making money, right?

00:19:34.420 | So if you're a financial planner, an advisor, a tax person

00:19:37.000 | who can deliver value to your client,

00:19:38.400 | above and beyond your average Joe,

00:19:41.040 | and you can get them to stick to our portfolio,

00:19:43.520 | I think it's perfectly acceptable for your tax gentleman

00:19:46.080 | or lady to handle an investment portfolio as well.

00:19:49.220 | However, where it'd be a concern for me are two areas.

00:19:51.960 | Number one would be a service model.

00:19:53.640 | Is this somebody who's doing tax work primarily

00:19:55.840 | and they're trying to bolt on investments

00:19:57.480 | or trying to bolt on mutual funds on top of that?

00:19:59.720 | That, to me, would probably be no.

00:20:01.100 | Is this a serious thing or is it an add-on to the business?

00:20:04.400 | And I think, Ben, the way you can tell

00:20:05.860 | is this a once-a-time meeting

00:20:07.540 | that we're gonna meet around April 15th or so

00:20:09.100 | to talk about taxes and investments together?

00:20:11.040 | That's probably an indication you're not gonna get

00:20:13.060 | ongoing financial planning investment management services.

00:20:15.900 | However, Ben, my observation would be

00:20:17.760 | if you have an investment person

00:20:19.560 | who's gonna meet with you, set up a schedule, 12/4/2,

00:20:21.800 | is Ritholtz Wealthway,

00:20:23.160 | and we're gonna meet throughout the year

00:20:24.200 | and talk about how to practically save me money in taxes,

00:20:26.840 | that, to me, reads like somebody

00:20:28.260 | who can handle their business.

00:20:29.560 | And then if they demonstrate a proficiency in tax,

00:20:32.000 | that would be somebody

00:20:32.840 | who I'd consider investing in as well.

00:20:34.440 | - And the thing we've heard from clients is,

00:20:35.960 | listen, I have a great CPA,

00:20:37.760 | but they might not understand

00:20:39.480 | the rest of my whole financial plan

00:20:41.020 | and what I'm trying to do

00:20:41.860 | and what's going on in my investments.

00:20:42.900 | And they look at this stuff once a year,

00:20:44.920 | and that's not good enough to do planning

00:20:46.940 | and figuring out what should I do throughout the year

00:20:49.120 | and what lever should I pull.

00:20:50.240 | And that's the idea of the synergies involved here.

00:20:52.240 | Sorry for the buzzword.

00:20:53.200 | - Ooh, yeah, that hurts.

00:20:54.520 | That stung me.

00:20:55.360 | But, Ben, I would argue that the difference is,

00:20:58.320 | for most of the accounting industry,

00:20:59.560 | for most of the tax industry,

00:21:00.740 | they are driving, look at the rear view mirror.

00:21:02.520 | You're meeting them in January, February, March,

00:21:04.400 | and they're talking about what happened last year.

00:21:06.160 | The tell for me is whether your CPA

00:21:08.080 | is talking about this year.

00:21:09.560 | Hey, let's talk about some charitable planning.

00:21:11.640 | Let's think about a Roth conversion

00:21:13.000 | coming up in the future.

00:21:14.040 | I noticed that you had a lot of capital gains distribution

00:21:16.300 | from this actively traded mutual fund or Oatly stock.

00:21:19.240 | We've got some capital losses there.

00:21:20.520 | Sorry, Duncan, it hurts.

00:21:21.920 | Let's loss harvest.

00:21:23.600 | That, to me, would be the indicator

00:21:25.000 | that you're dealing with somebody

00:21:25.960 | who's gonna handle this correctly.

00:21:27.320 | - And do you agree with the way that they manage money?

00:21:30.040 | Does it make sense to you?

00:21:31.800 | Are you comfortable with the way

00:21:32.760 | that they manage money and their process?

00:21:34.440 | If you're comfortable with them doing your taxes,

00:21:35.980 | maybe it makes sense.

