Afford Anything - Ask Paula - How to Invest Your Tax Refund, Save for College, and Avoid Massive Pitfalls

Episode Date: March 13, 2017

#68: My buddy Joe Saul-Sehy, host of the Stacking Benjamins podcast, joins me this week for another episode of "Ask Paula (and Joe!)" -- in which we workshop through questions that came from you, the Afford Anything community. This week, Joe and I answer questions such as: - I'm getting a $2,500 tax refund. Should I use this to invest, repay debt, or upgrade my home? - I'm debt-free (except a reasonable mortgage) and maxing out my retirement accounts. What else should I be doing? - I've started savings accounts for my two daughters, ages 3 and 6, so that they can access this money for big-ticket expenses when they're young adults. How should I invest this money? - I'm interested in socially responsible investing. What specific funds should I look at? - What's your opinion of high-dividend ETFs? - What's your opinion of using whole life insurance as a 'creative' wealth-building strategy? Enjoy! -- Paula For more information, visit the show notes at https://affordanything.com/episode68 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. And that's true, not just of your money, but also your time, energy, focus, attention, any scarce or limited resource in your life. And I am not saying this to promote a scarcity mindset. On the contrary, I'm a big believer in abundance in every facet of your life. But I also recognize that we've got to make choices. We've got to make decisions. And this show, the Afford Anything podcast, is dedicated to learning how to make better, smarter, wiser, decisions so that your actions can align with your values, your priorities, the type of life that

you want to create. My name is Paula Pant, host of the Afford Anything podcast, and today I am answering questions that you, the community, have sent in. And I am bringing a buddy of mine along for the ride. His name is Joe Saul Seahy. He's the host of the Stacking Benjamin's podcast. And he and I, we've been good friends for many years, are going to be co-answering your questions together. So let's take it away. Joe, what's happening? Paula, you're happening. Ooh, I am happening. I'm so hip and happening. Has anybody ever said that since like the 1980s? I don't know, because everybody that knows me knows. That's where I still live, Paula. I'm hip. I broke a hip. I got my members only jacket on. I got the big comb in my pocket.

If I had hair, I part it down the middle. But half of our audience has no idea what the hell I'm talking about. I'm totally imagining John Travol. Vota in Greece. That's a little old. You got to come back to the 80s. She immediately goes like two decades before, thanks. That was two decades before? That was a 60s.

Well, I mean, they were looking at the early 60s or late 50s. I don't know what the time frame was, but that's the time frame. I'm talking about Duran Duran, you know. That was big comb and parted hair. Oh, absolutely. Right down the middle. I always associated the 80s with like Paula Abdul and New Kids on the Block. And who else?

I don't know. I don't remember much of the 80s. That was maybe the cool 80s that you were looking at. I was part of the Dorky 80s. I remember going to a festival. Listen to how dorky I am. Going to a festival with a couple of friends of mine. And I remember taking a boombox.

Remember the big old boombox? Oh, yeah. Take the bootbox and carrying it around the festival on my shoulder. Like I'm about to be John Cusack on that movie where I'm holding the boom box up. Does anybody even know? You have no idea what movie I'm talking. I do not know that movie. But I'm totally picturing myself at a festival right now, just walking around with like a Bluetooth speaker or maybe an Amazon Echo. Right, right. Alexa, where the heck am I?

Hey, Alexa, are we ever going to answer any questions from our listeners? Oh, do we have to do that again? We did that last time. I know, right? I'm actually excited about that. Cool. Why are you excited? Because I like answering questions. And it's funny because I think that we all, I mean, to go from our little slapstick to Sirius, I think, you know, I spent 16 years in the trenches as a financial planner. And what I know is that everybody's got the same question that they think is really dumb. And they're not dumb at all. Everybody's asking them all. And it's really cool that people are brave enough to ask questions. So I'm excited to give them what they're hoping for, or at least a portion of what they're hoping for.

I give you nothing at all of what you're hoping for. Right. But let me recommend a Duran Duran An album. Right, exactly. Awesome. Well, our first question comes from Kelly. Hi, Paula.

My name is Kelly, and I live in a suburb of Denver, Colorado. And being that it's tax season, I have a question about what would you advise me to do with my tax return money. I should be receiving a return of about $2,500 this year. and I'm wondering if I should allocate that towards my $30,000 student loan debt, which has a 6.8% interest rate. I also have a Roth IRA that I contribute to and try to max out every year. But I also am thinking, you know, I bought a house about a year ago, and maybe I should start making some improvements to that and buy a new washer dryer, make renovations. So I'm having a hard time deciding.

My emergency savings is pretty well set, but I am not the best monthly savings. So it would be hard for me to save up for renovations and improvement. So I'm wondering if I should allocate this lump sum to this. I really want to pay down my debt, but I also want to save for the future at the same time. So I'm kind of having a hard time figuring out what to do. So should I split it up? Should I allocate some money to the Roth and some money towards appliances? Or should I throw the lump sum at one thing to just knock it out?

Thanks so much, Paula, and I hope to hear from you soon. So what should Kelly do? Oh, thanks. Just throw it right to me. I know, right? You know what it is? I think I'm used to this interview style. So when I've got you on the show, I'm like, my brain is like, I must be doing an interview. Okay, ask question. Go. Well, I know that you'll be answering part of this too.

But you know what I think? I think there's this thing. Let's explain how I'm going to answer the question first because I think that's what most people really want to know, right? Kind of what we're thinking. Exactly. Because a lot of people are in the same spots. There's this thing, Paula, that I call the risk premium. I don't call it.

I didn't come up with that, believe it or not. But it's the risk premium. And that is, if I take the money and I do something else with it, what's, am I getting a high enough rate of return that it makes sense? So in other words, if I take money out and let's say that she puts that money in the Roth IRA, right? The $2,500 that she has. If she puts that in the Roth IRA, maybe, you know, she's going to be conservative.

We should look at an 8 or 9% rate of return, long term, you know, You could make a case for 10. But even then, if she's got student loans at 6.8%. The risk premium between those two for me isn't high enough to invest the money. So she should definitely pay down the student loan or refinance the student loan to a lower rate if she's going to do something else. The house stuff, I understand what she's saying about not being the best monthly saver. I'm somebody who's definitely not a natural saver.

So you know what I had to do? I had to go and find out a lot about automation because automation has saved Joe's bacon. It's been so fantastic. And what I do, because if I get $5 in my hand, it is gone. So I always make sure the money's never in my hand. I have my wallet right here and I have no cash. And I make sure of that because even though I'm responsible with credit cards, for some reason, cash just goes through my finger.

So here's what I like. I like setting up just like Kelly probably has a 401k at work, maybe. If she has that, set up the same thing with monthly savings into the house fund, maybe save a little bit there. If she wants to do it in a more playful way, she can use some of the cool apps that are out there like digit or tip yourself. I like tip yourself whenever you do something good like you work out on a day, you tip yourself 10 bucks like you're tipping a waiter, you know?

