Afford Anything - Ask Paula: “We Have $2 Million at 40 – Now What?”

Episode Date: October 8, 2024

#547: An anonymous caller and her husband have a $2 million net worth at 40, but they’re worried that the one-fund portfolio that got them there isn’t good enough anymore. Are they right?  Jared feels frustrated that so much personal finance media is centered around tech and freelance workers. Does Paula and Joe have negotiation advice for someone in the union? Sam owns two overseas properties in a country that’s experienced runaway inflation for the past decade. He’s worried he’ll lose $500,000 worth of assets. How does he control the bleeding? Steve is calling back with an exciting update on his house-swapping journey from Episode 487.  Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode547 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, imagine this. You are in the middle of your personal finance journey. Let's say you're in your 40s or 50s. You've got some good assets saved, but you've got a one fund portfolio, VTSAX. What would you do next? Are you just trying to make steam coming out of my ears? Is that what you're trying to do? Like cartoon? I would change it. I would do better. Oh, all right. Well, we are going to take you up on that challenge because we're going to answer a question today from a caller who is in exactly that boat. We're also going to talk to somebody who belongs to a union and is wondering whether or not he can negotiate. And we're going to talk to someone who lives in another country and has a different set of rental property numbers than what one might expect to find in the U.S.

And we'll hear an update from a previous caller. Welcome to the Afford Anything Podcast, the show that understands you can afford anything, but not everything. Every choice carries a tradeoff. And that applies not just to your money, but to your time, your focus, your energy, your attention, to any limited resource you need to manage. So, what matters most, and how do you make choices accordingly? That's what this show is here to answer. And we cover five topics. Financial Psychology, increasing your income, investing, real estate, and entrepreneurship.

It's double I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. I help you prioritize so that you can build wealth. And every other episode I answer questions alongside my buddy, the former financial planner, Joe Saul Cee-high. What's up? Hey, Paula, what's going on? I'm doing great.

And we're going to hear a question right now from someone who is 40, has $2 million and is invested entirely in one fund. Hi, Paula and Joe. First, thank you for your hard work and dedication to the financial independence space. I am forever grateful for your efforts and the impact that you've had in my life. Second, I'm reaching out after listening to Joe's spirited answer to the question posed in episode 535 about DIY investing. To date, we have been on a simplified path to wealth, and it's treated us well so far. Just as we began discussing if we're doing the right things, to best prepare us for a full retirement in about 10 years, along comes this fantastic new addition to our

vocabulary, the efficient frontier. So on behalf of all of us firmly in the middle years of a financial journey, please say more about the efficient frontier. We are in this phase where accumulation is starting to accelerate and the light is beginning to show at the end of the tunnel. And so specifically, what resources can we use to educate ourselves on an allocation perspective and what components might make up a portfolio that transitions from a simple one to one that's set up for long-term success? We've loved having ownership in the management of financials, but have we turned a corner as an advisor needed to help finish the financial independence journey for us. personally for some context my husband and I are just over 40 we have a net worth of around

two million which includes our home so breaking it down about 800,000 is in investments like 401K taxable brokerages IRAs etc and we both work we're able to max out all the usual suspects 401ks Roth IRAs, HSA contributions etc and we can put aside some of the remainder into our brokerage account monthly. Everything is VT, SAX, and chilling, as the cool kids say. But with our most youthful years behind us and eagerly anticipating a retirement in the coming decade, please help us navigate the waters of researching a better place for these funds to chill in the efficient frontier. Thank you. This is such a great question. Joe, before you answer it, we've forgotten something very important. Ooh, what is it? Well, because she's

asking about the efficient frontier, I think it would be appropriate to name her after the Roman goddess of trade and strategy. In Roman mythology, Minerva was the goddess. Minerva. Minerva, the patron of trade and strategy, also associated with the Greek goddess, Athena. Yes. So, this anonymous caller will be Minerva. So Minerva, I think a great place to go, And I'm sure Paula, this question probably came in before we played my answer a couple episodes ago. Last episode, yeah. The one about Paul Merriman. Yes.

So I would go back definitely and listen to that episode. But I'm happy to continue on this discussion because Paula, you and I have seen the community really likes this idea, which I'm thrilled by because I think that J.L. Collins does such a great job for new investors. his strategy, I think he popularized it, but certainly it was probably around before Jail Collins. But the simple path to wealth is a great place for people to begin. But I'm also excited that very smart people are realizing that we can do more. We can do better once we get to a certain amount of money. And that certain amount of money for people who are new to this is when you have enough money saved, that how you invest the money has more of an impact than the money that you're putting in,

that means it's time for more than VTSAX or the Vanguard Total Stock Market Index. When you have enough assets that asset allocation starts to actually matter. Yeah. When you've got like 10 grand, it doesn't. When you've got 2 million, it does. Now, the frustrating thing about this for me, Paula, is that the phrase efficient frontier, Those two words scare the heck out of people. Right.

Because it sounds so technical and it sounds so difficult. And as we explained when we were discussing Paul Merriman, the last time that I was here, I really dislike those words because it doesn't take a lot of time. It doesn't take a lot of research. It may end up taking you, let's say, half an hour a year, maybe 45 minutes a year. So it isn't this big, huge thing that people make it out to be in our brain. So first of all, what is the Fish and Frontier? this guy named Dr. Harry Markowitz won a Nobel Prize for the Efficient Frontier Research.

And the reason he won a Nobel Prize is that he was able to figure out that historically, given two things, the amount of time you have until you need the money. And number two, the tax ramifications of how you've invested, there has been historically a most efficient grouping of assets to get there. Now, he didn't look at individual funds. He didn't say, okay, buy him video, and that's going to be great. Right. He looked at large company growth stocks, large company value stocks, mid-sized company stocks, gold, different types of bonds. He looked at the different asset classes.

So this is not telling you specifically what to buy, which is cool, Paula, because you and I know you're going to be best served, much like people beginning are best served with the total stock market index. You're going to be best served by using a collection of indexes anyway. So rather than buying individual positions, just buy a few indexes. Now, what he looked at was this. So let's say that Minerva has 15 years until she reaches her goal, and this money is all inside of a Roth IRA.

