Afford Anything - Ask Paula: How Much Should I Invest vs. Keep in Cash?

Episode Date: August 3, 2022

#394: Bill listened to our episode with Bill Bengen, father of the 4% rule, and he wants to know if there was a way for him to figure out how much money he should be keeping in cash. Sheryl gets stock from her company, and she would usually sell it…but the stock value has decreased. And now, she isn’t sure what she should do. Heather inherited an IRA but MUST empty it within ten years - but she doesn’t need it right now. What should she do?? Julie and her husband have access to an HSA for ONE MONTH. Can they max it out before they lose access to it? In today's episode, former financial planner Joe Saul-Sehy and I tackle these tough questions. Enjoy! Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode. For more information, visit the show notes at https://affordanything.com/episode394 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, any limited resource that you need to manage. Saying yes to something implicitly means accepting the trade-offs. And that opens up two questions. First, what matters most?

And second, how do you make decisions aligned with that which matters most? Answering those two questions is a lifetime practice, and that's what this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast. Every other week, we answer questions that come from you, the community, and my buddy, former financial planner Joe Saul Seahy, joins me to answer these questions. What's up, Joe? Hey, Paula, what's happening? You know, I am about to go to a baseball game for at least the first time in,

10, 12 years, and maybe the second time ever in my life. Wow. So do you know what happens in a baseball game? I assume players play baseball. Yes. But it's such a good time. I'm trying to go to every stadium, actually. I've been to 17 different stadiums.

That's amazing. I've been to one. And this afternoon, I'm going to two. Well, I'm going to number two. I gathered that when you said this is your second time. Look at me. I'm truly American now. I also wouldn't walk around telling people that you're going to number two. I know I was thinking that when I said it.

Not to potty humor this early in the show. Literal potty humor. I was thinking that. And then I realized, you know, both statements are accurate. I will probably. Leave your mark at the stadium. All right. Let's get to the questions. Oh, boy. Here's what we're going to tackle in today's episode. Bill listened to our episode with Bill Bengin, the father of the 4% rule of retirement, and he wants to know if there is a way for him to figure out how much money he should invest

versus how much he should keep in cash. Heather inherited an IRA, but she needs to empty it within 10 years, per the requirements. The thing is, she doesn't need the money right now. What should she do when she has, mandatory distributions that she has to take with money that she doesn't need to spend. Cheryl receives stock from her company. Normally she would sell it, but that stock value has decreased, so what should she do? And Julie and her husband have access to an HSA for only one month.

Can they max it out before they lose access to it? We're going to tackle these four questions in today's episode, starting with Bill. Hello. I listened to your episode about the 4% rule, found it very informative. I did have one question about something he said that you didn't go into, and that was that he said he's only 15% invested in stocks right now. I wondered if there was a formula or a method he uses to determine how much to invest versus keeping cash. Thanks very much. I'll be looking for the answer to this question when it's available. Appreciate it. Have a great day. Bill, thank you so much for the question. I'm glad you enjoyed the interview with Bill Bangan. For anyone who's listening who hasn't heard that, Bill Bengen is the

person who came up with the 4% rule, which is one of the most famous rules in the world of retirement planning. To your question about how to figure out how much money you should invest versus how much you should keep in cash, there are a few rules of thumb which are essentially broad heuristics. And so when you ask about formulas, one popular one is your age in bonds with the remainder in stocks. So a 75-year-old might be 75% exposed to bonds with the remaining 25% in stocks under that very generalized, extremely broad rule of thumb. There are people who modify that, either more aggressively or more conservatively, your age plus 10 or your age minus 10.

And I say this in order to give you the direct and over answer to your question. Is there a formula? Yes, there is. This is the popular rule of thumb that gets used. Do I think there's value to using it? Not really. the problem with these broad, generalized, and generic heuristics is that while they provide an approximate starting point, they let you know if you're operating in a reasonable range

or in the right order of magnitude, but they fail to take into account your personal goals, timelines, other sources of income, living situation, all of those play into your risk capacity, and your risk capacity itself, which is logistical, is distinct from your risk tolerance, which is psychological. And all of that together influences how much money you should invest and how to allocate those investments, as well as how much you would want to keep in cash. You know, your health, the number of dependents that you have, whether or not you have any debt, whether or not you have specific big ticket items that are outside of a mainstream budget, I mean, those are all going to play into how much money you would want to

keep in cash. And none of that can be reduced to a broad heuristic formula. I mean, it can be. People certainly use it. But the problem with such formulas is that they are meant to be a first pass, but people misuse them by treating them as the answer rather than as the opening to the question. Which is why I don't like using them at all. I think the best formula the optimal formula to use is the one that solves the question, what rate of return do I need to reach my specific goals? And as I mouth those words, it seems that most people will hear that and they'll go, well, that sounds really difficult. It isn't nearly as difficult as people think it is. And it's also way more exciting. You know, studies show that most of your win when it comes to

personal finance is sticking to your plan. It's your behavior. So if you can stick to your plan, it's going to be great. You know what makes you stick to your plan? The more personalized it is. So the more time you spend figuring out what you need to do to reach your goal, you're going to come up with a formula, Paula, that's not only better, it's stickier. It's actually going to work. There's so much fun in doing it and exploring your own plan versus some equation that might or might not work where you take your age and figure out how many stocks and bonds you need. I absolutely love that. I love it. It's the fun in finance. It puts the fun in finance. Did you just say that? First of all, do you know how to spell finance? I think it's finance. I live in Texas now. Okay. It's finance. Go on, Joe. All right. It puts the fun in finance. It does. Anyway, it does. It makes it more fun. So that is my answer.