00:21:37.200 | But I would make sure I get a holistic view

00:21:39.580 | of how are you gonna do this?

00:21:40.640 | What's the process look like?

00:21:42.000 | What's the communication going to be?

00:21:44.240 | But for the right practice,

00:21:45.620 | it certainly makes your life easier.

00:21:47.160 | I think it should.

00:21:48.000 | - What's the service model, too?

00:21:49.600 | Are they getting a commission for a sale?

00:21:51.160 | That I would run out the door from.

00:21:52.960 | Is this an ongoing relationship

00:21:54.560 | that they're gonna be managing your assets

00:21:55.920 | as an investment fiduciary?

00:21:57.480 | Like Ritt Holtz Wealth Management, I'm a company man.

00:21:59.460 | That's what I would look for.

00:22:00.520 | Incentives matter, Ben.

00:22:01.560 | They drive behavior.

00:22:02.440 | And that's what I'd be looking to screen out.

00:22:05.040 | - But yeah, to your point,

00:22:06.040 | if you're someone who's managing a portfolio

00:22:08.080 | and you can help people save money in your taxes

00:22:10.660 | and you're doing it the right way, that's a client for life.

00:22:12.680 | - Amen, amen.

00:22:13.520 | - 'Cause people hate the tax stuff.

00:22:14.960 | They hate it.

00:22:15.800 | - And so if you can rebound on the basketball court, too,

00:22:17.500 | you've got Bill Arts,

00:22:18.360 | and you got a job here at Ritt Holtz Wealth.

00:22:19.760 | So let's do it.

00:22:21.240 | - But yeah, and I think the first sign

00:22:23.500 | is looking at something that is in your financial plan

00:22:26.360 | or your portfolio or your taxes

00:22:27.880 | that there was a mistake on in the past.

00:22:29.760 | And that's the kind of stuff that people just love to hear.

00:22:32.160 | Like, hey, we found that you weren't doing this in the past.

00:22:34.880 | Maybe someone misses.

00:22:35.840 | That's the kind of stuff that you want to see

00:22:37.280 | that's like a positive, what are they called?

00:22:39.240 | What's the opposite of a red flag, a green flag?

00:22:41.080 | - Yeah, a green flag, yeah.

00:22:42.400 | - Checkered flag?

00:22:43.240 | - Yeah, yeah, let's go.

00:22:45.040 | - All right, next question.

00:22:46.940 | - Okay, up next we have,

00:22:48.580 | I've changed my stance on mortgages over time.

00:22:50.660 | Before 2022, I was adamant about not paying it off again,

00:22:53.820 | even telling my friends

00:22:54.860 | that paying off my previous M was a mistake,

00:22:57.140 | especially in a low-rate environment.

00:22:59.180 | Now that rates have soared, I've had a change of heart.

00:23:02.180 | The interest payments have become much more significant,

00:23:04.260 | and I doubt I can consistently outperform

00:23:06.420 | an 8% annual return.

00:23:08.420 | Living in a high-tax state,

00:23:09.860 | I have a relatively straightforward tax situation,

00:23:12.460 | which often leads me to choose the standard deduction

00:23:14.740 | over itemizing.

00:23:16.140 | This means the mortgage tax deduction

00:23:17.980 | isn't as advantageous anymore.

00:23:19.820 | We'll have to wait and see how it plays out

00:23:21.220 | in the coming years as it may expire or get extended.

00:23:23.940 | I'm interested in hearing Bill's perspective on this.

00:23:27.140 | - All right, ask for my name again.

00:23:27.980 | - Oh, do I see a hand-drawn chart?

00:23:30.700 | - Bill, I think you were the one who guided,

00:23:32.620 | did you do another hand-drawn chart?

00:23:33.740 | - No, I didn't, I didn't, I let him down today.

00:23:37.340 | - I think you were one of the voices

00:23:38.740 | that really guided me on this a few years ago.

