Afford Anything - Q&A: Who Actually Makes Money From Gold and Silver These Days?

Episode Date: April 29, 2025

#603: Bethany’s partner wants to invest most of their money in gold and silver, but no one seems to talk about this kind of investing. Is this a red flag or a potential opportunity?  Diana is worried she’s been saving too much for her kids’ college - hundreds of dollars a month since they were born. How does she know when to stop?   Wendy’s pension and social security will cover all her basic expenses during retirement. Does the four percent rule still apply to her discretionary nest egg, or is there another approach? Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. For more information, visit the show notes at https://affordanything.com/episode603 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, do you have a silver or gold allocation in your portfolio? I have from time to time very, very small. I also, when I did research around, believe it or not, Paula, the Efficient Frontier, I found that having just a little tiny bit is like if you add just a little bit of chili pepper to the recipe, a little goes a long way. But because of the non-correlation with equities and sometimes negative correlation, it really mellows out your portfolio. Oh, all right.

Well, we're going to hear from a listener who's wondering about adding a silver or gold allocation. We're also going to hear from someone who's wondering, how much is too much to save for kids college? Never too much. Save more. And we'll hear from someone with some questions about retirement, the 4% rule, the efficient frontier, all of our favorite topics. So it's going to be a meaty episode. Meets. We'll try not to get the meat sweats.

Welcome to the afford anything pod. The show that understands you can afford anything, but not everything. This show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode, I answer questions from you alongside my buddy, the former financial planner. Joe Saul C-high.

What's up, Joe? I don't mind the meat sweats because if you have them, you earned them. You know what I mean? you get to sit at a table and just, maw, ma, ma, ma, ma, ma, ma. Yeah. That's not a bad thing. Anything you earn is always much more gratifying than anything that's given to you.

It certainly is. What's that one comedian that's like, I don't stop when I'm full. I stop when I'm ashamed of myself. Well, speaking of not being ashamed of yourself, how do I segue from there? I don't know. There is no segue.

Thinking of a shameful segue. Our first question comes from Bethany. Hey, Paul Lauren Joe. My name's Bethany. I'm in my mid-30s and I'm calling you from Australia. My partner and I have been together for over five years and we have fairly combined finances. He is originally from the States. And lately we've been talking about having more of a joint investment strategy. We both have our own separate investments.

And my partner is really interested in investing in silver. and gold. And he doesn't feel very confident in the stock market or investing in index funds or any of those sorts of investment vehicles. He would like as much of his money as possible to be invested in gold and silver. But I never really hear anybody talking about investing in gold and silver. And so I'd just really love to get your opinions and anything that I should know, red flags, things I should look out for. Besides limitations of obviously filling our house up with gold and silver, there's only so much storage. I appreciate that that's a big limitation,

but is there any other things that I need to be keeping an eye out for? Thanks. Well, storing it at home, too, is a mistake. Right. Yeah. Seriously, if you're going to have gold and silver, find a very safe place for that. Do not keep it in your house.

Yeah, the security risk. Oh, too, too much. Do not keep golden silver in your house. But anyway. I had this visual of them getting like a mine in Cooper Pedy, right? And just having like this trove of opal and all kinds of beautiful rare earth minerals. Awesome. Yeah. Sounds pretty. Yeah. But there are some red flags to gold and silver. Gold and silver are both examples of commodities.

They're great for having a very, very small, like Joe was saying earlier, spice in your food. it can be a wonderful accent that really elevates a dish, but it's not the main course. And the primary reason for that, there are a few. Partially it's the volatility of the asset. I mean, just look at the historic performance. Partially it's that it's unlikely to be able to produce the types of returns that you need to be able to support you through your retirement. When it comes to the world of not just gold and silver specifically, but commodities investing more generally. Commodities do not perform like equities. And all of our assumptions around retirement planning and long-term investing really hinge on having a strong equities, meaning companies,

portion of your portfolio. Yeah, the first thing here is what you're comfortable with. And I think comfort Paula comes with education about how these assets perform. And the more you know, the more comfortable you're going to be. I'm very uncomfortable with things that I don't know a lot about. And so let's look first at the goal. If the goal is, and I think for 99.9% of us it needs to be, to beat inflation with investments, right? If our main goal is to beat inflation, we have to look at historically which asset classes have done that. If we don't beat inflation, let's look at the downside first. We'll do the stick first and then we'll do the carrot. Paul. The stick here is if we don't beat inflation, we have to save at least dollar for dollar every dollar we're going to spend

later. If we don't beat inflation, inflation beats us. It does. If I want to be retired for, let's say conservatively, 30 years, and I want to live on 50, 60, 70, 80,000 a year, I've got to save 80,000 bucks on top of whatever money I need to live on today. So let's say I want to live on $100,000 today and I need to save another $80,000 for later. I got $100,000. and $80,000 after tax I got to somehow come up with to do both things. Well, and if you want to live on the purchasing power equivalent of today's $80,000, I mean, in the future, and with inflation, that's probably going to be more than you currently make.

Sure, absolutely. And I guess in my example, Paul, I was just thinking about if we invested it in something that just met inflation, which, by the way, that's what golden silver does over long periods of time. And I'm going to explain why here in a second. But I think we need to look at things that have done that. So what has done that? Equities, stocks, which he's uncomfortable with. And then second, real estate, which we didn't talk about, specifically like rental real estate. Certainly the value of your primary residence doesn't do the same.

