Afford Anything - Ask Paula - Q&A Featuring Special Guest Joe Saul-Sehy from Stacking Benjamins

Episode Date: January 30, 2017

#62: Joe Saul-Sehy, a former financial advisor and host of the Stacking Benjamins podcast, joins me to answer your questions in this bonus episode of Ask Paula. Joe and I are goofballs; we tell PG-13 dirty jokes; we disagree on several answers, and we have a grand 'ol time. Hopefully you'll learn something, and you'll probably end up laughing along the way. For a full list of questions and more about today’s episode, visit http://affordanything.com/episode62 Enjoy! 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 limited resource in your life. My name is Paula Pant, host of this podcast. Once a month, I answer questions that you, the listeners, have submitted. But this month, we have so many questions that I've decided to do a double header. So both today in episode 62 and next week, which is the first Monday of the month, I will be taking questions from you. And today, I decided to invite a special guest onto the show to answer these questions with me. So let's meet them right now.

Joe! Am I really here? You are here? Well, you're actually through a computer, but you're here. Well, that is fantastic. That way we're together and the restraining order is still good, so we're fine. Oh, yeah. I never even thought of that.

Would a restraining order apply via Skype? I don't know. I don't know. But we're safe. So, Joe, you are, you're going to be co-answering questions with me on the Ask Paula episode. So I guess today is Ask Paula and Joe. I am very excited to ruin everybody's day by giving them the answers that they won't like. So, Joe, just so people know that I didn't randomly pull you off the street, who are you? You were on TV in Detroit for some reason and I believe it wasn't a like most wanted ad. I was. I was the money man for the biggest news outlet in Detroit, WXYZ, Detroit for nine years. I worked with a Fortune 500 financial company for 16 years. And for a lot of those years, I was one of 12 financial advisors that were allowed to speak before we went through compliance. Like, I don't know how much you know about this, Paula, but when you work for the big companies, you have to go through this whole compliance thing first where you say absolutely nothing. They make sure.

that you're going to say absolutely nothing, right? Like, people are like, oh, how are you? And you're like, cannot answer yet. I can either confirm nor deny that I'm happy or sad. But after some media training that they had me do and the fact that I've been talking on the microphone for a long time before that, I became one to 12 people in the nation that were allowed to speak for this company called AmeriPrize before going through compliance. So I ended up talking to everyone from the LA Times to CNBC to the Detroit Papers, Chicago Papers. Prapers, Bride Magazine. I've been there, men's life, lots of different places.

Oh, very nice. Actually, I think you're the only person I've ever met who's been featured in Brides Magazine. And I'm the guy you thought would be the first one too, right? And so now you host a little podcast on the internet? A little show called Stacking Benjamins, which you join us every Friday on. Mondays and Wednesdays, it's my co-host O'G&I, which he's a certified financial planner. We just call him the other guy because he speaks very bluntly about the industry and about what's going on in financial planning. And our goal is the opposite of yours.

We really try to just talk about the headlines, have interesting guests on and have fun discussions. And I kind of see our show as the beginning point, right? You listen to us to kind of get a thirst. And if you want to go into depth, if you're looking for any depth from our show, you're doing it wrong. You need to switch over to afford anything to go deep on a topic because we don't do that. Awesome.

Well, definitely when I listen to your show, Joe, I feel thirsty. That's great. Absolutely perfect. We are very excited that December, partly because we have awesome contributors like you, Kiplinger, called us Best Financial Podcast 2016, which we're very proud of. And mom is bragging to all the Bridge Club about that. Aw. Well, Joe, since you were a financial advisor, I'm going to assume you know some stuff.

And we're going to start with this listener question from Srinny. Bring it on. Hi, Paula. My name is Srini. Thanks for your awesome podcast. It's been very helpful. I've been listening to your podcast for about two weeks now, and I love it. Between myself and my wife, we both make 100K after taxes.

We max out our 403B. We have no debt and paid off our mortgage last month. So we are in our mid-40s and want to work if possible until 55 before we retire. On average we live on 30% of our income and from this month onwards we will be investing for our early retirement. My question is what is the best strategy to invest in these options that I have? A traditional IRA, a Roth IRA, a brokerage account and a real estate. a real estate. We want to actually buy a new home in the coming months when the things cool down. Our daughter is in middle school and we are contributing $400 to her 529 plan per month

and there's about 15K in her 529 already for our education. I look forward to your advice and again thanks for your podcasts and your valuable information. Thank you. Thanks Reini for that question, Joe, I want to hear what you think. Well, I think it's awesome that he binge listens to your podcast. How cool is that? Woohoo. My ego is gratified. I like that. You know, he's done a great job, hasn't he? Amazing. Seriously, he's doing a lot of things right. Living on 30% of his income, saving 70%. That's incredible. I totally agree. And he's done a lot of the 101 things right, like pay himself first. He already knows that there's different text treatment on different. types things. So just the fact that he knows that a traditional IRA is, he knows what a Roth IRA is,

he knows to use a 529 plan, he has money diversified in real estate. I really like all those things. So I think my first thing, Paula, would be what I think of as a 301, which is I think it's time for him to start thinking about just overall tax planning, which is, you know, a lot of people, when they save for a goal, they save one place. So I'll give you an example. 4-1K, awesome place to save for retirement, right? Money goes in pre-tax. And then when you pull it out, it all gets tax. But you get this awesome tax break now. Right.

If it's a traditional 401K. That's a nice job. The problem with that is if you save every dollar pre-tax in your 401K and you get to retirement, you can't do any tax planning later because you really have two choices. Either eat and pay the tax or just don't eat. So instead, I like having the Roth IRA or Roth 401K to your point to offset that. have some in each. And then I also like, obviously, the tax advantages in real estate. So I call this a tax triangle where on one side of the triangle, we have pre-tax money. On another side, we have very

tax-advantaged after-tax money like Roth IRAs. And then the third one, we have flexible money. And that's money like in brokerage accounts. And if I'm Sreeny, I set up my text triangle and I see which of those sides are the biggest. And try to focus. on giving myself some good tax breaks today and some tax breaks later. But I think that for me, that's probably the 301 thing I would look at. Like, how can I tweak my tax strategy so that I can put as little money away as possible and get more out of it as possible? So why do you call it a 301? Is that like a computer reference, 301 redirect? No, no, actually, you've been working in online stuff for too long. I'm talking about college, right?

You've got the 101 stuff, which is just knowing the basic terminology, 201. Okay, I'm a sophomore. more I know a little bit, but 301, now I'm an upperclassman, right? I've got all the basics down, so now as an upperclassman, I should know about some of these a little bit more advanced things. Ah, let's say, we're getting to a 404 era here. So what if he doesn't have access to a Roth 401K through his, I'm assuming that he's traditionally employed? Well, he said Roth IRA, so I assume that he can do that. And if, because with his income, he's above the amount of money, depending on how he makes his income, come. He's above the amount where he can put money traditionally into Roth. He can use this phrase,

which I totally agree with a lot of people is a horrible phrase. And if we want to keep it around, we have to quit calling it this. And I'm about to call it this. But Paula, let's agree this is the last time we call it this. Does it begin with a letter B? It does. Yeah, I know exactly where this is going. It's a backdoor Roth IRA. So what happens is... I have the maturity of a middle schooler. I cannot hear out without laughing. Yeah. Well, if you've ever listened to Stacky Benjamin's, you know, so do I. So Backdoor Roth IRA, if you know what I mean. But the backdoor Roth, money goes into a non-deductible IRA. Anybody can do that. And you're also allowed then to recharacterize that IRA. Sort of. You can recharacterize a pro rate a share of it depending on how much other money you have

in other IRAs, traditional IRAs. Now, you're going 301. I was trying to keep it easy. Yes, yes, absolutely. Good place to look into, though, I think, for him. I mean, okay, so I kind of disagree with you. I mean, not I disagree with you, but yeah, a backdoor Roth to the extent that he's eligible for one is a good plan. But at the end of the day, like that's $5,500 per person, so $11,000 total, which is not a significant amount of money given the fact that he and his wife earn a combined $200,000 plus. If he's got money now already in a traditional, he can, he can, he can, also work on that money. It doesn't have to be money put in this year. Yeah, that's true. That's true. But still,