That's the equation. The equation is solve for what return do I need? Every major asset management company, Vanguard, Fidelity, Schwab, they all have these calculators that are great places to start. You can dive into websites like, Can I Retire Yet, has a bunch of, has a whole page full of calculators. Chris Mamilla over there the other day told me that that's their most popular page in their entire site, mostly probably because I think this is the fourth time you and I have

mentioned it, answering questions together. We'll take all the credit, Chris. But working with these makes your plan sticky and fun and is the perfect formula. And we will link to Can I Retire Yet and those retirement calculators in the show notes. Show notes are available at Affordainthing.com slash episode 394. You can also subscribe to the show notes by going to Affordainthing.com slash show notes. Thank you, Bill, for that question. I hope that as you go through the process of typing in your own specific personalized account balance, monthly contributions, goal amount, ideal risk levels, you know, as you go through the exercise of inputting those variables into some of these calculators, you'll be able to come up with a plan

that's better than any heuristic because it's tailored for you. Thanks again for the question. Our next question comes from Heather. Hi, Paula and Joe. I'm a big fan of your show and I hope you can help me out. I'm 45 years old and I just inherited a traditional IRA with about $30,000 in it. I understand that I have to take the distributions over the next 10 years and empty the account and pay taxes on it. I don't really need the money since I'm not retired. However, I do appreciate the gesture and want to invest the money wisely.

What type of asset allocation would you recommend for an account that has to be emptied in 10 years? If I didn't have to take distributions, I would probably put it all into an S&P 500 index fund. Thank you. I hope you can help me. Have a great day. Heather, thanks so much for your question. And I love this question because, Paula, people ask this question that is based on a, I don't want to say faulty a faulty Faulty assumption is so strong because Heather's thinking like everyone else thinks, listen, this plan has a 10-year life expectancy. So I need an investment that I have to empty in the next 10 years, all of which is true as long as you're more than 10 years younger than the beneficiary and some

other considerations. But assuming that she is and that she knows where she sits on the side of this inherited IRA rule, she's got this ticking clock. But Paula, that ticking clock does not mean that Heather needs to spend the money, which means that she can go ahead and invest based on her own spend it timeline, meaning is she was going to put it in the S&P 500? Here's what happens. She sells it out of the IRA. It's a SP 500. She sells the S&P 500 out of the IRA.

She moves the money out of the IRA so she doesn't run afoul of the IRS. Guess what she does next? She buys the S&P 500 outside of the IRA. Bam. and she's still in it. So she can still invest for her goals. She'll be out of the S&P for just a few days. Assuming there isn't major news in those few days, it'll go up or down just a few points, and she just continues on her merry way. So I would invest this based on what her long-term goals are. Right. Exactly. Exactly. So there's no need for her to asset allocate as though this is operating

on a shortened time frame. Right. And by the way, how to invest this, I think is so fun. That is so fun. So if we dive into that for a second, because I think that's where the magic of this question really is, if she didn't expect this money and she's looking at her goals, you know, investment can be a really broad term, Paula. And let me give you some ideas here. Investment to me, if I had a gift of extra money and I was doing fine, reaching my goals already, I may invest in ways that gets me to those goals either more fruitfully, more happily, or quicker. So I might invest in education. I might invest in courses. I might invest in things that increase my knowledge of where I'm going or what I'm doing to get me there quicker. So there's other types of investing, in quotes, that I think with money

that you want to be really responsible with, you can invest this in responsible ways and not have it go into a traditional investment. I think if I gave my children money or I gave a relative money and they spent it on bettering themselves, I'd be very happy with that. You know, I agree with that, Joe,

but here is the red flag, the danger zone. The word investment often gets misused in the popular press or on social media, like in conversational dialogue. The word investment often is misused and misapplied to basically anything that someone's trying to sell you. And so you'll often hear people, for example, in the fashion industry, talk about like, invest in a few statement pieces. You're not investing if you buy high-quality clothes.

you might be making a good financial decision because you're buying something of higher quality that's more durable and it's going to last longer. But making a good spending decision is not the same thing as making an investment. Investing is productive. Spending is consumptive. And so I think the slippery slope here is that when people apply the word investment to something that does not have a quantifiable return on invested capital, then the word starts to lose meaning. I think it does much more with clothing, certainly, or an automobile than it does with education. Because I can look at an expected ROI from education if I'm using it, quote, as an investment. I think there's two different types of educational programs.

