Afford Anything - Q&A: Why Smart Investors Are Questioning VTSAX and Chill

Episode Date: December 20, 2024

#568: Jason is confused by the recent discussions about the efficient frontier and Paul Merriman’s four-sector strategy. It seems a lot like another form of stock-picking. What’s the difference? Michelle straddles the Roth income threshold and is frustrated that she never knows if she’ll qualify for a Roth contribution until tax season. Is her current savings plan too complicated? Evan has $100 to spend on personal finance books for his high school’s library. What books would Paula and Joe put on this limited shelf space? Former financial planner Joe Saul-Sehy and I tackle these three 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/episode568 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, I think we took the internet by storm. We did. Yeah, it was when you came out guns blazing about VTSAX and chill, how that has been the dominant thinking in the personal finance space and it needs to end. Well, in one corner of the personal finance space. Yes, exactly. The fire space. And you know what?

I said it politely. How many times, Paula? So I just finally, I'm sorry. I lost it. Gloves off. Gloves off. All right. Well, we're going to talk about that.

today. Oh, no. Because we've got questions that have come in from this community. And the first question that we're going to tackle is about what to do if you were not VTSAX and chilling. Oh, that's interesting. We're also going to talk about Roth IRAs. And we are also going to discuss at the very end. This is a really nice closer, especially around the holidays. What, if you had $100 to spend on personal finance books, what would it be? What would you get? And not even for you for other people. Yeah, not even for you, for others. Such a perfect holiday question.

Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade-off. And that applies not just to your money, but to your time, your focus, your energy, your attention to any limited resource you need to manage. So, what matters most, and how do you make choices accordingly? Those are the two questions that this podcast is here to solve. We cover 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 that come from you, and I do so with my buddy, the former financial planner, Joe Sal C-Hive. What's up, Joe? Hey, I guess we're going back at it, huh? Oh, yeah.

VTSAX and Chill has been the dominant thinking in the financial independence space for so long, And it has its place. It absolutely has its place. But there are more sophisticated ways to invest your money. Some people that rubs the wrong way. And I think it's because you get so invested in something and you believe that that is the way. And we're not saying to your point, Paul, it is not the way. It is for the right person beginning.

It's beautiful. It is very simple. It's awesome. But then what's also wild is the telephone that happens that I've heard throughout the internet. Like, I know exactly what I said. And then I hear about what I said later on. And like we'll hear from this question, I think a lot of what I said is being vastly misinterpreted.

Distorted, right. Yeah, the game of telephone. It's repeated and then repeated and then repeated until the eighth iteration looks nothing like the first. Which makes me excited because it does give us an opportunity to keep diving into it. Because to cement somebody's knowledge in a better way that's not as an easy, talking point as VTSAX and Chill. When it gets a little more granular, you got to keep going over that ground, so I'm very happy to do it. Oh, perfect. Well, then our first question today

comes from Jason. Hi, Paul and Joe. First off, thanks for everything you do. You're wonderful and I constantly refer people to your content. I've been interested by your recent discussions about the efficient frontier and diversified investing versus the proverbial VTSX and chill strategy. I feel like the S&P's annual report proves that actively managed funds tend to underperform. J.L. Collins did a good job highlighting that. I think I've heard both of you mention it on the podcast. And Paul Merriman even spent a few moments emphasizing this point in his recent episode with Paula on the podcast. I agree with these assertions. I tell people that have highly paid Wall Street pros who spend every day all day picking stocks are statistically unlikely to beat the market. Then what hope do we as individuals ever have? And yet it strikes me as a little,

contradictory that discussions with both Joe and Paul have immediately transitioned into talking about strategies for picking stocks. Sure, you're picking baskets of stocks, asset classes. However, isn't this still just trying to pick winners and losers, the very thing that we all agree we're statistically unlikely to succeed at? I say that if a person wants to do better than VTSAX, there are much better investment options out there. I've gotten into investing in real estate and specifically syndications.

the last few years, and frankly, they blow away both VTSAX and the VTSAX plus 2% that Paul suggested you can achieve with his four-sector strategy. Many of the investments allow me to deduct 60% of the value of my initial investment in the first year through a combination of accelerated and bonus depreciation. That's a $30,000 deduction on a $50,000 investment resulting in an immediate tax savings of $10,000 in my tax bill. Now, that can only be deducted against investment income because I don't have real estate professional status. However, by setting up a syndication ladder where you invest in syndications year after year, you can carry these deductions forward indefinitely and reap the tax rewards over time. Those advantages alone represent a 20%

ROI in the first year. Then I get annual distributions targeted at 4 to 8% per year. Then at the end of the investment, usually planned for three to five years. Everything gets sold and I get my entire initial investment back plus profit. The overall target returns are usually 1.5x to 3x over the 3 to 5 year term. These investments require some careful research and due diligence up front. However, once you pick a syndication and send in your money, it's every bit as passive as VTSAX or a more complicated portfolio. I like real estate investing in general because the risks are different than those in the

stock market. Not necessarily better or worse, just different. If we're going to advocate for not doing VTSX and chill and taking on more risk, why not advocate for something more than just picking some stocks and trying investments? Thanks, and I'd love to hear your thoughts. Paul, you want to go first? Yeah, I've got plenty to say. Jason, first of all, thank you for the question.