I mean, I think the crux of his question is we want to retire early. We've got, we've basically, we've got more, we've got a bunch of discretionary money that we're sitting on. We want to invest it. What do we do with it? Yeah, you know, trying to get as much as possible into a backdoor Roth is certainly a good option. But I get the sense that at the end of the day, he's still going to be sitting on more money than he's got stuff to do with. Well, yeah. And actually, the bigger point I was making was to look at, he's talking about which bucket's best. And my point is, is that all three are best and he wants to balance all three. So at the end of the day, it's not about a Roth IRA. It's not about a 401k. It's not about brokerage. It's not about real estate.

It's about having a balanced tax strategy and getting his teeth into that so that he has flexibility and tax planning today, but he's also giving himself flexibility and tax planning down the road. That was the bigger point I was making. Oh, cool. Cool. Excellent. And I do agree. with that, absolutely. Plus, if he wants to retire early, that tax planning is going to be even more important because, you know, your tax strategy when you're withdrawing money at the age of 50 is going to be very different than when you're 62. Yeah, do you want to dive into that for a second? Actually, yes, I do. And in fact, you know, I wasn't going to do this, Joe, but I'm going to play a question that basically asks exactly that. So this question comes from Roxy. I did not send

this to you in advance, Joe, so you're going to be blindsided by it. But here is Roxy's question. Hi, everybody. It's Steve, that guy who does stuff for Paula and apparently for Joe today as well. I just want to let you know, this phone call that came in was very choppy. Just imagine yourself talking into a fan blade. That's what it sounded like with a lot of really choppy bits. It was almost unlistenable, but I was able to do some manipulation and change it, but it's not going to sound very natural. So I want to give you that heads up because now, as you listen to it, you'll not be distracted by the noise so much, but you will be able to hear Roxy's question. So I apologize for the audio quality, but here's Roxy's very cool question.

Hi, Paula. On today's episode with Sky Al & Turner, you had asked if any of us had any questions on things we like to talk about on the show. I do have something that I like covered that I feel like isn't being done on any of the podcast. What I don't hear a lot of is powerful in the FI community actually living once they hit FI. For example, are they living strictly off their windpole year? Are they pulling money out of the 401k and it into the rock every year? Are they using them residual money from side hustles? When you reach that million-dollar mark, how do you start to pull that money? And I'm sure in everyone's situation to be different, but that would be something that I would find really useful.

I do love the new show, and thank you for all you do. Thanks, Roxy, for the question. How about that? It's almost like we plan that. We totally didn't. You just led right into it. We don't plan much around here. That is my whole role, is just to lead you into the next segue. You're great at segways, Joe. Yeah, right. You ride them, right? That's a scooter.

Yeah, that's right. Isn't that what that is? Two wheels? Sure. I'm going to leave the bigger question for you. But in terms of where Roxy's question maxes up with Serini, the problem people have is they're like, I'm saving all this money. into, you know, pre-tax 401K, how do I get that money out early? Well, there's, there's a rule called the IRS Rule 72T, which is the SEPP rules. And all that those rules say is that if you have money in an IRA, which where traditionally you can't get money out before 59 and a half, there are ways to get it out early. Now, the cool thing is 401Ks themselves, there are some other rules, which I don't think we'll get into today where you can get money out somewhat early. So you might be able to get money out before 59.5. But your money has been already rolled over to an IRA. Use these SAPP rules to take

money out early without a penalty. Because if you try to take money out before 59 and a half and you don't follow some very specific rules, the IRS slaps you with this big penalty, 10% penalty to take money out and it gets uglier from there. So I would- Time out, time out. First of all, every time you say SEPP, all I can think of is, yeah, you know me. You got your hands in the air, Paula? Yes. So, so, so let's pause here and actually let's go through this a little bit more. What does that mean?

Specifically, yeah. Oh, you want me to actually dig through the jargon, huh? It's substantially equal periodic payments. Wow. I know that because I just Googled it. It's amazing that we have the Googler. running while we do this. So substantially equal periodic payments, there's different ways to figure it out, but basically what it says is if you take out the same amount every year and the IRS gives you a few

different ways to calculate that, you can take out that amount and there won't be any, there won't be any penalty. Now there's lots and lots and lots of rules around this and you've got to be really careful. And instead of Paul, instead of getting into the nitty gritty of how it works, because if you do it wrong, if you do it wrong, there's there are monster penalties for getting this wrong. So I would find CPA if you're in that position or a financial planner who knows what they're doing, who's done this many, many times so that you're working with somebody who can walk you through how that works. My point to Serini to get back is, you know, if you've done that tax triangle thing I've talked about,

Serini's young enough, he won't have to do those SCPPs because the bigger answer to Roxy's question and the way I'm sure you're going to answer it is if you've got these other pots of money out there that have different tax treatment, you can easily live off other investments and let those tax sheltered investments continue to grow. Yes, yeah, exactly. So first to your earlier point about the 72 T-S-EPP. You know me. So I'll link to an article in the show notes that was written by my buddy Mad Scientist, where he kind of outlines this. But yeah, exactly, as you said, conceptually, you contribute money into a pre-tax retirement account, like a 401k or a 4.5. or 3B or traditional IRA or whatever. You retire early, you calculate, and there's a bunch of rules

around how to make that calculation, you calculate possible withdrawal amounts, and you'll need professional help to make that calculation. And then you can withdraw and, you know, pay normal taxes on that amount every year as you're retired. So you don't have to pay an early retirement penalty. Is that right? Did I get it? Did I describe it correctly, Joe? Absolutely right. You really, you don't have to have professional help. I think you and I would just advise people that professional help because you can do it yourself. I just know, okay, I can do that myself or I can pay somebody a little bit of money who's done this. You know, maybe they've done it 50, 60 times already. The penalties are so high, spend a little bit of money to save a ton of money on taxes and not get wallop by the one piece of this you don't know. And the cool thing is, even though there's specific rules, Paula, you do have a few different options. So when they calculate it for you, when you calculate it yourself, you will have a few different ones to pick from. So if you want to take less money out per year, you can use SEPP monies to take out less. Or if you really want to gut it when you're young and have a lot of party in now, you can do that to some degree also.