We look at those things. Over a 15 year time frame, what he looked at was on two axes, going from left to right, the X axis. He looked at some investments have very low risk and some investments have very high risk. So if Minerva had all of her money in cash, it would be far to the left. If she had it all in oil-based paintings by one specific artist, it would be way, way, way to the right, right? If all her money is in Monet's. Right.

But also notice that Monet, over time, has appreciated much, much more. So the north-south axis, the Y-axis showed on the bottom very, very low returns, historically over that time frame. And at the top, of course, very, very high returns. So you've got returns going north-south and you have risk going east-west. So cash in the lower left-hand corner, large company stock as an example, somewhere up and right of that. And I like to imagine that Markowitz puts on some cool, maybe some jazz music, pours himself a glass of wine. And he goes, oh, what if I did 50% stocks, 50% cash? What if I did short-term bonds by themselves?

What if I did short-term bonds and small company stock together? And he starts plotting dots over Minerva's time frame of where it would be on this field. And as you can imagine very quickly, he gets this field of dots of every imaginable, diversified approach to reaching goals. Real estate and large company stock together, maybe 10% one, 90% the other. or then he switches it around, 10% the other one and 90% the other way and it puts the dot someplace else. What he notices is this. There is this line that initially on the left goes almost straight up, meaning that very quickly, as we go from

cash to bonds to stock, we see higher and higher and higher returns. And we see initially not that much more risk as we go, let's say 90% cash, 10% bonds, and then 80% cash, 20% bonds, not taking a lot more risk there, but we're getting much, much higher returns without taking a lot more risk. As it goes up, though, initially very little, but then over time as it goes higher and higher, return-wise, we see it start to bend to the right and then later on almost as a straight line, which is this law, and this is another phrase we use all the time in not just in money management, but in life, and this is part of Markowitz's research, the rule of diminishing returns.

We can take more and more risk, Paula, and at some point it doesn't pay anymore. We can take a lot more risk and it doesn't matter because we're getting maybe a fraction, more return. Right. And as an economic principle, the law of diminishing returns applies in so many different arenas of life, not just on the efficient frontier. So many. Yeah.

And what's funny is, if you look at this research, by the way, initially, this had nothing to do with money management. I believe that it had to do with helping the army with most efficient troop movements. Yes, you're correct. That was the original research that turned into the investment thesis of the efficient frontier. It was troop movement. Yeah. And so this whole body of research that Markowitz did applies to so many places, which is why he won the Nobel Prize.

Right. But what he showed was that above this imaginary line where there are no dots, things are impossible, meaning what does everybody want, Paula? everybody wants really high return and no risk. There is this imaginary line that he called the Efficient Frontier where there are no dots up there. So anybody that tells you you can get something for nothing, he proved empirically is lying. You just can't do it. There is historically a top return for each level of risk we take given again the time frame and the tax ramifications of the investment.

By the way, for those of you who are watching on YouTube, we are going to be showing these graphs visually on screen. So YouTube.com slash afford anything if you want the visual representation of what Joe is talking about right now. VTSAX is not on the most efficient frontier, which is what Minerva is talking about, which is what people in the Facebook group are talking about. This was my assertion, my spirited assertion, which is we could be much more efficient. And what you mean by that, Joe, is that being 100% in VTSAX. Yes. Being 100% exposed to nothing but the total stock market index is not on the efficient frontier. There is a place for it in your portfolio.

Absolutely. But a one fund portfolio consisting of only that or a two fund portfolio of only VTSAX and then a total bond market. That's not on there. But what's funny is that gets us closer. Right. Having 90% VTSAX and 10% in bonds will get us closer. But let's say regardless of whether you own the total stock market, index or something else. The first thing I used to do when I was a financial planners,

I would look and I would see where you were, right? So let's say your dot of your portfolio is right in the middle of all these other dots. There's two basic moves we can make. The first move is if somebody came to me and they like the returns they're getting, but they don't like the risk they're taking, we will just move that dot left and see historically what collection of assets got us there, which is cool because maybe you already own some of them. You just don't own them in the right percentages. It very quickly shows us what we need to sell and what we can keep to get more efficient with our money.

Same return we've gotten historically, but a lot less risk getting it. Now, or we can do the other thing, which is if you're sleeping well at night and you're comfortable with the risk you're taking, we can move that dot up, meaning we can historically take the same amount of risk we're taking now, not changing your ability to sleep, but we're getting a higher return historically than we are now. Really, what we do, frankly, is neither of those. What we really want to do is start off with the way you and I answer questions here every time I'm here, Paula, what's the goal? What is the goal? And then what rate of return do I need to reach that goal? And then what's the most efficient way to get there? So we plot it there on the efficient

frontier. So to directly answer Minervis question, there's a tool online that works with the efficient frontier. It's free. You have to create an account. They've changed the tool a little bit. It also is a little bit clunky, which drives me crazy. It's going to be easier to do with a fee-based financial planner because a fee-based financial planner, for God knows what reason, has access to tools. When I was a financial planner, I'd access to so many more tools in this arena than I had once I moved over to the financial media side. But it's called Portfolio Visualizer. And Portfolio Visualizer, has an efficient frontier. It has a lot of different models you can do. You can do tons of them. But

if you click on the efficient frontier model, you can start playing around with the efficient frontier. Now portfolio visualizer is offered by Morningstar. If you recall a couple of months ago, remember when I announced, oh, hey, I'm at the Morningstar conference in Chicago. Yeah. Morningstar is a group that does investment research and investment education. Absolutely amazing group, very rigorous methodology, rigorous research, great free, lots of free investor education, and on their website, which you have to create a login, but it's free to use. That's how you use portfolio visualizer. We will drop a link to it in the show notes for this episode. It is still, Minerva, not going to be easy to use because the interface is still fairly