00:23:40.540 | We had a conversation, and you told me,

00:23:42.820 | I may never pay off my mortgage.

00:23:44.940 | And I, 'cause I had a 15-year mortgage,

00:23:47.580 | and I thought, what am I doing?

00:23:48.700 | Why am I doing this, especially with a rate so low?

00:23:51.140 | And I refinanced back to a 30 at a 3% mortgage or whatever.

00:23:54.820 | - You're welcome, by the way.

00:23:56.140 | - Yes, but it made a lot of sense to me.

00:23:59.020 | Like, why the hurry?

00:24:00.340 | Obviously, I think that calculus changes a bit

00:24:03.540 | when we're talking about 8%,

00:24:04.620 | but how should taxes fit into the equation here,

00:24:06.380 | regardless of when you're paying it off?

00:24:08.900 | 'Cause I do think, yeah, if you have a 3%,

00:24:10.780 | if you take inflation away and the tax break,

00:24:13.700 | I mean, I don't know, you're paying nothing, essentially,

00:24:17.620 | on your mortgage, after.

00:24:20.140 | - I wouldn't say nothing.

00:24:20.980 | Yeah, there's still some frictions,

00:24:21.820 | but let's just start with first principles, Ben.

00:24:23.940 | Like, would it make sense to pay off an 8% mortgage

00:24:26.300 | faster than a 3% mortgage?

00:24:28.460 | Like, you don't need to have a tax program at your access

00:24:30.780 | to do the math there.

00:24:31.780 | John, can we show-- - Yeah, that's easy.

00:24:33.100 | - Can we show a quick chart?

00:24:34.380 | Cumulative mortgage payments on a $300,000 loan,

00:24:36.900 | which, again, if you're putting 20% down,

00:24:39.460 | that's probably a $400,000 house or so.

00:24:41.820 | 30-year fixed, you're looking at an extra $300,000

00:24:45.540 | of mortgage interest.

00:24:46.620 | And the way this works, it's inverse compounding, right?

00:24:49.860 | That something that is compounding debt,

00:24:52.620 | paying it 5% differential, like, that's the gap.

00:24:55.420 | And it works similarly to compound interest,

00:24:57.940 | except it's compound debt, right?

00:24:59.460 | So it's the same principle, just in reverse.

00:25:01.500 | John, can we take the chart off?

00:25:02.340 | - I know this in theory,

00:25:03.180 | but seeing that as a chart is insane.

00:25:05.340 | - Yes, and that was, you know, December, 2019,

00:25:08.620 | December, 2012, and then there was another dip,

00:25:11.380 | Duncan, in 2019.

00:25:12.420 | But yeah, seeing it in real numbers,

00:25:14.020 | that's the difference between a $1,200 mortgage

00:25:16.380 | and a $2,000 mortgage, right?

00:25:17.900 | It's $800 every year for 30 years.

00:25:20.940 | These things add up on long timeframes, right?

00:25:23.180 | So that's the math there.

00:25:25.180 | And yeah, 100%.

00:25:26.580 | So, but what the listener is getting at

00:25:28.300 | is for a standard deduction,

00:25:29.700 | just to put that into context, guys,

00:25:31.180 | a standard deduction in 2012 is almost $15,000.

00:25:34.740 | And so that means that your mortgage interest,

00:25:37.300 | real estate taxes, and charitable contributions

00:25:39.420 | should have to exceed $15,000 for a single filer,

00:25:42.300 | or almost $30,000 joint,

00:25:44.540 | in order for you to get a dollar of tax benefits.

00:25:47.100 | - Which is probably easier to do at 8%, though,

00:25:48.740 | than it is at three.

00:25:49.580 | - At 8%, it's a little bit easier hurdle to cross.

00:25:51.980 | However, again, I think the market

00:25:53.500 | has a lot to do with this, too.

00:25:54.460 | Ben, what is the risk-free rate right now?

00:25:56.460 | It's somewhere around 5%, right?