Right, right. And I will link, again, in the show notes, which is at afford anything.com slash episode 62, episode 62. I will link to an article in the show notes that describes this in more detail. But I guess the broader picture, the broader takeaway is that there is a particular. law that allows you to or a particular kind of IRS. Is law the right word? There's a Yeah, IRS rule. Yeah, there's a particular IRS rule that does allow you to take money out of your retirement accounts early without penalty. So, you know, one thing that helps in this area that I like

to the broader question of how people do this. I really like in Robert Kiyosaki's book, Rich Dad, Poor Dad, he and Sharon Lecter, the, the analogy of, building this other person, right? You go to work every day and work your butt off and then you have this other person that you're kind of building and they have a lunch bucket and they go to work every day too. And that other person, Paul, is your money, right? And if I have my money in different diversified places, there could be tons of money. Like as an example, Serini has this real estate. I bet he can build a decent income stream from that real estate that will help him live. You can do the same thing with some different types of investments. And the money you put into

Roth IRAs also, you know, the interest you have to leave there, but to money that you actually invested in a Roth IRA, you can take out whenever you want without penalty. So I'm a... Yeah, the principal. Yeah. So I, you know, there's lots of different places to go for money and not have to use that SCPP. Yeah, absolutely, absolutely. And that's, that's the other piece of the answer to Roxy's question of how people in the FI community are able to access funds when, when they retire early. I mean, for me, and I realize, Real estate, rental properties are not necessarily for everybody. And I always want to emphasize anytime I talk about them that they're not necessary. They're optional, but they're not a requirement.

You can absolutely retire early without them. That being said, there's no complexity to getting cash flow from a rental property. I mean, once you've got the rental property, once it's the system is set up, you've got, you know, and you've got a stream of cash flow that's coming from that. I don't have to worry about being in violation of any particular IRS rules or meeting some kind of bureaucratic paperwork requirement. I just get that cash flow that comes to my business bank account every year. And then it's up to me if I want to have zero other sources of income and live on that. I'm totally free to do that. Or if I want to reinvest that back into more rental properties, I can do that too.

If I want to like spend it all on a crazy weekend in Tijuana, I can do that. Like, absolutely up to me and I don't have to worry about anything. So I guess I'm a little rental property biased, but that's another good way of doing it. There's another piece of this, Paula, that you kind of touched on that wasn't a part of Roxy's question, but also I think should be. We had a great, I did a great discussion recently with Jeremy over at Go Curry Cracker about how he did it. And, you know, a lot of his key was spending money on things that were important to him. He got to the point that he was so sick of the 9 to 5 and the rat race that everybody was living. He sold everything except like a bike and the most necessary possession so that he could get it earlier.

And that way he's working as an engineer making great money and saving not 30% of it, 50% of it or even 70 like Serenias. He's saving almost every dime riding his bike to work and just focusing on what that goal is. when I find people that get that fire early goal and they're reaching that goal, they've decided that this is spending money only on what's important toward that goal is hugely important toward reaching that goal. Right, right. It is. But I think the question, I think the question is, okay, well, you've got these savings.

You want to invest the savings because that money can work for you in the form of investment a lot harder than it could if you were just stuffing it under your mattress. But yeah, but if you were to put that money into the types of accounts in which you have limited access prior to a certain age, then what? Yep. Then you work the IRS magic. Yeah, exactly. And that's when you call in the 72 SEPP, you know me rule. But, you know, but that being said, the way that I think about retirement accounts, and this is getting a little bit conceptual, but I don't think of a 401K or a 403B or an IRA.

I don't think of them as quote-unquote retirement accounts. I think of them as an agreement that an individual makes with the federal government. The government gives you some type of a tax advantage in return for you promising not to access that money until you reach a certain age. I love that. And so it isn't that this is like your retirement money per se. this is just the money that you've promised not to touch until you reach a given age. But you also have other money that you could spend on retirement, on early retirement. And that money could be placed in a taxable brokerage account or invested in rental properties

or spent buying or building some type of business in which you don't have to do a lot of the day-to-day management. Because entrepreneurship is another leg of the retirement stool, particularly the early retirement stool. So it's so cool because it gets rid of the most common question that I think you and I get, which is all my retirement money is in retirement accounts. But if you don't think of those as retirement accounts, then quote retirement or fire or whatever your goal is becomes this much wider thing. Exactly. Cool. So awesome. I feel good about that. And again, I'm going to link to a lot of stuff in the show notes, afford anything.com slash episode 62. While you're there, you can. can subscribe for free show notes to be delivered to your inbox every Monday. So fill out the little box asking for your name and email. All right, Joe, let's go to the next question. And you know what? Since you were a financial advisor, right? Oh, boy.

Nothing good ever follows that. Never ever. So since you were a financial advisor, we are next going to go to a question from Charlene. Hi, my name is Charlene. I recently started listening to your podcast and thoroughly enjoy it. I had a question about financial advisors and how do you decide about using these individuals, such as how do you decide against using someone employed with Vanguard or Fidelity versus an independent financial advisor? Any information you can provide would be thoroughly appreciated. Thank you. All right, Joe, how would a person select you versus somebody else?

Oh, man. Well, the good news is you can't select me. I got out of that business. That is good news. I am a recovering financial advisor. Now I just play one on TV. You know, there's a couple things, Charlene, which is the first thing that I want to know about a financial advisor is whether they are what's called a fiduciary. Now, fiduciaries are people that are required bylaw to do something that's in your best interest. So you have to ask them that question specifically. And it's just, by the way, it's a yes or no question. And I say that, Paula, because I know plenty of people who are not fiduciaries who are in this business who have great answers to that question that do not involve a yes or a no right they give you their run around yeah let me tell you about what i do it's just as simple

are you or are you not a fiduciary yeah and so you want to ask that question first now there are lots of people let me define what i what i mean by that when people call themselves a financial advisor anybody can call themselves a financial advisor so financial advisors have different um expertise. They have different people that they focus on and they have different designations that tell you a little bit about their experience. So somebody who's a stockbroker could call themselves a financial advisor. Somebody who sells them just sells insurance could call themselves a financial advisor. And by the way, I know lots of good people who are commission based people who are not fiduciaries who do a heck of a job that I would send my mother to. That said, I feel

way more comfortable not knowing you, Charlie, to say that look for a fiduciary because that person then, at the very least, you have the law on your side if things go the wrong way. So, sorry, pause here. So, Joe, you just said, you know a lot of people who are commission-based people. Now, for the listeners who are wondering, wait a minute, why did he just bring up commissions? He's talking about whether or not you've got a fiduciary duty. Can you explain that? Well, because a lot of people who accept commissions are selling, they're actually captive agents of a certain company. And when you're a captive agent of a certain company, your job is not to be a fiduciary

and do what's in the customer's best interest. I mean, it might be two. If I'm a shoe salesman, I want to give you a great pair of shoes so you come back and buy another one, right? Right. But that doesn't mean I'm the shoe fiduciary because I know that the shoe that's at the shoe shop up the street. I'm not sure where this analogy is going, but the shoe shop up the street has a much better

shoe for you than I have. I'm still going to want you to buy my shoe. So commission-based people often are not fiduciaries because they're agents of a certain company and their end goal is to get you to buy the product that's on their store shelf. Right, right. As opposed to a fee-only financial advisor, who is typically a fiduciary. So if their way of getting paid is collecting a fee from you rather than collecting a commission from a third-party entity, then more likely they're actually fiduciaries and they're actually giving you advice that is in your best interest.

But again, but the only way to know that is by just flat out asking. You have to flat out ask. Now, the next thing I would do is I would also go to, there's this regatory agency called FINRA. If you go to the FINRA website, there's a place called Broker Check. And it's right on the front of the FINRA website. And if you click the broker check button, you can put in financial advisors names. and it will tell you about any problems that financial advisor may have had in the past. So as an example, if you look up my name, what you'll find out is that when I was at AmeriPrize,

there was a client who said that I was involved in an annuity transaction that was horrible, which, by the way, absolutely true. Frustrating thing for me, I'm the one that told the client to file the complaint. I didn't realize they were going to file it with FINRA. I also didn't realize they were going to name me in the suit. So that's a longer story. However, what's cool is I just told you that story. And if you were sitting in my office across from me and you say, Joe, there's this annuity thing.

