Afford Anything - Q&A: Should We Retire in Our 40s With $4 Million and an 80% Stock Portfolio?

Episode Date: August 11, 2026

#740: Paula and Joe rarely butt heads — but a caller's side hustle, which pulled in $5,500 in a single day, sparked their most heated disagreement in months. This week's mailbag: a couple weighing an early retirement built on $1.2 million, a wedding-dress side hustle deciding whether to go all in, and a listener whose small stock investment turned into a $25,000 tax puzzle. In this episode, we discuss: How to build a bucket strategy so you can retire early and still stay aggressive with your portfolio The real markers that tell you it's time to go back to work — not just a number How one listener turned a marketplace side hustle into a $5,500 day When to leave a stable paycheck for a growing side business, and when to wait Why a popular plan to gift a winning stock to your kids usually backfires Whether it's worth paying taxes now to raise your stock's cost basis Where a single winning stock belongs — taxable, Roth, or a solo 401(k) Whether you're weighing an early exit from a stable career, deciding if your side hustle is ready to become your main hustle, or holding a stock that's grown far beyond what you expected, this episode will help you think through the tradeoffs before you act. ⏱️ TIMESTAMPS Note: Timestamps may vary slightly depending on dynamic ad placements. (00:00) Why a winning stock can turn into a tax trap (02:23) A $1.2M portfolio and a plan to retire by 45 (07:45) Why an aggressive portfolio needs a cash cushion first (16:49) The real signal your plan isn't working (24:25) A side hustle that made $5,500 in one day (33:51) Quit now or wait — two strong arguments (39:51) The book that could save a new business (54:09) A $200 stock that grew into $25,000 (01:01:08) The tax rule that blocks gifting stock to your kids (01:12:59) A hidden tax that kicks in above $250,000 income 🔗 RESOURCES MENTIONED 👉 Grab the free Asset Location Made Simple guide to see exactly which investments belong in your taxable, Roth, and pre-tax accounts: https://affordanything.com/assetlocation 👉 Frank Vasquez's risk parity portfolio, explained in depth on episode #618: https://affordanything.com/episode618 👉 Profit First by Mike Michalowicz, the book Joe recommends for setting up your business finances the right way from day one: https://amzn.to/3Sf7Tpo 👉 Julie Wainwright's interview on the Stacking Benjamins podcast, on rebuilding after Pets.com to found The RealReal: https://www.stackingbenjamins.com/from-business-idea-to-execution-julie-wainwright-1703 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, have you ever had a stock that has super appreciated in your portfolio? I have on a few occasions. Isn't that fun? Yeah, it's great. Although it puts you in a golden handcuffs scenario when it comes to taxes, if it's in a taxable brokerage account. Well, not just that. Also, just the when do I sell it? Do I sell it? Is it too much? Do I let it ride? Like, what do I do? I know. So we're going to talk to a caller at the end of today's episode who has a question about tax gain harvesting. You've heard of tax loss. This is tax gain harvesting. It's the luxury problem that we all hope to have.

How do I separate my tax by paying a little today? Right. In the middle of the episode, we're going to talk to someone whose side hustle is blowing up. And she's wondering, do I quit this corporate job to go full scale into my side gig? You know a lot of people have dreamt about this one. Right. Exactly. The middle caller today. Her question is your dream. But before we get to that, we're going to answer, oh, I was about to say this question, which comes from Mike and then go straight into it, but I should introduce the show first, shouldn't I? Oh, that's crazy talk. You introduced the show last week and the week before that. We always do it the same. But for the people who have never heard this before, welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars. Financial Psychology, Increasing Your Income, Investing, Real Estate Entrepreneurship,

acronym double i fire i'm your host paula pant i trained in economic reporting at columbia every other episode ish i answer questions from you and i do so with my buddy the former financial planner joe saw see high what's up joe i feel inadequate today i'm supposed to if you're new here i'm supposed to have some dad joke and i i dropped the ball i don't have oh oh uh why did the dad decide to buy a boat? I don't know. There was a sale. Oh, Mike. She's here all week. She's here for the next hour-ish. With that said, we go to our first question, which comes from Mike. Hi, Paula and Joe. This is Mike from Boise, and my wife and I, who are 37, are blessed to be in an incredibly great situation. We're a doctor and a nurse, and we're positioned to have gainful employment, kind of whatever we want,

and we can always go back to that, even if we take a break, we have some great income, and we've currently got $1.2 million in investable assets. So I project that this is going to grow to close to $4 million in 8 to 10 years, and that's, of course, depending on markets and everything like that. However, our inflated expenses around that time should be about 5% of the assets. And I bring up that because it seems like a really perfect opportunity to take a break, and reassess. I've got two daughters who won't quite be in college. We'd love to travel during the summers with them extensively, do some slow travel, do some projects around the house,

and see if maybe markets cooperate and we can just continue into retirement, but also we could always go back if necessary. My question is around asset allocation during that time. I've been looking into some risk parity portfolios, but I'm honestly a little worried they're too conservative. In my situation, I could easily see myself going back to work because it might be fun, or at least a part-time amount. And I'd have plenty of years to make it up if the market's tanked, being only 45. Am I crazy to do something like 80% stocks, mainly split between small-cap value and large-cap growth, 10% long-term treasuries, and 10% gold? When I do this with my $4 million potential portfolio in my inflated expenses, portfolio visualizer says I've got about a 90% success

rate on a Monte Carlo. That seems plenty good enough to me. I think as long as I have enough cash on hand to cover my travel and lifestyle, I don't necessarily need to be too scared of market volatility and sequence of returns risk. I'd also love to get any input on what markers you would use to decide that you needed to return to work or add on part-time income. Is it a percent portfolio drop, a failure rate on Monte Carlo or something else. Can't wait to hear what you guys think. Appreciate everything you do. Have a great day. Mike, I love this question. And so to jump straight into it, first of all, I am, I'm with you on the thinking risk parity is a little bit too conservative. I'm totally there. So we've had Frank Vasquez, so for people who are not

familiar with the risk parity portfolio, it is popularized. a guy named Frank Fasquez, who he derives the research from Bridgewater Associates, which is a big hedge fund, Ray Dalio and the Risk Parity Portfolio. We'll link in the show notes to that episode. You can listen to that for people who are not familiar with the Risk Parity portfolio. You can listen to that episode for a deep dive explanation. We won't go into it here. But it is a method of portfolio drawdown that I'm with you, Mike. I think it's too conservative. It requires an, allocation that might be a bit not ideal. I think there's some other issues with risk parity, which have mostly been outlined in a recent piece, very recent piece from our friend Big Earn.