I love what you've discussed, but let's tease out a couple of different topics because I want to make sure that we're discussing each one independently without conflating various topics. So first there is the question of, if we are not VTSAX and chilling, if we are going beyond just VTSAX in our investments, what else should be? should we invest into? First, there's the question of, should we accept that we're going beyond simply VTSAX? Then beyond that, there is the question of, if we go beyond VTSAX, should real estate be a component of that portfolio? And then, if the answer is yes, all right, if real estate is part

of the portfolio, should real estate syndications be a portion of that portfolio? We've got three layers of questions here, and I want to unpack them one by one. And to give a quick highlight overview of where my answers lay, and anybody who has listened to me for any amount of time knows this, I love real estate, personally. Real estate is a major, major, major focus of my portfolio. And ballpark, it's been a while since I've looked at my net worth, but rough ballpark, I would say about half of my net worth is in investment real estate, not a primary residents, but investment properties. But that's about roughly half of my net worth and the other half of my net worth is inequities. That's not counting private business ownership. So yes,

personally, I love real estate. I also recognize it's not for everyone. Tons of people are just not interested. And for the people who are listening to this, because remember, I'm talking to tens of thousands of people. The subset of this audience that is not interested in real estate should not go into it based out of FOMO. I don't want anyone who listens to this podcast thinking, man, I have no interest in this. I don't want to learn about it. I don't want to do the due diligence. I'm not into it, but everybody else says I quote unquote should. That is the worst possible reason to go into real estate. So if the natural curiosity is there, then absolutely follow your curiosity. If that curiosity is not there, if you're dreading doing the due diligence, then stay away.

It's going to be a disaster if you don't have that curiosity. Yeah, exactly. If it's just formal and hey, everybody else is doing it and I listen to this podcast and it's all around. Yeah. Stay away from it. Yeah, absolutely. I think everyone, no matter who you are, everyone should invest in equities, but not everybody should invest in real estate because real estate requires more upfront knowledge. It requires more knowing what you're doing. I will challenge that just briefly, Paula, because I like where you're going, so I don't want to take too much time on this. If your piece of the efficient frontier says you should be in real estate, there is an option that's a regulated security that can give you real estate exposure.

So you can buy real estate in a way where you can not care, which is through a reet. And you don't have to buy an exact reet. You can buy an index, which is the real estate index, North American real estate index. So there are ways to actually buy real estate, which I totally agree with Jason here. Real estate is a fine asset class for returns. Historically over long periods of time, real estate as a market. and the stock market as a market have ended up in about the same place over long periods of time. Now, that's wide swaths of real estate and wide swaths of stocks.

He's talking about syndication, which I know you're getting to next. Right, exactly. And so then turning our attention to syndication. I feel like it's like comparing an apple and a duck. Yeah. Right. You know, I think Jason said it really well when he said that what he likes about real estate is that the risks and benefits. are different. They're not better or worse. They're just different. When he said that, he meant that

in the context of real estate as a broad asset class versus equities as a broad asset class. But I would also apply that same statement to real estate syndications versus individually selecting and owning properties. Both the benefits and the risks are different. I don't think either is better or worse than the other. They're simply different. Both require a huge amount of of upfront due diligence. And both require knowing what the downside is. Jason, in your message, you talked about the upside. You talked about what could happen if everything goes right. But as I'm sure you know, there are a lot of things that could go wrong with syndications as well. You have to be able to pick good people and good projects. And choosing people and projects

is a huge skill set in and of itself. And there's a lot that can go wrong there. There was a story we did recently on Stacky Benjamin's Pollock as we do a headline segment about a huge, huge syndication in the Dallas, Texas area that went belly up because it turned out the dude was a fantastic salesperson, an amazing salesperson running it, but truly had no clue how to manage real estate. Right. And so many people gave him millions and millions and millions of millions of

and it all crumbled and all that money went bye-bye. Yeah. In that regard, it's almost, and this is not a perfect analogy, but it's almost like picking an active manager for an actively managed mutual fund. You are selecting a fund manager and choosing a fund manager is a skill set. There is an entire industry of people in the investment world, in the financial world, whose job, their full-time career is picking fund managers. It's not even managing funds themselves.

it's fund manager selection, right? That's an area of specialty. So getting that right is, among other things, one of the keys to being successful at syndication investing. And that's why I say, I don't think it's better or worse than any other form of real estate investing. I think there are pros and cons to every form. It's just different. The reason that I don't do it is because I learned that I have the bandwidth, the capacity, the interest to specialize in only one specific area. So I specialize in privately held, personally held residential rental properties. Did I choose that because it's the quote unquote best? No, there's no such thing as best.

I chose it because it was accessible and it was something that I could specialize in. And once I chose it, I developed a very, very deep knowledge in that specific niche And I decided that I would intentionally never venture outside of that niche because I would rather go deep than wide. Because when you go deep, you can specialize in an area and that's your unique advantage. Scale comes from specialization. And again, I want to emphasize, I didn't choose the quote unquote best niche. I just picked a niche and went deep in it. And so if you want to do that with syndications, do it.