Tell me about that. I would have told you a little bit longer version of that story. And then it's up to you whether you believe it or not. But isn't that cool? It's another piece of information about the advisor that you wouldn't have had had you not gone to broker check. So I also like the broker check site. Nice. I've got one more thing, Paula, if you want to hand me a little pedestal here.

Yeah, yeah, yeah, let's do it. Yeah, let's get up on my pedestal a little bit. And by the way, we'll link to that in the show notes. Everything's getting linked to in the show notes. Awesome. Yeah, broker checks a cool thing that a lot of people don't know about. Here's the thing. We get questions a lot about, you know, do I really need an advisor?

The quick answer is no. No, no, you don't need an advisor. You can do all this yourself. The question is, is whenever I do anything, I look at very successful people and I look at their experience and do they have advisors or not. And the answer is, if I'm looking to be very, very successful, I have advisors. And I think a lot of people, Paula, when they say, ah, advisors stink, I think they had the wrong advisors.

Because I think no matter what your skill set is, you focus on the things that you're great at. You people advise you who think differently than you so that you can get where you want to go faster. I think that's what you really want in your corner. So if you've had a bad experience with financial advisors, I think it's because you at a bad financial advisor, it's not because having financial advisors is bad. Every really smart person that I had working with me, or working with me when I was an advisor, were people that could have easily, easily done this himself. They could have very, very easily. But you know what?

They were successful at something else. They wanted somebody to be the shepherd while they couldn't, while they were off doing what they were great at. And the cool thing was they were smart enough about their money that they could oversee it as well. So they could ask intelligent questions, which is my last soapbox, hiring a financial advisor doesn't mean you're handing off your whole money thing to somebody else. Obviously, you're listening to the show, so you probably already know this. But there were a lot of people in my office that just wanted to hand me all the money stuff. And it was like I had the magic wand and life was going to be beautiful from that. That's not what a financial advisor does.

They help you get information more quickly so that you can focus on the important things. So to your earlier point about be careful who your advisor is, be careful, which is like, generally good advice for every aspect of life. Be very careful about who you're taking advice from. Be careful about selecting mentors, selecting teachers. How do you know if you're picking a good one? I mean, other than the fiduciary part, how do you develop the critical judgment to assess whether or not the thing that this person is telling you is actually something that you're benefited by hearing? Well, the first thing that I wouldn't do is I wouldn't go the advertising route. It's funny because people think that people to advertise more must be more successful. When you think about it, why are you advertising? It's because you need people. And that's because maybe you're not as great.

And that's not true all the time. They're great people at things that advertise. But a lot of financial advisors are so busy and they get so many clients word of mouth that they don't have to advertise. Right. And for me, that's my first thing, is that I'll go to people that I respect who are generally in my age range, but I know that they're doing fairly well with their financial picture. And I ask, who do you trust? If there's somebody that you trust and I respect you, maybe that's somebody that should be in my corner also. And even if that doesn't end up being the person, that person probably knows who the people are.

So it might be a trail and it might take a while. And I'll say something else. when you have the wrong advisor, your gut knows it. And your advisor knows it too. Like there were times when I knew I was the wrong person, my client knew I was the wrong person, and we went six months before we actually got rid of each other, when we should have done it right away. You know when it's not the right person.

You're right. You might be snowed. But when your eyes are more open, you've got to get rid of the wrong advisor very quickly and move on to the right person. Your gut knows it. Final question before we move on. What about, you know, there's some, like Vanguard might give you access to an advisor through them. How do you feel about those baked in, you know, people who work for those types of companies?

Yeah, you know what's funny, Paula, I don't know enough about how Vanguard picks advisors or Fidelity picks advisors that they send you to. If it's somebody who works directly for Vanguard or Fidelity, nothing against, obviously those are quality companies. they do great work, but if somebody works directly for Fidelity, I have to just ask myself, who cuts their paycheck? And then that leads me to believe that I probably don't want them. They might be fantastic, but it probably isn't who I want. And that's not a knock on Fidelity and Vanguard. That just is not my first choice. Yeah, yeah. And I completely agree with that because at the end of the day, like you said, who cuts the paycheck? I mean, I want somebody who's working for me. Yeah. I was hanging out in like a coffee house once, and I was overhearing, I overheard a conversation

between a financial advisor and a new assistant that he was hiring. And he was bringing this new assistant up to speed on what he was doing and what his business was all about and all of that. So he was explaining that he doesn't charge his client to anything because, oh, you know, if I recommend a particular insurance plan, I get paid from that insurance. So it's completely no cost to you. And the way he was framing it sounded very much. very convincing. And fortunately, I've been around this stuff long enough that I knew better. I could see through that.

You know, because even though he's framing this as a benefit, what he's really saying is those are the guys who cut my paycheck, therefore those are the guys that I'm loyal to. Right. And ultimately, the client cuts the paycheck still, right? Exactly. Exactly. If you buy an insurance policy, that agent's fee and more has been baked in. Oh, yeah, big time, big time. So there is no free lunch. and you're better off literally writing a check than you are figuratively writing a check that you don't recognize that you're writing. Oh, spoiler alert. You should have said spoiler alert before he said there's no free lunch. I'm so disappointed. I had to wait this long into the podcast to hear there's no free lunch.

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That's blue apron. dot com slash afford, a F-F-O-R-D. All right. Let's segue into this next question. from Francisco. Hi, my name is Francisco. I just recently found this podcast, and I've been looking for some financial podcasts because long story short, I was in a position at a company that was draining my soul.

I left, started my own company. During that process, I ended up through a divorce, and now I find myself debt-free, because I've always been conservative with my finances. I own three rental properties and my primary home. I have $100,000 in the bank plus some securities, and I don't know what else to do. I'm very frugal, and I've got that money sitting in the bank earning 0.06% interest,

and I'm just looking for some ideas as to how to make that money work for me. Anyway, I'd love to talk to anyone who can help. Thanks. So thanks, Francisco, for asking that question. And awesome job. You've, you know, I think he's done really, really well. Four houses, all debt free.

That's so amazing. And you know what I also like is that he saw when the job was draining his soul that going out his own and forming a company, which, by the way, it sounds like was also rough because of, you know, whenever anyone does that, they go through divorce at the same time. There's more story there, which probably isn't very happy. but if something's draining your soul, you've got to get away from it. Yeah, yeah, absolutely. So he's taking a lot of the right steps to put himself on the right track. I am amazed that he has that much money saved and he's divorced because it seems like it a lot of people, and I'm not laughing because it's funny, but as you know, divorce splits assets and he's actually gotten himself going the right way.

And it's funny. You know, divorce is not something typically that we laugh about Paula, and it's not always funny. but I did hear a kind of funny joke that one of my divorced clients told me. He had just gone through a painful divorce, and I think he was trying to find some comfort through jokes. And he said, Joe, do you know why divorce is so expensive? Why is that, Joe? Because it's worth it.