opaque, meaning that there's just a bunch of drop-down menus. And so you have to pick which collection of assets you want it to analyze, you can say that I don't want to use all the different asset classes that are out there. Whoever created this particular tool also, each of these asset classes, Paula, only goes back some random amount of time. So if you say, I want to look at the last 20 years and what was most efficient over the last 20 years and you put in all the different asset classes, it will come back with, oh, five of these asset classes don't go back that far. Well, of course they go back that far. But for whatever reason, whoever created this particular tool, portfolio visualizer, hasn't made the tool

go back far enough for some asset classes. Also, if you leave the efficient frontier unrestrained, meaning I just tell it to go. The problem is, too, is that if I only tell it 10 years, it's going to tell you put 100% of your money in large cap growth stock. Because over the past 10 years, 100% large cap growth stock was the most efficient thing to do. bar nothing. It'll tell you don't buy any international, don't buy any small companies, which is ridiculous. So be careful with the time window that you said is what you're telling us. Absolutely. And what I like to do is I also like to give it some constraints. And the reason I give it because of some constraints is, A, that recency bias, number one. Right. But also number two is

historically the idea of putting all my money in one asset class because of the recency bias of what's recently happen is one of the most dangerous things you can do. So I'm telling you, if you look at the efficient frontier over the last 10 years, it's going to tell you to do something very dangerous. Right. Which is funny because I'm pointing to the fact that I love this tool and it's great, but I don't like having more than 30% of my money in any one asset class. So if I restrain, if I put the constraint that I will only put 30% into each asset class, I will then create a portfolio, which meets my goal and will give me a collection of asset classes that isn't just large cap growth stock that is much more likely to meet my goal still than VTSAX.

And in fact, it will spit out historically what you did. And I think that you will be very impressed even when you use 30 percent constraints. And I think 30 percent constraints on any one asset class is a great, great number. So how did you choose 30 percent? why 30 and not 25 or 35 or heck, why not 29 or 31? Yeah, arbitrary, frankly. And when I looked at 29 and I looked at 31 and I started looking at how that moves the needle, 25% gave me so many different funds where 30% I can use fewer funds.

And the difference with a constraint of 30 versus a constraint of 25, the difference in return and the amount of work that I would have to do to maintain it, again, diminishing returns, Paula. Right. Not a lot more juice in that squeeze. My goal is to appreciably beat the VTSAX or S&P 500 engine without taking a lot of time. If I go more than 30%, the portfolio becomes more dangerous, especially with the recency bias around large cap growth.

So is 30 arbitrary? 100% arbitrary. But if I go north of that, I think I'm taking too much risk. If I go south of that, I'm getting more funds than I need with not a lot more juice. As an example, what we talked about the last time I was here was Merriman showed using 10 funds. And I remember saying on that show, I wouldn't use 10 funds. Right. Yeah, it gets you closer to the efficient frontier, but using 10 funds to get there.

Right. I think it's over diversification. And to Paul Merriman's credit, he also has demonstrated how. using even two funds is better than one. Yeah. Actually, go back and listen to afford anything.com slash episode 300 for a discussion with Paul Merriman about the two fund portfolio. And I talked to Paul enough that I think Paul would agree that where I usually sat when

I was a financial planner, where I sit today, five or six funds is generally where you're going to end up. And that's great. Five or six different asset classes will get you where you want to go. and it will get you much, much further than VTSAX gets you. I also said this in the Facebook group. And as you know, Paula, you and I both have been doing a lot of traveling lately. But the fourth quarter, my travel schedule is settling down.

Right. I am very happy to do YouTube live for our communities, for the afford anything community, the Stack of Benjamin's community where we walk through setting this up. Yeah. Amazing. Yeah, let's do that. So more to come, but it will be during the month of November. Let's get this done.

Awesome. YouTube Live on exactly walking through portfolio visualizer and the efficient frontier. Fantastic. Yeah, it'll be fun. So that date TBD to hear updates about it, go to afford anything.com slash newsletter, sign up, and we will make sure that we email out that date once it is confirmed. Fantastic. And it'll be sometime in that.

November, as Joe just said. Yeah. Amazing. Thank you for doing that, Joe. I'm excited that the community is as excited as I am about this. Yeah. Because when you see that it's not a lot more work, but it's so beneficial. And we are a community, smart people. And if we can create wealth without a lot more work that can help us bring our community along with us, I get so excited about that opportunity for us to help other people. Yeah, absolutely. I just had dinner with Paul Merriman two nights ago. Oh, flex.

Flex. Show off. I love that man. I love that man. Yeah, I know, right? He's amazing. He's incredible. He is 81 years old, but he could pass for 70.

He's in such incredible health for being in his 80s. I know you and I, Paul on our shows talk a lot about purpose. right? Yeah. And he is the walking definition of, I think, longevity because you have purpose. Right. Yeah, absolutely. So I interviewed him, of course, for the Afford Anything podcast. Oh, brag, brag. This was my second time interviewing him, but it was my first time getting to do it in person face to face. We were in Minneapolis for the Bogleheads Conference. And so I got to actually sit with him and do a face-to-face interview. And it was absolutely incredible. So, that will be coming up on the Afford Anything podcast in the next few weeks. We have to get the files

from the videographer and then we have to go through editing and post. So it's going to be a few weeks before we're able to put it out. But make sure that you are following this podcast in your favorite podcast playing app so that you can hear our interview with Paul Merriman. And by the way, Joe, I should tell you, I recorded that interview and had that dinner in between the recording of last week's episode and this one. So it was after you and I had that discussion that we played in last week's episode. That's wild. How wild is that? Right. It was after you and I had that discussion about Paul Merriman. It was just a couple of days after that that I ended up having that dinner with him followed by the interview the next day. So it was the timing could not have been better.