And then money automatically moves from your checking account or whatever account you establish over to the tip yourself account, which is a little harder to get at, and you know that that's your set up the house fund. So for the house, I think I would automate and I would put all of that money that $2,500 toward the student loans. Yes, I agree. I would not put the $2,500 towards the house either because given that it's her primary residence and, you know, it's not a rental property. She's not going to make a higher return on it by virtue of doing any type of improvement. So any spending on your personal residence is something that I see as an expense, you know, not an investment. And that's not to say that an expense is bad per se. It's just that if she's considering between two investments or an expense, I mean, my natural inclination is go for the investment.

Yeah, mine too. She mentioned a washer and dryer. I mean, you can get a, at least for the time being, Kelly, you can get a used washer dryer on Craigslist for not that much money. And I actually really like Digit. I'll link to both digit and tip yourself in the show notes. But I really like that one because that also automates savings. It just pulls a tiny, tiny amount of money from your checking account, like $3 here, $4 there. And over time, it adds up into hundreds or even thousands. I actually just checked my digit balance the other day and it was like $260 something.

And that's after. And it was totally, it was totally painless all that. I literally didn't notice because, I mean, when the money is automatically flowing out of your account in $2 increments, over time. I mean, I just don't notice that. That's so cool. So, yeah, there's another thing that I wanted to say about this too, Paul, if you don't mind, which is that when people have $2,500 as a tax refund, they think of it as a windfall. A windfall is when grandma dies. Oh, well, I'm not saying it's a good thing, but I'm saying if she gives you some money, that's, that did sound awful, did that? It sounded very mercenary. I love you, grandma. But

grandma passes away. She leaves you some money. That's a windfall. You didn't expect it. You You didn't know grandma was going to die. All of a sudden you had this money. You didn't know you were going to have. A $2,500 tax refund is your money that the government's been hanging on to for the last 12 months. It's not a windfall. So make sure you don't treat it like, I got $2,500. I'm going to the sizzler.

To the sizzler? Is that where you go when you go high dollar, like bling, bling? Next question, Paula. Man, I got to take a trip out to Texark, Canada to visit you. We have the most fun in Texark, Canada. You know, the other thing, actually, you know, Joe, I wanted to ask you a question, though. So I totally agree with you about the risk premium. The 6.8% on a student loan versus, say, if you're going to get 8% over the long term in an investment,

the difference between those two is so small that the certainty of paying off a 6.8% loan as compared to the risk or volatility of possibly getting a long-term 8% annualized average. I mean, you know, making X on a treasury bond is not the same as making X on a share of Facebook stock. You know, that's where it. Can't justify it. Exactly, exactly. That's totally where that risk premium comes in. And that happens not just in stocks, but also in rental properties. You know, people are like, oh, this rental property has a much, much higher cap rate. And I'm like, yeah, but what is that relative to the risk of that neighborhood? Because a class A property and a class D property are like, hashtag not the same thing. So I'm a big fan of thinking about the risk premium. So thank you for bringing that up. My question to you, Joe, is how would you, given that she's going now also, in addition to the return, she's also going to get a tax benefit from putting money into a Roth IRA. How would you bake that in?

Well, she doesn't, she doesn't get a benefit today. I mean, she's going to get a benefit down the road. So I think I completely discredit the tax benefit. Really? But it's a huge benefit. Like all dividends and capital gains for the rest of her life, her tax exempt. And given her voice, she sounds young. Kelly, you sound young. that's good no you know what um we can do that homework too and we can talk about how how that it just it's it's extra math that i think when people start to get in the weeds with well i got this piece of math i got that piece of math we avoid the the the most important thing which is getting something done and even after the tax consequence of getting that done you know there is something i guess there paula and the thing that i don't know is how close is kelly to reaching her long term goal that she's putting money away for in the Roth. If she's, you know, desperately far behind on that and she's, you know,

the student loans are going to be handled in a reasonable amount of time just based on the monthly payment she's making, okay, then maybe I, maybe I'll say, all right, you're so far behind Kelly on your retirement goal that you should pop that money in the Roth. But I think it's less about the tax strategy for me than it is about what are you hoping to achieve and how are you on that trajectory? Yeah, okay. I'll, I'll second that. I'll vouch for that. that. Because that is something that I say on the, on the show quite a bit is don't make investment decisions based on taxes. Make the investment decision or more broadly make the financial decision that you're going to make and then figure out how to tax optimize it. So don't

let the tail wag the dog. Oh, and you totally see that, right? You see people say, well, I only save my 401k. Well, why do you do that if you're going to retire at 50 years old? It doesn't make sense. They said, well, you know, it's, it's the best tax shelter that I have available. Yeah, but you're going to have a heck of a time getting your money at age 50. You're going to use these IRS rule 72T or the SCPP rules. I mean, it's going to be messy to get your money. Yeah, you know me. That comes up every time you and I talk to. Yeah. So, so I don't want to have to use any of that stuff. You're right. And in that case, you and I both see it all the time. Tax is wagging the dog. That's good. Yeah, yeah. I hear that

too from, I get a lot of questions from people who are like, what's the, like, the way that questions are framed. Sorry, Kelly, we're totally not talking about your question anymore, but just more generally, the way that a lot of questions that I get are framed is like, here's option A, here's option B, here's option C, which of these would give me the best tax outcome? And I'm like, well, don't you want to know the best overall outcome? Right. It's funny. There was a guy in Detroit when I was on television there for a number of years. He had a great rate. radio show in town. And I remember him telling his listeners that the tax bill you want is his Bill Gates tax bill. We all want Bill Gates tax bill because that means we have oodles of money. So

don't worry about taxes first. We worry about getting Bill Gates money. Yeah, exactly. Exactly. If you're paying a boatload in taxes, you're doing something right, you know. Right. Good stuff, Kelly. Great question. Yeah, cool. All right. Let's head to our next question. Kelly, thank you for asking that. And our next question comes from Colin. Hi, Paul. My name is Colin. I love your podcast and your online blog. I look forward to both with them every week. I have a pretty general question for you, but maybe you'll be able to give me some insight with some of your expertise. Let me tell you a little bit about my situation. I'm 28 years old. My wife is 27. We make a household income of 135,000 per year. We have 20,000 a cash emergency fund and additional 55,000 in cash savings. We have 10,000 in our health savings account, which we max out our contributions to that every year. We have 20,000. We have $20,000. We have $25,000. We have $25,000. We have $25,000. We have $25,000. We have $5,000. We have $5,000. We have $5,000. We have $5,000. We have $5,000. We have $1,000 28,000 in taxable brokerage accounts, 34,000 in our two Roth IRAs, both of which we max out our contributions to every year, 35,000 in my 457 account. Additionally, we own our home, which is valued at approximately $290,000, with an outstanding mortgages of $106,000. We have no credit