00:25:57.620 | Maybe 4.5, maybe it's 5.5, somewhere in that neighborhood.

00:25:59.740 | I haven't checked the US Treasury rates today.

00:26:01.820 | But at that rate, yes, you're losing money every year

00:26:04.940 | relative to what you can earn in cash.

00:26:06.820 | And so I think at an interest rate of that high,

00:26:08.820 | 7.5, 8%, it makes sense, Ben,

00:26:11.020 | to inverse the thinking that we had back in 2012 to 2019,

00:26:14.180 | which was, hey, this 3% mortgage is an asset,

00:26:16.260 | I actually wanna hold onto this for longer time periods,

00:26:18.540 | because the investment universe has shifted.

00:26:21.220 | And when rates shift as much as they have

00:26:22.820 | in the last two years, your thinking should shift, too.

00:26:24.780 | - And one of the questions we've been asked from people

00:26:26.660 | now that mortgage rates have come off of 8%

00:26:28.860 | is when do I refinance?

00:26:29.940 | So that's something we'll get into in a future show,

00:26:32.340 | but people are asking that as well,

00:26:33.660 | 'cause you showed the 30-year chart.

00:26:35.740 | Hopefully, people that have an 8% mortgage

00:26:38.700 | aren't gonna be paying that the rest of their life,

00:26:39.860 | they'll be able to refinance,

00:26:40.940 | and that would be part of the equation, too.

00:26:42.220 | And then maybe you can rethink,

00:26:43.860 | if you're paying extra now for 8%, that's great,

00:26:46.660 | but maybe you refinance down to 5% or 6%,

00:26:49.380 | and then you can rethink this equation.

00:26:50.860 | - Exactly, and that was the process, Ben,

00:26:52.620 | basically for my entire lifetime.

00:26:54.520 | Ben, quick trivia question, unprompted.

00:26:56.740 | What was the all-time mortgage high in the United States

00:26:58.460 | for a 30-year fixed loan?

00:26:59.580 | Any idea, guess?

00:27:00.820 | - 18, did it get to 18 or so?

00:27:02.500 | - Duncan, what do you think?

00:27:03.340 | What was the high?

00:27:04.820 | In 1981 or something?

00:27:05.940 | - 15?

00:27:06.780 | - Ben is on freakin' point.

00:27:08.500 | October 1981, 18.6% was the all-time

00:27:11.940 | 30-year interest rate high.

00:27:13.660 | - But houses costed $1,600.

00:27:15.660 | - Well, they were giving away for free, right,

00:27:17.020 | to you guys coming home from the war.

00:27:18.460 | But no, from Grenada, I guess, in 1981.

00:27:20.820 | But no, but again, yes, it really, really sucks

00:27:23.860 | to see that big of a shift, but however,

00:27:26.260 | things have been quote-unquote worse in history.

00:27:28.500 | Yes, mortgage prices are much lower,

00:27:30.240 | but Ben, that was a pretty gnarly inflationary environment

00:27:32.900 | coming out of the 1970s.

00:27:34.180 | Things could always get worse.

00:27:35.420 | So if you don't like the current interest rate environment,

00:27:37.180 | just wait.

00:27:38.380 | - Yes.

00:27:39.220 | - I mean, is there any reason to think

00:27:40.620 | that we could never see that again?

00:27:42.380 | Like, would there be government intervention?

00:27:44.260 | Like, would they prevent that from happening?

00:27:46.340 | - I don't know.

00:27:47.180 | That's a great question.

00:27:48.000 | - The ghost of Paul Volcker comes back,

00:27:48.900 | and inflation is at 15%.

00:27:50.780 | - Yeah, one thing, if I was an economist

00:27:52.460 | and I had some time to write a paper,

00:27:53.540 | I would take a look at the relationship

00:27:55.220 | between population growth and inflation rates.

00:27:57.140 | That's an interesting hypothesis.