Do it. Know the risks. Know the opportunities. and you said it yourself, the asset class as a whole is not better or worse. It's simply different. And so that requires a deep knowledge to be able to achieve mastery. And that's why I think this A equals B argument that Jason is making is already proving that A, what Merriman is saying, the thing that struck me first was he said,

if you're going to tell people to take more risk in your portfolio, then why wouldn't you do this. Jason, I'm not telling people to take more risk. This is the beauty of getting closer to what historically, when it comes to asset classes is one, you can take whatever risk matches the goal that you are trying to achieve. But when we look at VTSAX, we look at this VTI strategy that a lot of people in this community use, you're nowhere close to the historic efficient Frontier. So what I'm saying is this, you can either take a hell of a lot less risk and get the same return that you're getting with VTSAX, less risk, same return, or if you're sleeping well at night, you can take no more risk and get a greater return over time. And all it is is following history.

That's all that we're doing instead of taking one gob of gunk and throwing it at the wall, we're separating that gob into a little bit more analytical areas and looking at them and going, how do these work together? So by diversifying a little bit more and taking 15 minutes a year, without taking more risk, we can do great things. By the way, looking into some of Merriman's research recently, let me put this into specific numbers for people. Because there was a specific portfolio that was mentioned on the show the last time I was here, we're talking about a four-fund portfolio. Looking at, by the way, Paul Merriman's U.S. All-Value for-fund portfolio versus the total stock market index from 1970 to 2022, Paula, the U.S. total stock market index

had 11 down years. Now, if you went with this all-value portfolio, which is not the same thing that I'm advocating for, but it's what Merriman put forward with these four funds. You know how many losing years it's had? It's had 12. So is there more risk? Yes. But I will say, if you have the risk tolerance over a 52-year period to be okay with 11 down years, it's probably the same risk tolerance for 12 down years.

Now, what was the worst year for each of these two different investment strategies? the worst year in the total U.S. stock market index was minus 37. This U.S. all value portfolio of Merrimands is minus 38.8. Once again, he's got lots of different portfolios, just looking at one. Again, is 38.8 worst year worse than 37? Yes. But I think if you're upset with minus 37, you're not any appreciably more upset with minus 38.8. Do you know what I'm getting at. Right. The risk is different. You can see it in the numbers, but in terms of risk profile of an investor, we were looking at two different people, because I would assert that we're not. If you're okay with 11 down years, you're okay with 12. You're okay with minus 37. You're okay with

minus 38. You're not like, nope, minus 37.4 was my cutoff. I'm done. What you're saying is that the proportional or incremental increase in risk is well justified by the upside. Over that 52 years, if you took 10,000, thousand dollars, you'd have an extra $4.5 million. What would the U.S. total stock market index create with that $10,000, $1.89 million? So the question of is, will VTSAX and chill get you there? I'm going to go back to what I said initially. Yes, it will. You will be fine. You'll be okay. Life will be good for you. But for 15 more minutes, you could have turned one point $8, $9 million into an extra $4.5 million on top of that.

15 minutes, $4.5 million. $15 minutes, $4.5 million. Do I need to do that again? 15 minutes, $4.5 million. Heck of an hourly rate. I know, right? And truly, again, I want to get back to what I said last stuff. That is not the point.

We're not trying to be wizards, Jason, and pick better investments. It's not what we're doing at all. we're trying to broaden out the risk in a more thoughtful way than just throwing everything against the wall throwing everything in a glob against the wall, which is what the total stock market index does is beautiful when you're starting out. Don't worry about analytical diversification. I get so frustrated when people that are just starting out choose, here I go, Paula, I get so frustrated with people choose to hire.

a robo advisor. Really? I didn't know that about you, Joe. I didn't know that you were... Think about how ridiculous this is. I'm saving my first $100. Here's what I get. I get over diversification of my $100.

So maybe I earned three extra pennies. And I'm probably going to choose the one because if I'm choosing a robo advisor, I'm worried about risk, which is silly. Don't get me wrong. I don't want people to lose money. But that is the wrong thought. The wrong thought is how. quickly can I shovel. And if I'm buying the entire economy and I know I'm doing it for more than 10

years, then heck, I know it's going to be higher. So I just need to shovel. If it isn't higher, the economy hasn't continued. So then who cares? Real estate's not going to do it either. Nobody's going to look at your deed and think that your property is safe if the economy is gone. You may need to protect it better. So none of this stuff works. So the economy's going to continue. if it does, it's going to keep going up. Or you are going to have it completely fail. I'm going to bet on it continuing. If that happens, why am I over-diversifying with my first $100?

Why am I just putting as much money in as I possibly can? And this is what cracks me up about these robo advisors. Why are they charging me extra for tax loss harvesting? Right, yeah. Like I got all these neat things. And I'm keeping like 10% of my money in cash. and I got bond exposure. Why do I need bonds?

I don't need bonds. What am I doing? I'm applying so much friction for something, by the way, that a 55-year-old needs. Because you know who robos would be great for? They'd be great for a 55-year-old. Let me tell you why, Paula. Guess what the robo is doing. The robo is getting closer to the efficient frontier with your money.