card debt, no auto loans, no student loans. We've been able to pay them off. We're very fortunate. We're in the process of trying to pay off our mortgage as well. Lastly, I have a pension through my workplace, which I get 50% of my yearly average of my three highest earning years after 25 years of service with my employer. My question for you is, what else should we be doing? I feel like we're on the right track. I feel like we're doing all the quote unquote correct things, but is there something I'm missing? Is there any insight or any advice you can give us on things we might be missing? Thanks, Paula. Keep up the good work. So, wow, that's a lot of numbers. That is a lot of numbers. And a nice, you know, 28 years old. And he and his spouse,

have done that many cool things. That's awesome. Did he say 28 or 27? I thought he said he's 28. His spouse is 27. Ah, well, you know. I don't know. Do you think I was listening? Well, we'll take the average. We'll say 27 and a half. There we go. Yeah, that is awesome. Colin, for everything that you and your wife have built by your age and you're super on the right track. You're doing everything right. Yeah, I agree, Paula. I think he's doing a lot of stuff right. But you know what I missed, what I didn't get from Colin? And this is, because I don't know if he's doing well or not, frankly. I mean, he's doing a lot of great stuff.

He's got a lot of great numbers. You do some of these compounding interest, like the rule of 72 things with his net worth. And you can come out with some seriously big numbers depending on, you know, how long it is until he needs that money and exactly how he has it invested. And that's the piece that I don't know. You know, when I became a financial planner, I learned that it isn't about what you're saving as much as it's about what you're trying to do, right? You can Colin and his spouse can have all of these fantastic plans. They can have everything taken care of. But if they don't know what they want to do with that money, that's where the inefficiency comes in.

Because really, if you start off, I believe, with a goal-based plan, I had some people tell me, well, more is more, Joe. I kind of agree with that. But if I need money in two years, and I have money in a spot that historically has been really volatile over a two-year period, but is really more of a 15-year type investment, I'm in the wrong spot. So as an example, Callan has $55,000 in cash savings. Great if he needs that money in the next couple of years, but horrible if that's 15-year money.

I don't know how, you know, the HSA is fantastic. The taxable brokerage account, $28,000, we talked about taxes earlier. if we know what the goal is and we know that goal is way in the future, we can look at whether making sure that's in a tax-advantaged account makes sense or not. And that's the piece that I don't know. I think what's important for Colin is to put timeframes on his goal and say, and this is a really easy equation. It's, I need to save X amount of money times Y return to get whatever the goal is. And what's cool is we know how much money he has saved and he just puts a goal on that money. and then he knows what the goal is.

Let's say he wants that money for, let's just say, financial independence at 55. Then we know, if we know how much money is saving, we know financial independence at 55, we can kind of guess about what type of lifestyle. Then the rate of return takes care of itself. And then instead of looking at all the investments that are out there, there's a little sliver the investments that are available that historically have been the type of investment that actually makes sense. And it's cool because then instead of Colin looking at the entire world of investments,

now he's just looking at what benefits him the most. And that's what I like. Yeah. Yeah, I totally agree. You know, like the 28K in a taxable brokerage account is the purpose of that to have, you know, is that sort of like an emergency fund in the sense that it's money that he can easily access, even though he doesn't plan on it, you know, is the purpose of that? It could be for any number of reasons, right?

you could have that money in there for any variety of reasons. So, yeah, what's that for? 10K in an HSA is not that much. That's one thing that stood out to me when I first heard that was, you know, pump up the HSA as much as you can because that's one of, that's like the ultimate tax advantaged account in a lot of different ways. And I'm going to link to an article in the show notes about like the many, many, many levels of tax advantages that come from an HSA. But for the most part, Joe, yeah, I'd echo

what you said. One thing that's, you know, stood out to me was he mentioned the pension that he gets, 50% of the yearly average after, I think he said, 25 years of service. But I never heard if, is that a goal or not? You know, that's a long period of time to be in service to a company. Do you call in, do you want to be there for that long? If you do, awesome. But yeah, I mean, at this point, Colin, you've got such good financial footing. And the whole purpose of building solid financial footing is so that you have a platform from which you could do anything. And so now that you're very well established, the question is not how do I become, how do I pour another inch of concrete on this already strong foundation? Like the foundation is poured. The concrete has cured. Now

it's, I've got the foundation. What next? Yeah, what am I building? Yeah, exactly. Ooh, that's a much better analogy. Well, you said, well, you started it. You said foundation. You started it. Yeah, I love what he had. You know, and we talked about not like in Texas, wag the dog, but besides that number in the HSA, how do you like the fact that he does have the HSA, the Roth IRA, the 457, and the money that's in taxable positions? Like, if I'm his financial planner, which I don't do that anymore. But if I was his financial planner, he's giving me a great, you talked about platform, a great platform to help him from because he's got flexibility.

He's taking advantage of great tax breaks today. But with the Roth, he's giving himself a lot of flexibility for tax breaks down the road, too. And even more than that, the HSA, like you said. Yeah, exactly. Oh, and then one last thing I'll just say is, Colin, I realize this answer is like a little bit broad and fuzzy and esoteric. So if you just want like a straight, flat, simple answer, when in doubt, you can always just pay off your house. That's what I tell myself every time. If I'm not sure what I want to do with my money, I'm like, well, when in doubt, I can always just pay off a

mortgage. And it may or may not be the best option, but it's certainly not going to kill me. I'm probably not going to be on my deathbed being like, I so regret paying off that mortgage. I could have gone to Sizzler. I could have been a contenda at the Sizzla. Yeah. You know, it's easier, though, Paula, than paying off the mortgage. What's that? It's very simple math, and there's calculators all over there.

Just take a look at where you're at in relation to your goal. It is not as hard as people make it. I mean, there's so many, all of the investment houses, Fidelity Vanguard, everybody, has online calculators, use one of those, figure out where you're at in relation to your goal. And I think. But what if he doesn't have a goal? Like, what if he doesn't know what that goal is? That's interesting because we were actually talking about that a couple weeks ago on the Stacking Benjamin show.

Amanda Steinberg from Daily Worth and I were having this discussion. And she's like, goals are overrated. And I went, whoa, wait a minute. But she said, you know, a lot of people get intimidated by having goals. I think it's realized that whatever goals you put down, realize that that's insane. And you can change it next year, next week of the day before. But I love having direction with my money. and I like having earmarks.

If I can earmark a dollar to a thing that I want, then if I decide I don't want that anymore, that just freeze the dollar up for me to do something else with. And my dad also, while I'm on my stepstool. Okay. My dad said that to me one time. He said, you know, why am I going to do this financial plan when everything's going to change over the next 12 months?