It's funny. J.L. Collins' fame in this community is well deserved. Right. And I love the fact that calmed so many people down, I have been very surprised by how few people know who Paul Merriman is. Because it's like these two guys are a continuum together. Jail Collins, Paul Merriman, and by the way, they're friends. These two guys know each other incredibly well. So anyway, we can shine a spotlight on this amazing human being too is going to be very helpful for a lot of people. Right. Yeah, if you think of Jail Collins as the simple path to wealth, Paul Merriman is the efficient path to wealth. Efficient, right?

Right. Yeah. But I would definitely start with JL and then move to Paul. Yeah. JL, when you have a balance of $10,000, Paul, when you have a balance of a million dollars. Yeah. So Minerva, I hope that helps certainly a fee-only financial planner,

or frankly, any good financial planner and good CFP will have great tools. So if you're working with one already, ask them to help you. or jump on Portfolio Visualizer, attend our training, and have that fun playing with it yourself. Yeah, exactly. Portfolio Visualizer is a fun tool as well. There's so many different models there. Yeah. It is a time suck for money nerds. Yeah, it totally is. Minerva, have a fun Friday night playing with the Portfolio Visualizer tool on Morningstar. Well, and Paula, to that point is you ask why 30%, I will tell you, it's hours and hours and hours and hours.

I tell you it's arbitrary, but it's arbitrary after hours and hours and hours and hours and hours and hours and hours of testing. And I call it testing because it sounds scientific, but it's much more of, ooh, what if I did this? Oh, what if I did that? Yeah. Yep. What have I? What if I? What if I?

What if I? So scientifically playing around brought me to an arbitrary conclusion after many, many, many, many, many hours. Right. Policymaking is sometimes just setting arbitrary cutoff. Sure. Why is the drinking age 21 rather than 20 or 22? I don't know. Right. We can vote at 18 and we can't drink till 21. Right? You can go to war at 18. Policymaking is sometimes just picking an arbitrary number because you got to pick something. Well, thank you, Joe, for the deep dive into the efficient frontier. And thank you, Minerva, for that amazing question. And I have to say, normally Joe names our guests and this time I named you,

but I really like that name. The Roman goddess of trade and strategy, Minerva. Paula is very proud of herself right now. I really am. I really like that one. I like it too. I'm going to pat myself on the back for that one right now. Here we go.

I think it's great. But I will say this. I like the Greek name better. Athena. I like Athena better. Athena. call in and your name might be Athena. By the way, afford anything.com slash voicemail for anyone who wants to call in and leave a question.

Well, we're going to take a break to hear from the sponsors who make it possible to bring you this show at no cost to you. And when we come back, we're going to answer a question from someone who is in a union and wondering whether or not he has the capacity to negotiate. we're also going to hear from someone who owns rental properties outside of the United States and is dealing with a different set of numerical assumptions than he often hears discussed. And we're going to hear from a previous caller who has an update on how his situation turned out. Stay tuned. The holidays are right around the corner and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens.

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Welcome back. Our next question comes from Jared. Good afternoon, Paula. Jared here. I'm one of those proverbial long-time listeners, first-time callers. Leading with my question first, can I ask you to provide a job negotiation scenario

that would apply to a teacher in public K-12 education? Providing more context to my question, I'm calling in response to you, recent podcast episode titled How to Handle Seven Types of Hardball Negotiation Tactics. While I could readily connect with some of the examples, such as the car purchase negotiation, I found it very difficult to connect with examples about job offers and potential work, given my professional experience. My professional experience is entirely within the education sector. I've worked in both public and private education and both K-12 and higher education.

For me, when I was a public K-12 school teacher, my salary schedule was governed by a union contract and not open to negotiation. There was no opportunity for vacation days, for remote work agreements, for equity, for stock options, or anything along those lines. I want to be clear that it's not just your examples that I'm reacting to. Overwhelmingly, across all the personal finance media I consume, people regularly go to tech sector, jobs and freelance jobs when discussing job offer negotiations. The struggle that I have is these contexts have a lot of embedded assumptions in them about what's on the table, what the organization can and cannot do and be flexible about, etc. I would love some examples that are easier to map to my work experience.

While focusing on public K-12 education may seem like a narrow view to some people, there are an estimated 3.2 million full-time education teachers in public elementary and secondary schools in the U.S., which is almost twice the estimated number of software developers at 1.7 million. But still, if we want a larger lens, perhaps we could pick some job negotiation examples that apply to the estimated 16.2 million workers in the U.S. who are represented by a union and or covered by a union contract. I hope that my question comes across as being in good faith. I do not want to set you up with an impossible task. And maybe your answer is that there aren't good scenarios for these types of positions. Whatever your answer is, thank you very much for your time in answering my question. And thank you as well for your amazing podcast.

Jared, thank you for the question. And you are absolutely correct. You raise an excellent point, which is that when you join a union, you agree to collective bargaining. And by virtue of agreeing to collective bargaining, that means that necessarily what you give up is individual bargaining. So the lessons that we teach on negotiation, which are lessons directed towards individuals, are for people who do not have collective bargaining representation. And this applies, I should say, not just to people in unions, but there are also government jobs. Like, for example, when you're in the military and Joe, you went to the Citadel,

so you have familiarity with this. Oh, and you're drinking from a Citadel for those of you watching on YouTube. Citadel coffee mug, the military college of South Carolina. I do. In the military, there are very specific pay grades based on rank. If you're a private, if you're a second lieutenant, if you're a first lieutenant, et cetera. And the pay grades based on rank are the pay grades based on rank. And Joe, you can correct me if I'm wrong, but there's not really wiggle room there. You get the pay that you get based on the rank that you have. Yeah. And that's that. Yeah. All of that is predetermined. Set in stone. Right. Exactly. So specifically when it comes to job negotiation, we teach job negotiation to the people who do not have either a collective that is

bargaining on behalf of a mass group of people or a predetermined policy-based hierarchy, such as what is in the military. Because if you are an individual just floating out there on the seas on your own, you need to learn something because there's nobody out there representing you and there's no rank out there. So you're floating out in the waters by yourself alone. You've got to learn how to swim. So that's why we teach job negotiations. for individuals who are out there on their own alone trying to learn how to tread water, and not just how to tread water, but how to be a better swimmer. Sure.