They're over-diversifying your money. They're doing some magic. But they don't even market to those. people, they market to the wrong group of people who don't need the thing. So what you're saying, Joe, is robo advisors are marketing to the people who tend to be young, they tend to have lower balances, and those are the people who could VTSAX and chill. Those are the people who are best suited for. And should.

Yeah, could and should. 100% should. Right? Because when you've got $1,000 to invest, okay, you can put your first $1,000 in VTSAX. when you have $500,000, or heck, even $100,000. Do you have $1,000 or do you have $100,000? That's the question. Yeah.

If you're just starting out and you have a robo advisor, and again, I'm not saying robo advisors are bad. I just said they're good. They're just marketed to the wrong people. If you're starting out, you have a robo advisor or you are starting out, you picked a target date fun. Here's what I want you to do. I want you to go read J.L. Collins book, The Simple Path to Wealth.

you will see how this stuff works. You will chuck that crappy target date fund or that rotten robo. And once again, they're not rotten. They're rotten for you. I don't care if it's the Vanguard one that's really good. I don't care. It's not for you. What's for you is VTSAX.

Do that. Jail Collins got it right. Then you get to 100,000. Then we get more analytical. Because that's when the efficient frontier begins mattering. That's when you're going to see these incremental changes. There is a fun company called Dimensional Funds. Dimensional Funds is a Wall Street operation.

And Jason, to your point that people can't beat the stock market, that is wrong. That is wrong. Now, I'm going to go into exactly what I'm talking about there. But Dimensional has a couple of Nobel Prize winners on their staff. And what Dimensional does is kind of, Paula, what we're talking about. They take the S&P 500 of what they do is they're like, we don't know. which ones are going to win. We just know which ones are really crappy that we'll probably lose. So they just take out a few of them. So they're taking smidges and hairs. I'm not even talking

about doing this stuff because I think that stuff is way above my pay grade. I'm not going to pick who the winners and losers are. But through their methodology, they will show you that they've beaten the market. They have beaten their indexes. Most years they beat their index. And by the way, Jason, the reason why stock market people don't beat their index is because they're stupid. It's because of the fact that they get paid to not get killed by their index. So let me ask you, Paul, if you've got a job and your bonus, which is going to be 80% of your pay, is based on being within a certain range of your index, right? Not getting killed by your index.

Are you going to take big chances? No, you're not. And by the way, if you do take big chances, there's a prospectus, that thing that you get in the mail that you throw away. And now hopefully you don't even get them in the mail. You just get them online and you delete it without reading it because it's 85 pages long and you don't know what it says. But it's all this legalese. All that legalese is to protect the shareholder. You know what that really does?

It handcuffs the manager. These people aren't dumb. They are chained to their job, which says don't get creamed. And because of that, then they end up losing to the market. And I'm not saying that they would win and they would win big and that we can predict the person next year. We've seen this study over and over and over. Nobody can predict who's going to do it next year. Nobody can predict.

And that's really the game you're avoiding by going with indexes. And you're avoiding being a part of this thing that doesn't historically add any alpha because of the prospectus and because of the way the manager's paid. Well, and what we know is that even funds, that have outperformed the underlying index, funds that have outperformed the S&P 500, funds that have outperformed any underlying index that represents what they're investing in, the drag that comes from fees and taxes often means that those funds ultimately underperform the index. Great point. Yeah.

There's a third drag to, Paula, which actually gives a small investor like Jason a better chance than that fund manager has, which is this, they're trying to manage billions of dollars. Imagine getting an order deciding that you want to buy Nike, let's say, and you're managing a billion dollars, and you're trying to put 5% of your portfolio into Nike. Do you know how hard it is to get 5% of a billion dollars into a single stock? Like how many trades that take and how long it takes and how many people are. following your trades, it is so difficult to get that money in at a reasonable price because you affect your own future pricing as you buy in. Right. Because those shares have to be available.

It's as individual investors, you know, you and I are making very small trades. So we never have to think about if I want to buy a share of a stock, will shares be available? Yes, shares are always available. I've never gone to place an order as an individual investor and been like, oh, we're out. Tesla stock is, it's all sold out. Sold out, right? But if you're placing massive, massive orders, for every buyer, there's got to be a seller and vice versa, right? Those shares have to come from somewhere. When the free market starts seeing that somebody's buying, the price goes higher, right? As there's more buyers, And in this case, a single buyer with a ton of money, starts buying into a stock. They affect their future ability to buy more at that price.

Right. So small investors historically, and by the way, there's a guy who details all this. His name is Jack Schwerger. He's a wonderful journalist. He's written books called Stock Market Wizards. My favorite Jack Schwerger quote, by the way, Paula, is the market is not efficient, but for 99.9% of us, we should pretend it is. and the reason is because of the fact that a beating it as a fool's game the juice isn't worth the squeeze the amount of time the energy the setting it up the amount of times you're going to

fail before you even get to anything that resembles a hopeful strategy and then that strategy might be fleeting it might work for just a little while and then it's gone and now then you know how you find out your strategy didn't work you lose all the money that you made and so jack profiles these people that are brilliant and as you read them you read these wonderful narratives of, yes, it is possible and no, I never want to do that. They're amazing books, the stock market wizard books. But Jason, people can beat the stock market and people have beaten it. But that's not why you don't play the game. You don't play the game for all the reasons that we've talked about. The statistical probability of you doing it is so, so, so small. Right. And well,