And there's got to be a couple divorce people out there that think that's funny. So anyway. All right. So what should Francisco do? I've got some ideas, but I want to hear you first. Well, I think everyone depends on what he wants. wants to do, right? So I like starting with the end in mind. I did not coin that phrase, but we'll use that phrase. That's from seven habits of highly effective people by Stephen Covey. I'm sure Covey got it for me,

but anyway. So we always start with the goal. And then we go backwards from the goal. So a little engineering trick. You see where you want to go. And then you say, okay, to get there, I need X amount of money times Y rate of return to get there. It's a really easy equation. And what that does is that gets rid of all the investments that don't matter. So Francisco sounds like he's looking at all of these different things he could do and going, oh man, do I invest here? Do I do this? Do I do this? Well, instead of focusing on everything, say, okay, I want to be at X point by Y date. And I'm going to need so much money to do that. And then go back to today and say, okay, if I'm going to take baby steps to get there, I'm going to have these milestones along the way. I need to save so much money toward that

goal and I need to get so much rate of return and that gets me there. And then every day like a plane going to Hawaii is never completely on course. It's close to on course, but not completely. They adjust a little bit, right? So every year you look at your milestone to get to that point and you adjust. And what you ask yourself is, was it the markets that did this? Was it the, was it my, am I not saving enough? And you make these little course corrections and you end up at the goal. It's pretty cool. Yeah. Yeah, exactly. And I was going to say the, The same thing. What Francisco does next is going to completely depend on, you know, does he want to retire in five years or in 25 years? Does he want to take a sabbatical and go, you know, travel around the world for a couple of years and then come back and continue running his business? Or does he not have any interest in that? I mean, there are all of these different lifestyle choices that need to be made before you got to figure out what you're doing before you can figure out how to do it. Well, and as an example, what that that does, Paul, to your point, let's say it is his five-year thing, right? Let's say it's a five-year goal.

If it's a five-year goal, we immediately, in my head, as a recovering financial planner, I immediately eliminate 95% of the investments out there. I'm like, well, we're not going into stocks because the stock market and casinos very similar on a one-to-five-year time frame, right? But we get to 10 years out and 15 years out. The stock market is a much less volatile proposition. and is probably one of his top places. Stocks in real estate over 10, 15, and 20 years look like the two best places to go, that over longer periods of time have the best chance of consistently beating inflation. But over five years, I don't want to get into a real estate property because, as you know,

the cost can kill me. And I'm not sure what the market's going to do over the short run. And it's not very liquid. And then when it comes to the stock market, way too volatile over that short term. So even though we didn't talk about what to do there, we just wiped out a lot of homework that Francisco has to do over the short run. I'll give you, I'll give you the very, very short run what I would do. Okay. And even though this is the Stack & Benjamin sponsor, I need to say that right away, I get no money for mentioning it here.

I just, I ask these guys to be sponsors because I think it's really cool. He should add to magnify money, which is this cool website where he can look at different savings accounts because while while he's doing this financial planning, earning 0.06% doesn't make sense to me. And Magnify money looks at all these different savings accounts that he could put it into. So he wants to keep it in a safe place, but he could be earning Paula around 1% with zero risk and keep his FDIC insurance and all that stuff intact and earn a bunch more than that while he waits. Now, that's going to make him an extra, what, a few pennies. Right. But it's free money.

So I might do that first. See, I completely disagree, Joe. Why? On so many levels. First of all, I think that trying to mess around with getting an extra half of a percentage point out of a savings account is a complete waste of time. He's got limited – he runs his own business. He's got limited time. He's got limited energy.

He needs to direct that in the most optimal way possible. And so fuzzling around with the peas at the expense of the steak is just a giant distraction. So I wouldn't mess around with trying to eke out. an extra half a percent on a savings account, I would go straight to what investment do I want to make in the context of what's my goal? Well, Futsing, by the way, best word ever. Hashtag best word ever. But here's the thing.

You're approaching this, Paula, as if this is just a one-time thing and I'm trying to get a better interest rate for now for the short term. I want to have the best investment for me over the long period of time. And why the hell would I get 0.06, which is always going to trail whichever one's doing one right now, right? These rates are variable. They're not fixed. Just go to smarty pig.com. It's like always going to be good and it's because it's an online savings bank. It's always going to be near the top and just throw your money there and forget about it. You know, like, why constantly look at all of these different accounts to be like, oh, this one's better.

That one was better last year, but this one is better this year. Maybe I should close down this one and move things around. You know, like there's just a waste of time. I think I do this one time, but I don't go to one. Why do I go to one bank when I have a where I can go to 50 different banks. And if I can go to 50 different banks and choose the right one, I know that one's going to be near the top too. So if Smarty Pig, whatever that is, is getting beaten by not so Smarty Pig this year, it's probably getting beaten by, and who cares?

I mean, I'm with you. I'm with you. I'm just saying 0.06 on your money, not good now, not going to be the best place later on, get that money working for you. And it's not fudson around. It's having that in a spot where I know that's in a spot I dealt with at once, one point in time. and now for the next 50 years, I don't really have to think about it again, but I should think about it now. But behaviorally, is that really, I mean, okay, if you only do it once and you never go back again, sure, I'm with you there.

But behaviorally, if you go down the rabbit hole of comparing interest rates, I mean, that is a deep rabbit hole that can just turn into a huge distraction. So I would encourage people not to try to, like, go to those savings broker, those savings comparison tools. Because it's just a distraction. I mean, that is the almost the equivalent of buying discounted gift cards for tiny purchases. You know, like, sure, you're going to save an extra four bucks on your, like, cat litterate target. But it comes at the expense of remembering to refire your mortgage. I love the fact we disagree on this, by the way, because I don't think any of this is hard. I don't think it takes up any psychic energy.

I think it also makes me feel better because I just bought discount gift cards on a $50 transaction. save four bucks giving dinner and a movie to my parents. And you know what? It wasn't any harder than going and getting the gift card itself. So for me, and now that I know that this place exists, I'm going to keep using it. I figured out what a great one was. One time I went there. I used it.

I'm going to use it every time. Wait, wait. But you just said you were only going to use it once and then keep the same thing for 50 years. I'm lost. We're referring to savings comparison tools, right? So a savings comparison tool, I only need to compare that once. So I went to that site one time. I did that work one time. The same thing here. I did the homework on the discount gift card thing. And I wanted to buy somebody a gift card. Why would I pay full price when it's just exactly as easy to pay less? Because it's not exactly as easy. It was so freaking easy. Yeah. But then you've got a stack of gift cards and they're sitting in your kitchen. cabinet, right? And you're like, all right, so I've got this. Why do I have gift cards in my kitchen

cabinet? I went to a website. I put in my parents' name and I said, okay, here it is. Boom, gone. It was done. Like, I didn't have to buy any gift cards. I didn't have to do anything. In fact, it printed out at their house. Oh, you mean like a gift card that you're giving is a gift to somebody else. Yeah, it was a discounted gift card website that I went. Right, right, right. Okay. So let's say, but for your own personal purchases, right? Like, let's say that you typically go to Target to buy toothpaste and dental floss and listerine and cat litter and all your normal toiletry stuff. You could either just go to Target, pick that stuff up and be done with it, or you could buy these discounted gift cards, stack them up, like have a drawer where you've just got a

bunch of target gift cards or maybe have them on your phone. And then you constantly got to be thinking like, okay, well, do I have the thing? What's the balance on my gift card? Have I misplaced one? It's just like added mental stress for no particular. reason. Like, the ultimate benefit that you're going to get from that is what? Maybe a hundred bucks a year at the most. And I see the same thing with savings accounts. I mean, if you're screwing around with half of a percent of money that is not even going to be in there for that long, of money that, you know, you're going to keep in there for the next few months until you can find a better investment. Don't distract yourself with that. Go find the investment that's

best for you. I totally agree. And I totally agree. The people get hung up on the wrong stuff. And I agree that that's the wrong, that that's the wrong dragon. There's, there's bigger drag. I completely agree with that. However, to use your target analogy, I signed up for the Target red card, wasn't hard, did it one time, 5% off every single time I go to Target. I also signed up for Benefit Mobile, which is another app that's on my phone.