Well, and that takes planning and makes it seem like it's a point in time thing. Really, what planning is to me, it's like you're on a plane going to Europe, let's say. I mean, the pilot's adjusting the plane all the time. And I think that if you set up a plan out today and you say, well, guess what, the wind blew. And the wind might have been the market. The wind might have been my ability to save. I lost my job.

I got a raise. We had children. We decided not to have children. You know, we bought a new house. The wind could be a bajillion different things, a bajillion being the technical number. But that wind blows it off course. Then you just tweak the plan again. And you're consistently, just like that pilot, tweaking which way the plane's headed.

Yeah. And I guess, well, depending on the type of pilot that you are and the type of plane that you're flying, if you were flying towards Europe and you decided that you wanted to go to North Africa or, you know, you wanted to go to even further and push into Asia, you could still do that too. Yeah. And then your bosses at United would be so mad at you. Yeah, right. But if you ever phone Spirit Air, whenever I'm on Spirit Air, I'm afraid we'll end up in Djibouti or somewhere when I'm only headed to Tampa. I got stranded in Columbia because of Spirit Air once. And not my favorite airline. I got completely stranded.

The pilots went on strike. And so Spirit just canceled the flight because the pilots were on strike. And then they wouldn't book me on another flight or, you know, like they wouldn't help me out whatsoever. That's cool. Yeah. Because that's customer service. Exactly. And, oh, and here was the rough part.

It was a pre-planned strike. So at the time that I bought the airline ticket, they knew that the pilots were going to be on strike. And yet they never even warned me. So on the day before my flight, I get this email saying, sorry, pilots on strike. Flight's canceled. And you're stuck in Columbia. Oh, that's so bad. Oh, I'd be so angry.

I know. I know. So ever since then, I've referred to them as kill my spirit. I felt the same way. You know, I'm not the world's tallest guy, but I am 6'1. And when I used to fly spirit sometimes, you know, I'm eating my ankles and my knees because it's just a cattle car. I get on and I just want to go, as I'm going down the walkway.

That is one thing I've got going for me. I'm five-one, so I'm travel-sized. You really are. All you've got to do is make sure the plane is going where you ticket says. I end up in Togo. What am I doing here? All right, cool. Well, our next question comes Joe. Our next question comes from a guy named Joe. Oh, smart guy. This is my favorite guy. Hi, Paula. This is Joe, calling from Ohio. I recently discovered your podcast and been going back and downloading all that it seemed

apply to me. I started stock accounts for $2,500 for both of my daughters around the time they were six months old. My oldest daughter is now six, and when I started investing, I tried to read a lot of news and play the market. After losing about $1,000 in the first year, I've now recovered to the original $2,500 balance. My other daughter's account I was smarter with and have made almost $1,000 in just three years, so it's sitting slightly under $3,500. I've been listening to your shows with Andrew Hallam, Phil Taylor, and Jim Collins. Sounds like index funds are the way to go, particularly the Vanguard funds.

My mother-in-law started $20,000 college funds for my daughters shortly after their birth, which hopefully grows enough to cover college costs 15 years from now. So I'm hoping they can maybe use these stocks for graduate school, their first down payment on a home, or even leave it being, continue to grow and invest. Should I sell all of their shares in the various stocks I have and invest in the Vanguard-type index fund?

Thanks, Paula, and keep up the great work. I can answer this in one word. Yes. Tadda. In my opinion, and as you probably know, since you've listened to my interview with Andrew Hallam and Jim Collins and several the other interviews that I've done on the show, I am a huge fan of passively managed index funds, particularly Vanguard, but I also, yeah, I like Charles Schwab, too, and Fidelity. You can't go wrong with any of them. But as far as if you're starting from scratch, Vanguard is a co-op, which means that it's member-owned. If you're familiar with the outdoor recreational clothing store, REI, it's a similar business model.

Vanguard is the REI of brokerages. So it's member-owned and offers on par with Charles Schwab and fidelity in terms of lowest fee index funds that are available out there to the general public. So that's what I recommend to everybody, and it's where I keep my own money. The REI. Yeah. And they don't have any type of affiliate program. They don't do any type of advertising. Like, you know, a lot of people who have public platforms don't talk about them because Vanguard

does not pay people to talk about them. So when you – I actually – when I hear another person who speaks publicly about money recommending Vanguard, to me, what that brings up for me is that I trust them more because – there's just no financial incentive to do so. Yeah, Vanguard is fantastic. I kind of think that's putting, I mean, for me, it's a little bit of putting the cart before the horse. I like Vanguard, but once again, I'm not sure. I'm not sure what investment I want to use until I know, and of course, in his case, I know the time frame, right?

We just talked about that. I want to know the time frame. I want to know how much money I need. I want to know what rate of return I'm looking for. And then I choose the investment. Don't get me wrong, Vanguard then appears in a lot of those screens, but I'm choosing that second. You know the question he didn't have? What's that? He said that his mother put away $20,000 in 16 years that he was hoping that would be enough money for college.

And here is the number. If we use this thing, it's called the rule of 72, and we pretend that he's going to get a 9% rate of return. What the rule of 72 does, Joe, it's this mathematical, magical equation where you take the interest rate you think you're going to get divided into 72. And it tells you how long, roughly, it's going to take your money to double. So we think you're going to get nine, nine into 72 every eight years. Guess what? That means that money's going to double twice. So that means that's not $20,000. That's $40,000. That's $80,000. And if it's in state public school, I've got twins that are 21 years old.

My daughter's graduating now. My son's going to graduate in December. You're maybe close. But if it's a private school, there might be a lot more money there. So I'm not really sure that I buy that that's enough money for college. But that's the question he didn't ask. Right, right. And that's a very good point.

Yeah, so the rule of 72, it's a good rule of thumb in terms of, as you said, Joe, estimating how long it will take money to double. The biggest problem with it or issue with it is it's so theoretical. And what typically happens is that people underperform the market because they get nervous. are scared or move money around. Behavior hits. Behavior hits, exactly. So rule of 72, yeah, if you're getting an 8% long-term annualized return, your money will double approximately every nine years.