the other thing that Jason mentioned, and I want to highlight this, Jason, you talked about how the probability of beating the stock market is incredibly low. But you talked about that, in the context of transitioning from VTSAX to a strategy that involves additional index funds, which is what Paul Merriman is advocating. No one is saying that you can't boost your returns by virtue of choosing a better selection of index funds. When we say that you are unlikely to beat the market, we mean you are unlikely to hand-select individual stocks,

a little bit of invidia here, a little bit of Kava there, right? You are unlikely to hand-select individual stocks and put together a portfolio that will beat the market. And actively managed mutual funds, that's what they attempt to do. These active fund managers attempt to hand-select a basket of stocks with the goal of beating the market. And what we have seen over and over and over is that they cannot consistently do that over time, largely due to the drag created by the fees on the account, because those are big,

big fees that actively managed mutual funds have, plus the taxes, plus, as Joe just talked about, the load. The curse of bigness. Yeah. Yeah, right. There's another thing that struck me about what Jason said that I really need to make sure we're clear about. Jason said, if you're going to go from this one strategy to picking other funds, I'm only going

address this, Paula, because I've seen it elsewhere, too, where Joe picked small cap value, or Joe picked this thing, or Joe did, I pick nothing, nothing. The Efficient Frontier won a Nobel Prize because all it shows is what historically has done this, repeatedly historically has done this. So I just look at history. The only bet that I'm making isn't on a fund manager. It's not on picking a fund because I'm just going with the index that fits that category. I'm not betting on anything, except that history probably won't repeat itself, but I bet it's going to rhyme. And if it does continue to rhyme, which it always has, then I think that is a much safer bet to say that these asset classes, when you put them together, will give you less risk and similar returns

or similar risk and higher returns than what I'm getting now, or which the one I'm like best, as you know, Paula, is pick the spot for the return you need and forget all this beating VTSAX. I don't care. Find the rate of return you need to reach your goal and get a little more analytical about it by getting on the efficient frontier. And then once a year, look at that. I think that just doing that versus picking which syndication I want, there's a huge difference in those two strategies. And you can see how, and I love, again, and you said it earlier, Paula, reiterating what Jason said, it's different. Jason, what happens when you go to these individual investments, like a syndication,

you're adding volatility to the portfolio. There is no free lunch. If you do a great job of picking, it's going to be way more wonderful than what I'm talking about. If you miss on it, the downside isn't going to be small. It's going to be absolutely huge. And this actually is even Paula part of the efficient frontier because initially on that graph returns go up rapidly from cash to bonds, the different types of bonds. Your returns go up, but the more risk you take, the less incremental the return additions become. Right. It becomes

diminishing returns. Very much diminishing returns. You can keep adding on more risk and more risk and more risk and more risk. And what I'm saying is, Jason, your strategy is killing probably what I would advocate and definitely VTSAX because of the fact that you're taking a crap load more risk. Right. And to tie that back in with what I said earlier, when you make the decision that you are going to take on more risk in your portfolio, specializing is the manner through which you mitigate that risk. It is through deep specialization and deep due diligence that you are able to mitigate that risk because you know so much about this very, very narrow subset of the monetary universe, right? And we're talking right now about equities, bonds, real estate, but let's broaden this out.

Businesses, privately held businesses. Yeah. Right. Cody Sanchez, who's a guest on this show, her specialty is acquiring privately held service-based businesses such as plumbing companies, porta-potties, electrical companies, laundromats, things of that nature, right? That is an area of specialty. It's a very, very specific area of specialty. Real estate syndication is a very different but very specific area of specialty. Residential or commercial, real estate investing, super, super specialized. starting a business, starting your own business from scratch, right, its own independent area of specialty. So all of these are independent areas of specialty. And they all come with enormous

risks. The vast majority of small businesses fail. What is it? Nine out of ten, small businesses fail. So starting your own company comes with a massive, massive load of risk. How do you mitigate that risk? You specialize. You would gain deep knowledge. That's really what I like, Paula. That's what I like about the Schwager books, too. Even inside the stock market is he looks at these people. These people are incredible specialists. Right.

They do one thing. They do it really, really well. They know it intimately. Right. They know this thing intimately. Full-time job and more. Right. Who is the guy, the Pimco guy, who was like a absolute master at bonds, bond trading, bond

investing? Bill Gross. Bill Gross. Exactly. world class at bond investing. Now, think about that. If you're a world class at bond investing, you probably have the underlying skill set.

You've got the intellectual chops to be able to be world class at equities investing or in private equity or in hedge funds. But he never went there. He focused his specialty on bonds, even though that is generally a lower performing asset class because he knew that he could absolutely master that one specific subset of the financial world. And he made legendary money doing that.

All of us have a unique talent. And you see some of these talented individuals when it comes to specializing in the investing that they do. But truly, I believe that everybody listening to this in the afford anything community has something that they're talented in. And we spent a lot of time over the past few months since I had my little rant talking about the role of risk in your portfolio. But I don't think we look at risk widely enough. I truly think that we're asking our portfolio to do some heavy lifting. We're asking our portfolio to do a lot.