00:27:58.580 | But no, if you kind of study Duncan,

00:27:59.820 | this stuff over like 6,000 years or human history,

00:28:02.940 | I mean, mortgage rates have hovered between 3% to 6%.

00:28:04.900 | Right, this is not crazy.

00:28:06.500 | So would that be low?

00:28:07.900 | Yeah, probably.

00:28:09.060 | But are we gonna see 18% any time soon?

00:28:11.140 | I really doubt that.

00:28:11.980 | - Are Bill and I ever going to get rid of our 3% mortgages?

00:28:14.500 | No.

00:28:15.340 | - Well, in 20, 26 and a half years.

00:28:16.940 | - I guess if your savings account paid 15%,

00:28:19.540 | then 18% doesn't sound that bad.

00:28:20.900 | - And that was the case.

00:28:21.740 | Yeah, look at the U.S. Treasury rate in 1981 as well.

00:28:24.220 | Great question, though.

00:28:25.420 | Great topic.

00:28:26.260 | - Our final question is a challenge

00:28:27.740 | to Bill Sweet's manhood.

00:28:29.140 | (laughs)

00:28:29.980 | - All right, this one's from Scott.

00:28:32.580 | I was listening to episode 86.

00:28:34.260 | Wow, thanks for listening.

00:28:35.260 | We're now on 106.

00:28:37.340 | I was listening to episode 86,

00:28:38.820 | and Bill Sweet mentioned the possibility

00:28:40.260 | of taking early withdrawals

00:28:41.580 | from retirement accounts penalty-free

00:28:43.500 | if following the 72(t) rules.

00:28:46.980 | One hair to split is that he said you have to be 55.

00:28:50.620 | But I didn't think 72(t) had any age restrictions

00:28:53.740 | on when you could start taking withdrawals.

00:28:55.780 | I'd appreciate clarification,

00:28:57.100 | because I'm considering an early retirement

00:28:59.020 | within the next few years at around age 50.

00:29:01.620 | And I was considering this option.

00:29:04.220 | I've never heard of 72(t), so you gotta,

00:29:06.020 | that sounds like a Star Wars thing.

00:29:06.860 | - I think Bill talked about it before.

00:29:07.700 | No not to brags this week,

00:29:09.100 | but we do have a nerd alert question of the week.

00:29:10.620 | But I think it probably makes sense,

00:29:11.940 | 'cause we do have a lot of people who ask,

00:29:13.500 | people who want to retire in their 50s.

00:29:15.260 | That is a thing.

00:29:16.100 | - Yeah.

00:29:16.940 | - So what do we think, Bill?

00:29:17.780 | - Well, I just added Scott to my list.

00:29:19.580 | Sam Bankrentfried was at the top.

00:29:21.540 | Vlad Sheetan is next.

00:29:22.580 | And Scott, I'm coming for you after him.

00:29:25.060 | But no, great question.

00:29:25.900 | But Scott, you got me.

00:29:27.300 | Guilty as charged.

00:29:28.140 | I was talking a little bit fast and loose with the tax code.

00:29:30.300 | I inadvertently confused 72(t) with the Rule of 55.

00:29:35.300 | The Rule of 55 kicks in if you retire at 55 or later.

00:29:39.500 | The Rule of 72(t) is a slightly different game.

00:29:42.180 | And to describe it, guys, for those listening at home,

00:29:44.980 | 72(t) is a separate but equal periodic payments.

00:29:49.580 | And anybody at any age can turn these things on.

00:29:51.980 | But there's a huge catch to them.

00:29:53.840 | That's once you turn on a SEP distribution,

00:29:56.140 | thou shalt not turn it off until age 59 1/2

00:29:59.100 | or a minimum of five years, whichever is longer.

00:30:01.980 | So if you start these things in your 30s,

00:30:03.420 | you're signing up for 30 years, 30 years of distributions.

00:30:07.340 | The game, the goal, Ben, of 72(t) distribution

00:30:10.660 | is to avoid the 10% early distribution penalty.