If you're getting a 9% long-term annualized return, your money would double approximately every eight years, and so on and so forth, just whatever it is that multiplies together to hit 72. But that's assuming that you don't touch that money, you don't panic and sell when it's low, you don't get swayed by some charming talking head who convinces you to move everything into gold coins and commodities. Yeah, that's assuming a lot. We're looking at you, Len Penzo. And so I would say that in addition to needing to make a big enough contribution, the second piece of making sure that you have enough for when your daughter's turn 18 is protecting yourself from yourself.

one of the reasons that I've become increasingly more and more of a fan of Vanguard's target date funds, not all target date funds because at some brokerages, they're just expensive. But the reason I'm increasingly a fan of theirs is because it's just so simple. It's just set it and forget it. And even though those funds are designed to, like as quote unquote retirement funds, if you know the timeline and you know that you want to withdraw and start spending that money in approximately 15 years, you know, when your daughters become adults, then, all right, well, we know what that target date is. And you can just set it there, forget about it, and not risk kind of becoming your own worst obstacle, which is what happens to most investments. Well, and it's cool

to hear Joe ask this question and getting away from it because a lot of people do what he did where they think they're a stock jock. And they, you know, buy the stuff that either the person next to them at work is buying or something that they see some talking out on TV talk about. And you learned the hard way like Joe did that that's not the great way to wealth. So I like that too. And by the way, you're being very, very nice when you say that some target date funds aren't like vanguard. I think what you meant to say is most, most target date funds are grossly expensive and just ugly, ugly bears. So if you see a target date fund in your 401k that's by some other family other than Vanguard, I might go to, you know, a great place to go is this website morningstar.com.

and you can put in the name of the fund, and it'll tell you how expensive that fund is. And if you compare it then to the Vanguard Target Day fund, you'll get a good idea. You know, they're not all going to be as cheap as the Vanguard fund is, but you want it somewhere in that range if you're limited in your 401k by the choices that you have. But most of the time you're going to be surprised in a really ugly way. Yeah. And I'll link to that in the show notes. That's available at affordathing.com slash episode 68.

And the other thing that you can do, if you're looking at the perspectives of any fund, is the keywords that you want to look for are expense ratio. And you basically want that number to be as low as possible. The lower the better. Right. It's like the expense limbo game. How low can you go? Speaking of that, you know, and this is something a lot of people don't know. Do you know that Vanguard, although most of their index funds, are incredibly cheap, they do not have the cheapest S&P 500 index fund?

Did you know that? Yeah, you know, I know that Vanguard and Schwab are often in like a race for the bottom where one of them will lower their expense ratio by like one tenth of a percent. And then the other, a few months later, the other one will undercut them by another one tenth of a percent. And they both like continually try to undercut each other in this race to the bottom in fees. Right. Right. Right. The customer is always the winner in that. Yeah. In this case, it's neither of them though. I shares, Black Rock's I shares, another huge. huge investment family with very low fees when it comes to their exchange traded funds. Their ticker symbol, IVV is the lowest expense exchange traded fund when it comes to the SMP 500 specifically. Oh, nice. Cool.

I would like to that in the show notes. I think I have some IVV through TD Ameritrade because my HSA is with HSA bank. And HSA bank only allows me the option of two different brokerages, one of which is TD Ameritrade. So I move my HSA money into a TD Ameritrade account, and then I put the money from that TD Ameritrade account into Ishares IVV. Bam! High five. So that's what I do. Great question, Joe.

I think Joe gets dad to the year for even thinking about what he's doing with his kid's money. Fantastic. Yeah. And before I move on, I do want to mention that and kind of give a shout out to Joe and to all of the other dads and moms who are doing the same. same thing who have kids who are very, very young in diapers or in kindergarten and who are already thinking about how they're going to pay for college. That is freaking awesome. And what Paul and I are really saying is that if you want to adopt us and do the same with our accounts, we are more than happy, Joe, to be your child if you're going to take care of us. I would totally go back

to kindergarten. Actually, I don't think I would. Oh, I don't know, man. I love nap time. I'm a huge fan of nap time. But isn't it better when you can choose your own nap time rather than having the teacher tell you that it's time? That's right. That's kind of annoying. Yeah. Cool.

Well, thank you so much, Joe, for sending in that question. Hey, hey, we'll be back to the show in a second. But first, I want to give a shout out to Fresh Books. They have signed on as one of our main sponsors in 2017. And they have an awesome product. It's meant for freelancers, solopreneurs, small business owners. If you have a side hustle or if you're self-employed and you need to send out invoices to your clients, yeah, it's necessary. You've got to send invoices to get paid, but it's also annoying and it's time-consuming and nobody really likes doing it.

It's just one of those costs of doing the job. Inter Fresh Books. They automate the invoicing system. You type in some basic information and their system handles the rest. It automatically sends follow-ups to invoices that haven't gotten paid. It lets you know whether or not your client is. has even opened your invoice or not. Basically, they take the suckiness out of invoicing.

Give them a try for free for 30 days at freshbooks.com slash paula. That's freshbooks.com slash p-a-u-l-a. Our next question comes from Sherry. Hi, Paula. I love your podcasts. This is Sherry, and I have a question about socially responsible funds. Do you have a good resource that compares what these funds screen for, their expenses, and their yields? Are there socially responsible index funds? I would we be willing to take a little less profit if a fund stayed away from industries I'm not comfortable investing. Thank you.

Joe, you want to take that one? I can because, you know, the place that I go to for any screening is always Morningstar. I mentioned it earlier with, I don't remember if it was Joe's question or for whose question. Yeah, yeah, it was Joe's question. Yeah, but Morningstar.com. has two different parts. There's a free part that's available for everybody and it gives you not just the performance versus whatever index it competes against. It'll rank things on a star ranking from one star to five stars. That can be a little dangerous. What I like better is it tells you what type of risk funds take. It tells you whether it's large, mid-sized, small company stocks or bonds or whatever it might be. And it tells you how expensive it's going to be. So Morningstar also for

socially responsible funds also screams to say how socially responsible it is. And I'm not going to get that far into the weeds, Paula, but morningstar.com, I think the free part is what you want. Whenever they always ask you to pay and there's really nothing on Morning Star you need to pay for. Professionals may need to pay for Morning Star stuff if they're getting in the weeds. But for not, even when I was a professional, 99% of the time, I didn't use any of the professional stuff. I could use the free stuff and I was just fine. So a few funds out there that I'll point to, you know, exchange traded fund wise. I shares has, when we talked about I shares earlier, it's sticker symbol DSI. By the way, I'm not recommending any of these. I'm just kind of pointing out a few of the

things that are available. That's a socially responsible exchange traded fund, the expense ratio. And it's going to be a lot higher than Vanguard, Paula. But in the big scheme of things, when you're doing a lot of this work, when you start applying screens, you start applying people's hands to the work and put more machines in it. Guess what happens? It always becomes more expensive, right? When we look at, as an example, we look at emerging market funds where they're going to look at some of these not as liquid investment places. Emerging markets are always going to be way more expensive. So these type of funds are also more expensive. It's half a percent for the I shares, MSCI, KLD 400, socially responsible.