Did it one time. Now when I go to Target, I bring up Benefit Mobile. I bring up Target. I get an even bigger discount because I use the two. of those. Takes no psychic energy. I get I get extra money off on those. Same thing with he's he's going to need a cash reserve no matter what. Why not have a good one? I guess my overriding point was 0.06 ain't a good one. Never going to be a good one. Not going to not going to get close. If he's going to have a cash reserve the rest of his life, which I think he should have,

I would change it. So Francisco, there's your answer. Paul is like, why the hell did I invite that guy on? No, but that's, that actually makes, makes good radio. I mean, it's, because I totally agree with what you're saying. Totally agree. Yeah, yeah. And I see, I see your logic too, Joe. Like, part of the reason that I have developed this philosophy is because I have gone too far into the other side.

You know, I have been in, in the past, I have been the person that gets so, caught up in buying discounted Home Depot gift cards and then stacking them with coupons and, you know, like I've been the person who's gotten just so focused in the weeds of like tweaking around the fringes that I've completely missed the fact that I, that there was a beautiful rental property right in front of me that I didn't even see because my brain was just on something else. So it is kind of through experience and through the benefit of hindsight and those missed opportunities that I've, you know, developed the, the, the same. stance that I have. And an analogy to your point, I was actually talking to a guy while I was a financial planner. I'm at this party. And he finds out I'm a financial planner. By the way, you should never tell people that at parties. Yeah. Don't tell people that. Oh, yeah. Just, just, oh, so I end up in the corner in this horrible scenario where the guy's telling me about the upside down teacup, which people that trade stocks every day know the whole upside down teacup thing that, you know, the stock goes,

there's like the handle where it goes up a little and then it comes back down. It's one of this chart reading things. Yeah, and then it's going to go right back up, right? So he's telling me all this stuff. And I was early in my career. I had never heard of it before, right? Now, I've heard of it a billion times, but this is maybe I've been a planner for two or three years. And I said to the guy, I said, this is amazing. How much money have you done this with? And the guy said, well, I've never done it. I'm getting ready to start. Your same point. I'm like, this guy knows, this guy has spent forever researching the stuff that really doesn't make a lot of sense for 99.9% of people. And even for the 0.01, you and I would say probably still doesn't make sense,

right? The whole chart reading upside down teacup thing. His bigger dragon, he needs to start saving. Needs to get some money saved. Ah, that's why he's never done it before is because he just didn't have the savings for it. No, no, no. My point was he hasn't saved a dime. Yeah, I'm sorry. Maybe I didn't make that point strong enough. Yeah, he and I were talking. I'm like, well, really, how much money are you doing to this? He's like, well, I haven't really saved any money toward it yet, but I'm getting ready to start. Okay. Why don't you save some money? That is step number one. Step number two is diversify. You get way, way, way down the road. Maybe at some point, I've never found a time during my career where I'm like, I wish I knew more about

the upside down teacup. Right, right. Yeah, you know, and that's another good point. People do get so caught up in comparing these various types of investments that they often forget that the most significant factor in the types of returns, quote unquote, returns that you'll get, are your contributions. Right, right. It's so true. But to Francisco's question, what should he do next? Again, it completely depends on his goals and depends on his timeline and all of that.

But, you know, the short answer is index funds are always a great option. rental properties, in my opinion, are always a great option. Even if you wanted to retire in five years, I mean, again, I don't know what kind of cash flow he's currently getting or what his income needs are or any of that. But, you know, $100,000 you can pay cash for a house in some parts of the country and just immediately collect cash flow from that without even having to take out any debt. So always an option if you wanted to retire in five years. Hey, Joe, do you want to talk about self-directed IRAs?

And rental income? Oh, bring it on. All right, let's do it. Hi, Paula. My name is Susan. I live in New York. I have a question. I have a self-directed Roth IRA account,

and I am wondering if we are allowed to contribute money earned from rental income to our Roth IRA account. Rental income, I was told, was considered passive income, but since I had to pay taxes on that passive income, I'm wondering, can I contribute some money to my Roth IRA account? Thanks very much. I appreciate it. Awesome. I think that one, Paula, is met specifically for you. So unfortunately, or fortunately, depending on how you want to look at it, rental income is passive income. And that's not just me that's saying that, that's the IRS saying that. So rental income is not, for taxable purposes, it is not considered the same as, say, income that you would make if you had a small business selling cupcakes on the side of the street.

Because it is passive income, you cannot use it to make contributions into an IRA or a 401K. You can't contribute passive income to retirement accounts in the same way that you can contribute earned income. because the IRS does not see this as earned income. Here's a question for you then, Paula. Does it make any sense then for her to set up a company, you know, like an LLC where she manages her rental properties and then pay herself some money? So it becomes earned income, right? The money goes into the company and then that – Not going to work.

The IRS has – for a couple of reasons. Number one, as the owner, you can manage your own properties, but you cannot work as a property manager, quote unquote, without a – property management license in most states, which means that you would actually have to go through property management training and then get a license that is sanctioned by the state real estate commission and then hang that license under the auspices of a broker's office. So without doing that, you are not legally a property manager from the point of view of the state real estate commission. That's kind of one problem with calling yourself a property manager. Again, you can manage your own properties, but you cannot manage other people's properties without going through the proper

credentials. Real estate is a very governed and very regulated aspect of our economy. Now, second of all, and really to get to the question that you've asked, in terms of tax treatment and your ability to contribute to retirement accounts, the IRS has incredibly strict criteria around whether income from a rental property that you yourself or that your single member, LLC owns, whether that's considered passive income or active income. And so to meet, to make that leap and to get your rental income to be considered active income, you've got to meet some incredibly strict IRS criteria. If it was as easy as just like creating a corporate veil, setting a couple of shell LLCs and redirecting money between a few different accounts, if it was

that easy, everybody would do it. But no, the IRS has very, very strict criteria. that you need to meet in order to be able to get the tax treatment as active income. That's annoying. Yeah. Yeah. Sounds like our evil plan has been thwarted. Now, the one thing, though, is that she says that she has a self-directed IRA. You can buy a rental property from within the self-directed IRA.

So she didn't specify that her current rental properties are owned by the self-directed IRA. so I'm assuming that that's not what she's done. But in the future, it is possible to use money from a self-directed IRA to buy a rental property. So that is one work around. Awesome. And that can get complicated too, though. Yeah. And see, that's the thing.

And again, this goes back to like fuzzling around the peas and the steak. I mean, if you are a full-time rental property investor and you own like 40 units or 50 units. or 50 units and you want to really get into the nitty gritty of like figuring out every loophole, then by all means go down that rabbit hole. But if you're just interested, I'm putting just in air quotes, if you're interested in real estate as a path to financial independence and quote unquote, all you want to do is have maybe five to 10 units enough that it'll cover your cost of living and you can quit your crappy day job. Again, a lot of people run the risk of getting so caught up in the reverse tea cup that they forget to make the contributions. And so that's where I encourage people to just

spend their time and mental energy. I mean, for the amount of effort that you could put into trying to figure out how to set up all of these different shell companies and the thing and the account and then buy the thing from here and put it in there, blah, blah, blah. I mean, like, wouldn't your time be better spent just earning an extra thousand dollars? on the side and saving all of it so that within a year you can have a down payment on another rental property. You could spend all that time you save just saying the word futzing over and over. Exactly.