It doesn't work that way. But stocks and real estate are the two big things that do that. And that's true both in Australia and in the U.S. Yes, true worldwide. Yeah, exactly. I will say just, Because since you're from Australia and we're talking about real estate or we're mentioning it, in Australia specifically, there are certain tax laws that people use to justify being negatively geared on a property, meaning negative cash flow. I don't care what the tax law state do not seek to be negative cash flow. I understand that sometimes it happens, you know, every now and again, you have a big expense. and so for a year or two, you might be negatively cash flowed. That's normal.

That happens in every company. That happens in every business. That's not what I'm talking about. I mean, don't run out to buy a property that you know is going to be negatively cash flowed in the long term. And in Australia specifically, people will use the tax code as a justification for that. So that's my little Australia asterisk that I'm going to put here. Australian caveat.

Yeah, my Australian caveat. In the mix. Let's talk specifically, though, Paula, about gold and silver. And I'm going to borrow this specifically from one gentleman who made the case better than any I've ever heard before. His name is Peter Malook. He wrote a book called Unshakeable with a gentleman that a lot of our listeners have heard of, Tony Robbins. It was a personal finance book. Peter and Tony wrote it together.

So Peter, by the way, runs one of the top financial planning organizations in the United States, fee-based financial planning in Kansas City. He also has done well enough. He owns the Kansas City Royals, which for those of you in Australia, is an American baseball team. So this dude has done very well and knows his stuff when it comes to personal finance. Peter said to me on our show, I said, why don't you want to invest more money in things like silver and gold, Paula? And he said silver and gold are phenomenal stores of value. They're over long, long, long, long, long periods of time. He said, if you were going to buy a very nice suit in the 1600s, X amount of gold would

buy a very nice suit in the 1600s. Today, that same amount of gold will buy the same suit. It hasn't moved. It is X amount of gold then equals X amount of gold now. So if you want to store value and his analogy was if I have a time machine, I can go a thousand years in the future. Heck, I don't know what stocks are going to do well a thousand years from now. I don't know if indexes are going to be around. So I'm not taking my index funds.

I'm not taking any stocks. I'm not doing any of that. I'm grabbing gold because I know that gold in the year zero in the year 500 BC now is worth about the same. so I can take the gold in my time machine and I can go way in the future and it reasonably bet that it's going to continue to do what it's always done. This is what Joe's packing on his space shuttle to Mars. I'm on my way, baby. But that's not our goal.

Our goal is to beat inflation over long periods of time. Stocks do that far better than gold and silver does not do that. And so I think it's a big mistake. I don't think it's a little mistake. I think it's a colossal. mistake to invest all your portfolio in gold and silver. Yeah. And Bethany, what I want to dig into is why he's uncomfortable with stocks.

Because oftentimes when people say that they're uncomfortable with stocks, sometimes they mean that they're uncomfortable with individual stock picking, which great, wonderful. I'm uncomfortable with that too. You should. A healthy attitude towards individual stock picking is to be uncomfortable. That is exactly the proper response. If a person could go their entire life, never buying any single individual stock, and they would have a wonderful portfolio, a great net worth,

a healthy retirement. You could meet all of your financial goals, never getting into the individual stock picking game. So stocks or shares, as they're also called, you don't need to pick individual stocks or individual shares. Just stick with broad market baskets of funds, stick with index funds, and you can have a wonderful life doing just that. But you heard her, Paula. He's also uncomfortable with index funds. And that part, I don't understand. I'd like to know why.

I think that's more of an educational piece. Right. The last major worldwide crash was the Great Recession of 2008-2009. And what I often tell people when they are worried about the broad market is imagine that you had invested a huge lump sum of money on January 1st, 2007, right? You imagine you invested a huge amount of money in one big chunk right at the peak or near peak of the market, right before everything started crashing. If you invested that money January 1, 2007, and you have to. held through today, you'd be doing great. You'd be doing absolutely great. And that's the worst case scenario, right? That's buying at the top. Yeah, as I'm listening to you, I'm even thinking about

starting there. Like if I'm educating someone who is worried about stock market crashes, and clearly we don't know that, but it's a good assumption because that's generally what most people are worried about. What if the stock market crashes? I think we actually start there, Paula, too. I think we start with, no, it's not if it's when, because it will happen. Right. It 100% will happen. We will see this happen again, and depending on Bethany and her partner's age, it could happen once, twice, three times as an investor. I've been through two big ones and 2022, not that big a deal in hindsight, but at the time, didn't feel great.

Well, and 2022 was weird because that was the year that stocks and bonds move. in tandem. And so a lot of people will asset allocate between stocks and bonds thinking that the two are going to move inverse to one another, meaning when one goes up, the other goes down. In 2022, they both move together, like twins. It was a great lesson. Right. For some of us in the hardest way possible, but yeah. Yeah. Yeah. So 2022 is one of those years where even having a bond allocation, even having some debt instruments, which is what bonds are, wouldn't necessarily remove the volatility or as much of the volatility from your portfolio. But 2022 was just one year. I think that the bigger lesson is that you don't judge the performance of your portfolio

based on what's happening in a month or even a year. You judge it based on how it performs over decades. And it's the same for the way that you would judge a company, assuming that it's stable enough, assuming that it's not going to face bankruptcy, every company is going to have its ups and downs. Heck, the way that you judge, if you're being judging towards a sibling, right? How do you ultimately judge if your sibling is like someone you're proud of versus like, oh, my loser brother, right? You don't judge what they've done in a year. You look at what they've done over the span of their life. And you're like, you know what? My brother had a couple of tough years, but then he really pulled himself out of it. And now he's doing great. And then, you know, right?