Flex shares also just open one. That's ticker symbol ESG, and you can check that out. Their expense ratio on that fund is 0.37, so that's a little cheaper. And then if you're working with a financial advisor, these are load funds, which means you pay an upfront fee to get them. So I'm not that excited about that. But if you work with a financial advisor, a lot of the time, you can get around the loads because you're paying your financial advisor a fee instead. Calvert funds is a fun family that's been around. They're probably one of the first families, Paula, that were doing socially responsible

investing. Calvert funds have a long history of doing that. And I'm looking at their flagship fund, the Calvert Equity Fund. They rate at three stars on a scale of one to five, which is, you know, average and the expense ratio just over 1%, which for a mutual fund, it's pretty run-of-the-mill vanilla. Okay, cool, cool. All right. So now that, so Joe and I, just so the audience knows, we talked about this question a little bit behind the scenes. And I asked Joe to directly answer the question with specific fund recommendations. But I wanted to make a commentary. Actually, I wanted to make two comments. One is that it's tempting to try to lump things into these like dualistic buckets of good and bad, right? Like this is socially responsible and this is not. But what does socially responsible mean to you? For example, if a company has great environmental practices, but they don't have great labor practices, are they socially responsible or not? Or vice versa. If they're fantastic labor practices, they're really good to their employees, but they create a lot of pollution and a lot of waste.

What does that mean? And how do you measure a lot? And also, what are your feelings about tobacco companies? What are your feelings about companies that sell alcohol? What are your feelings about firearm companies? And does it matter if the firearm company produces, say, certain types of firearms, but not others? You know, if they produce automatic weapons but not hit. I mean, you know, like this is where we get into the weeds in terms of, you know, we don't have two buckets of like good company, bad company.

We have a spectrum of a lot of really hazy choices. And I guess the reluctance that I've always had around making a blanket statement about any type of socially responsible fund is that the companies represented within that fund may or may not have practices that align with your own values. Tobacco companies being a perfect example, you know, I'm sure there are people who are listening to. to this podcast who have no problem investing in tobacco companies and who are smokers. And then there are probably also people who are smokers who do have a problem with it. And then there's people who, you know, you know what I'm, do you hear what I'm saying? Like there's a lot of murkiness here. Yeah.

Yeah. Yeah. You know, though, if somebody really feels strongly about lining up what they're doing with a socially responsible fund, I like what Sherry said. It said a lot of the time the returns just aren't there. And she's very comfortable with that. if it gets closer to what she believed. So I totally agree with you, Paula. You're probably not going to find without creating your own fund exactly a fund that completely aligns with your goals.

But some of these, they call them SRI, socially responsible investing accounts and funds and ETFs might be what she's looking for. Yeah. And that is the other piece of it, right? Like when I go to like Sprouts Farmer's Market, for example, I know that I'm generally supporting, or when I buy seventh generation or when I buy method dish soap. I know that I'm, I know that I I'm generally supporting an idea that I like. As an example, when I drink two bottles of wine on a Friday night, I'm supporting grape farmers. That is, that is, it's a pure investment.

I keep telling Cheryl, I'm like, I'm not drunk. I'm helping. Somehow that doesn't go over well, Paula. Oh, man. Okay. I think actually that says it all. I'm going to leave it there. That's why I don't get to do that very often.

So anyway. Do you buy those bottles at the Sizzler? That's right. Yeah, they're plastic and they come with their own little paper bag around them. It's really neat. Oh, man. And do you drive to the Sizzler at burning gas while you go there? Or do you take like a bicycle made entirely out of bamboo so that you didn't have to manufacture it?

My socially responsible bicycle, right? No. No. Using that, the polluting aluminum. carbon fiber. It's all the El Camino. I take the El Camino, dotted the sizzler, with my hair gel, and no. And you're a wide tooth comb. That's right. That's right. And my boombox on my shoulder. Your solar-powered boombox. So bad. Cool. Well, thank you, Sherry, for asking that question. I do think it's important to be conscious of

these issues. So thank you so much for bringing that up. Our next question comes from David. Hello, Paula. My name is David. I'm from Ronald Lake, Illinois, and I enjoyed listening to your Ford Anything podcast. I wanted your opinion on an ETF that I had brought. It's the Spiders, S-A-500 high-d-d-d-d-d-d-old-old-to-know-d-op-in-in-in-in-in-in-in-in-in-in-old. I just wanted to know your opinion on it, and I will be listening to your upcoming podcast for your answer. Thank you very much. Is he getting screwed? He is. You know what he's doing, Paula? What's that? He's losing three one-hundredths of a percent to a competitor. Three one-hundredths.

Yeah, he's losing a ton of money. No, I wouldn't lose sleep over that. You know, a competitor to the, they call it the Spider-S-P-500 high dividend, is the I-Shares product. We talked about how I-Shares beat Vanguard before and also beat what we call the spider, the Spider-S-NP-500 fund. Ticker symbol HDV is the I-Share's core high-dividend ETF. 0.08 and competes directly against the fund that he's talking about.

So what do you think about that fund in general? I have no thoughts about that fund, but I think that there's some broader topics here, some broader messages. And Joe, you had another thought as well, I know. I did have another thought, which is that, you know, when I look at a high dividend fund, I think if you're taking that dividend right now and you're living on it or you're using it for something. If you're taking that money down to the sizzler,

why does the sizzler keep coming up? That's all you, man. I don't know. I don't know if it is me, but we'll pretend it's me for now. But however, if you're using that money today, okay, I can buy the dividend because that's income that you're using to live on today. But if you're reinvesting that dividend,

which is a lot of what a lot of people are doing, I would make sure that that's in a tax advantage account. I could make a case for a similar fund that's not a high, dividend fund that probably gets a similar rate of return, but might be more tax-friendly if it's in what we call a non-qualified brokerage account, which means it's just in a regular account in your name and you're going to pay tax on it every year. Once again, we don't want taxes to wag the dog, but if you're not using that dividend, lots of more tax-friendly funds you can use instead of that one. Yeah, I would say the ultimate account for holding dividend funds is a Roth

type of account because anything that's within a Roth account, both the dividends and the capital gains are tax exempt. So they will grow tax exempt. And when you withdraw them, you can withdraw them without paying any taxes on any of the dividends that you've accumulated. So that's the ultimate account for holding high dividend stocks. I know people get really excited about dividends. They get really excited about capital gains. For me, growth is growth, right? Give me whichever one. I don't care if it's dividends. I don't care if it's capital gains. when people ask me about, and in fairness to David, he didn't ask this. But when people ask me, man, what's the best dividend fund out there? I'm like, why do you care if it's a dividend fund?