I love that word. That is the word of the day. You should totally title this, fudcing with listener questions. But yeah, I mean, I guess I see that that, that, um, that, um, um, that, um, um, What's the word I'm looking for? Like, over attention to detail. There's a particular word, and it's not coming to me. I see that, like...

We just call it on... I'm not sure what word you're getting at, but I think the point you're getting it is that on our show, OG and I talk a lot about just fighting the wrong dragon. Yeah, exactly. There are people who will... I get emails from people who get so caught up in, like,

well, all right, if I spend... You know, let's say I'm remodeling a rental problem. And option A, I can put $10,000 into the remodel. Option B, I can do this extra stuff and put $12,000 into the remodel. What's the ROI on that, you know, $2,000 differential? And I'm like, dude, you're asking the wrong freaking question. Like, you know what I mean? Like, you're spending your brain energy in the wrong space. Freaken remodel the property, get it rented, and then buy the next property, if that's what you want to do. Don't try to figure out. It's like the equivalent of being a blogger and trying to figure out the ROI on every image you put on Pinterest.

That's not important. Are you implying that's not the most important thing? I mean, I'm saying like it's certainly fine to have a Pinterest account and try to promote, you know, your stuff there. But don't try to figure out, don't try to reverse engineer the ROI of a pin. Right. It's like, what's the ROI of fighting about politics on Facebook? Oh, God. Because I'm going to change somebody's mind, said nobody ever.

All right. All right. So, Joe, let's close out with the question that I know you were trying to avoid. I like this question. All right. So this question comes from Jane. Hi, Paula. This is a question regarding robo auto investing.

There's this new thing called Wealthfront that, Promise index funding after $100,000. I already have my money in wealth front, but I heard that this does tax loss harvesting, as well as indexed funding if you put in more than $100K. And I hesitate to move from my Vanguard into the wealth front unless it's worth it. What are your thoughts? So Joe, is it worth it to move money from Vanguard into Wealthfront? Oh, I like how you push that right to me.

Just so that the listeners know, we were discussing this question pre-show. And Joe, I know you were dreading it, so I'm going to stick it to you first. No, it wasn't that I was dreading it. It was that I didn't want to answer this one first because, you know, we've talked a lot about the wrong dragons. And it's just, you know, for me, Paula, don't have a huge opinion because of the fact that if I understand wealth front's fee structure correctly for a lot of people out there, their fee is a quarter of 1%. Is that your understanding? Yes, that is my understanding. So, and that may be, you know, if there's, if there's other things that they invest in,

they might have internal fees too. But when I'm looking at comparing a fee of 0.15 to 0.25, the fee monster hasn't reached up and grabbed me, right? If you told me wealth front was a 3% fee and Vanguard was 0.15. Well, then Houston we probably have a problem. So for me, the question of is it worth it depends more on you as an investor than it depends really on my answer. Because Vanguard has a lot of different funds out there, Paula, and they have funds that might fit her goal. They have funds that might not fit her goal. So my bigger question is, is how are you using those funds? And then Wealthfront, you know, does a bunch of stuff for what, frankly, I think it's a pretty low fee.

They do a bunch of stuff for you that you might think are important. Now, am I the guy to ask about robo advisors? Probably not. And if people that listen to this have listened to the Stack & Benjamin show, you know that we think a robo advisor is a misnomer. It's not really an advisor. It's a robot just handling some of the dirty work, right? And so, you know, the wealth friend's going to pick certain times to reallocate

the portfolio. They're going to do some tax lost harvesting, which, all right, I've gotten letters about this before that I underestimate tax lost harvesting. Tax lost harvesting is a big thing to do when you've got a big portfolio. But if you're somebody just starting to save tax lost harvesting, in my opinion, not that big a deal. So wealth front versus Vanguard. Have I beat around the bush too much? I'm not sure that I care. I think they're both good options. How about that. So I actually would not go the wealth front route. I would stay with Vanguard. Okay. But let's say that somebody has Vanguard and they've got Vanguard's crappiest funds. Oh. I would go with Wolf Front who I've already told a little bit about my situation. I know my situation. You know what I mean? I've told them about my

situation. They've plugged it in. These things are reaching my goals versus Vanguard's crappiest funds. I think it's kind of an apple and an orange. See, but well, okay. So first of all, there's no reason to be in crappy funds in Vanguard. I mean, you could be in VTSAX, which has got a 0.05 expense ratio. So now we're talking about 0.05 at Vanguard versus an advisory fee of 0.25 at wealth front. So that's already like a 0.2% difference. Which, by the way, doesn't even come close to Francisco's 0.95% difference I was talking about. But then on top of that, so wealth front, will still, I know Betterment does this. I assume Wealthfront does the same. Wealthfront will still

invest you into funds that themselves have expense ratios. So that point two five is on top of the expense ratio that you would be paying for your Vanguard index funds. Right. It's a quarter of a percent for asset allocation management. Right. So it's an additional, it's an additional fee on top of the expense ratio. So let's say. You're paying a quarter of a percent. Instead of, let's say, so Joe, your earlier analogy was you're paying 0.15 at Vanguard versus 0.25 at Wealthfront. Well, no, it's not a difference of 0.1. It's 0.15 plus 0.25. So it's 0.4 in total. You know what? That's exactly correct. Yes. Yes. Yeah. So then you've gone from paying 0.15 or 0.05, if you're in an admiral share fund like VTSAX. We'll use your example. You've gone from paying 0.15 to paying 0.4. And that's a pretty significant difference, particularly over a long period of time with a large amount of money. Wrong dragon. Really? You reckon so?

In the trenches for 16 years. Never met anybody that was like, I wish I would have met my goal. But it was the fact that I had that extra 0.25 on top of it that screwed me out of my retirement. Never had it. Never once had it. You know what the real reason was? Yeah. Didn't save any money.

We're like ying and yan. Like we're making the same point on other topics. Yeah, exactly, exactly. Because I say that you should keep your investment fees as low as possible. And I don't see the additional 0.25 fee that wealth front charges as being worth it. If you could just as easily be in a target date fund in Vanguard. Well, let me be clear. Do I think that being in a target date funds, by the way, Vanguard target date funds and other target date funds,

two different stories. If we're talking specifically, yeah, if we're talking specifically about Vanguard Target Date Fund, so don't, this doesn't mean I like the Target Date Fund

your 401K because I probably don't. Yeah, yeah, I agree. But a Vanguard Target Date Fund versus Wellfront, Vanguard Target Date Fund wins. My point wasn't, wasn't that, which one was actually better,

which I know was her question, it's that it's not going to make the difference. Whether you go to Vanguard or go to Wealthfront isn't going to make the difference on whether you meet your goal or not. I don't think that point to,

five is going to be, you know, somebody listening to this that has wealth front. They're like, oh, my goodness, I'm in the wrong thing. Like you said, the whole psychic energy thing. I'm not that concerned. I'm not that interested. Yeah, yeah, yeah. Vanguard best fund better than what wealth front can do for you? Yeah, I think so.