That's funny if your brother was the S&P 500. Back in 2022, my brother had a bad, bad year. Yeah. It wasn't good. But 2023, my brother came around. Exactly. Yeah, 2024. Pretty damn proud of what he did in 2024. I like that a lot. Yeah, yeah, exactly. And you know what? Maybe the brother has a little bit of a slip up again in 2025, but that's okay because you know he's going to get back on his feet in 26. I'm confident. I know. I use that analogy because it is just an analog to a long-term relationship. And that's the way that you've got to think about the relationship with your index fund investments, with your equities investments. It's a long-term relationship. Well, and I love that analogy, but then, you know, the engineers out there are going, well, why would I be confident? Like,

how do I know? And I think this is where we go back, and let's just stick with stocks. the reason stocks beat inflation. And it's because of the profit motive of the company. If the price of sugar goes up, Coca-Cola does not say, we're screwed. Coca-Cola finds a way to make that profitable. Either that or they go out of business. Right. It's not voodoo. I think that's the big problem people have with the stock market when they're first starting out. It just feels like voodoo. You watch these talking heads on CNBC and Fox business and they're going, blah, blah, blah, blah, blah, blah, blah, blah, blah. Technical analysis, up, blah, blah, blah, blah.

Oh, my God, everybody is, and all this crap, and you're like, this is a foreign language, and it just seems like a bunch of mumbo-jumbo. And the cool thing is, is as more seasoned investors know, the second you take all that mumbo-jumbo and throw it in the trash, better off you're going to be. Exactly. Because there are huge industries out there that make a lot of money by making you think that it's scarier than it is and that it's more complicated than it is.

There are a lot of people who earn their paycheck by scaring you and overwhelming you so that you will throw up your hands and say, you know what, you just handle it for me. And then they can take a big fee for doing that. And I love this vein because I do think that beginning with it will happen and facing that fear right in the face and going, what can go wrong? And let's eliminate, let's look at all those things that could go wrong. wrong. And I think that educating yourself from that perspective, for me anyway, gives me a lot of comfort because I know that we've got all of these ways to protect ourselves when things go wrong.

It's the reason we say stocks for the long term, but not for the short term. That's a way to protect yourself. Indexing versus by an individual company, that protects yourself. So if we stare all of these risks in the eye and we look at them and we understand why things are going to go Fubar and protect against them, then we become a much stronger investor. Because I actually think, Paula, that fear as an investor can be a really good thing, scaring you, not good. But being a healthy amount of afraid, I think is going to help you set up a stronger portfolio. Yeah, absolutely.

Because it's that healthy dose of fear that keeps you from turning to these wild speculative assets. Yeah, 100%. And it's the reason why the more you look at this analytically and you get scientific, it's the reason why I turned to the efficient frontier when I was a pro. It's also the reason why I turned toward investment policy statements and putting it in writing because if I put my investment approach in writing, I'm much more likely to dig and get a little more analytical about what's the machinery. If I think about it as machinery instead of emotional, it's better.

And also, when the market goes sideways, I'm not wondering what my plan is. plan is. I set a plan up when I wasn't emotional. And now that I'm emotional, I got, nope, I got to let it sit for the next three months because that's the next thing of my investment policy statement. Pretty cool. Yeah, exactly. And I want to go back to Joe, something that you said earlier, because I can see somebody who's listening to this think, well, wait a minute. But what if Coca-Cola does go out of business? I mean, wouldn't that just have these huge ripple waves and everything would come crashing down? But the beauty of an index fund is that if Coca-Cola goes out of business, then Pepsi Cola is going to step up and take that market share. And if Pepsi Cola doesn't do that, then some other company will. This is what I love about indexing, Paula. Yeah. I love this about indexing is I don't want to pay attention to that. Exactly, because the index is self-cleaning. Yeah. So meaning if Coca-Cola goes out, like whoever is the leader of the soft drink industry is going to be in that index. And I don't even have to think about swapping them in and out. Like the index is just going to handle it for me. It's all automated. It's all just being done.

If you want a front row case study right now, look at what's going on with Southwest Airlines. Because Southwest Airlines just got rid of their free bag thing. You're seeing people as big as Clark Howard putting these social media post out about how bad that sucks. They are getting ripped. Yeah. So, and rightly so, right? You know, people hate it when they have a thing and that thing is taken away. Absolutely. It's worse than never having had it in the first place.

Yeah. And if we want to look at the self-cleaning, look at what Frontier Airlines did a few weeks ago. Frontier Airlines ran a special through the end of the summer going, we're doing bags for free. And you know what happens, Paula, to your point, Coca-Cola is not the leader, Pepsi steps up. Yeah. Southwest Airlines says, hey, Frontier Airlines says this is an opportunity. In fact, it's funny, a friend of mine is friends with the CEO of Spirit Airlines. And the Spirit people were high-fiving themselves saying, this is an opportunity for us. This is an opportunity. Other companies will step in. And the bad news is we got to get used to as customers. Maybe Southwest isn't the thing anymore for us. Maybe Frontier. I don't know. Maybe Spirit is. Maybe some other airline steps up. but somebody's going to take that business away that Southwest is giving away right now. Right. And there's all the chatter about spirit possibly merging. There was talks of

Frontier and then JetBlue and then this or vice versa. And so like there's always dealmaking happening behind the scenes and all of it, all of like the upside and downside of all of it gets represented within that index. It's pretty wild that we have that happening right now. as we're focusing on this topic, like look at what's going on in the airline industry today as Bethany brings up this question. And so, Bethany, here's what I would encourage you to do or to encourage your partner to do. Look at a chart of the ASX 200, the top 200 companies in Australia and go to the 20-year view. Because the 20-year view, it looks a lot like the total stock market index or the S&P 500 in the U.S.