And then we go and we don't ask for the raise at work or we don't push ourselves in our career. Yeah. We don't look at ways to make more money. Like the real place where I want to take risk is in those places where I'm a special. specialist. Right. And if you're a business at a job and you know that area, there's a good chance that you could make more money doing the thing that you're really good at and stop begging your portfolio to take all the risk while you're not doing everything that you could do outside of your investment portfolio. I think we need to widen where we're taking risks. Right,

which is why it's so important. That's why I'm building a course around how to get a raise. How to make more at work. Take the risk there. Right. You know, it reminds me of what Nick Majuli talked about when he was on this show about how one of his regrets from his 20s was that he focused so heavily on trying to squeeze returns out of his teeny tiny portfolio, right? Because he was in his 20s. It was a beginner portfolio. And he was so focused on how to squeeze returns out of this small portfolio that he was.

ignoring his greatest asset, which was his ability to earn. And what's funny about Nick is he's doing okay. Yeah, he's doing great. And for Nick to say, I could have done a lot better. It's like, wow. Right. But he understands, you know, the point that he was making with that is that contributions are the single biggest determinant of portfolio success. When we can and should understand how to optimize our portfolio, but again, we should also be aware of when we're hitting those diminishing returns. And then to bring it back to specialization, that's exactly why when we want to add more volatility to the portfolio, we bring unique talent to the volatility that we're adding. And that unique talent comes from deep due diligence, deep understanding. I love this discussion,

Paula. And I hope Jason, you and everybody else hanging out with us realizes why I said early on that I think this is comparing an apple and a duck. Because I think it truly is. It truly, truly is. That was a great discussion. Yeah. It's pretty exciting. Now, what I would do, Jason, let me tell you what I would do.

As you learn about the efficient frontier, you're going to have a piece that you want in real estate. And then take your when it comes to real estate investing and put that in your portfolio. And you will take the risk that you. you enjoy taking in a safer way by having then that with a mix of other investments. Because you know, one last thing, Paula, that we didn't get to is he has this false assessment of this is either or. And truly what he's doing could be incorporated into the same stuff that I'm talking about. I've known Paul Merriman for quite a while. I know he uses some shorthand, but it really is what Paul's talking about too. You can do that and incorporated in a sense.

safer strategy and get the upside returns on parts of his portfolio while lowering the overall standard deviation. It doesn't have to be either or. It isn't real estate good, stock bad, or stock good, real estate bad. It can be a combo of all the above. Well, thank you, Jason, for the question. We're going to take a moment to hear from the sponsors who make this show possible. And when we return, we're going to have a discussion about Roth accounts. We'll also cover what books we would buy if we had $100 to spend on books for others. Stay tuned. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the

big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies. by Fortune Magazine. That's what being a fifth-third better is all about. It's about not being just one thing, but many things for our customers. Big Bank Muscle, FinTech Hustle. That's your commercial payments, a fifth-third better. The holidays are right around the corner, and if you're hosting, you're going to need

to get prepared. Maybe you need bedding, sheets, linens. Maybe you need servware and cookware. And, of course, holiday decor, all the stuff to make your home a great place to host during the holidays. you can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home,

so I got tons of shelving that's in the entryway, in the bathroom, very space-saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving, it's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, No matter your budget, Wayfair has something for everyone, plus they have a loyalty program, 5% back on every item across Wayfair's family of brands, free shipping, members-only sales, and more, terms apply.

Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-I-R.com. Sale ends December 7th. Welcome back. Our next question comes from Michelle. Hi, Paula and Joe. Can we talk about the details of the backdoor Roth?

My husband and I are always teetering on the edge of an adjusted growth income too high to contribute to a Roth IRA. We've continued to contribute to the Roth each month in the hopes that we would be just below that threshold, but for the past two years have had to recharacterize that money to a traditional IRA at the beginning of the following year and then convert it to a backdoor Roth. This has left us with gains from the year that exceed the Roth contribution limit that then need to be rolled over to our 401K, which will be taxed upon withdrawal in retirement. If we decide to directly contribute monthly to our traditional IRA from the get-go, we have the same issue with an annual backdoor conversion where our gains will have to be left in the traditional IRA or converted to our traditional 401ks. I've considered converting to a backdoor Roth monthly to make sure that any gains grow tax-free,

but that seems like an administrative pain. or we could just contribute once annually to the traditional IRA and then convert to the backdoor Roth immediately, but then we would lose out on the dollar cost averaging and a year of possible gains. And I haven't even pondered the considerations in the event that the account lost money during the year. That's like something that luckily we haven't had to consider over the last couple of years. Basically, I'm so befuddled by the options and I've never heard anybody address the specific details of like how to actually go about doing it on a month to month basis. I'd love to hear your thoughts and suggestions. Thanks so much, you guys, for all of your advice over the years.

Ooh, I've got two. I've got two. I've got two ideas because I've grappled with this myself in the past. It is a pain, though, isn't it? It's such a pain. Yeah. I know exactly what she's talking about. Yep, exactly. We've been through this. Yeah. I feel you on this one. Yeah, I think that's the reason we don't talk about it more is because we just try to keep the simple on the show. I thought you were going to say because we're so traumatized. We're trying to block it from our memories. Well, that too.