But if I'm not going to reallocate my money and I'm going to be in the wrong funds at Vanguard versus have somebody that's reallocating it for me. And as the account grows, I get this tax loss. harvesting that's done for me. So I get these things. Okay. All right. Now, I will say, so speaking of tax loss harvesting, do you think that the benefits of tax loss harvesting are as beneficial as these robo advisors claim? Boy, you want to have me back to my soapbox again? Yeah, yeah, do it. Only because, I think these firms market to the wrong people. Like, I think that tax lost harvesting and, and and doing a perfect asset allocation makes huge sense to the numbers once you've accumulated

some money, right? But I don't see the wealth fronts in the, well, wealth front more than betterment, but I see a lot of these people, Paula, marketing to people that have just their first couple thousand dollars to invest, right? And if I've got a couple thousand dollars to invest, my feeling is I should be more interested in establishing a way of saving more money than I should be. It's a tax loss harvesting on $2,000 is going to give you zip. I mean, it's going to give you next to zip versus finding ways to get more money saved.

Huge return on investment on that one. So I think, yes, tax loss harvesting can be fantastic when you've accumulated a nice size portfolio. Do you think that the benefit of tax loss harvesting is worth the additional 0.25 expense that you'd be paying on a robo advisor? Maybe. How's that for the best answer that you want? Does it make a difference if the account is pre-tax, a traditional retirement account versus an after-taxed Roth account versus a taxable brokerage account? Oh, tax loss harvesting only makes sense if you're in a taxable account, right? So if you're paying that extra money for a tax loss harvesting, you're in an IRA. Guess what? You're not getting any tax loss harvesting because inside an IRA, none of that stuff matters. It's the same argument there, Paula, as people, you know, the number. The number.

number one place where people have their IRA, you know where it is? Where's that? It's in annuities. And you think about the advantage that annuities bring to the table. It's supposedly this tax deferral, right? Why do I have a tax deferred investment in a tax shelter? And there's more money that is an annuity. Now, annuities have other things that they can do. But, man, talk about some fees. You know, those are the types of decisions I think are huge. If you asked me, should I put money in this annuity inside my IRA versus having it at Vanguard? Now we're talking some big time money. Wealthfront versus Vanguard, oh, boy, maybe.

Let's put it this way. If you had your money in wealth front and you showed me your statement, I wouldn't look at that statement and go, yeah, it's probably being Vanguard. You know what I mean? I go, I go, yeah, okay. All right. I got it. Yeah, I agree with you there. Wealthfront is not, or betterment or any of the other robo advisors, it's not a red flag.

So if you're already there, I wouldn't necessarily spend a whole bunch of time and psychic energy pulling out of that, particularly if you don't have a whole lot of investments yet. But I also wouldn't bother moving into it. And I just don't think that the additional fee is worth it, particularly if you're already in Vanguard. Vanguard is the best, in my opinion. And, you know, if you just stick with a Vanguard target date fund, I mean, that's pretty much everything you need right there. So why pay extra? I just don't see the value. I totally, if you came up to me today and said, what should I do with my money?

Well, sorry to Wealthfront, wouldn't be on my list. Yeah, I agree. Cool. So, Joe, we have drowned this puppy. I am exhausted. I know, right? I tried my hardest to bury your podcast, and I think we failed. So, Joe, before we head out of town, why don't you tell the listeners a little bit more about the corner of the internet that you occupy, stacking Benjamins?

We work from, by the way, thanks again for including me in this, Paula, because this was so fun. And I absolutely, because we never go deep on topic. So it was a pleasure for me to actually talk a little bit about it. Because our goal we created Stacky Benjamin's was to be a little like the NPR show Car Talk. In tone, it was Car Talk. And for people that don't know Car Talk, it sees two guys click and clack on the show for many years. One of them just died. You may know, Paula.

But for many years, they had the show where they talk about cars, but you never learn anything about cars. You just have a good time. And we never, everybody gets so caught up in, when it comes to money topics about, you know, following the gurus and making sure that I do things absolutely perfectly. Nobody's, these conversations, we don't have enough of these fun, playful conversations. And so Stack & Benjamins was made for that. So we broadcast the show, every other podcasters running away from their parents' basement. We do the show live from my mom's basement. We try to have some fun.

The show's magazine style. So it goes quickly. if you don't like a segment, just fast forward about five minutes and we're talking about something else. The time when people don't like stacking Benjamins is when they think we're going to do what you do here and afford anything very well,

which is dive into topics. If you're looking for a show where you want to deep dive into topics, you want to stay here, you don't want to go to stacking Benjamin. So as an example, Paula, much like on the tonight show, I brought a clip. Oh, a clip. Yeah.

I brought a clip. Yes. So one of the things that we did, was, I think it's important that people are versed in different languages, don't you? Absolutely. Yes. And so our friend Devin Carroll, who's not normally on the show, but was a good sport, Devin and our friend Matilda decided that a good stacky-bedgment segment we had during the

month of January was to teach people a little French. And so, you know, you go to a foreign country, you need to know the important phrases, right? Absolutely, of course. Yes. So here's a back. Absolutely. Yes. And here's probably a much more important phrase that our friends, Devin and Matilda,

brought to the table. Bonjour. Welcome to French Made Easy with me, your host, Matilde. Today I'm joined by certified financial planner Devon Carroll and together we will share a popular and simple French phrase so you two can use it in your own life. Sound easy? Sure. Today's phrase is

mutual funds with high fees make me uncomfortable, Larry. In French, you would say this popular phrase just like this. Larry, Once again, Larry, the Fon of Placement with Frees Elevéme Mets Mal-Aise. Now, let's hear Certify Financial Planer Devin Carole try it. Ready, Devin? Okay. Fond's communes de placement,

Larry, with des Andreries, elevates me font malalais. Ugh, nailed it. Perfect! See how we sound almost exactly alike? You two can speak French easily and confirm. easily and comfortably listening to Stacking Benjimins. See you next time. O'Revoir.

So if you find Larry, Paula, if you find Larry in France, you can now talk to him about high fee mutual funds. How great is that? Oh, man, I am so booking a flight. You know, everything you need to know. Bathroom, secondary. Yeah. So we did those a little bit in January.

So check it out. Awesome. And we will link to Stacking Benjamin's in the show notes. And I am on the roundtable most Fridays. Almost every Friday. Almost every Friday I show up and try to get a word in edgewise among the other clowns that you keep on that roundtable. They're fantastic. Len Penzo, of course, he's an award-winning blogger that you and I, Paula, know really well.

Fantastic guy. And Greg McFarlane from Control Your Cash, who specializes it being surly. Yes. See, he is also my cat sitter. He's fantastic. He's great radio. He's the guy that I think people drive down the road yelling at. Yeah.

Yeah, exactly. The guy everyone loves to hate. Absolutely. He's wonderful. Cool. Thank you so much for being on this special episode of Ask Paula, Joe. Ask Paula and Joe. Thanks a ton.

And thanks for all the questions, everybody. Yeah, this was fun, man. This was awesome. So if I haven't scared you away, you should come back sometime. Well, as long as next time, I get to be right. Oh, can I be left? You got it. That was so much fun.

If you enjoy today's show, please do me a favor. Head to iTunes and leave us a review. Your reviews are super helpful in helping us gain credibility as an actual podcast. You can find the show notes at affordathing.com slash episode 62. While you're there, sign up for email updates of all of the show notes, which are delivered hot and fresh to your inbox every Monday. My name is Paula Pant. This is the Afford Anything podcast.

Thank you so much for listening. If you have a question that you would like us to tackle on a future episode, you can head to Affordanithing.com slash voicemail. And that link is also going to be in the show notes. Affordanithing.com slash voicemail to leave your question. Thanks again for listening. Catch you next week.