The 20-year view is up and to the right. You see the big tumble at the Great Recession in 2008, 2009, and then from that point, you just see growth, growth, growth. And so taking that 20-year view, I think, can calm a lot of fears, particularly when you're looking not just at the Australian market, but also at the U.S. market and other worldwide markets, when you're looking at diversifying across a wide spectrum. of different indices, you get that diversification, you get that smoother ride. So play around with that, put it into a couple of model portfolios, run it through a couple of retirement simulators. Like, what's cool is that there are so many tools that are free online where you can just make a couple of assumptions based on historic returns about how much money you would put into a given stock index and you can model out what that would mean for you over the span of the next 20, 30, 40 years. It's circling back to that chili pepper analogy that I had, Paula, and I haven't looked at precious metals in a portfolio in quite a while, but that number historically was around

three to five percent of the overall portfolio, never more than five, and usually less than five. Yeah. So thank you, Bethany, for the question. Best of luck, developing that comfort with equity index funds. Company. Equity is just a fancy word for company. Company index funds. Great question. Up next, we're going to hear from Diana,

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payments of fifth-third better. Welcome back. Our next question comes from Diana. Hi, Paul and Joe. My name is Diana, and I'm calling to ask you guys a question about college savings. We have three children, ages 13, 11, and 7. Our oldest son, we have 150,000 in a 529 for him for college. He's 13. We expect he will be starting college in four to five years. My question is, can I save too much? We have been contributing 600 per month per child, so 1,800 per month total, to the 529s since they were born. and I'm wondering if I should cut this back or stop altogether with the expectation that it should grow some close to his 18th birthday and we may be able to supplement the rest with cash. I would love your advice on this and risk of saving too much. Okay, thank you so much. Bye-bye. First of all, Paula, cautionary tale here. Think about this.

saving for college and appropriate amount of money to save for college per child, $600 per month, which I do think is an appropriate number. And I think, Diana, that was, it's kickass that that you did that. But $1,800 a month. If you have a young child and you're not saving $600 a month, yeah. For people not watching us, Paula's eyes just when it is so expensive, Paula. It is so, so, so expensive. So I actually do think she might have saved too much. However, I think it's just amazing that type of preparation. But if you're not preparing for college, get ready to lose all your hair and look like me. Well, you know, Scott Yamamura, who is a guest on a previous episode, he talked about the rule of 72. And rule of 72 states that the amount of time that it takes for money to double is kind of a rough back of the napkin calculation.

But the amount of time that it takes for money to double is 72 divided by the interest rate at which that money will grow. So, for example, if you expect that money will grow at a long-term annualized rate of 8% per year compounded, that means that 72 divided by 8 equals 9, which means that money will double in nine years. So let's take that and apply it to college savings. Let's say that the amount of money that you save, if you make a return assumption of 8%, and you might argue that's too high of a return assumption, we should dial the return assumption down lower, we can have that argument. we can have that argument in a moment, but let's just hang with me for the math for a moment. If you make a return assumption of 8%, then whatever you have saved in the child's portfolio by the age of 9 would double in 9 more years when that child turns 18. So the balance of the portfolio at the age of 9, if you're making an 8% return assumption,

should be roughly half of the total amount that you want to save by the time that child is 18. So let's say that the goal, and this is the part, Diana, that I didn't hear in your question is, what is the goal amount at the time that the child turns 18? Let's say that that goal amount is $100,000. That means that by the time the child is nine, assuming an 8% return assumption, you would want to have $50,000 saved. And so then pull the first nine years of compounding returns out of it and just run an extremely simple calculation. calculation, $50,000 over nine years, assuming zero returns, right, assuming just pulling all of the returns out of it, looking only at the cash that you would need to save, to save $50,000 over nine years means that you would need to save $462 per month. But obviously, that money is going to be growing

over the span of the nine years, so you wouldn't even have to save $462 per month. It would be less than that. And so, I'm with you, Joe. I think that she saved too much. much. But again, I'm assuming that $100,000 is the balance that she's aiming for. Sure. Yeah, we don't know what that finish line is. And I love begin with the end of mine. Right. So if that balance, the finish line is 150,000 rather than 100, that changes the equation. And the issue with a 529 plan in general is that the uses are so limited. It has to be money that's for the cost of college or qualifying expenses around the cost. college. So either going directly to the school or there's a laundry list of pretty obvious expenses

that are college related, right? The good news is the Secure Act changed this a little bit, which is that if you don't use that money for college, now there's opportunities to change that into Roth IRA money. But I'll tell you, Paula, I really like, if Diana feels like she's been saving too much, I almost said we've been saving too much, as if I had something to do with it, we've been saving too much. Diana, you and I have been saving too much money, mostly you, but I love just the brokerage account. I like still saving the money. Here's what happens to people dial it back. When you dial it back, that money just goes into your budget, goes into your checkbook, does nothing. I like the fact that you've been directing it. So let's continue to direct it, but direct it into a

place that is much more flexible. And this is, by the way, something for any goal. I mean, it doesn't to be for college, if you're going into a specific place like, let's say, a Roth IRA or a 401k, if it's for your financial independence goals, how many times have we said supplement that by having money going to a brokerage account? So we've got the gift of flexibility. We don't have the tax shelter, but we've got flexibility, which is really cool on its own. So I would still keep saving the $600 a month if she's built that muscle. I wouldn't let it go. I would just have that money go into a brokerage account instead after she does the homework that you're talking about, how much is too much.