Karsten Jeske wrote pretty much a takedown of risk parity and talked about why he does not like risk parity. For me, my biggest question around risk parity has nothing to do with the math. I'll leave that to minds like Carston. For me, it's much more behavioral. When I see practitioners in the space, they don't use asset classes in nearly in it all the way that you see risk parity people use these asset classes. And then you wonder why that would be. And, you know, if you ask Frank, it's because they're a bunch of morons. And if you ask, if you ask.

I was not to say Frank wouldn't say that. I thought, you know what, Frank, Frank, actually would. Yeah, Frank would say that. Yeah, 100% he'd say that. They're all morons. But then I think these are some of the smartest people I've ever been around who manage large amounts of money for very smart people. You know, so if all these smart people aren't doing it, what are we all missing? I think that worries me as well. I also don't like being locked into a single philosophy because everything works until it doesn't. I want to know how my money's invested and I want to be able to, from behavioral standpoint, I want to be able to adjust when I need to, which is the crux of Mike's question, right?

How do I know when it's not working and I have to do something different? It isn't that I'm not a fan of risk parity. It's that I think there's a ton of caution flags that I feel like, especially the inner circle of the personal finance community kind of have chosen lately not to pay attention to that they really should. Mike, I like your approach of design an aggressive portfolio that you've tested and that you know has a high probability of success, especially because you're so young. You're still in your 40s, right?

You need to design a portfolio that could stay with you and your wife for the next 60 years. So design that portfolio while also using a bucket of, approach so that one year's worth of expenses, I would go with one year at a minimum, a one year's worth of expenses is kept in cash so that that way you've got some buffer from sequence of returns risk. If we have another 2008 calamity, you've got enough cash on hand, you've got enough dry powder on hand to get you through the next year. And then within that one year time span, you can reassess to decide what you want to do if you want to return to work or not. But given the flexibility and opportunity that both you and your wife have with the work that you do, especially if you have

a year's worth of expenses held in cash. Under those two conditions, I would feel free to go as aggressive with your portfolio as you want. I feel like there needs to be an emerging middle bucket. There needs to be this midground between very aggressive and cash, because the crux of the problem is how do I transfer funds from more aggressive positions systematically? into a cash position. And especially during market downturns, I don't know that the stuff that's on the bleeding edge I want to take out during these downturn times.

This is where I really like the middle bucket, where maybe I'm taking the riskiest percentage of my portfolio and any money I take out of that, I'm only moving it over the short run to a spot where I have an opportunity to maybe recapture some of it. I know I probably won't recapture all of the loss, but I may recapture some of the loss. Let's say by moving it from small company value stocks, which traditionally are very volatile, into a large cap growth or large cap value fund.

And then from there in my middle bucket. So I would see most of the money on that much more aggressive portfolio that you're talking about. I'm 100% with you. But then I think there needs to. to be a middle bucket, too, for maybe that five to ten years out period. What surprises me, Joe, when you talk about that middle bucket is, initially when you said middle bucket, I was imagining that you meant T. Bill and Chill or Ginny Mays or something very conservative. But when you say middle bucket, you are still referring to large cap equity

stocks. I'm referring to stocks and still a ton of equity, but a spot where my standard deviation, which is how we talk about volatility. My roller coaster ride is a little bit more mellow. The issue is if we get into an extended downturn, and this is where being incredibly conservative, or excuse me, incredibly aggressive with most of his assets can really land you in trouble if you don't have some sort of mechanism to possibly, when the wind starts blowing again, and if the economy continues, it will, because of the fact that the, stocks are the economy. They don't, it's not voodoo. And when people say things like play the, play the stock market or man, it feels like a casino, they don't understand that this is a reflection of

economic conditions. And when economic conditions reverse and things are great again, which eventually through history has always happened, well, we have to have something in the sale to be able to make the wind blow, you know, to be able to get back some of it. So, I have to give away. Just taking my dad joke to heart, something in the sale. I don't. The guy who bought the boat, the dad who bought the boat because there was a sale. Because there was a sale.

Yeah, we need to have some of that. So there has to be a lever that will help you recoup some losses during that downturn. So would you then conceptualize the plan as the one-year bucket, the years' two through eight bucket and then the year eight plus. If I'm staying aggressive, I don't think I'm going on one year bucket in cash. I think I would look at a two year bucket. A two year bucket. And maybe not all cash. I mean, I could see some treasuries in there, Paula. I could see that being added to that bucket, but there's got to be two years. Yeah, I was thinking, you know, I said minimum one year, but I was also thinking between one to two years. Yeah. And I know a lot of financial

planners that love the idea of 100% equities or a high percentage of equities. And they'll use the big time barbell, which is a three-year allocation. Okay, that's a bit much. Yeah. Well, it depends. I mean, if you're going 100% equities on one side, balancing that out with three years of cash, cash equivalents, short-term obligations and treasuries, also historically has modeled very well.

Yeah. Yeah, but one year would be the minimum that I would go. Absolutely. The other thing about if you commit to a minimum of one year, then when times are good, you can continually replenish the year. So it can be a rolling one year. And that rolling one year will persist until times change, at which point you then have one year from that point forward to reassess. So as long as you make it a rolling one year, then you'll always have the 12 months of runway from the point at which fortune's turn. And there's another way to solve that. You know, Mike also said he might want to go back to work part time. Right. If he thinks that he has the ability, if he's a physician, there's Locum Tenems where he takes on a role for six months.

And in his specialization, maybe there's a high need for that. so he could go back to work fairly quickly and there's a very high probability that that would happen quickly, then he could solve the cash problem, not from having access cash on hand. He could solve it from sporadically going back to work for a while if he's not adverse to it. Yeah. And it sounds like both he and his wife are very open to going back to work from time to time if the need arises. That's a big part of the reason why I think that they have the ability to be more aggressive is because, to quote J.L. Collins, flexibility is the true security. And from the plan, Mike, that you've described, there's a lot of flexibility in your plan. So I would optimize for two things. Number one,

I would optimize for spending time with your kids before they go to college, spend time with your kids while they're still young and while they don't have pressing obligations that would preclude them from being able to spend time with you. I would optimize around that first and foremost. And in order to do that, the flexibility that you've described around how you will manage your career, you and your spouse will manage your careers, that combined with a bucket strategy, I think, is the way to go. Yeah, 100%. What do you think about his question around when do you know it's going afoul?