I think also, Paula, when it comes to negotiation, it isn't always just about the job either. Negotiation shows up in so many different areas of your life. Yeah. Have you ever bought a car? Well, even if you're in a family, you don't necessarily think of it as negotiation, but if you have a roommate, who's going to make dinner? How are you going to discuss cleaning the house? I think negotiation has as much to do with how you address any conflict situation as much as it is negotiating for higher wage is in the workplace.

Right. Anyone who has either purchased or rented a place to live has had to negotiate. if you're buying a home, then obviously you negotiate that home sale. But if you're renting a home, you do the same. Every time that you rent, you have a negotiation with your landlords about the price of the rent, about the duration of the lease, about the pet fees, about the move in, move out cleaning fees, about the policies that apply to the unit, the number of people in the unit, the level of fixes that will be made to the unit prior to move it. I've choked on some and I've had tenants who have really gotten a great end of the deal. I had one tenant who convinced me to all new paint and new carpeting prior to move in.

I was not planning on doing that. She wanted new paint. She wanted new carpet. She made a strong case for it. She ultimately got to pick the paint color and pick the carpet. So I narrowed it down to an acceptable range. but she, of the five or so paint colors, she got to pick her favorite one. Same thing with the carpet.

I narrowed it down to a handful of different carpet swatches, and she actually picked the carpet that went in. That's not something that I offer as a standard for most tenants, but she did a great job. Well, this is interesting, too. I mean, Paula, in a collective bargaining situation, I'm thinking about him in K-12 education. Part of me wonders about negotiating for supplies in your classroom, negotiating working with other teachers on projects. You know what I mean? Not negotiating the salary as much as negotiating day-to-day working conditions.

I think that may also apply. It sounds to me, Joe, like what you're talking about are not formal negotiations that happen up the chain. but rather some of those informal conversations that happen laterally. Well, and it can even be up the chain. I completely agree with what you're saying. But if you're a teacher negotiating with the principal, I work best with X, Y, Z, and I'm struggling to come up with exactly the thing that we'd be negotiating.

But I just think that in any job that I've had, negotiating with my boss to make the job fit me better and make it so that we are more effective as an organization. I feel like often when people talk about negotiation, we make it this very narrow focus. And I just think that I negotiate every day. I negotiate with people around me every day. I just negotiated with a person to get my haircut as an example. We were just working out what time works best for her, which time works best for me.

And I know what everybody's thinking, you get your haircut. Yeah, I was about to say, Joe, which hair? Right. Why would you? That strand or that strand? You've got like three strands of, no offense, Joe. I can tell you how to save some money, Joe, eliminate that person from your life. You don't really need them.

But that also is interesting, why I get my haircut. But anyway, I just think there's so much negotiation that happens on a daily basis. It certainly happens within families when you're talking. to siblings about how to caretake for aging parents. And negotiating with the aging parent about living conditions and about what financial moves they're going to make next or where they're going to live next. But to Jared's question, you know, Jared, you are correct in that when you choose to join a union, and I know that there are some jobs that make that membership mandatory, but when you choose

either to join a union or to accept a job in which membership is a mandatory condition of joining, when you make that decision, then you give up some of that individual power for the sake of joining that collective. And that is the trade-off. Everything has a trade-off. That's the central thesis of this show. Every single decision comes with some type of a trade-off. Joe, you talked about some of those more informal negotiations that might happen in between a teacher and a principal, are there analogs in a military context? In any context, negotiation is just a part of normal conversations or any work that happens, whether it's the military or you work for the railroad or you're in an automotive plant

like my dad spent his life working on. Heck, you and I, you know, collaborating all the time. there's always subtle negotiation going on. So I don't think it's industry specific. But I do think with the military, like any job, think about getting promoted, changing your rank. People around you have to notice what you're doing. And I think there's a subtle piece of negotiation going on there, not just negotiation, but also a way to discuss your skills in a way that does not turn the person off to you. you and I were talking about an influencer who, as my mom says, toots their own horn. Yeah.

A little loudly all the time. That can be a turnoff. But you still need to show your commanding officer that you are worthy of the promotion and that you want the promotion in the first place, right? That you want the additional responsibility. And by the way, and that happens in a school setting as well. I want to be considered for the next job to be a principal. How do I make that case and do it in a way that makes me more likely to be promoted in the future,

which does lead to more money, even in a collective bargaining situation? Right. That higher rank leads to more cash. Exactly. You know, Paula, this is interesting, I think from another level too, is that often, and I see this like you as a podcast creator when we decide to talk about entrepreneurship as an example. And I know that a lot of the people in the Stacking Benjamin's universe, the Ford Anything universe, they're not entrepreneurs, right? But these skills that the person who I'm having on the show to mentor us on these entrepreneurial skills,

these translate to a nine to five jobs where you're working for, quote, the man, right? You're working for somebody else. You still need to be a person who advocates for yourself. nobody is going to promote your career more than you. So to some degree, whether you work for somebody else or you don't, these entrepreneurial skills translate to whatever job you're working in. I think it's the same for negotiation. But I think that with any of these skills we talk about, if you just zoom out from where you're at a little bit, you're able to see how these maybe not in the same context work for you as well. And let me tell you how I really like to learn. I like to learn from

companies that are in a different industry than I'm in. I mean, often we just look at people doing the same exact thing we're doing. And then we don't create any innovation. We don't get as excited about what we do. I remember a book I read a long time ago called All Businesses Show Business. I was a financial planner. And this guy's, his thesis was, it doesn't matter if you're a financial planner, if you're the Walt Disney company, if you own a movie theater, or if you drive a UPS vehicle. How you interact with other people is going to be show business. People are going to think about you and your company in a certain way based on the relationship

we have with each other. I mean, have you ever went and bought an ice cream cone? as an example. And the person working there clearly does not like their job. They don't want to be serving you ice cream. And they just kind of stick the ice cream cone and shove it at you. Yeah. And you think negatively about it. But think about this. I went in there to buy ice cream. I didn't go in there to be entertained by the person. However, the degree to which the person Dishing the ice cream, entertain me, made me think differently about the product. The UPS person, if the UPS woman comes to my front door with the package and goes,

hey, great to see you. How's your day going? That's fantastic versus shoving it at me. I think differently about UPS if they just shove the package at me versus a warm smile and a wink and a, hey, have a great day. Wow. UPS is a great company. Right.