But even Paula, with that homework, I'm going to talk about another side of this. I'm thinking about my awesome niece, who is a senior in high school this year, she applied Paula to five different small liberal arts colleges, private liberal arts colleges. They are not cheap. And she got nearly full rides to all five of those because, you know, she's amazing, mostly because she's related to me, right? Of course. She now has all this money in a 529 plan.

And Paula, she's going to use almost none of it. Almost none. Now, the cool thing is, is that her parents are already talking about, hey, what a great Roth IRA to start with, right? They are going to change the ownership name to her, and then she will have this beautiful Roth IRA that's going to give her this leg up that she might not have had, had she not had her parents.

parents save this money. So it's still going to go toward her, but not toward the college education. It's going to go further out. But, man, if that were in a flexible place, it'd be a lot easier. Well, you know, the advantage that Diana has is with three kids, you know, so I'm thinking the 13-year-old child, right? If Diana's been saving 600 a month from the time the child was born, that means that her savings, her contributions to the account are $93,600. And that's just the contribution of 93, 600. That doesn't count all of the gains that that money has made over the span of the last nine years. And the last nine years has been primarily bull market.

So that money has grown pretty substantially. If she is overfunded for the 13-year-old, then she can always change the beneficiary on the 529 to be the 11-year-old or the 7-year-old. But is she saving $600? dollars for them too. She's in the same situation with them. Right. But for the youngest who's seven, she can probably stop saving for that child and that there's a good chance that that child, the seven-year-old, she could do that. Can get the hand-me-downs from their older siblings. Yeah. Yeah, that definitely is a good idea. I love the fact that a lot of people don't know that you can

change the beneficiary on your 529 plan. Right. So you can make it so that it's not this child. It is is another child. In fact, if you go through children, you can make it you. If you want continuing education, if you've got some cool thing you want to do at the local university, if it's an accredited institution, accredited it, if it's an accredited higher education institution, it could be cooking classes, it could be golf lessons, it could be flight school, it could be all kinds of things. Or it could go to grandkids. It could do that too. It has to go to an actual living person. It can't go to a hypothetical person. So it needs to go to somebody who has a U.S. Social Security number and is living. But it's not time restricted. So you can always wait until the first grandchild is born and then put it in the grandchild's name. And then it becomes like the Diana Education Trust. For all purposes, it's like an education trust. Pretty cool. But a great.

Great problem to have. This is a wonderful problem to have, was that you took it seriously early on, possibly overfunded it. Yeah. Not a bad issue. Yeah. But Diana, to your direct question of how do you know if you've overfunded it or not? I mean, my first question back is what goal amount are you setting? Because again, if the goal amount is $100,000, then you've overfunded it. If the goal amount is $200,000, all right, now we're having a different conversation. There is a reason, by the way, Paula, that a lot of parents that are doing the right thing overfund college, and I saw this firsthand as a parent, which is that some of the college cost is not new expense. And I see people fall into this. So I'll give you my personal example, my son, Nick. I know what you're about to say, your grocery bill. Oh, my grocery bill was so high. It was so high. When I saw the amount the University of Texas was going to charge him for on-campus food, I was like, my kid and I are going to win this together because University of Texas

is losing. And Paula, you've seen Nick and he's not a big dude, but that guy can eat. It is amazing how many calories he burns with his workout routine and whatever. But Cheryl and I found that when Nick went to college, this money I was spending in groceries, now was just a cost transfer. I was still spending it, but now I was spending it toward part of the room and board bill to the University of Texas instead of here at home. And actually, frankly, it ended up being less money. I paid for food than I paid when he was home. So some of those room and board costs, not as egregious as you think they're going to be. I think sometimes we get really afraid when we look at, you know, you go to saving for college.com, which is a fantastic place to look at the

cost of college, responsible 529s, what the fees are going to be on 529s, all the different plan options you have from different states, really, really like this website. When you go to a place like that and you see all these costs, and then you put those into your calculator and you include the room and board, you come up with this huge number. Well, if you think about it, you don't often see your grocery bill expressed as, whether if it's semester, four and a half months, or if it's a year, nine months, ten months. You don't see your grocery bill expressed in those types of increments. No. And so, like, you tend to think of your grocery bill as weekly or biweekly or at most monthly, at most monthly. But you never think of your grocery

bill in increments of semesters. And so when you see that number, it looks like a huge number. Monster number. Yeah. And then you go, wait a minute. Oh my goodness. I'm already spending that. Yeah. I love the idea, though, of cutting the seven-year-olds 529 first and then having the water kind of spill downhill. Yeah. The overflow spilled downhill. I like that idea. Oh, well, thank you. Yeah, that's good. Thank you. I'll be here all week. One thing I like, too, for diversification purposes because of the fact that you can use, you can change the beneficiary, Paula. One thing we did with our twins that I still advocate for people, maybe not for Diana, maybe for, I don't know.