00:30:13.660 | That's the goal.

00:30:14.480 | That's what people are trying to achieve.

00:30:15.320 | - So the whole thing about getting them early is,

00:30:17.660 | okay, fine, we're not going to charge you a penalty,

00:30:19.940 | but you still are going to have to pay the taxes

00:30:22.120 | on this stuff. - Pay the tax.

00:30:23.120 | And then again, you can't turn it off.

00:30:24.700 | That's the key, right?

00:30:25.540 | - Right, you have to stay with it.

00:30:26.700 | It's almost like an RMD thing that starts early.

00:30:29.060 | - Exactly, and so if you turn them off at any point,

00:30:31.660 | you have to go back and pay the penalty,

00:30:33.060 | the extra 10% going back to the start.

00:30:35.700 | - So Scott's going to retire around 50.

00:30:38.320 | - Yeah.

00:30:39.160 | - He follows this rule of 72, which is what?

00:30:41.300 | Do you have to fill out some form or something?

00:30:42.580 | - 72(t), you basically make an election on a tax form,

00:30:44.920 | to the best of my understanding.

00:30:45.860 | You tell your IRA custodian, hey, this is what I'm doing.

00:30:48.100 | And then it's up to you to follow up

00:30:49.300 | and make that distribution every year.

00:30:51.340 | - But what are the required minimum distributions?

00:30:54.460 | Is it its own schedule?

00:30:55.900 | - I'm so glad you asked.

00:30:56.820 | So there's actually three different criteria

00:30:58.940 | to calculate them.

00:30:59.780 | But just to make it simple for listeners,

00:31:01.580 | it's somewhere between three and 6%

00:31:03.740 | of distributions at age 50.

00:31:05.580 | So it depends on the age

00:31:06.780 | and it depends on the prevailing interest rate.

00:31:08.780 | Today, the AFR, 130% of midterm AFR is 5.4%.

00:31:13.460 | So at that interest rate for Scott at age 50,

00:31:15.540 | he could sign up for either $3,000 a year

00:31:17.900 | or $6,000 a year per $100,000 in an IRA.

00:31:21.780 | So if we have a small amount of retirement balance,

00:31:23.700 | it probably isn't enough to live on, right?

00:31:25.220 | $500 a month per 100K.

00:31:26.940 | But at $1,060,000 a year, that's not nothing, right?

00:31:30.580 | That's right around the medium income for a household today.

00:31:33.700 | So that's not terrible.

00:31:34.580 | It's not a bad option.

00:31:36.140 | And then one quick planning point,

00:31:37.780 | you can actually change the method once.

00:31:40.180 | So you can dial down from a $6,000 or $3,000 or three to six.

00:31:44.420 | There's some really funky complex rules on how that works.

00:31:47.140 | But ultimately, it's an interesting option

00:31:49.140 | for people looking to access retirement funds early.

00:31:51.620 | My opinion, not as flexible as rule 55.

00:31:54.780 | And that's why, again, Brain Soup got him a little bit

00:31:57.300 | confused on the show.

00:31:58.180 | Credit to you, Bill, for, yep, he gotcha.

00:32:00.580 | Hey, when you're wrong, you own it, you fix it,

00:32:02.580 | you move on down the road.

00:32:03.660 | Well, it's part of the fun of all this tax stuff.

00:32:05.140 | You know, they keep it convoluted,

00:32:06.420 | so it's kind of like a game.

00:32:07.220 | There's a lot of numbers involved.

00:32:08.540 | And it changes every year, yeah.

00:32:09.620 | So back to hiring, for me, the type of person

00:32:12.220 | that this work appeals to, people

00:32:13.700 | who like solving complex puzzles,

00:32:15.420 | except every once in a while, the IRS, the SEC, whoever,

00:32:17.840 | they just come and they shake the whole board up, right?

00:32:19.540 | So you have to start all over again,

00:32:21.140 | and they change the picture.

00:32:21.980 | Got to keep it fresh.