And we've often discussed this, that especially when you're going into debt, I think that's when calculating the ROI and education makes sense. Certainly, that's not the only reason to go get a degree, right, is for expected ROI. And I think some people fall into that trap that college is only purely for a return on investment. Not true. But if you're going to go into debt to get an education, I think that you have to calculate the ROI. So there has to be an expected return on this money if I'm applying the word investment to it. But that said, I'm with you in one way, Paula, which is I had people when I was a financial planner, what you said happened all the time. I'm going to invest this in a new automobile.

Well, no, you're not. You're going to buy a new car. Right. And you're going to buy the Mustang because you really like it, not because it's a way to get from point A to point B. You're going to get it because you like the styling and the features, which are going to make it way more expensive. So that's not an investment.

And I don't think that's dangerous if you've already reached your goals. Go ahead and use whatever lingo you want. It still is an expense. but if you don't have enough money to meet your goals, well, then certainly, I think to your point, putting this in a traditional investment so it will help you actually get where you want to go is job one. Right. My only assumption was if you've already got that covered, if she had that covered and this

was surprise money and she just wants to be a good steward with this money that somebody so graciously gifted to her, then I think under those circumstances you can expand that definition. I think we're discussing two separate concepts. There is, on one hand, that's never happened before. On one hand, we're discussing how Heather can be a good steward of this money. That's one line of inquiry. A second line of inquiry is the semantic discussion around the word investment. And so if we separate these two, if we don't, inflate these two questions, leave the semantic discussion aside and ask, how can Heather be a good steward of this money? Then I completely agree with you, doing anything that would improve her life,

whether it's building a new skill set or becoming healthier, using it to exercise more, for example, to buy a bicycle so that she can get an extra two or three hours of cardio per week, or buy a set of dumbbells, right? Those types of things I would fully support, assuming that she actually follows through, assuming that she actually uses what she buys, right? That's a good point, because I have bought exercise equipment and it didn't find its intended use.

Yes, exactly. To that end, how can she be a good steward of this money? Any consumer purchase that she makes that enhances her life, her skills, her knowledge, her health, her ability to serve others, those are all responsible ways of spending money. But it sounds as though Heather wants to save money and savings, savings is just deferred spending, right? If she invests this in an S&P 500 index fund, lets it grow for the next 30 years, and then spends it, ultimately she still spending the money. She's simply deferring that spend and allowing it to grow in the meantime.

And that is the technical definition of an investment. So, Heather, to directly answer your question, if you do want to invest the money in an S&P 500 index fund, as you mentioned in your voicemail, go for it because you don't have to worry about the 10-year timeline. You'll simply be holding that investment in different types of accounts, one being a tax advance. account while it's in that IRA, and then the second being a not tax advantage to count when you eventually hold the same investment in a taxable brokerage account. One little move she'll have to make, but that's it. A speed bump.

Exactly. Few clicks of a mouse and it's done. Rearranging furniture. Exactly. You know, I often tell people, one last thought on this before we move on, I often tell people. And this is a advice that I give often to... At a bar on a Friday. I often tell people, and this is education that I give... On a subway? Not on a subway. To strangers? Well, two strangers, yes. To people visiting the Empire State Building?

I don't think I've ever specifically talked to anybody who fits that description. But this This is what I often tell people who are new to personal finance and who conflate the asset with the vehicle that holds it. What I tell people is that the investment itself, all right, so, okay, think of a bunch of glassware, right? You've got a champagne flute, you've got a teacup, you've got a coffee mug, you've got a wine glass, a pint glass, right? You have all of these different vessels.

and then inside of each vessel, you can fill these different liquids. And certainly there are certain liquids that are more commonly filled in certain types of vessels, right? It's common to put coffee in a coffee mug, tea in a teacup, champagne in a champagne flute. But it's not technically necessary. You could drink champagne out of a coffee mug. Paul has done it. Have I? Have I? I don't think I have actually. Yeah, I think never have I ever.

Got another box to check. I'll put it on my bucket list. And so when we talk about investments, stocks, bonds, even cryptocurrency, like when we talk about these investments, we're talking about the assets. And then when we talk about the accounts that they're held in, whether it's an IRA or a taxable brokerage account or a 401K, we're talking about the vessel, the pint glass, the coffee mug, the champagne flute. And so it's a good mental practice to make sure.

that you never conflate the vessel with the liquid that's inside the vessel. You know, don't conflate the champagne flute with the champagne itself, the wine glass with the wine itself. And Heather, I'm not suggesting that you're doing that. This is simply a mental framework that I often teach to the newest members of the Afford Anything community when they're learning personal finance for the first time. And they make comments like, like, oh, I don't want to put money in a 401k because I don't trust the stock market. That comment inherently reveals that they're conflating the vessel, which is the 401k, with the investment itself, which is the stock market, or in their case, equities.