I like using different custodians for different kids just because of the fact that different fun companies have different strengths and weaknesses. and knowing that I can mix a match at the time. So I used the Vanguard, Utah plan for my daughter, and I used the New Hampshire Fidelity plan for my son. And we ended up using the 529s for both of them, which was pretty cool because then I got Vanguard and Fidelity. I wasn't trusting one fun company to take care of all of my college money. And this may seem like a little thing,

but there was a time when Worth Magazine, I don't even know if Worth is still a magazine. Worth used to be a huge magazine in personal finance. Worth Magazine had a cover story that said, Is Fidelity Dead? Because the Fidelity Management Team, Paula, went through this rut back when everything was managed, right? There was very little indexing going on.

The Fidelity team was all doing research through the same place, and Fidelity just stepped in it research-wise as a group. What was also interesting was that Fidelity at the time was one of the biggest advertisers inside of Worth Magazine. And it showed great editorial balls, I guess, to be able to say, who cares who our advertisers are? We're going to still ask this question, which was a huge question. It made me really appreciate the editors at Worth Magazine at the time that they published

that. Now, that's not going to be the case as much anymore with Index. But still, if something bad happens and I have this opportunity, why wouldn't I? Five-29s are not the type of thing where I'm going to go touch them or move money around all the time. So having one at Fidelity and won it at Vanguard, okay, maybe bad things won't happen. But if it does, I've got this extra layer. The last thing I'll say, Diana, is that if you waterfall, the 529 balances down and you

still end up overfunded for the seven-year-old, then there's always the option of using some of that money. If any of the kids want to go to graduate school, this doesn't necessarily have to be undergrad money. So there's always the option of using it for grad school. There's always the option, as we talked about before, using it for grandkids after they're born, after they have a social security number that you can associate with the account, or using it for yourself. So there is actually a lot of flexibility in the 529, which is one of the great things about the account. You get tax deferred growth, but you do also get quite a bit of flexibility. Or there's always a popular option, Paula, that we haven't explored yet, which is just send

it to your favorite podcasters. Why would she send it to Alex Cooper? Oh, hey. America's second favorite behind us, right? Well, thank you, Diana, for the question. Our final question today comes from a caller whose pension and social security will cover all of her basic expenses during retirement. So she's wondering, does the 4% rule still apply to her discretionary money? We'll answer that next.

Our final question today comes from Wendy. Dear Paula and Joe, I really enjoy your show and the value, the depth and breadth of your answers compared with many other podcasts. My question is about asset allocation if you have a portion of your retirement income covered by secure sources versus if you are living off your nest egg nearly 100%. Whether you use the 4% rule or various other methods of drawdown with guardrails, the assumption is if you are relying on your lump sum to last the rest of your life, that your nest egg is usually invested in a portion of equities and some safer investments like bonds or cash equivalents, usually with equities making it 50 to 75%. I understand for the equities portion, you can use a low-cost index fund or diversify a

little with efficient frontiers approaches. But what if this lump sum is not needed to produce a guaranteed minimum amount of each year that you must withdraw to live? Our details. My husband and I will retire at age 59 and a half with a pot of conservatively invested dedicated money to take us to age 65 to At that time, we will then have income from pensions that are not cost of living adjusted, but that generate $100,000 a year for life for both of us. Plus, Social Security for conservatively another $70K, if it is still paying out the estimates that SSA website states we will have earned. Our base budget to cover all of our needs, what some call the minimum dignity for,

will be fully funded. This includes all our health care, housing, food, transportation, energy and a bare minimum of travel gifts and entertainment. We do have another budget of 100 to $125,000 a year of fund money that we plan to use for extensive travel, gifting to our kids, and bringing our standard of living up to about $300,000 a year, which matches our current level of spending. But this fund money can absolutely be calibrated or even not taken at all in a given year if the market is down. My question is, if you have a pot of money and you want the most growth over decades, without excessive risk, is a forefund efficient frontier approach the best way.

Do we need to have any of this money and bonds at all? Last point, in addition to these two buckets, of guaranteed income and nest egg income, we also have two to two and a half million in real estate equity that we are not including in our calculations. So in the unlikely event of the world is ending worst case scenario like no social security or the pension goes bankrupt, we could downsize our real estate assets. sets and simplify our lives dramatically and still not have to eat dog food to survive. Thank you. And no one wants to eat dog food to survive.

So, Wendy, I'm glad you're... Oh, speak for yourself. Speak for yourself. Gourmet. Wendy, it sounds to me as though, and I get the sense that you know the answer, by the way that you've described the question. But given that you don't actually need this money, you're not going to be affected by sequence of returns risk because if there's a down market right when you retire, you don't have

to touch your portfolio. Just delay, yeah. Therefore, sequence of returns risk is not a risk. And with that risk eliminated, you can take on a heck of a lot more risk in your portfolio. I was about to say aggression. I was like, that's not the word. Yeah. But you can be much more aggressive in your portfolio.