Yeah. You know, I really don't care. Return is return. And if it's a fund that reaches my goal, man, get it there however you want. Just like we were talking about your trip, as long as it goes to where it says on my plane ticket, right? If this fund gets me where I want to go on my ticket, that's a good fun for me. Yeah, yeah, I agree. And I think that's the broader point. that I wanted to bring out from David's question is exactly what you said, Joe, why the focus on a dividend fund? Because a lot of dividend funds, a lot of high-yield dividend funds, have overall underperformed just a basic total stock market index fund. And so if what you're going for is overall performance over a very long term. And again, all we know is what historic aggregate averages,

right? But historically, dividend funds have underperformed total stock market index funds. And so if what you want is performance over the long term, it seems to me like a total stock market index fund would be a better choice for that, unless there's some very specific reason that you do want a dividend fund. You know where dividend funds were great for me when I was a financial planner? If I had someone that just didn't get the market and they didn't get the fact that if you take your dividend and you reinvest it and you buy more shares, you can just watch. that dividend go up. So sometimes I'd use a high dividend fund just to show them because it was funny. A lot of people are from which state is the show me state, Missouri? Yes, Missouri. I had some clients

that were from Missouri. I had to show them that this is the way that it worked. And it was really cool because some of my clients that just didn't get investing and they thought it was all voodoo, I would use a dividend fund. I would explain how it worked that we were going to reinvest it. You know what? The fund's going to go up and down. But every time you get that dividend and you reinvest it, you're buying more share. So that dividend just over time is going to keep getting a little bigger, a little bigger, a little bigger. When that number is a big enough number that you can live on it, maybe, you're good. And people would get so excited then, Paula, they'd come into my office and they go, look, that's up to $34 every time. That is so awesome. We started off only getting $2,

and now we're at $34. It's amazing. Interesting. So this goes back to how did, whose question did we talk about the behavioral aspect. Was it Collins or one of the previous questions in this show. We've talked about the behavioral aspect. It was Joe, I think. Yes. The behavioral aspect of investing and how paramount that is. So that's what's interesting to me that you use dividend funds as a teaching tool because, again, behavior trumps math every time. Yep. Instead of not touching it, they were really excited to reinvest another dividend. Yeah. And did that help them reach their goal? It was really neat. Cool. But yeah, but from a mathematical perspective, Not so much. Yeah, yeah, dividend funds are kind of like, m'n-w-w-w-w-w-w.

All right, we have one last question, Joe. The big one. And then our time here must come to an end. Oh, already? I know. It just, it happens. These things happen. We must learn detachment and letting go.

Somebody cutting onions are out here because it's getting dusty. Oh. All right, our last question comes from Philip. Hey, Paula. I know that you've been very vocal about not liking permanent whole life insurance, but I wonder if you ever had an episode where you've talked about infinite banking and using whole life insurance policy as accumulating cash flow as a retirement vehicle. I'd love to hear you ring on a guest and debate both sides and talk through the pros and cons of using 401k and versus the infinite banking strategy. All right, thanks. Bye.

Oh, man. Oh, man. We have to get, there is no way, Paula, there is no way for us not to get into the weeds in this question. All right. Let's do it then. Let's embrace this. Everybody ready. So I do not think, and by the way, hear me out completely. I'm going to say a sentence, Paula, and people are going to immediately reach for the keyboard and they're going to get nasty. Listen to the entire thing before you write the letter to Paula. I think the majority of our listeners are like driving right now. I'd be really afraid if they were reaching for a keyboard. I so hope they're not.

Or maybe they're running or cooking or showering? I don't know. What do people do when they listen? Showering while they're listening to you or not. Maybe. I mean, mowing the lawn. I got to clean myself off after listening to this, Rivel. Right.

Here's the thing. I do not think that permanent life insurance is the horror story that a lot of people think that it is. Now, I know. I'm reaching for my keyboard. I know. I know. Whenever we say that on the Stack of Benjamin show, people always get, oh, man.

Oh, you said, no, no, no, no, no. Wait for the rest of it. Here's the thing. Every single type of insurance was created for a reason. And sometimes those reasons get bastardized by the. people that sell them. So because of that, we end up with a lot of people that are trying to put square pegs into round holes. But that does not mean that type of insurance is bad. It means it was sold incorrectly to the wrong person for the wrong reason. So just like I don't think, I don't think

multi-level marketing is bad. I think it's a way that products get distributed. So why do they seem like such a scam, such a pyramid scheme? Because the barrier to entry is super low. and you have morons who are selling it for the wrong reason. They're not selling the product. They're selling the fact that you can get something for nothing, which is wrong. There is no product that's something for nothing. Life insurance is the same. So I can't say that I'm an expert in this idea of infinite baking.

But I do know enough about it to know this. It can work. However, whenever something is super complicated, you know, there's this great financial guy in Canada. Canada. Oh, I thought you were going to go for a different guy because I was about to quote him to. Oh, no, no, no. I'm going for David Chilton, who's the wealthy barber. You know that guy? Oh, yeah, yeah, yeah. Yeah, David Chilton has this great thing that says if your financial plan doesn't fit on a napkin, like, if you're sitting at the sizzler, why do we do that? Can we go to like, I don't know, Applebee's or Chile? You know what? Can we go to some like locally owned, like Thai restaurant maybe? Get like a bowl of a really nice bowl of red curry spice level three or four. I am starving. Let's go now. But I got to keep it into zero because I'm very bland. I can't. My face turns red when I get to a one. Oh, Joe, you've never struck me as bland. Yeah. But I'm spicy in other ways, Paula. But here's the thing is that if David Chilton says, if you can't explain it to a friend on a napkin, it's too complicated. And the bad thing about infinite banking is yes, it can work. Yes, it can be effective. But it is. And I know. on their videos, they say that it's not complicated until you watch the video about them explaining exactly what it is. That's not the thing that bothers me about it. The thing that bothers me about it

is when you buy a whole life insurance policy to do the things that they're talking about, like against a car note or just living your life using whole life insurance to fund your goals instead of like a 401k, you're asking for it because of the fact that with a life insurance policy, it has to be funded correctly forever. And what do you and I know? Stuff comes up, right? Stuff happens in your life. And we can't predict what happens. And if you don't fund that life insurance, if you don't stuff it full of money every single year, if something happens, because you have the cost of the insurance overriding everything, the whole bucket of bolts collapses. Absolutely. And it ends up becoming a super big mess that you can't

extricate yourself from. Guess what? If things go really poorly with your four, man, I'm on my step stool now, aren't I? But if if things go really crappy with your 401k, you know what you can do? You go down to HR and say, I can't put as much in. If you do that with your life insurance policy, you're not destroying it just for two, three, four paychecks. You're destroying it a ton because you still have to pay for the insurance. And so can it be effective? I used to use permanent life insurance for some of my clients. And I'll tell you who I used it for. For people that- Oh, can I guess, can I guess? Yeah, bring it on. People who have such a large estate that they need to pass some of their assets on via life insurance in order to avoid the tax implications of inheritance. Bam, we did that.