What markers would you use? The two hypotheticals that he threw out, he asked, is it after Monique, Carlo falls below a certain threshold, is it when the portfolio balance falls below a certain level? What's enticing about both of those proposals is that they are quantifiable, but I think the single biggest marker is probably going to be qualitative and not quantitative. I think the single biggest marker is when you start to feel enough anxiety about the future that you cannot enjoy the present. That goes, I think, directly to where I was headed, Paula, which is, you know how I love my timeline. I love building a timeline. And I think on that timeline that I would build out,

Mike, I would, if you and I were working together, we would build out a timeline at where we want to be a year from now, 18 months from now, two years from now, two and a half years from now, three years from now. So every six months, what do we want that portfolio to be to feel, Paula, exactly the way that you said. Like, what is that number, this amount I need minimum to feel safe? And then I'm going to just measure against the marker. And then every three or four years, I'm going to redo those markers because things change. Not only does the market change, but also my feelings change about what's happening. You're going to find that as you begin to slow travel, there's going to be some things that you love and some things you don't love. Maybe you start

out as an example by thinking that you're going to be a world traveler, but you find your time in the United States, you enjoy that a heck of a lot more. And you find that you like, let's say, camping in the United States more. So your travel costs are a lot less. Your hotel stay cost have been slashed. And now your expense expectation is through the floor. And that's just because you found what makes you happy. Or you flip that, right? You thought you were going to like camping. And in terms, You like bougie hotels in Bali. You like being halfway around the world. So as you get more experience doing this, those markers are going to change.

And I like the thoughtfulness of that approach because it takes a little more time to do it that way. But I feel like, Paula, that's time well spent because you're not thinking about the marker as much as you're thinking about what you alluded to, which is what makes you happy. Right. Also, age in many ways changes your risk tolerance and correspondingly, the level of anxiety that you feel. My dad has talked a lot about how when he got to his 60s and 70s, he was like full of energy and full of optimism.

And then when he got to his 80s, he started to feel a lot of anxiety because he became so aware of his vulnerabilities. And he became hyper aware of the fact that simply catching your toe on a step and having a little fall, something that would be a nice. non-event in your 40s would be a major event in your 80s. Much bigger consequences. Right, exactly. And so because the stakes of small things became higher, it correspondingly really raised his level of anxiety. And so in order to counterbalance that, he then dedicated more

of his time to meditation, all of these things change. And he's spending more time meditating. He's spending less time traveling because he doesn't want to go through the stresses of travel. So yeah, I mean, all of these things kind of change your, you know, not only how you fill your time, but also the level of anxiety that you feel about your life. That's just going to track differently over time, often in ways that you don't expect or that you can't predict. And so for that reason, I wouldn't state an arbitrary portfolio balance because what does that portfolio balance represent? fundamentally at the end of the day, your net worth is only relevant insofar as it generates some type of an income stream. And that income stream is relevant insofar as it covers expenses needed to have the type of life that you want.

And so I would start with the type of life that you want. And because that is dynamic, the downstream of, therefore, how big should that portfolio balance be also is dynamic. All of that said, I think this is a fantastic goal. Yeah. I think it's a great goal. I would do it. I would do it in a heartbeat. I think you've achieved this level of financial independence.

Even if it doesn't work out and nothing ever works out the way you think it's going to work out, I would jump on this. But to give you a more concrete, because there's a part of me that's like, did we give Mike a concrete enough answer? to his question about the markers. So to summarize the most concrete answer that I would want to give you while still remaining truthful, I think the most concrete answer is have a dynamic goal portfolio balance

and that dynamism should be based on lifestyle cost, expected lifestyle cost, but make sure that it's a dynamic number that is routinely updated. Thank you, Mike, for the question. We're going to take a moment to hear from the sponsors who allow us to bring you this show at no cost to you. And when we return, we're going to hear from Olivia,

whose side hustle is totally blowing up. It's such a cool story. Her question is your dream. So we're going to hear from her next. Welcome back. Our next question comes from Olivia. Hi, Paula. My name is Olivia. I am a huge fan. Last month, my husband and I got married, and when I went to look for a secondhand wedding dress, I found that there just really weren't many options in my city. And I live in a

major southern U.S. city. And so I, out of frustration, decided to start a secondhand wedding dress pop up. We just had our second event, and it went extremely well. We source our inventory a few different ways. Most of our inventory comes from Facebook Marketplace, where I buy these dresses, and then I restore them, and then I store them in my home. And then the other about 25% comes from recent brides who will bring in their dresses on consignment to the event, and we make about a 40% cut. So at our most recent event, we had about 2 to 300 people attend. There was a 30-person line to get into the event at 10 a.m. We were open for four hours and we made about $5,500. We also partnered with the wedding venue, so we got to use the space for free. They would like to continue this

partnership and we're planning on hosting more events this fall and the beginning of next year, the same venue is planning on opening another venue in another major city and would love for us to host events there as well. So what I'm trying to get at is I think this idea has legs. I have paid back all of the inventory that I purchased, racks, mirrors, and I still have about 70 dresses left, which is about $8,000 or $9,000 of inventory. Why I'm calling is because I currently work a pretty soul-sucking corporate job. I am 30 years old. I've been on the workforce for about eight years, and I've just really struggled to find my place in corporate America. I am struggling to balance my corporate job, my civic engagement, and this side hustle. And what I'm wondering is how do I

assess when it's appropriate to quit my corporate job? Just for some context, I have a more than six months of my salary saved. My husband and I split the mortgage on our house, so I pay about $1,500 a month. And I am expected to inherit between $50,000 and $100,000 in the next few months from a family member. Joe and I both got so excited, Olivia, when we heard your question. I know I keep saying your question is everyone's dream, but what you done, what you have built already is, number one, it's the hardest part. Getting started is the hardest part. Number two, there are a lot of people who, they have negative self-talk, and they convince themselves that it's not possible. I couldn't do it. I'm too busy. I blah, blah, blah, blah, blah, blah, blah.