So I'll throw that out there as well for the benefit of anyone listening who found that to be helpful or who knows somebody who might. Thank you, Heather, for asking that question. And good luck with whatever you choose to do with this money. We'll come back to this episode after this word from our sponsors. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens, maybe you need servware and cookware. And, of course, holiday decor, all the stuff to make your home a great place to host during the holidays.

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That's your commercial payments of Fifth Third Better. Our next question comes from Cheryl. Hi, Paula. Like many tech employees, I receive a large portion of my compensation in the form of restricted stock units. And like many tech companies, our tech company stock has decreased recently. I was typically treating my RSUs as income and selling them immediately to either buy diversified stock or to pay for large household items. But with the recent plunge, my company has decreased larger amount than the SMP 500, and I've been considering whether I should hold on to this stock to see if there would be any recovery. For context, the amount that has vested is less than 5% of my investment portfolio,

and so I could think of this as my speculative portion of investments given I don't have any other speculative type assets. Does it ever make sense to hold on to RSUs in a portfolio? And are there any tax implications that I should be aware of? Thanks, Paula. Cheryl, thanks for that question. And yes, a lot of companies use restricted stock units. we should start off with what's a restricted stock unit? It sounds like a unit of stock that you are

restricted from selling for a particular period of time. Brilliant. Brilliant. Thank you. Thank you. Thank you. Thank you for stating the obvious. That was by the way. The obvious being that I'm brilliant, of course. Chah. When I went to Scotland, that was my favorite part, was that that was a common refrain from anybody. Oh, that people constantly said the word. brilliant? They'd say, I felt so damn smart in Scotland because you'd say, can I buy the sweater? Brilliant. I am brilliant for wanting that sweater. Thank you. Yes. I would like the macaroni and cheese, please. Brilliant. I am. Yeah, thank you. Macroarodian cheese. It came naturally, too. I just ordered it off the menu, which is brilliant. But I did. I loved it. It's just such, such cool people.

The brilliance, though, of stock, restricted stock when it comes to tech companies is that, first of all, Paul, tech companies generally are trying to plow as much money into the making of the product as they can. And because of the fact that so much relies on new technology coming out, that you have to have these really gifted people. Well, if you can't afford to just continually throw more and more money at them, what do you do? You promise them a piece of the fact that if we all band together, that we're going to share some of this ownership. They used to, by the way, companies used to do something that's called stock options instead. They would give you a plate of stock options.

And if the stock went above what's called a strike price, a price that it may have been at the time that they offered them, then you would get the up. And that was great. The problem with stock options that tech companies learn very quickly after the tech wreck in 2000 to 2002 was that people had all these underwater stock. options that were worthless. And so now I realized, okay, I'm making okay money, not phenomenal money. I had this promise that I'm going to share in the winnings, quote, if we all band together, and all my stock options are underwater and it's going to be forever until they come back. And so talent was jumping ship, which is why in the 2000, I'm going to say probably, I started seeing the more 2005, six, seven, eight companies by and large went to restricted stock units.

regardless of the price, up or down, you got these stock units, but the restricted part means they are vested over a schedule. So you're not going to get them all at once. The longer you stay on this ship, longer you stay with the company, the more money we can promise you with regards to the stock. So it's a way for companies to retain good talent like Cheryl. Right. And it makes sense because the longer you're with the company, in theory, the more you've contributed to the eventual success of the company. Yeah, works very well for everybody. There still is a problem, though, where stock options would be completely underwater and worthless.

All technology companies are doing, not all, but the technology index is doing far worse than the S&P 500 is. So it doesn't surprise me, Cheryl's question of, hey, I work for a tech company and things aren't going so hot with our stock price. very common now and doesn't say a lot, by the way, about the company. It says more about the time that we're in. Right. Here's the thing that is the key to our answer, I think, Paula, at least my answer, is the very end of her question, she said, this is a very small part of my portfolio. Yep. And I can consider this sandbox money.

Yep. I noticed that too. If it isn't sandbox money, it doesn't matter. Always take your restricted stock units. diversify it and put it on a plan so that you can more reliably reach your goal. Always. Don't, don't bet on the company. Don't take unnecessary chances. The best path is always to give yourself a firm footing so that you have this foundational chance to reach your goals. Right. And to be clear, that that's for non-sandbox money. That's that's for non-speculative money. Yeah. Once we get to money,

that you can then afford to speculate on, well, then certainly I would look fundamentally at this company. And I like using some resources like it. Yahoo Finance is a great place where I can dig into the fundamentals. And here's what I like looking at. Number one, sales of the company, are sales going up or down? But I also compare that to the expenses that the company has. So how much money did the company spend to get a sale this year versus getting a sale next year? Because companies might be expanding their sales force by a lot to make up for the fact that we're in a soft time and maybe they have resources that they can deploy. How much debt do they have? Have they taken on more debt?