So I think by zooming out from negotiation, where do you? you negotiate. How do these skills help me, regardless of my working condition, I think can be hugely beneficial to your bottom line, no matter what it is you do. Well, thank you, Jared, for asking the question. And thank you for dedicating your life to teaching, which is such a critical role. Before we get to the final question today, let's hear a comment, a follow-up from a previous caller. His name is Steve. And you might read, recognize him as the audio engineer extraordinaire, who is the behind the scenes magic behind both the afford anything and stacking Benjamin's podcast. He called many, many months ago with a

question about moving. He was moving from one home to another and wasn't quite sure how to transition his mortgage in the handoff. He has called back with an update. Hey, Paula and Joe, it's Steve, that guy who does stuff for Paula. I want to call and give you an update on the scenario I posed back in episode 487. For those who may not have heard the story, my wife and I were moving from Missouri to Colorado. We were going to buy the house in Colorado first, then put up the Missouri house for sale, take the equity, pay down the Colorado mortgage. And I didn't want to have to do a refy or anything stupid like that for just a couple of months. I didn't know what to do. And everybody said, hey, Steve, just do a recast.

I'd never heard of a recast before. And they were right. You were all right. It was. worked. Actually, I'd asked the loan officer. I said, hey, I'm thinking about doing this recast. He said, yeah, that's easy. It might take about 90 days. It took a month. It only took a month. So I'm very, very happy with how this all turned out. We've got a reasonable mortgage right now that I'm actually going to pound on and hopefully get rid of that quickly. We're living in an area, Joe, Paula, you've both seen pictures and video from where I live, and I'm going to give the video some video so you can put it into the video of this episode. Fantastic. Life is fantastic. Thank you, Afford Anything, audience. And Paula and Joe for giving me the solution that I needed.

Thank you so much. Oh, goodness, Paula. First, I have to deal with you bragging about spending time with Paul Merriman. Now I got to deal with Steve bragging about living near the mountains. And it's beautiful every day. You know, on Slack, he will send us these gorgeous photos, just breathtaking, breathtaking photos of his view as he's working, his view as he's editing the podcast. Wow. They make me so ill. I mean, who could stand to live in all that beauty? Gross. Recasting your mortgage, though, Paula, is not something that is just for Steve's situation. As we saw the Federal Reserve beginning to lower interest rates, sometimes that translates to mortgages. Sometimes it doesn't. Often it does. However, And if we see interest rates lower, I think it may be a great opportunity for people to call their lending institution and see if there is the possibility of recasting your mortgage at the lower rate, not doing a full refinance. I know that some credit unions do that. There are some lending institutions, some banks that do that.

But if you can keep your term the same on your mortgage, pay maybe a small fee. fee. I know one institution that I know of charges like a $250 fee to recast. And think about a $250 fee to get an interest rate that's potentially maybe a whole point lower, like how quickly you make back that fee. And you don't have to do the entire mortgage again. So recasting your mortgage, I think, is an opportunity that is overlooked often by people. And to Steve's point, when he's like, I didn't even know what it was. And I talked to my lender and they go, oh, yeah, Sure. Your lender knows what it is. Could be a good opportunity. And I think the broader lesson here for everyone is never stop optimizing, never stop looking for ways to optimize your finances,

not in the coupon clipping, tripping over dollars to pick up pennies, sense of the word. There's inefficient optimizing, which comes with an over focus on the penny pinching side of the equation. but when it comes to structurally, things like your insurance, your mortgage, these are the big wins. So when it comes to the big wins, the decisions that have multi-thousand-dollar reverberations, never stop optimizing there. In fact, as a litmus test, I often like to ask myself, is this a decision that's going to have a thousand dollars or more worth of consequence? If it is, I'm likely to pursue it. If it's not, let it go. Yeah.

And for me, I've chosen that number to be a thousand. For you, depending on where you are in that journey, it could be a different number. My number has not always been a thousand. When I was younger, that number was like 20 bucks, right? That's what I was going to say. At one point for me, it was like 50, right? Yeah. When I was younger, it was literally $20.

I actually did have that math. And $20 was that number. And I had to choose $20 as that number because I was wasting so much time making $3, $4 decisions that eventually I had to be like, no, Paula, stop it. If it's not going to net you at least $20, then let it go. So when I was younger, it was a lower number. And as I've gotten older, it's turned into a higher number. And for some of you who are listening, maybe your number is $5,000 or $10,000.

And for others of you, it's still $20,000, as it was for me at one. time, but know what that number is and above that number never stop optimizing. All right, we're going to take one final break to hear from the sponsors who make this show possible. And when we return, we'll hear from someone who owns real estate overseas and is dealing with a set of numbers you have probably never heard before. And that's coming up right after this. Welcome back. Our final question today comes from Sam. Hi, Paula, I'm Joe. This is Sam. First, I would like to thank you for all what you do. With your guidance, my financial awareness has been better. I have a question regarding an overseas renter property.

I need a framework of ideas which I can use as a guide for taking my decision. Prices mentioned are in US dollars. The rental property is a condo which is fully paid, bought in 2011 with 80K. Its current market value is 45K. The monthly rent is $100, which is below market value, but in return, I'm not responsible for any expenses incurred or associated with keeping up the unit. Also back there, I have a house for my personal use. The purchase price in 2022 was $589K. Its current price is $4.33K, and I am still owing $74K. The economy in the country where the properties are located is not stable for the past decade,

and for the past five years, the local currency has been devalued a few times. Local banks offer three-year term CDs with 21.5% annual return. Due to the economic situation, CD values or purchase power will be less than its original value at the end of its term, or when there is devaluation of the currency. I am looking at first option is to keep the rental property and pay off the house from my income. Second option is to sell the rental property and use the cash towards paying of the house. Third option is to sell the rental property and use its value to buy a CD and pay off the house from my income. Which option is better for preservation of my assets?