And so they never get to the point that you're at. I just, I can't emphasize enough how much getting to the point where you're already at, getting from zero to where you are right now, that's the hardest step. So the fact that you've done this tells me that you have fuel in the tank. You've got the potential. You've got what it takes to take this way further. And I love the idea and the fact that you found the idea that has legs. And you are, you know, there's actually three different things going on here.

You have ideas. Some have legs, some don't. Then you have laying it out as a business. And sometimes people lay that out in effectively. And so they kind of killed the original piece. And then the third is there's this, there's this idea that it's a great time. It's a great place. And you love that portion of the industry. You love doing it. And you're able to lay out the business correctly. That's the wheelhouse. It's very, very difficult. all to get to where you are right now. Yeah, exactly. Finding your thing that also pays the bills. Right. Because you found, so what I love about the question, sorry, Olivia, we just keep talking about how much we love your question. You found a need in the market. And I want everyone who's listening

to this to go back and re-listen to the beginning of Olivia's question. Actually, Steve, can we just play the first couple of sentences? Notice how. The idea generated because Olivia spotted a need in the market. Last month, my husband and I got married, and when I went to look for a secondhand wedding dress, I found that there just really weren't many options in my city. I live in a major southern U.S. city. And so I, out of frustration, decided to start a secondhand wedding dress pop up. There it is.

Notice what she said, here's a need in the market. She lives in a major city, so there is a large market, and inside of this large market, there is a need that is not being filled. And so she stepped in to take care of a need that the market had not yet covered. That is exactly how a good business begins. Too many people say, well, I'm really passionate about cupcakes or I'm really passionate about, I don't know, post-it notes or whatever. You know, I'm really passionate about X. They make it about themselves. Olivia didn't make it about herself. She made it about this gap that exists in the market. But in some ways, it was about herself because she was frustrated with the fact that there was a gap in the market. She was able to see that there was a gap in the market from her own life, but she's already

married. She doesn't need a secondhand wedding dress anymore. She didn't start this by saying, I've always had a passion for wedding dresses, or I've always had a passion for, you know, I was in the costume department in high school theater and I wanted to work with big fancy gowns. Like she doesn't start by saying any of that. She said, I was searching for something. I noticed I couldn't find it. I live in a major city with a large population. So if I can't find it, that means all of the rest of the inhabitants of the city also cannot find it. And I'm betting that there is a significant enough population that is also looking for the same thing that I could fill that need. And then she proved the concept. Yeah, exactly. So you're ready to start answering?

Yeah. Olivia, as long as you've got, you said you've got an emergency fund, you've got more than six months of salary saved. You have a very reasonable monthly mortgage. You have some more money coming in. I'm going to assume you can maybe, maybe or maybe not get health insurance from your husband's job. If you can, great. If you can't, that's fine too. Don't let that stop you. I'm also going to assume that you're debt-free or at least free of any high-interest debt. You don't have any credit card debt. Maybe you might have a student loan, maybe not. That's fine if you do, but I'm going to assume that either you're debt-free or your debt is low interest. The conditions are right.

The conditions are totally right. Great savings. Presumably no or low debt. Low cost of living. Influx of money coming in. And you've already proven out the concept. I say go for it. I don't.

What? I think there's a lot more ramp building that still. needs to be built. As a guy who's counseled many people on beginning businesses, let's talk about not now when it's an exciting venture for Olivia. We want Olivia to think about six months from now, nine months from now when it's a grind, because every business at some point is a grind and it's not working the way that you think it's going to work, which is going to happen. in nearly every business that I have ever watch get off the ground. Number one, you have to build a lot of projections about where I'm going to be,

where am I going to be for the next six months, a year, two years, three years. But I think you need to begin projecting how is this going to flow? How is the business going to float? And the cool thing is you have a business you work in now. It's not where you want to be, but you have this life preserver that the second, you jettison it, it's gone. I want to take advantage of the life preserver time to do all of the little I dots and T crosses just to ensure that this is as badass as Paula and I and you think that it is. So I would build out projections. And then what I would do is I would three X those projections,

meaning it's going to take you three times longer than you think for this to get from point A to point B. Almost every single business that I ever counseled took three times as long. It also takes three times the resources to get from point A to point B. And it's not because your projections were wrong. It's because stuff comes out from the blue. Like you're like, I didn't think about this one expense that now as a business owner, I realize is a piece of running the business. each one of these expenses is a mosquito bite, but it's hundreds of mosquito bites. It's hundreds of them. And you just, you feel like what's that, that phrase, death by a thousand paper cuts, right?

And so it's a lot of paper cuts, but I would three X the amount of money that it's going to take to run the business. So when I hear six month emergency fund, I think phenomenal year and a half. Let's get as close to a year and a half as I can. The second thing is, what can I do? Because we want to lower overhead as much as possible. Can your husband, and I'm just going to throw this out there, this could be a yes, could be a no. I just think this would be incredibly helpful. Can your husband pay your part of the mortgage for a while?

Can he pay your part of the mortgage so that you have the flexibility to withstand times that don't go the way that you want them to go? But she said the mortgage that they split is $1,500. So her share of that is $750 a month. I have zero doubts in my head that she can come up with $750 a month. I think everything's on the table. I think every single thing's on the table. I have seen can't lose businesses that lose. And it's partly because of the fact that we were too optimistic.

I want to be way, way, way more pessimistic. I love what Mike said earlier about, I think that my, you know, my projections are too conservative. This is a time to be incredibly conservative. Let's be as conservative as possible so that when you get into a cash flow crunch, you've got the ability to withstand that. Because you see some great businesses that go out of business because they didn't have the ability to do that. I would also look at how you set up your business. There's a fantastic book. And for people that are longtime fans of the show, it's not the book you're thinking. So relax. Oh, it's not the e-myth because Joe talks about that every episode. It's the e-my myth. And in this case, I think the goal is more appropriate, but I'm not going to reference the goal.