Boom. Oh, got it. Got it, got it, got it. Oh, but that's not the, that's not the only one. There's one that's going to be uglier that you're going to get your comments about. Do you know the other one? Well, okay, I do know one other good use of whole life insurance. If you want to be cryonically frozen, no, I'm totally serious. I'm completely serious. If you want to be cryonically frozen upon your death, you can take out a whole life insurance policy and name the facility that does the freezing as the benefit. To pay for it. Yeah, exactly, exactly, because it costs, I think, between somewhere around $200,000, if I'm not mistaken, don't quote me on that, but somewhere between $100,000 to $200,000 for that procedure. And so for that reason, you could take out a whole life plan, name them as a beneficiary. That plus inheritance taxes for very, very high net worth individuals who have millions to pass on. Those are the two legitimate uses for Whole Life Insurance that I've been able to find. You ready? Oh, what's the third? What's the third? Okay. I would use it for retirement planning. Mark? Yeah, yeah. Here come the letters. Nope, hold on. I'll give you an example of a person. We'll change the name. Okay. So I had these clients. And this would happen maybe once a year. They make between $400,000 and $600,000 a year and they live on about $150,000 a year. And they're saving money hand over fist. They have maxed out the 401K. They've done, you know, the backdoor Roth IRA stuff.

They've done every tax shelter that we can get them into. And they have a nice sum of money that is in a taxable position. We get through that. Well, then what do people usually start looking at? They start looking at very, very low cost, inexpensive annuities, right? And they do that. They do that because of the fact that they don't want to pay the tax. And if I can get an annuity that's super inexpensive and there's more of those coming around now that don't have all those big fees and commissions,

then those are on the table. But hear me first, we did everything else first. These people have Uber amounts of money. When we look at annuities, annuities are a tax trap. And the problem that I have with annuities is that the tax that you're going to pay is what's called LIFO, last in first out. So the interest, the money that the annuity makes, when you go to take money out of the annuity, you're going to take out all those earnings first before you get to your principal. And so what happens? People that buy annuities usually don't take the money out. They, you know, they're sitting down with their tax person or they're just planning and they're like, I can't take money out of that annuity because that's just going to really mess up my tax situation. Well, why the hell did you put the money in the annuity in the first place? This is the time that I would take money and instead of an annuity, I would stuff a ton of it into a life insurance policy. Because with a life insurance policy, I could take that money back. It's tax. differently, I can then also change the death benefit to lower the death benefit to make sure that the

amount of overhead that the policy has ends up being a ton less money than what the annuity would be. And if they pass away, it still goes on tax free to their errors. But I've used everything else first, right? So, you know, I see this stuff get sold all the time. I see people make a mess of it. 99 times out of 100, Paula, it's the wrong person that owns it. I just told you who I think's the right person and, you know, maybe one person listening to the show is that person. So to his question, which is funding a whole life policy instead of a 401k. It's bullshit. Yeah. It's bullshit. It's absolute bullshit. Yeah. Completely agree. Fund everything else. Yeah. A whole life is something that is, and this kind of goes back.

back to, you know, using it as a tax strategy for very, very high net worth people who have millions to pass on. It's something that is really only ever useful for people with so much money that they've run out of any other options. Yeah, it was crazy. I mean, with these people, they just have money everywhere. And you're like, how do we do this? How do we make sure this is the most efficient?

You know, then we start looking at that. I mean, frankly, if I were in that boat, frankly, if I were in that boat, I would just say buy some rental properties. Pay cash. Pay cash. If you've got that much money that you're just looking for something to do with it and you've maxed out every other option, pay cash for some rental properties. That's amazingly tax efficient.

The sad thing about these people is that they didn't have the time and they didn't want to have, you know, they didn't want to manage a manager. So in that case, the reason they made money hand over fist was because of the fact that they were professionals in another area that they absolutely loved. And when they went home from that, they didn't. that they want to spend exactly zero time there. Otherwise, I totally agree because the tax efficiency, I mean, we can have a, and you've done this before, the tax efficiency on rental properties is amazing. Oh, it's incredible. And in terms of, I mean, for anybody who's listening who is in that boat,

the easiest way to do, you know, if you're like, I've got this money, I've got to put it somewhere, a class A property, which means a nice property in a nice neighborhood with high, where you're likely to get very high quality tenants, like tenants with a, uh, excellent credit who tend to stay for a long time. You know, like we talked about the difference between risk and reward. At the beginning of this episode, we talked about risk premium and looking at rewards and context of risk. Those types of rental properties get the lowest overall returns, but it's the least

amount of hassle. So if you really just have, if your focus is wealth preservation and you've got money that you just want to tie up in a way that it's inflation protected and tax efficient, A class A rental property with like a luxury property management company. And heck, if you don't want to manage the manager, you could even put yet another layer of middleman in between yourself and the property manager. Yeah. You know?

Yeah. Yeah. Do that. I would do that any day before I would go the whole life slash annuity route. Much, much less complicated. Exactly. And you control it. You know, you have much more.

It's your business. It's your property. You know, you're not subject to the complexity in the whims and the fine print that comes along with both insurance and annuities. Yeah. There's a ton to now, and especially with insurance, if it looks like it's really simple, man, I couldn't take infinite banking and put it on Dave Chilton's napkin. I can't do it. Oh, and that guy from Omaha, Warren B. He has a similar quote.

So he says something to the effect of, I just, I don't ever invest in anything that I can't understand. And that was why he didn't get caught up in the dot-com bubble. He couldn't. And this is a guy who reads all day every day. He's a guy who understands how to learn about companies. Like, he's learned how to learn. And he couldn't understand those companies. And so he didn't invest in him.

I think it was Newsweek that ran a cover story that basically said something to the effect of, like, has he lost his marbles? Is this the end of him? You know, people really questioned him. But sure enough, like his strategy of don't invest in. anything you don't understand proved right. Wow. Yeah. Good stuff.

Cool. All right. Well, thank you so much, Joe. Thank you. How can people find more Joe? I am in my mom's basement. Every Monday, Wednesday, Friday, we crank up the shortwave and we send out the podcast to all the places that you can get podcast. So wherever your podcast player points to, you'll find us there, just put in stacking bediamins.

And on Fridays, you'll find the crazy Paula Pant there with us. We have a good time every Friday. Yeah, we totally do. It is so fun. The part that we record and the part we don't record. Both fun. All right. Well, this is the Afford Anything podcast.

I am Paula Pant. Signing off, thank you so much for listening. If you enjoyed the show, please do me a favor. Head to iTunes and leave us a review. And while you're there, upvote some of your favorite other reviews. That will help us out immensely. And check out the show notes. which are available on our website, affordanithing.com.

And if you have a question that you would like to leave for a future episode, just head to afford anything.com slash voicemail. Again, that's afford anything.com slash voicemail. Thanks so much. I'll catch you next week.