Would your decision be different if the income from the rent or CD was used for monthly expenses? Should I consider the rental property as a stock which fluctuates in value? Is it better to sell what I have overseas and invest in the U.S. real estate market? I am dual citizen living and working in the U.S. I'm not planning to return back, maybe to retire there. My house in the U.S. is paid off, no retirement accounts. I have a business loan and cash as emergency funds, which is equivalent to the loan. Paying off my overseas house from my income will not cost. any strains on my budget. I am worried about losing monetary value of these properties.

I'm sorry for the lengthy question. Your insights are highly appreciated. Please dedicate an episode to talk about dual citizens and how to benefit from dual citizenship status. Thank you. Sam, thank you for the question. I want to highlight a couple of things from the question that you just asked. You mentioned that you purchased two homes, one of which you purchased 2011, the other you purchased in 2022. The one that you purchased in 2022 has already lost some significant value, largely due to the devaluation of the local currency. And there was a number that you stated that I think told the whole story. It was when you said that in your home country, the local bank offers three-year-term CDs at a 21.5% rate. Now, the only reason that a bank

would offer a CD at a 21.5% rate is when you have enormously high inflation. Right, right. Right. Because I know a lot of people, Paula, are thinking, put your money there. That's a great deal. Not a great deal. I know this because the same happened in Nepal. Nepal's, the banks and Nepal were offering CDs at, geez, I think at one point, the CDs were going at somewhere between 12 to 15 percent or something like that, if my memory is correct? When we had the huge inflation here, remember how for one brief moment in time you could get very close to 10 percent on a treasury, remember that? So anytime I hear something like that, when you say the bank is offering three-year-term

CDs at a 21.5% rate, what I immediately know is that you have hyperinflation. You have enormously, enormously high inflation in whatever country it is that you're referring to. It's even worse than that with the currency being devalued several times. Exactly. Yeah, hyperinflation, currency devaluation. Yeah, we're talking about a confluence of really tough economic standards. I don't know about for you, Paula, I think this must be where you're going. That definitely clouds my opinion of what Sam should think about. Oh, so what do you think? Because you and I have not actually discussed this in advance. If you were him, would you pay off that house that he bought in 2022? My answer is going to be broader than that. Oh, okay. Because I'm not sure specifically

what I would do, but directionally, I often will tell people who are dual citizens or who are intimately familiar with another economy to leave money in that economy and invest in that economy. Back when I was a financial planner, I had clients that were from Ireland. They invested in Ireland. I had clients from India. They invested in India. I often on this show have told people invest in.

invest in that economy because you're very familiar with it. You're very comfortable with it and having two different economic engines going. I think is nice diversification as long as your understanding of what's going on is great. That assumes, though, Paula, the economy that we're talking about has some stability. So directionally, my whole thing is invest in this economy as little as possible. Yep. Any move that moves you away from this economy is a good move because while we often in the United States as an example, we'll think that the stock market goes down, I want to buy, right? I want to buy. I want to buy when it's low. That assumes economic conditions are going to get

better. Right. But when I can't depend on the forces that control those economic conditions, and that's not predictable, what levers are going to, we're going to have pulled, then I can't invest because there's so much uncertainty. I'm not saying that the U.S. government is the end all be all or that the Federal Reserve system is the end all be all. However, what we've seen historically is that not just Jerome Powell and this Fed or are people that run the treasury over the past several years and even during the, heck, even our government during the time of the pandemic.

And we look at that 10% number that we could get on a treasury for a quick moment in time. The government was reacting in predictable ways. I remember some Republicans who historically don't advocate throwing money at people saying, no, no, no, no, no. Remember this thinking, Paula, we're either going to bail out companies later or we give the money to stay afloat now. You mean during the pandemic? no matter what during the pandemic, we are going to have to give people money. We're either going to

have to help them later or we're going to help them now. So we decide we're going to help them now. Well, it created inflation. Created inflation, which is why the Federal Reserve then raised interest rates. And it's also why, now that we've seen more data and where we're at today, we now slow down the economy so much that now we saw the half point decrease a few weeks ago. All of this is to some degree predictable. We don't know exactly what's going to happen, but you see this engine moving and you go, okay, I get it. I understand why that happens. Yeah. But when we're devaluing the currency over and over and over, I bought a house for 500 something thousand and now it's worth 400 something thousand.

Right. And that's only in two years, yeah. I don't want anything to do with that. Well, and Joe, I think the broader point that you're making is that the U.S. is the world's reserve currency for a reason. Good point. You know, and we are still the world's reserve currency for a reason. We, the U.S. dollar, is the most stable currency on the planet, period. And I know that there's been a lot of talk and speculation about is the U.S. going to stop being the world's reserve currency? And we can speculate about what might happen in the future all day long. But the fact of the matter is that at the present moment, we are. And for many, many decades leading up to the present moment, we have been. So when it comes to major world superpowers, there are two. There is the U.S.

and China. And while we do have to continually compete with China to maintain our superpower status, we are a thousand percent the world's reserve currency. And where that becomes relevant in this context is that, and I know this from experience, because coming from Nepal, I understand what it is to have very, very close affiliation with a nation that is highly economically instable or unstable. And Joe, to your point, when you said, hey, if you are intimately familiar with another country, you are the best qualified person to invest there. Nepalese Americans are, I think, better suited than most others to invest a portion of their portfolio in Nepal.

Makes total sense to me. The problem is the Nepalese rupee, like I mentioned earlier, we also had CDs that were going for jaw-droppingly, eye-poppingly high APYs. I remember looking at the APY on a CD coming out of the Nepalese banks and seeing that number, and my knee-jerk reaction was, wow, that'd be a great rate. And then after five seconds of thought, I then realized, oh, no, that's not. Because that is a lagging indicator, not even a leading one. It is a lagging indicator of inflationary data. And so whenever you see CDs with a high APY, it's a red flag. It's a red flag.