There's a book by a guy named Mike Malkowitz called Profit First. Profit first that I think for you, Olivia, is one of the most important reads. because if you can set up your business in a profit-first manner from the very beginning, then you're not going to have to re-engineer that later. And what Mike will tell you, and I'll tell you, and I think Paula will tell you, is that you find that a point comes along when you realize your business is so awesome that now you've gone from being an employee of a soul-sucking job somebody else owns to becoming an employee of a soul-sucking job that you own. you have to flip that.

And if you work from a profit-first mentality, you're not going to get in that position. When I was a financial planner and I worked with entrepreneurs, one of the first questions I'd always ask them was, are you working for your business or is your business working for you? And you know exactly what people would say, Paula. Yeah. The other phrasing that I've heard of that is, do you own your business or does your business own you? And these were great entrepreneurs that have been doing it for 20, 30 years. And they're like, yeah, my problem is my business owns me. But, but, okay, so because I disagree with you, Joe.

She uses the term we, I notice. So she has contract help. But she's not talking about hiring full-time employees and signing up to give them workers comp and retirement and health insurance and all of those. You know, once you start doing that, it becomes a much bigger obligation. I notice she's using the term we, so there are other people who are being brought in, but it's very project-based. It's pop-up based. She's not renting her own place. She's making partnerships with other venues, right? So her overhead in terms of running this business is incredibly low. And so goal number one that she's trying to solve for is replacing her own salary, employing herself. And if she's employing herself, then it's perfectly fine to own your

own job. Oftentimes, that step of, you know, this isn't a sustaining business in the sense that I can pull myself out of it. Yes, this is a job that I own. Getting to the point where it's a job that you own is step number one in being a bootstrapped solopreneur or who then turns into a bootstrapped entrepreneur. So I would take advantage of this time. while she's still employed as much as I possibly can before I jettison the lifeboat. I just don't, I don't see any reason to stick around in the corporate job any longer. I don't see a reason to let the free money train go. I mean, I truly don't.

Why am I going to, why am I going to get rid of the fact that I have a consistent paycheck? I have health insurance. I have all of these things. And I'm excited about the new venture. I might not be excited about my job right now that I have. but I think there's a huge amount of opportunity here to make a wonderful, well-thought-out business plan versus go jump in the deep end and figure out how to swim once you're there. Because it costs your most valuable assets, which are your time, your energy, your focus.

So you're making best use of that time. It's not free money. It's money that comes at the highest possible cost, the cost of the one asset that you cannot replace, which is your time. I know very few, very few entrepreneurs that would say, just jump now. I would, I don't know what type of business planning she's done, which is my advice. My advice is have a solid business plan for this to work. How long do you think that would take? Are you talking like one month, two months?

Or are you talking like a year? I'm talking, well, initially when you said, how long? long. I was thinking six months. I was thinking a six month time frame to build this out, to find out where my help is, to actually, you know, in the administrative stuff that you have to, there's so many aspects of being a business owner that are, I would love it if I had a steady paycheck coming in from X place and I have the ability to use then my free time around that to be able to make a better plan. I don't know. I don't know why that's bad. She's already tested this out. She's already built out the concept. She already has proof of concept. She already has not just a venue

in her own city, but venues in other locations as well. I'm not saying don't keep working. She has inventory. She's done all of that legwork initially. If she kicks the can down the road by another six months, that's just delaying it. Like, as a business owner, urgency is everything. Time is an edge. She needs to get out in front of this and give it her all. I mean, if we're talking about delaying by one month, okay, I don't have any objection to a month.

Even two months, fine, whatever. But anything that's longer than two months, that just seems like procrastination at that point. I don't think it's procrastination at all. I think it's prudent business planning. It's 100% prudent business planning. Make sure I know what the hell I'm getting myself into. Talk to some people that are entrepreneurs that have done that. Read profit first and set up your profit first system. Make sure that you've got the life preservers in place. You need to replace your HR benefits. Not all of them. Some of them are ones that you don't need. But there's going to be other benefits that you want to have, that you want to pour it out. How am I going to do that?

Everything that you've just, read profit for it, that takes 10 hours to read a book. So you're saying, you're saying get rid of the life preserver and then do all this planning. No. 100% no. No. No. I look, she's got a six month emergency fund. She's got a low cost of living. I'm assuming that she has no debt or very low, low interest debt, assuming that the no debt stipulation. then I don't see any reason to delay. There you have it. Yeah.

There you have it, Olivia. Yeah, yeah. There you have it. I'm not changing. Because, yeah. Because the moment that she leaves that corporate job, she frees up 40, 50 hours a week, plus not just the time, but also the cognitive bandwidth. Your job takes up the most cognitively precious hours of your day.

And when all of that is free, you can go whole hog into all of this. And when you've got maximum enthusiasm around a business, like, when you pour all of that into the business that you're running, you become an unstoppable force. I wouldn't squander that. She's 30. She has a level of energy now that, frankly, most of us are not going to have at the age of 50 or 55, right? like preserve this chapter in your life when you've got low expenses, low overhead, the energy of a 30-year-old, and you've already tested out the concept and you know there's a market for it. Speed is an edge.

I think fear can disguise itself as procrastination. I don't think this is procrastination at all. I don't think she wants to procrastinate. I think my advice to take this more prudently. I don't think should be interpreted as slower. I don't think it's slower. I think it's better because of 3,000-year-old advice from Sun Sioux. The best battle is the one you never fight.

And if I know what some of the battles are going to be before I get out there with all my enthusiasm, that's going to be wrecked on the rocks, the second that the BS train starts hitting. and because of the fact that I didn't set up any of these markers at a time or any of this network ahead of time of other entrepreneurs that maybe have been there before me, I don't even know who to talk to about my situation. So I don't know. I still would take six months. I would run projections.

I would have those projections be 3x, what you think they're going to be. And I don't consider that being pessimistic either. I consider that being a realist. I consider it pretty badass that I can then have numbers that are unbeatable. I'm not going to beat myself that way. I'm going to get in it with a solid plan that I know works. And then every month when I beat these numbers that are three times worse than what most initial projections are. And I'm kicking their butt because of the fact that I made sure that even at a conservative basis that I was going to be okay.

and I'm not going to have to do this differently, I think it's a great way to go into business. All right. Well, Olivia, there you have it. You've heard both sides. You decide. And we know, Olivia, which one's right. And this is coming from two people who have both quit our jobs

and gone into the extremely volatile and highly unforgiving world of business ownership, small business ownership, bootstrapped small business ownership. Honestly, I would never do anything else. Me neither. Yeah, sometimes the hardest things are the best things. I was writing about this the other day, living in New York City. The winters are brutal.