So, no, you don't need a bond. You can maintain an equity's position because you don't have sequence of returns risk looming. You've eliminated that. So go ahead, be aggressive in your portfolio. Grow it as much as you can. That's the opportunity that's available to you by virtue of the fact that you have flexibility and can adjust downwards when the market is down, especially if the market is down in the first five years of retirement. Those are the critical sequence of returns years. and by being ultra flexible during those years, you've eliminated the bulk of retirement withdrawal risk. I'll only hedge what you're saying, Paula, in two ways. The first one is, I think if it were me, I would just keep a little larger cash cushion because if you do go through an extended downturn

and you don't want to take it, I think you can afford to do that if you are staying completely in stocks and you're very flexible. So a little bit, Paula, of an approach like you use or my co-host on Stacky and Benjamin's OG, a little bit of a barbell, where you've got a little bigger cash reserve than a lot of people have. The second thing that I would look at, since you're comfortable with the efficient frontier,

is that I would just look at the what's called the standard deviation on that portfolio, just ahead of time to know what the bouncing around is going to be. Because what you're talking about is really making a portfolio that's going to, have significantly higher highs and significantly lower loads than you may have had in the past depending on where you're starting. And I just want to know that ahead of time what that flight plan kind of looks like because during those lows, if you're 100% equities, it's going to suck. And the only thing that I worry about, I don't worry about the plan at all. I'm 100% with you, Paula. Don't worry about that plan. It's a beautiful thing. If you can stay in equities and when you're

modeling the efficient frontier, just cut all the bonds out and say, put me along the efficient frontier, all equities, baby. Go, go, go. Up into the right. I'm great with all that. What I'm not great with is you because I don't know you and I don't know if you're going to blow that plan up when the market seems like it's in this unrecoverable position, which is what happens at the bottom. It's 100% what Bethany's partner is worried about, right? Is that, that you're going to get to this black area where it looks like there's no upside, which you and I know sitting here today is the time of greatest opportunity, but at the time, it feels like the time of greatest risk.

So, Joe, you're not worried about the math of it. You're worried about the behavioral psychology of it. 100%. Right. And that's going to be very highly individualized because only you know yourself well enough to know how you're going to handle that. And I think the best way to get a sense of that is to look at your own past performance, your own behavior during the Great Recession of 2008, during the pandemic. You know, the pandemic recession, it was a short one, but it was a sharp one, right?

When you think about recessions, there are really three characteristics that define any recession. There's severity, there's duration. And then when it comes to multiple recessions, there's frequency, right? And so the recession of 2020, the pandemic recession, was one of short duration but massive severity. How did you react? Because the way you reacted then is going to be a powerful insight into how you are likely to react in the next one. And then you go back to 2008. That was severe severity, but it was also long duration.

Yeah. And so it gives you a window when you look at your behavior across both of those, it gives you a window into how you will react to severe recessions and how those reactions might change depending on the duration of the recession. And something else is going to change too, Paula. And I think there's a couple of reasons for this. I have some hypotheses, which I'm happy to dive into. But I also think that our risk tolerance goes down as we age, even if we don't need.

even if we don't need the money, I think so. I think there's, my hypothesis is, is on two fronts. Number one is, I think that the popular media and we're always inundated with when you're older, you need to be more careful. And even if you think that doesn't affect you, you hear it so many, so many, so many times that I think that it does. I think the second thing, though, is, is that even without that, I think that you realize that your opportunity to wait becomes less. as you age. And I think that one is a very real thing. So I think number one is learn behavior from everybody around us telling us over and over and over. But I think number two is you're like, do I wait two years on this trip? Go ahead and take it when I'm down 35%. Right. Which is another reason

why I think I keep that extra large cash cushion. Right. Two years feels a lot different at 30 than it does at 72. Right. And you know, one of my favorite components of your question was when you talked about that fun bucket, that flexible bucket of money that you would use for extensive travel, for all the fun stuff. I would encourage, as you're thinking through your spending in retirement, to pull out a couple of buckets like that. This is actually a tip that comes from Christine Benz, who's also a former guest on this podcast. We'll link to her interview in the show notes so you can hear it in its entirety. But I flew out to the Bogleheads Conference in Minneapolis last year and sat down with her and talked to her about

retirement withdrawal strategies. And one of my favorite tips that she offered was to have a dedicated bucket of money for some specific retirement goal and have a goal of spending down that entire bucket. Treat it almost like it's a flexible spending account, use it or lose it, in that your goal for this bucket of money is that you want that bucket to be empty within X number of years. So maybe that's five years, maybe that's 10 years. But the value in having a particular bucket of money that you are committed to whittling down to zero is that, number one, mentally it puts you in a very different state. Now you're no longer thinking about growth. You're thinking about, I have to blow through this. My goal is to blow through this particular bucket of money. And,

And what that does is it encourages you, especially at the beginning of your retirement, when you are likely going to be in the best health and have the highest levels of energy that you have, it encourages you to do that spending up front. So let's say that from the age of 59 and a half to the age of 64 and a half, during that five-year window, you have some bucket, some portion of money that you're like, I must spend this. by the time I'm 64 and a half. If I turn 65 and there is even a dollar left, I will have failed in that goal. Right. By virtue of doing that, you end up living more life in those first five years of retirement.