Are they expanding or contracting? And by the way, none of these things is going to give me a definitive answer, Paula, as to whether or not to buy the company. but it does give me a much better feeling of the heartbeat. So if I see a company as an example where sales are down, they're taking on lots of debt and expenses are through the roof, there's something that either they're investing in or they're seriously messing up. But I know it's one of those two things. And maybe they are investing in something and maybe they are messing up.

But it leads me to the news. And then as I dig through the news, I then find it. I then find what this thing is that the company, he's doing. And then I start to get a feeling of where this company is headed. I really like that type of analysis. There's another type of analysis called technical analysis. Yeah. That's like tarot card reading in charts, essentially. It is. Well, and what's cool, Paula, is that over short terms, over short timeframes, because so many people believe it, it works. Over short periods of time, technical analysis works. But we don't care about the short term. We care about the long term. And the

only thing that works over the long term is, is this fundamentally a company that's going somewhere? And so I like diving into how cool a company is this? I'd like to put a pin here and explain for the benefit of anyone listening. When we talked earlier about sandbox money versus non-sandbox money or the other synonym that we used was speculative money versus non-speculative money, to anyone who's unfamiliar with this concept, essentially what we're discussing is the bucket of money that you have that you're using for your actual financial goals versus the sliver of money that you have that you're using for just wild gambling purposes. The overwhelming majority of your

investing money, like 90% of it should be used for your goals. and should be treated according to a very well-thought-out plan. But then you've got that other 10% or less that is just money that you would otherwise light on fire, but instead you're going to have some fun with it and you're going to make whatever speculative investment you want to make. Now, not everybody has to do this. If you want to soberly treat 100% of your investment money in a wise manner, please do so. But the reason that this concept exists, the reason that many people, myself included, treat 90% of our money responsibly and then 10% of our investment money completely irresponsibly,

the reason for that is analogous to having some type of an eating plan, like I don't want to say diet, but you know, there's a way that you normally eat. But then once a week, you have a cheat day or a cheat meal. Or another word for that would be like a treat day or a treat meal, right? Having that break in which you can indulge allows you to stay on track for the rest of the bulk of it. And so in the world of investing, if you are the type of person who gets really excited about speculative opportunities and you want to indulge that wild hair, you want to see what rolling the dice might do, sure. Take up to a max. maximum of 10% and go wild because that will scratch the itch that allows you to manage the 90 plus

percent better. So that's the concept that we're talking about here. I think there's even another piece to it though, Paula. What I like about the sandbox account is it's my opportunity to learn more about investing and money without damaging the whole damn ship. I can I can test new theories, I can have some fun. I can dive into, like we were talking about, the fundamentals of this company. And if I'm trying to do that with all of my money and I make a mistake, I'm in big trouble. But if I do that with a small sliver of my money and I make a mistake, I'm not in trouble. And I can go ahead and make the mistakes. And as you and I know very well because of the mistakes that we've made, making mistakes is part of life and falling into those mistakes and making them more

frequently will lead you to greater success. I don't think it's about how often you succeed as much as it's about how often you try. If you try five times more, you can have a lower win rate and still come out ahead. But you have to be careful about how much you're betting on each of these mistakes. And so if I'm betting very little money to poker terminology on some idea that I have that I think might get me head faster, doing that in your sandbox is a far better place for the science experiment. The science experiment, that's a good way of saying it. Thank you. That's better than dumpster fire money, which is how I talk about it. Dumpster fire assumes it's going to go bad.

Yeah, that's true. That's true. It's a little pessimistic. Yeah. Which, by the way, it generally does. Yes. When I'm playing in my sandbox, it goes bad a lot. Yeah, exactly. Same. Same. And you know what I've noticed? Because I recently took a big loss in my dumpster fire portion. That experience taught me about my risk tolerance. It actually taught me that my risk tolerance is even higher than I believed it was. because having had the experience of taking that loss, it only made me more interested in that investment.

And it made me want to double down on learning more about it, on doing better due diligence. Like it made me more interested in it, more intrigued by it rather than scaring me away. I guess that's the other benefit to having science experiment money. I got more intrigued and I got more interested with a similar thing that happened recently, but it taught me the opposite. Like, I want to do more due diligence and better due diligence so that that doesn't happen again because my risk tolerance is lower than I think it is. You know what I mean?

So while it didn't scare me away, it did make me go, yeah, I don't want that to. How do I make sure this doesn't happen again next time because that hurt? You know the other thing that I realize now we're pontificating on the benefits of taking losses, but the other thing that that loss did is, and this is something that I think a lot of the people who are listening who are entrepreneurs or who have a side hustle might be able to relate to, taking that loss in my portfolio actually made me more interested and engaged in the business that I run in my day job because there's a part of my brain. And it's completely irrational, but there is an irrational part of my brain that wants to, quote, unquote, compensate for that by increasing my revenue.