It's expensive. They're high taxes. There are rats everywhere. There are cats in the lunch deli to scare away the rats. Like, we all live in a big Charles Dickens novel. In all of those ways, it sucks. and also I would never want to live anywhere else. The fact that I get to deal with the problem in the way that I think is best.

Yeah. And I don't have to disagree with a boss who gives me some half-baked idea that is just not even meant to impress the customer. It's meant to impress their boss because you can see right through them that all they're looking for is a promotion. Oh, God, I don't have to deal with any of that. I can go right to the consumer, make the consumer as half a lot. piece I possibly can. Super fun. Direct feedback. Yeah, I think that there's a certain level of agency when you're like, I make the choices and I bear the consequences. And so the fact that you so directly bear the consequences of every single choice that you make makes every choice

that much more real, that much more important. But there's a huge level of agency and autonomy when you're like, all right, this is adulthood. I make the choices and I bear the consequences. And that's what being a grown-up is. Joe's laughing at me now. Yeah. And also remember, Paula wouldn't take six months to make sure that we weigh any of those ahead of time.

I don't think six months is now. One month, fine. Even two months, fine. I wouldn't go beyond two months. Oh, she went two months. We got her for one month to two months. That's 100% more months. She's coming.

And see? And we think like entrepreneurs. Paula, now with 100% more months. All right. Well, thank you, Olivia, for the question. We're going to take one final break to hear from the sponsors who make the show possible. When we return, we're going to hear from an anonymous caller who has a question about tax gain harvesting. You've heard of tax loss, but what is tax gain?

Should she use it? That's up next. Welcome back. Our final question today comes from Anonymous. Hi, Paula and Joe. This is Anonymous. I have two questions about my taxable brokerage account. The first is about tax gains harvesting. I'm totally new to this concept, but I'm wondering if it might benefit me. About 11 years ago, I invested a few hundred dollars in a stock that's grown to about 25K. I know. I hold it in my taxable brokerage. like to continue holding it. Should I sell it now, pay the 15% capital gains tax, and then repurchase it and continue to hold in order to reduce the cost basis? Additionally, should I, or can I even

re-buy it through my solo Roth for 0.0.1 so it grows tax-free. More on asset location in my second question. Side note, I hold very few stocks, and almost all of my investments are in low-cost index funds since finding your podcast, which was after I purchased that stock. I have used the efficient frontier modeling, assuming that I hold the stock in question and I'm rebalancing by purchasing new investments moving forward. My second question is about the best use of the taxable brokerage account, especially that one so far, very lucky stock. We have two young kids and don't have much saved for their college funds. So I was thinking about letting those taxable investments grow, having them take out student loans for college, and then doing in-kind

transfers when they graduate, and at a time they might be able to take advantage, of the 0% capital gains tax rate. Does that make sense? And if it does make sense, should I repurchase the stock I mentioned in the first part of my question in my taxable brokerage instead of through my Roth 401k so that I can more easily transfer it to my kits? For context, I'm 40 years old. My partner is 44. He makes 132K and I'm self-employed and make about 90K. We currently have 410K in our pre-tax accounts, 47K in Roth accounts, and 46K in our taxable brokerages. We also have a 60K emergency fund and 40K in various sinking funds, and I have 47K in student loans that I plan to have paid off in five years. We have a 600K mortgage in a high cost of living area.

My partner will have a small pension when he retires, and we're planning to work until he's 64 and I'm 60, hopefully retiring with about two-point-year. point seven million invested. And so far, we are not counting the taxable brokerage as part of our retirement. So we're investing without that being part of it. I can't thank you enough for all you do. Your podcast has truly changed our lives. And as you can tell from this question, the lives of our kids as well. Thank you so much. Thank you, anonymous for the question. I can't wait to cover this one. But Paula, we can't cover this one until you have a name. You have that name. So Anonymous, because you have done so well in the stock market, I wanted to name you after someone who also had early success in the stock market. And in the year 1870, we're going back.

Oh, yes. In the year 1870, Victoria Woodhull opened a stock brokerage on Wall Street with her sister that ended up doing very well. In honor of a Wall Street stockbroker, a pair of sisters who were Wall Street stockbrokers in 1870, we're going to name you Victoria. Victoria, all right. Initially, I think a lot of people listening might be thinking, why would you take out student loans and wait to gift this to children after college versus just doing it now? And so I think maybe, Paula, we should answer that first because there's, is a simple rule that she's trying to get around using this device. And it's called the kitty tax.

They call it the kitty text. If you are under 18 years old or you are between 18 and 24 and you're a student, you're a full-time student, then you are going to be subject to the kitty tax, which is why she wants to wait until her kids get out of school because then they're no longer kids and then they're not subject to the kitty tax. Is it 24 or 23? I thought it was 23. It is age 20. I have it right here. It is 23. You know what's funny is that I'm thinking 24th birthday is when they're no longer applicable. So yes, it's 23. The deal is, and what the government's trying to do here is very simple. They're trying to get people like Victoria not to do what Victoria is talking about doing. Because as an example, states have these things called Utma or UGMA rules. Uniform. form, gift to Miner's Act, or you inform, transfer to Miner's Act. These were enacted, I believe, in the 1980s, but the reason is the same, right? People with money were transferring the money to their kid's name so that they could avoid taxes. That's the reason to take student loans and then

to gift the money, because you can give stocks and kind to your kids. You can do that. Your kid, in this case, by the way, is going to have the time that you purchased it. as the beginning of your cost basis time. So this would have long-term capital gains treatment. Yeah, exactly. So gifted stock carries the original basis. So your kids are likely going to be in a lower tax bracket. That's the benefit.

But they're still going to have your original cost basis. And you have to wait until if they're 23 or under, like Joe just said, if they're 23 or under, they're subject to the kitty tax anyway. which is different than inherited tax. And Olivia, as an example, was talking about getting inheritance. If that inheritance includes stocks, the second that your relative passed away, that becomes whatever the stock was on that day, that becomes your cost basis. So the person that built up the position, you forego a lot of their capital gains exposure.