And it's telling you to run in the opposite direction. So I agree with you, Joe, that it's best for him to have as much money in U.S. dollars as possible. That being said, he bought the home in 2022 for his personal use. This is not an investment. It's something that is available for him to personally use. It's a home. Homes are in an inflationary environment, tangible assets such as real estate, gold,

art, any type of tangible asset is what you want to hold on to when inflation is strong. So, Sam, any local currency that you have there, converting that local currency into mortgage payoff, which is another way of saying converting local currency into tangible asset, do that with all your local currency. Don't hold on to any of the local currency. Use it to continue to pay off that tangible asset, that house that you purchased. Now, in terms of spending U.S. dollars on repaying the rest of that, I'm neutral on it. He's got some type of a mortgage with some type of a payment schedule. Well, I think this is where Paula, the other goals matter, right? Yeah. Because I could make a case based on what you just said that that's the best use of money, but are the other goals funded?

If other goals are also not funded enough, then I'd need to weigh this versus what else he's trying to achieve. Nations that tend to be highly economically unstable are often politically unstable and often lack due process. And so my question to you, Sam, is, what is the risk that the government might seize your assets? I would take that into consideration before determining whether or not to pay off the home. Because if there is a high degree of risk of government asset seizure with no due process, then that needs to be factored in. Particularly if you are openly critical of the government or if somebody in your family

is openly critical of the government. And remember, you might never say anything critical of them, But what if you have a cousin who does? And then as an intimidation tactic, your assets can be seized. So that's something that you will want to think about before you decide to pay off this home. What is the risk of that seizure? And how are taxes they're collected? I mean, because that's the thing about asset seizure is you might have to bribe a bureaucrat

to give you a receipt that shows that you have paid your tax bill. And if you're not there and you can't pay that bribe, you might not get that receipt. then there's going to be a paper trail claiming that you haven't paid the taxes. The whole thing becomes a big mess. And that basically it turns into a smokescreen, which just justifies increasing levels of bribery. But honestly, even that is the best case scenario. Because with bribery, at least you can pay some people off and you get to keep your asset. Versus with a politically motivated seizure, you're just kind of out of luck.

There's really nothing that you can do other than maybe like very publicly pledged feel. to the reigning regime. And again, Sam, I don't know what country you come from, but it is not lost on me that there is likely a reason that you haven't told us, because one would not want to publicly even hint at government criticism. That being said, Sam, I know you said that when you retire, you might want to go back there for a while. You want to live in the U.S., but you don't want to break your ties to your home, which I fully understand. So, if you think that there is a low risk of asset seizure, yeah, it's nice to have a house there. And that's why I can, I'm 50-50 on should you use US dollars to pay it off sooner than later. A lot of this is

going to depend on your assumptions around if the local currency will continue to be devalued, if inflation will continue to be skyrocketingly high, if the US dollar will continue to buy more and more of the local currency, right? If the U.S. dollar will continually be stronger and stronger, if that's the case, and it sounds like there's a pretty strong case for that happening, it makes sense to wait. And it makes sense to make the minimum payments, because as we move further and further into the future, the U.S. dollar will go further and further and further into payoff. You think that the U.S. dollar will continually get stronger against the local currency. then pay off the home as slowly as possible.

By contrast, if having an outstanding mortgage leaves you susceptible to needing to bribe the loan officer, that's the complicating factor. To broaden this out a little bit, Paula, this is also difficult in a different way. It's often when you have an asset that's not performing, like knowing when to get off that train. Do I wait a little longer? do I try to shore it up? Do I hope things are going to change or do I exit? It's one of the most difficult questions in personal finance is I have an expectation around my asset. It's not doing

what I needed to do, what I wanted to do. Do I sell? Do I hold? That's difficult. Another reason why buying indexes is easy because it solves a problem ahead of time. Because with an index in that type of investment, when do I sell it question is self-solving. So Sam, I hope this was helpful. I think that the key that Joe and I both keep coming back to is keep as much of your money in U.S. dollars as possible. Well, or not in that economy. Yeah. Whatever other economy this is, don't have it there. Yeah. When you're retired, you can always go rent there and you can always go spend there, right, assuming they let you back in, which you're a dual citizen, so assuming that they don't revoke your citizenship or revoke your passport, then you can always go back,

and the more money that you have in U.S. dollars, the more power you have to do that, to go back there as a renter and as a spender. That said, if you are going to own any assets there at all, tangible assets like real estate are the best things to have. Assuming you can keep it. Yeah, assuming you can keep it. And give it. Given the inflation rate, paying it off as slowly as possible makes the most sense if you think that the U.S. dollar is going to be stronger, increasingly stronger and stronger, barring all of those other mitigating factors. But for the most part, stick to U.S. dollars, stick to the World Reserve currency.

So, Sam, thank you for the question. And best of luck with whatever you decide to do. Well, Joe, we've done it. Tadda. Where can people find you if they would like to hear more from you? every Monday, Wednesday, Friday at the stacking Benjamin show, the greatest money show on earth. We've got a cool one, a great mentor who stopped by Mom's Basement, where we record our episodes, downtown Josh Brown, one of the managing partners at Ritzholt's wealth management.

He also is one of the host of the CNBC halftime report. And we talked to Josh Brown about the lessons that we learned about inflation, during the pandemic and about capitalism during the pandemic. Also, we talked about robots coming for our jobs. Are the robots coming for our jobs? If you know Josh Brown, you know he talks a mile a minute and he always has great takes about everything and we talked to him recently. So go listen to my discussion with Josh Brown. Excellent. And that is on the stacking Benjamin's podcast. Wherever finer podcast are distributed. Awesome. Well, thank you, Joe. And thank you. all for tuning in. This is the Afford Anything podcast. If you enjoyed today's episode,

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