Oh, yeah. Neat. I mean, Dan Ariely, behavioral economist, who we've interviewed twice on this podcast, he can tell you exactly why that is irrational, right? Because these are independent, distinct. Your losses are your losses. Your revenue is your revenue. It doesn't make sense to counterbalance one with the other. if you were going to increase your revenue, that would have happened or not happened, independent of what's happening in your portfolio. All of that is true. And yet, there is part of

my brain that is just irrationally motivated to see if I can up the ante and earn that money back, not recover it back through the investment, but rather earn it through increased revenue. Yeah. You know, I'm going to take this whole different way. There's another upside to individual stocks into doing fundamental analysis that I like, whether you win or you lose. I had a mentor early on, Paula, who loved, loved case analysis and taking companies and looking at how companies make decisions. And I find every time I dive into the fundamentals of a company and I watch how these professionals running this company make decisions, it just helps me in my personal life, you know, or situations that they get themselves into it.

I'll give you an example that we actually did for a headline on stacking Benjamins, which is cruise ships now are making money hand over fist, making money, huge money, hand over fist. But the question is, during the pandemic, they took on so much debt. They had so much debt. The question is, will they make enough money to overcome this debt hurdle that they had? Which, by the way, if we're looking at this from a personal standpoint, how many times have we had this where somebody hasn't built a foundation.

Crew ships had tons of time to build a foundation and make sure that if something bad happens, which inevitably will, that they have this pile of money to go to to hopefully get them through it. They didn't have that. They were worried about short-term shareholder values. So they were always ringing all the money out and making sure that shareholders got paid over the short term. And then the pandemic hit.

And wow. it nearly wiped them out. And I think following some of these companies and the moves they make can translate often to better financial decisions as individuals. I'll give you another one. Your average CFO will take out a loan from a bank and they will go for whatever the best terms are, the bank will give them. And then they will pay off the debt, the loan in whatever structured way that best behooved

the company fast or slow based on what the best thing is for their company. When I see individuals talk about debt and they have a 15-year loan versus a 30 as an example, I'll ask them, why'd you choose a 15-year loan? Well, I didn't want to pay the loan off in 30. Just because you have a 30-year loan does not mean you have to pay the loan off in 30. A CFO knows that. They'll pay it off in five. They'll pay it off in seven. They'll do whatever. So they will structure things differently than the negotiation they have with the bank where an individual will lump those two things together in their head is one thing. I take out a loan that's 15 years from the bank means I pay it back in 15 years. A CFO sees those as two distinct and separate things going on.

Right, exactly. The term of the loan, the loan length is the maximum, right? That's the maximum amount of time that you've agreed to pay it back. That's not the minimum. It's not the required. It's not the repayment schedule simply tells you what the outer boundaries are. Yeah. And certainly if you don't trust yourself, then do whatever the bank says, you know.

But if you can set up a payment schedule of your own, how powerful is it to set your own repayment term that behooves your own financial situation and then just take the bank for whatever they, you're so much more empowered. And right now, you know what's happening? Cheryl's going, restricted stock units? How do we get here? We have strayed pretty far from that question. Yes. It's called squirrels, Cheryl. Squirrel.

But Cheryl, to answer your question directly, given that this is such a small part of your portfolio, given that this is the speculative portion of your portfolio, I think if you want to hold on to this, if you believe in your company and your analysis of your company checks out, may as well. Fundamental analysis is the science experiment, Cheryl. That would be the least clickable headline, I can imagine. Fundamental analysis as a science experiment. Very clickable by a small niche, though. there is a niche that goes, ooh, these are my people.

So, Cheryl, I think you've got the answer from both Joe and I. We both give you the thumbs up so long as this is confined to the speculative portion of your portfolio. When it comes to the tax implications, by the way, the difference between restricted stock and stock options are that for most people in most situations, which is my little, asterisk that you should speak with your own tax advisor about this. But in most situations, there's far less tax planning you can do because the moment that that restricted stock unit vests, it then enters into your tax picture regardless of what you do. So in other words, it's just going to happen. When they hand you, hey, we're handing you restricted stock, Paula.

You get 100 shares this year, 100 shares next year. This year, you're going to have the implication of the 100 shares. next year, the next hundred shares next year. So regardless of what you do with the stock after when it becomes unrestricted, which is really what she's talking about because while it's restricted, she can't do anything anyway, the tax implication is what it is. It just is what it is, which I emphasize because if somebody works for the unicorn company, and I don't know if unicorn's the right work because it's not necessarily better,

it's just different, but there's very few of them. This is my point. If they work for one of the few companies still using stock options versus restricted stock units, that's a whole different game. And you can then, after those become unrestricted because stock options will also vest, you can then play some tax games with stock options that you don't have the opportunity to do with restricted stock units. Nice crash course in stock options versus RSUs. Bam. So thank you, Cheryl, for asking that question. Enjoy this science experiment.

I think Cheryl's question put the fun in financial. I think you need to learn how to spell. Put the fin in financial. I don't know. Put the fun in fungible. The word fungible just makes me think of a sponge, doesn't it? If something's fungible, I feel like I can press it and water will come out. If it's non-fungible, then it's much more like a stone.