Probably that too. I used to have hair, Michelle. It was the backdoor Ross that did it. All right. So two suggestions. One, and Michelle, you stated this, is make the conversion every month. Automatically direct money into your traditional IRA. Oh, Joe is shaking.

his head. Ooh, ooh. Oh, okay. We're going to have some gloves on, but let me finish. All right. So you automatically make the monthly contribution to your traditional IRA. And then I don't know of any platforms that will let you automate it in a perfect world. You could just make, set that up as an automation where the money goes into your traditional IRA. It sits there for 24 hours in cash. And then after 24 hours, it automatically goes to a Roth. I mean, that would be a perfect world. I don't know of any brokerages that allow you to do that. So what it means is that once a month you log in and then you just transfer that money from your trad IRA to your Roth IRA.

You can do it on your phone. You can do it from the toilet on your phone. It's a very simple process. You just need to remember to do it. You set a monthly calendar, a reminder, and that's that. So that's one option. The other option, and Michelle, you mentioned that by virtue of contributing a lump sum, you miss out on dollar cost averaging throughout the year. That would only be true, let's say

2025, right? Let's imagine that in 2025, you refrain from making contributions for the full year and then you make a big contribution on, say, December 30th, right? Yeah, you would lose out on all of those gains for the entire year. But my question to you is, do you have $6,000 in a taxable brokerage account that you could just throw in lump sum on January 1st. Because if you do, and then you just continue the habit of throwing that entire lump sum in on New Year's Day, that's your New Year's Day tradition, then you don't miss out on any lost compounding interest. You are setting that clock ahead with a big lump sum right at the start of the year.

I love it. I love it. This was, yes. Okay, Paula, that was the one. Have I redeemed myself, Joe? Here's the thing. Getting rid of complexity is nine-tenths of the game. Yeah. Because the more complex it is behaviorally, we're not going to do it. So my goal is to make sure that perfect isn't the enemy of good. And I know exactly what she's dealing with, being right on that line.

And am I in, am I out? Now the IRS has made it even harder for you. You can't do the recharacterization thing. and that's going to create tax penalties or problems down the road. I don't want any of that. So what do I do? Michelle, the only flaw I heard in your thinking and Paula picked it up is that you're assuming that when you put money in the IRA, you're putting it in on the last day.

Yep. Instead, put it in on the first day. Yeah. Because you get this big 15, 16 month time frame to put money into this IRA instead of going with April 15th. Instead, let's go with January 1st, the year before, the year that begins the year. And by the way, dollar cost averaging is overrated. Here's a problem with dollar cost averaging. The market goes up 70% of the time, so 70% of the time you lose if you don't put your lump sum in right away. Before the pitchforks come out, let me put an asterisk here.

Dollar cost averaging is great for money that you have not earned yet. Sure. Because you can't invest money that you don't have. Sure. So it's a great way to plan on how you are going to spend future paychecks or future income. Definitely do it. Yeah. But what that assumes is the second you have the dollar available to invest.

You put it in. Yeah, exactly. You invest it. So truly, I don't think of it, Paula, as much as dollar cost averaging is I'm lump summing a little bit at a time the second I have it available, whatever my contribution is. but if I'm worried about taking a lump sum of money and dividing it into 12 things, I learned how to do that when I first became a financial planner. And then I found out later on why I learned how to do that. Why'd you learn it, Joe?

Because if the market goes down and your clients don't understand how the markets work, they will fire you because they think that you help them purchase something stupid. And so what I was worried about was keeping my job. Actually, my trainer was worried about it. Because once I learned that, I told my client, I said, listen, here's the deal. The market goes up about 70% of the time. So it's going to be a bet no matter what we do. It's more about you.

Dollar cost averaging is more about you than it is about the investment. Well, that's assuming that you already have the money. Well, once again, this is a lump sum, right? Right. If we're using a lump sum and we're going to parcel it out, this is much more about you. If you don't think you can stomach putting $3,000 in and having it drop by 35% to use the analogy we just had about the efficient frontier and that stuff, if your stomach can't handle that, then dollar cost average in if you can't handle those swings. But generally speaking, it's better to invest early and invest often. Invest like it's a Chicago election, right?

Is that vote early and often? Vote early and often. Cast a lot of votes. But what the heck happens in Chicago? Man. I shouldn't even do that with all the election. I think the elections rig thing. I shouldn't have joked about that.

But a long time ago, people would talk about Chicago elections because of the quote mafia. That was an old joke. So, sorry. Old guy humor. I think, though, getting in early January 1st and just doing the IRA contribution, flip that thing over, going to save you a lot of trouble. You're going to think about it once a year.

Yep. You're going to, most years it's going to go up. It's going to be great. Yeah. If you've got that money sitting in a taxable brokerage account, then just throw that in on January 1st. You know, I lump sum everything. I love throwing in big lump sums. And it's because of exactly what you said, Joe, I understand that over the long term, that money is likely to do well.

This is what helped me a lot because there was a time in my life when I was uncomfortable with throwing in big lump sums of money, ask yourself if you had invested a gigantic lump sum of money on January 1st, 2008, and if you would left that money in the market, look at how much it would be worth today. Now, that means that that money, you put that money in and immediately it endured the 2008 recession. Or heck, actually, some of that really started in 2007. So let's just go back a year and say, you put in a big lump sum January 1st, 2007, right?