And then you, if you sell it on the same day, they pass away, you'll have none. Now, when somebody is then over the age of 23 and not working, they have zero income coming in, well, then there would be zero tax ramifications of then selling the stock. So that's what she's trying to do. So the answer for us, Paula, is it worth it? Yeah, well, because that assumes that. straight out of college, your kid is going to be a low-income earner. I don't know if you want to make that assumption. And I don't know if you want to base your plans around that assumption.

Like what, you don't want to be in a situation where you're like, darn, my kid ended up being really successful straight out of college. Darn, they created this AI company from their college dorm room when they were sophomores and now it's doing super well. And now at 23, they're actually in a higher tax bracket. Well, and the piece of, of this plan that I don't like, because I certainly don't like any of the things that you talked about and 100% agree, is we're also then hanging on to this stock and we're projecting it into the future, which is much easier to do with an index. I could see doing that. But with an individual stock, Paula, they change leadership at the company, the marketplace changes, the overall stock

market. I mean, there's so many different things that could happen to an individual company that we don't have to worry about when we just spread the risk among a bunch of different companies that I think projecting that this stock's going to be okay until your child is 24 is also an additional risk that people worried about tax ramifications don't consider enough. Yeah. So I wouldn't play this game. And I think you're feeling the same. Yeah, I am not a fan of the college, the in-kind transfer. plan. Like there are too many holes in it. There are too many things that can go wrong. One of the biggest things that goes wrong, Paula, is that you're going into debt to do it as well. Yeah. Yeah, exactly. You're leaving assets in an individual stock, which is inherently risky,

then taking on a whole bunch of debt just so you can wait for your kid to turn 24 and then assume that your kid is going to be a low-income earner at the age of 24. Which is what we all want for our kids. Yeah, yeah, right? And I hope my kid doesn't have a job right after. Yeah, yeah. But let's go to the other part of your question, Victoria, which is the part about tax gain harvesting. There are a few problems here as well. What you've described, so you'd be selling the position, realizing the gain, and then in your question, you talked about that would reduce the cost basis.

I think what you actually meant is it would raise the cost basis. So the whole purpose of tax gain harvesting would be to raise the cost basis at a higher rate. And more of the tax liability is what she had. Yeah, exactly. That only makes sense if you can realize that gain at zero percent. You and your husband right now, so, so okay, in 2026, if you're married filing jointly, you can have up to $98,900 in taxable income and pay zero percent on long-term capital gains. but your husband is making 132,000, you're making 90,000.

Together the two of you are making 222,000, subtract out the standard deduction, so for joint filers, so that puts you at 190,000. That is double the ceiling of what you would need in order to be at 0%. You're not even close, is what I'm trying to illustrate. Like unless one of the two of you stopped working, you're not going to get to that 0% banned. So you're going to be paying 15% on this. So then the question becomes, why pay 15% right now unless you think that you would be paying a higher rate in the future? Because if you're paying 15% on this now and then reinvesting it, you necessarily are going to be reinvesting less money unless you were to like,

just pay that tax out of pocket and put the same amount in, in which case you're just making additional contributions. And I think that's what she's thinking about, by the way, most of the time when people are contemplating this, they have the money to pay the tax sitting someplace else, and they're just going to sell, you know, 500 chairs and then rebuy 500 chairs. So functionally, then she's talking about making additional contributions into the same stock.

In that case, it becomes an asset allocation question. Like, do you want to be that exposed to a single stock? If she doesn't do that, so if she takes that 15% haircut right now, then that means that the total amount invested is reduced and then that has a compounding effect. One way or the other, the only reason to do it is if you believe that that rate that you're going to be paying capital gains tax is that is going to be a lot higher in the future than it is right now because you're not locking in 0% no matter what. That's where I was headed was that tax deferral is a great thing.

thing. And if this stock doesn't pay a dividend, then it's tax deferred. You're just going to pay more and more money. But the percentage is going to be the same. The percentage is going to not bump up. It's not going to change if she just rides it out. So while it could be, and hopefully is more money, right? Everybody's hoping for the stock to keep growing. If it keeps growing, the percentage tax she pays doesn't change. So there's no efficacy, I think, on paying part of the tax today. Yeah. I mean, the one thing that that does is maybe psychologically it makes it easier to look at a stock that's only gained X versus X plus all the gain it used to have, you know, so maybe psychologically. But that's the problem with buying individual stocks is that even when they do well, Paula, you get in these emotional conundrums because the stock did so well. You know what the management did. You'd understand the reasons why the marketplace did great things. And you feel a little beholden to, you know, the magic that happened, hoping that it could, lightning hits again. I also want to draw attention to the net investment interest tax, the knit tax.

That hits when you are above 250,000 modified adjusted gross income if you're a joint filer. as we've already established between what your husband makes and what you make, you're at 222,000. If you then have a gain of almost $25,000, that puts you pretty darn close to the $250,000. And once you get there, then we're talking about a capital gains tax rate of 18.8%. What do you think that about the asset location, about those selling it off and moving it to a text deferred? account like the solo 401K. To me, it feels very close to the same thing if it doesn't pay a dividend. Yeah.

In general, I love assets in a solar Roth 401K. I'll make that blanket statement. Big fan. Yeah, exactly. But to harvest gains, pay taxes on them now, replenish the taxes out of pocket, which means make additional contributions. Because all contributions into a solo Roth 401K have to come in the form of cash.

You can't just transfer the stock over. So you'd have to turn it into cash in order to move it into that Roth Solo 401K. Again, either you're paying the taxes out of that, in which case you're investing less, or you're paying the taxes out of pocket, in which case you're contributing more. but if you're going to put that money into the same individual stock, you're contributing additional money into a non-diversified asset. I would actually like it better if she, assuming that she's not otherwise going to max out the solo Roth 401k, I would like it better if she sold enough of the asset to be able to max out the Roth Solo 401k.

but the new contributions went into an index fund or went into a more diversified broad market rather than an individual stock. Because if we're talking about her making new contributions, which is effectively what paying the tax bill out of pocket is, I want those new contributions going to something more diversified than one individual stock. And this is the way, Paula, what you just described as the way CFP handles it all the time, which also frustrates people because they, get involved in the emotional argument. What happens if the stock keeps going up and the index,

you know, is going to be less volatile, which means it would go up slower. Like, what if all these great things happen to me? But a CFP will go back to the original piece. This was $500. It was a great win. Don't try to project what you think it's going to do in the future. Ask yourself, what is a use of this new money that I have that will make my lifestyle better? And once you do, that, then lock in the lifestyle. Don't think about locking in the individual stock. Think about lock it in the lifestyle and you're going to make much better decision. So yeah, they come to that same conclusion that you just did. Let's put more money in the solo 401k. The second you said that, like, I don't know about you. I got a little dopamine hit. I got this little, that's cool. Yeah.