That sounds far less fun, non-fun. Well, and lately, if you're in non-fungible technology, it hasn't been much fun lately. It was fun for a while. Also, less fun. Have you seen all the insider trading happening there, too? All the people that are beginning to get persecuted in the... NFT space. Persecuted? I believe it's prosecuted. Both. Yeah. Yeah. Doesn't have to be either or. I'm sure they feel persecuted while they're being prosecuted. But yes, yes, thank you. Lots of insider trading

issues that have happened there. Oops. It's fascinating. The parallel industry that has emerged in cryptocurrencies and how it's like a parallel financial. Is arresting people? is what? Is arresting people? It's a new industry. Yeah, parallel bars. We'll come back to this episode in just a minute. But first, our final question comes from Julie,

and she has a question about the potential for maxing out her HSA. Here she is. Hi, Paula. Thanks for all the great information. I've learned so much from your show. I have a question about optimizing short access, short and time access to an HSA. Long story short, my company is currently undergoing a change. At the same time that my husband is starting a job with a new company, his company offers a high deductible health plan with an HSA.

Currently, my company has a QS-EHRA in which we are reimbursed for expenses for a plan that we buy on the market every month. Obviously, we are really excited about the potential for an HS-Day. We've never had one before, but we know that it is a great buyer vehicle, retirement vehicle, and we really want to max it out. Fortunately, though, my company is undergoing changes right now, and we expect that after about a month of my husband having the HSA, my company is going to be offering new full coverage insurance. I understand that we cannot have the HSA when I have access to other full coverage insurance. So here's my question.

If for that one month that my husband is employed with this new company before my new benefits take place, can we max out our HSA in that month? You know, put all of my husband's paychecks to maxing it out at $7,300. And then immediately the next month, we will no longer have, you know, be able to contribute to the HSA because my husband will now, and I will have coverage through my job. Can I do this in a month span or do the limits and rules around the HSA apply to the entire calendar year? We have so many changes going on. It's a little bit confusing, and we know from your podcast that we really, really want to maximize that HSA, if we can for all of tax advantages.

So I'd really appreciate your and Joel's feedback and advice on how to make the best of this situation. Thank you so much. Julie, thank you so much for asking that question. If I can restate your question, essentially what you are asking is, if you are a only HSA eligible for a fraction of the year, not the full year, can you contribute the full amount? Can you contribute the entire year's contribution limit if you are only eligible for a portion of the year? And unfortunately, Julie, I've got some bad news for you. The HSA contribution limits are prorated. So your contribution limit will be prorated.

only to the amount of time, the number of months, in your case, it sounds like one month, only to the amount of time that you and your husband are HSA eligible. The IRS has a chart on their website that shows you a table of what your contribution limits are based on that prorated schedule. That's the bad news. There is some good news, however. or at least there's some neutral news, number one, I would talk to HR and double check the assumption that once you, you yourself, receive this new health insurance from your employer,

double check the assumption that this means that your husband would have to take your insurance and therefore would have to drop his and therefore he would no longer be HSA eligible. For example, some employers will only provide health insurance to spouses if that spouse has no other way of receiving health insurance. So if you have two people, two individuals who are married, and each individual is offered health insurance from their employer, then per the guidelines of some employers, some not all, but some, per those guidelines, each individual must accept the coverage that they are offered by their own employer and cannot cover their spouse if that spouse has an alternate way of getting insurance. It's essentially a way for companies to avoid paying the insurance premiums associated with a spouse, right?

So if that is the policy that either you or your husband's company has, that's just something to look into it, something to talk to HR about, because it might be the case that you would lose eligibility based on your health insurance, but your husband would keep his based on him staying in an HSA eligible plan from his company. So that's at least something to check with H.R. about. This becomes some real spaghetti, Paula, because, and I will give you this for the show notes, this is from a blog, hsatoc.com, which dives into some of the problems around spousal benefits when it comes to having your own HSA eligibility.

One is if your spouse has a flex spending account, even if you don't want to be covered by that because they're eligible for it and they have it, that can affect your HSA eligibility. However, I like this idea of if we don't sign up for coverage through my spouse and we do these independently, you know, often, often adding a spouse if they are eligible for insurance through their own company, the spouse's insurance will charge more money for that versus going with his company. So I'm with you, Paul. I think there's more that they have to dig into here.

Yeah, the good news is that there is at least a chance that your husband might be able to keep his health insurance and therefore keep his HSA eligibility. But the bad news is that assuming that both of you lose HSA eligibility after one month, So, Julie, to your direct question, under the assumption that both of you are only HSA eligible for one month, that means that your contribution limits are going to be prorated to that month. And again, there's a chart on the IRS website that will tell you exactly what that prorated amount is based on your age and the amount of time that you're in the plan. We will link to this in the show notes. You can subscribe to the show notes for free at afford anything.com slash show notes. Julie, the last thing that I'll say, and this, I'm saying this for the benefit of everyone who's listening.