00:32:22.900 | Exactly, exactly.

00:32:24.020 | But it is a challenge, it's a fun,

00:32:25.460 | and I'm glad to be working with you guys.

00:32:27.580 | I think it is kind of funny, though.

00:32:29.980 | Retiring in your 50s now seems early.

00:32:31.900 | I feel like our kids are going to live

00:32:33.020 | till they're 100 or something.

00:32:34.220 | So I feel like retiring in your 60s

00:32:35.740 | is going to be considered early at some point.

00:32:37.140 | It's going to shift.

00:32:37.580 | Is that the Rick Edelman thing?

00:32:38.180 | People are going to go back to school,

00:32:39.300 | like in their 50s and 60s, and kind of reboot their career?

00:32:41.800 | That's why they need Bitcoin.

00:32:43.180 | [LAUGHTER]

00:32:44.980 | Because they're going to wish to be 100.

00:32:46.140 | This is not investment advice, do you know that?

00:32:47.860 | Not investment advice, a jerk.

00:32:50.100 | All right.

00:32:51.380 | Yeah, thanks, Tim.

00:32:52.460 | The Bitcoin explainer, yeah, that was a wild--

00:32:54.860 | I do have a follow-up on that, Ben, I meant to ask you.

00:32:57.580 | Are you really still holding from $3,000?

00:33:00.340 | Yes, but again, I didn't put that much money in then.

00:33:02.780 | I mean, you're a hodler.

00:33:03.820 | I haven't sold-- anything I put in, I haven't sold.

00:33:06.300 | I don't know if you knew that, but you're a hodler.

00:33:08.420 | You're a hodler, Ben.

00:33:09.300 | I guess so.

00:33:10.060 | Diamond eyes or diamond hands, something like that?

00:33:12.180 | I sold too much in the $20,000 range.

00:33:14.620 | Listen, I probably should have sold before and rebalanced it

00:33:17.900 | a little bit.

00:33:18.460 | But I did so much tax-loss harvesting

00:33:20.540 | when it was at $14 or $15, now that I'm sitting on huge gains,

00:33:23.460 | so now I don't want to sell.

00:33:24.660 | I'm still laughing from the--

00:33:25.380 | Because it's in a taxable account.

00:33:26.260 | I'm still laughing from the free show,

00:33:27.880 | Duncan leaving his Oatly stock to Ben at his own timely

00:33:30.460 | passing.

00:33:31.340 | Yeah, well, it's not happening now.

00:33:32.860 | Maybe Ben can leave you.

00:33:33.420 | I know it's not safe with Ben.

00:33:34.620 | Bill's going to write a will out,

00:33:35.740 | and we're going to have you sign it or-- yeah.

00:33:38.180 | Cost bases step up on death, but I don't

00:33:40.300 | wish that for any of you guys.

00:33:41.540 | So let's keep this man together.

00:33:43.760 | All right, so last week, we tried to record early

00:33:46.560 | and put a different time.

00:33:47.180 | We didn't like it.

00:33:48.020 | Now we're going at a different time for production schedule

00:33:49.860 | wise.

00:33:50.100 | We're going 50 minutes early, so thanks to everyone

00:33:51.580 | who showed up live, as always.

00:33:53.420 | We'll be going 115 Eastern to mix it up with the regulars.

00:33:56.520 | If anyone wants to hop in here in the live chat,

00:33:58.520 | we'd appreciate it.

00:33:59.980 | Yep, keep sending those questions.

00:34:01.380 | Askthecompoundshow@gmail.com.

00:34:02.820 | Leave us a comment on YouTube.

00:34:04.820 | Send us an email.

00:34:05.940 | And check out Rocket Money.

00:34:07.460 | Rocket Money, yep.

00:34:08.220 | And we'll see you next week.

00:34:09.140 | I'll take you off my list, Scott.

00:34:10.500 | See you, everyone.

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What’s the Investment Case for Bitcoin?

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