And when you're in your mid to late 80s and you can't travel in the way that you could when you were 61, 62, 63, you're likely going to be pretty happy that you did it. I love that approach. I also remember, and I think, Paula, you and I may have discussed this before. So for people that are new to the show, I'm sure you haven't heard this, though. And if you have heard it, I think it's a good reminder. I love Paul Mirman's approach too. When the market goes up, he and his partners, they travel the world. And when the market goes down, they appreciate all the wonderful local things that are happening in their backyard, which is just a pretty fun way to gamified as well. Right. And that's not too dissimilar to what working people do with their income. You know, if you're a working person with some type of volatility in your income, maybe there are certain years that you get big bonuses in certain years you don't. Certain years you get fat commission checks, certain years you don't. People often do this in an unplanned ad hoc sort of way. People often just kind of spend more in the years that they make more and spend less in the

years that they make less. That's sort of a natural response to shifting in. income. And so I think Paul Merriman's approach is just taking that natural response and then applying it to market withdrawals. The other thing I like about that, too, is it just creates this well-rounded adventure. There's so many things. Paul talks about travel. There's so many opportunities that are low cost and there's so many opportunities that cost a lot. Like, I feel like you get this, this fun buffet of high-ticket items mixed with just zero-cost fun, like going on a hike or, you know what I mean? And they're all fantastic. And to have the serendipity to have it just happen as the market forces have it happen is pretty cool. Yeah. I mean, you think about enjoying New York City. You could go to a Broadway show, which is hundreds and hundreds of dollars.

You could take a long walk through Central Park. I frankly derive an equal amount of enjoyment from each. And I'm glad that my life is able to do both, but certainly you can do one when the market's good and the other one the market's bad. Yeah, it's so fun. How about the, what's the one beautiful green space above the city? The High Line? Oh, yeah, the High Line, the Chelsea High Line. Yeah, I mean, stuff like that. That was designed by the same architect who made the Atlanta Belt Line. So shout out to all my Atlanta people. Cool. Yeah, really, some fun stuff that you can do, to your point, for nothing next to nothing and other things that, I mean, all the five-star restaurants where you can, or Michelin Star restaurants where you could spend an arm in a life.

There's Michelin Star restaurants. And then there are also these like little hole in the wall places, right? Yesterday I had a slice of pizza, like the kind that you have to eat standing up because there's nowhere to sit at the little counter. And I mean, I would recommend that anybody, Prince Street pizza, anyone who comes to New York. Heaven. Yeah, grab a slice. It's great. there's nowhere to sit, but it's amazing. I'm talking about New York City because I think it's a microcosm of life in that way. There are so many things that you can enjoy that truly enjoy at every budget level,

whether it's free, cheap on one end or massively expensive on the other. And having the ability like they will to go back and forth, you know, to dabble. Yeah. Totally fits the Joe's all see high approach to life. completely fits my ADD. Nice. Well, Joe, I think we've done it. No way.

Already? Yeah, we have. That was super fun. So speaking of you and your ADD, where can people find you if they would like to know more? And by the way, we are not cracking jokes. Both of us, both Joe and I have ADHD diagnoses. What? So just just to put that out there for anybody.

who thinks that we're cracking jokes about neurodivergence. We are not. Not at all. Not in the least. Come out to dinner with the two of us. It is a wide-ranging squirrel conversation. Yeah, exactly. You know what I'd like to talk about? If you want to read my work, I have this book that CNN, the year that it came out, 2003, called the number one book on personal finance that you should read. It's called Stack, your super serious guide to modern money management. The reason I'm bringing this up today, Paula, is because of the fact I just found out that our local university here, Texas A&M, Texarkana, is going to use it in their curriculum in the fall.

Amazing. Which I have been hoping, because as you've seen in the book, it's totally made for that. It's an end-to-end personal finance journey with lots of relaxed metaphors in it. So, by the way, if you are working with a university or a college and you want to talk to me about how to get that done or you want to have me come talk like I just did at UC Santa Barbara. Just write me, Joe at stacking benjamins.com. Right. Yeah, how about that?

If you read the book stacked, pay particular attention to page 13. Lucky page 13. The best page in the book, I must say. Yes. You might notice somebody quoted. And even after that quote, we do interviews with experts from across the field of personal finance. And the very first interview that we do from the show is actually, it's funny, it's a, it's an afford anything segment with you and I talking to one of the afford anything listeners.

Aw. So good stuff. Anyway, stacked and I'm super excited that this is going to appear in a university near me. That's amazing. Congratulations, Joe. Well, thank you to everyone in the afforder community for being a part of this community. If you want to talk to your fellow peers, head to Afford Anything.com slash community. It is absolutely zero cost and it's a way for you to connect with other people in the space.

You can talk about retirement. You can talk about debt. You can talk about student loans or saving for college or anything that's on your mind. Efficient frontier, asset allocation, you name it. It's all in the Afford Anything community, absolutely free. Affordanithing.com slash community. sign up for our newsletter, afford anything.com slash newsletter where we send out special updates of things that we don't write anywhere else. So you only find it there. Affordanithing.com slash newsletter also completely free.

If you enjoyed today's episode, please share this with the people in your life, your dog walker, your barista, your boss. Your podcast co-host. Yeah. Share it with your own podcast co-host. Share this with your financial advisor. share it with your accountant, share it with your accountant's mom. Yo, I've never met my accountant's mom. Well, there's an opportunity.

Oh, now I've got an icebreaker. So yes, share this with all the people in your life. That's the single most important thing you can do to spread the message of great financial health. Make sure you're following us in your favorite podcast playing app. And while you're there, please leave us up to a five-star review. Thank you again for being an afforder. I'm Paula Pant. I'm Joe Salcii hi.

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