So we've talked about prorated HSA rules. There's also something, and Julie, this wouldn't apply to you, but there is also something that is referred to as the last month rule, the HSA last month rule. It is applicable to individuals who are HSA eligible on the first day of the last month of the tax year. So for most people, that would be December 1st. If you're eligible on December 1st under the last month rule, then you may be considered eligible for the entire year. But there are more asterisk involved in that. You have to also be covered by an HSA the following year. You can't simply be in an HSA, let's say enroll on November 30, disenroll on December 7 and consider yourself eligible for the full year.

It doesn't work like that. But I'm throwing this out there not for you because the December 1st, the last month rule is not going to apply in your situation. But I am throwing this out there for the sake of anyone who's listening who might enroll in a new health insurance plan during an open enrollment period, join an HSA eligible plan, be eligible on December 1st, be covered on December 1st, and want to make a contribution for that year. So basically, Julie, not for you, but for anyone listening who is wondering about their own HSA contribution limits, check out the last month rule and see if that might cover you. But for you, Julie, that's not going to apply to you. So you'll have to prorate your contributions. But I love your spirit. I love the fact that you want to shovel so much money into a tax-advantaged account.

I think that's wonderful. And that's the type of thinking. It's the type of spirit that will lead you to long-term big-picture financial success. So thank you so much for asking that question. Best of luck with everything that you're building. Joe, we've done it again. We did it. Absolutely.

I think, Paula, you and I put the fun in finance today. Oh, my. Yes, because a joke becomes funnier, the more you tell it. Just take out the hammer. Ah, yes, repetition is what makes for great comedy. As we all know. Or a very bad comedy, either one. On that note, by the way, we were having a discussion at dinner last night.

I told Cheryl that instead of getting down about stuff, she should just embrace her weaknesses. So she gave me a hug. Oh. Which was horrible. Not a good, not a good night. Anyway, yes, we did it. All right. If people want to hear more dad jokes, where can they find you, Joe?

Staggy Benjamin's podcast every Monday, Wednesday, Friday with the incredible Paula Pant, On most Fridays, we have some fantastic guests coming up. We're talking to Nicole Lapin, the amazing Nicole Lapin. Oh, yes. About problems she's had with the Ramsey organization. And there's a big question, though, Paula, so few people listen to financial podcasts, does it make sense for us to point fingers at each other and call each other out? Like with so few people that listen to this, don't we just need more people with financial literacy?

And so Nicole and I have a fantastic discussion. about whether that makes sense or not. We also are talking to Ramit Sadie early next month. And on my book tour, I got to hang out with the Mr. Money Mustache. We talked to Pete about a couple of his fantastic blog posts lately. The old argument, is real estate or stock investing better? We dive into that with Mr. Money Mustache. Wow, you've got a great roster of guests coming up. And the, did I say polipanth, though?

We had polypane. Yes. Well, thank you, Joe. I'm honored to be in such great company and also to be around you. Oh, well, thank you. Thank you very much. Stop. Keep going.

Stop. Keep going. It's brilliant. It's brilliant. All right. Well, thank you so much for tuning in. If you enjoyed today's episode, please do three things. Number one, subscribe to our show notes, afford anything.com slash show notes.

Number two, open whatever app you're using to listen. to this and hit the follow button so you don't miss any of our amazing upcoming shows, leave a review while you're there. And number three, most importantly, share it with a friend or a family member. If there was someone that you thought of while you were listening to this, please share this episode with them. Thanks again for being part of this community. My name's Paula Pant. You can find me on Instagram at Paula P-A-U-L-A-P-A-N-T. Beware. I have spammers who are imitating me on Instagram. So please, please, please, if you receive a DM on Instagram from someone who is claiming to be me, it is not me. I will never initiate a

DM with anybody ever on on Instagram. If I have not met you in person face to face, if we have not drank champagne from a coffee mug together, then I will never initiate a DM with you. So please follow me on Instagram, but be very, very cautious. I've had at least a Dozen imitation accounts. Like, it's playing whackamol here. We get one taken down. You know, we report it to Instagram. We get one taken down. One comes down two more pop-up. It's this eternal game of whack-a-mole. It's been going on since October. All right. That's my piece and I've said it. I think I've just scared everybody off of Instagram now. But I do want to put that disclaimer out there, that warning. If you don't want to follow me in Instagram, you can subscribe to the show notes and get updates there on what's happening. You could still do both. Oh, yeah, you could do both. You could do both. Nobody, to the best of my knowledge, is imitating me in the show notes, though. Thank you so much for being part of this community. My name is Paula Pant. That's Josal See hi. He just made a face because he doesn't remember that this is radio and you can't see a face. Oh, bam. See you. And we'll catch you in the next episode. Take care. Here is an important disclaimer. There's a distinction between financial media and financial advice.

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Now, I want to, uh... Stop smoking. I know, right? Smoking hot. Duh.