Yeah. And again, that is assuming that you, based on your budget, would not otherwise be able to max out your solo Roth 401k independent of this, which is another way of saying, if you can keep this stock where it is, if you can not touch it, and based on your budget, you could still max out the Roth solo 401k, do that because then that's the ultimate in more contributions. It's a great problem to have. Love this problem, Victoria. Yeah. It's the problem that everybody wants. I, you know, oh, I put a few hundred dollars into a stock and it turned into 25,000. Like, wow, what a, what a massive, massive gain.

Yeah. Oops. Yeah. There's also one more thing. If you do decide to give this to a child at 24, even though that was not our guidance, remember that if it goes to a single child that the maximum amount that you can gift without filing a gift tax return is $19,000. So that will change the amount that you can.

can gift over your lifetime without having to pay federal estate taxes for 99.9% of our afforders listening, not a big deal. We're not going to hit these huge, huge numbers that are now where the federal tax is and where it's going to be in the future, most probably. So I would be cognizant of if you gift more than $19,000 of stock to a child, there's going to be some IRS forms that you're going to need to fill out. There will be. be zero tax due today, but it'll just affect the amount that you can give federally tax free later. You know, Victoria, I'm in a similar boat in that I have an individual stock that's in a taxable

brokerage account that I put a relatively small amount of money into and it has grown into a relatively large amount of money over the span of the last decade. my approach has been to leave it alone. Similar to you, I do believe in this particular company and I do want to keep holding onto the stock. But as I was, just for myself, as I was thinking through it, the first question that I asked myself is, does this money have any particular purpose or is this just random bonus money?

And so if I assign a purpose to every bucket of money that I have, this money does not have a purpose. This money is just random surprise money that has no life goal associated with it. Back when I was a financial planner, that was always job one. What is the purpose now? Yeah. Because this particular individual stock does not represent any purpose, it does not represent any goal. It's just a random surprise money that I wasn't expecting to exist. Because of all of that, I'm leaving it alone.

In the meantime, I also have a Roth Solar 401k as well as a backdoor Roth IRA, as well as an HSA. In years when I don't produce enough income to be able to contribute to those directly, I do harvest not the individual stock, but I do harvest index funds from other taxable brokerage accounts. sell those into cash and then make those contributions into my retirement accounts. So I am losing liquidity when I do that, but I'm gaining the tax advantage. Well, thank you, Victoria, for the question. Joe, I think we've done it again. What great questions. And sadly, you were wrong on one of them. We came to blows on that one on Olivia's question. I think that's the most fiercely we have disagreed on any of these recent episodes.

In a long time. Yeah. Yeah. It's been a minute. It's fun as far with you. Which is fun, especially when you're wrong. So it makes it a great time. But I think she knows the lay of the land.

She knows why we both feel so vehemently about our positions, which I think is the important part of the answer. Yeah. And actually, our positions were only four months apart. Like my position was two months max. Yours was six months. It started off as we were five months out. that were four. If I kept talking, we could have gotten you to two months.

Nah, no. If I kept talking, you would have pushed up to seven or eight. Oh, yeah, Paula, six years. Well, Joe, where can people find you if they'd like to hear more of you being wrong? Actually, it's funny that you say that because there's an interview we did back in the archives. It's maybe just over a year old now. And it's, with a wonderful woman named Julie Wainwright. And if people don't know who she is, she was the CEO of a company called Pets.com,

which is the poster child of everything that was wrong in the early 2000s, right? So we talked to her, but what's amazing about her and about the strength of being an entrepreneur and how cool this can be is she had a whole second life where she was the founder and former CEO of a company called, the Real Real, which is a luxury consignment company doing. I've shopped at the Real Real, doing what Olivia is not the same thing, but doing something close to what Olivia is doing. So, Olivia, for you, just go to Stacking Benjamin's and look up Julie Wainwright, Real,

Stacking Benjamins, and you'll find our interview with Julie. And that's some of that guidance that I was talking about earlier. Listen to as many things from entrepreneurs that have been there. And ones that have been through some crappy stuff, Julie, as you can imagine, Paula, went through a place after Pets.com where she was toxic. Nobody wanted to talk to her. Nobody wanted to be associated with her. They wanted nothing. And she still found a way to succeed, which is pretty cool. Amazing. So all of that is on the stacking Benjamin's podcast. You know, for Victoria's question, we talked about asset location. We have a free asset location cheat sheet. So it is a simple four-page cheat sheet that shows you what to put in your

taxable brokerage accounts, what to put in your tax-exempt accounts, and what to put in your tax-deferred accounts. So what types of assets belong in what types of tax treatment buckets? Simple reference guide. It's completely free. You can download it at afford-anything.com slash asset location. Thank you to all of you for tuning in. If you enjoyed today's episode, please share it. with friends, family, neighbors, colleagues. Share it with the person at the secondhand consignment store. We've even done this at a long time. Yeah, it's for a minute.

Share it with your stockbroker from the 1800s. I don't know. Share it with the people at the college admissions office. Share it with that family that's slow traveling with their two high school kids. Oh, yeah. Share it with the people at the hotel or the Airbnb or the campground where they're staying. Oh, yeah, the campground. That's right.

Or share it with the people at the bougie hotel that you decided in Bali. Share it with all of those people and more, because that is the single most important way that you spread the message of F-I-I-R-E. Make sure that you open your favorite podcast playing app. Hit the follow button so that you don't miss any amazing upcoming episodes. And remember, afford-anything.com slash asset location for our free cheat sheet on what assets to put in what types of tax treatment buckets. Thanks again for tuning in. I'm Paula Pantz.

I'm Jossal-C-Hi. And we will meet you in the next episode.