So it got beat up in 2007. Then it got decimated in 2008. Then it hit its absolute low in March of 2009. Right. So from January 1st, 2007 through March of 2009, you had two and a quarter very, very bad years. Those would have been an absolutely terrible. 27 months. But look at where you would end up today. So anytime that I feel nervous about putting in a lump sum of money, I think about January 1st, 2007. And then I'm like, cool, we're good. If that's the

worst, I can withstand it. Yeah, exactly. I'm going to be better. Like, what's the worst that can happen? Oh, I have to wait a little longer. Well, this is long-term money anyway. Yeah. Wonderful. It's kind of annoying, Paula, because I so thought we were going to fight. I was just so looking forward to that and we didn't get to do it. Well, the other option, and I use Schwab, so I understand different brokerages, depending on their user interface, their process might be more onerous. So, Michelle, I don't know what brokerage you're using, but if it's Schwab or if it's anything like Schwab, the actual mechanics of the process is very simple. So easy at Schwab. Yeah, exactly. You put the money in a trad IRA.

And then you just hit a button and boom, it moves over to the Roth and you're done. So it's literally something you could do from the toilet. Spoken like somebody who's done it. It's where I do all my investing. Paul accidentally drops her phone. Her investments go in the toilet. What happened? My investments are in the toilet.

Literally. It's not a huge burden to do it, but it is like, why do something 12th? times a year if you could instead do it once a year. Amen. But if you do decide to process that monthly, if you come to that conclusion, then tie that habit to something else that you are already doing monthly. So, for example, I don't know, let's say you, every time you go to the hair salon, you process that transaction. Boom. By virtue of tying it to an existing habit that you're already doing monthly, you're unlikely to forget it. And this is a tip that comes from James Clear. He looked at habit formation and he found that this practice, there's a term for it. It's

called habit stacking. And it's just when you stack a bunch of habits on top of preexisting habits. So in its simplest terms, every time that I pick up my toothbrush, I automatically pick up a tube of toothpaste. I don't even think about it. If one hand grabs the toothbrush, the other hand grabs the toothpaste. It would be strange not to. The next steps are very predictable. Then I unscrew the cap from the top of the tube of toothpaste. Then I put the toothpaste on the toothbrush. Then I brush. Then I rinse. I never have to think about the order of those steps. It's automatic. And the reason it's so automatic is because the deep, deep recesses of my brain have tied each habit to the next one. I know that when I'm standing there holding a toothbrush that has toothpaste on it, the next step is to brush my teeth. And I know that once I've done that, the next step is to rinse my mouth. There is no level of thought that goes into that. So you want to take that same model and apply it to any habit that you're building.

So if you do decide to do it monthly, and Michelle, I'm not just saying this to you, but there's probably people listening to this who say, you know what, I like the January 1st idea, but I don't have $6,000. sitting around, or 12,000 if it's two people. Actually, look at me, I'm going off of old numbers. Isn't it $6,500 now? Well, and it's 2025. Eek? No, I'm saying it's a 2025 number. It's going to be $7,000.

Oh, my goodness. Inflation. And if you're 50-year-old, Paula, $8,000. Look at me living in the past. I've been saying $6,000 this whole time. It's actually $7. Remember when it was six? We were young and then it's,

Back in the day, back in my day. And we thought the Roth IRA contributes, oh, those were good times. But these are better times. All right. Yeah. So there are a bunch of people who are listening to this who are going, all right, I don't have $7,000 sitting around. Or I don't have for two people $14,000 just sitting around. So for those people who don't have the money for the January 1st lump sum, I'm saying making this.

monthly recommendation for all of them. Tie it to an existing habit that you already do monthly. So, Michelle, we're with you. Yeah. 100% we're with you. It's a pain. And I think this might not shovel exactly the same amount of money in, but it's going to be so much easier for you. Well, thank you for the question, Michelle. Enjoy that backdoor Roth. We're going to take one final break to hear from the sponsors who make this show possible. And when we return, we We'll field a question from Evan who's wondering what personal finance books we would buy if we were buying them so that others could read them. Black Friday is here at IKEA and the clock is taking on savings you won't want to miss. Join IKEA family for free today and unlock deals on everything from holiday must-haves to cozy at-home essentials,

all the little and big things you need to make this season shine. But don't wait. Like leftovers at midnight, our Black Friday offers. won't last. Shop now at IKEA.ca.ca slash Black Friday. IKEA. Bring home to life. Hack the holidays with the PC holiday Insiders Report. Try this PC Porchetta. Crackling, craveworthy.

You gonna eat that? Who are you? I'm the voice for the next ad. Car commercial. But I noticed that show-stopping roast and... Help yourself. Mmm, designed for indulgence. Precision crafted to navigate every corner of my mouth. All for just $18. Okay, okay. Try the season's hottest flavors from the PC Holiday Insiders Report.

Please feast responsibly. Welcome back. Our final question today comes from Evan. Hi, Paula and Joe. This is Evan in Maryland. I'm a high school teacher, and I've just gotten permission to spend $100 to put personal finance books into our school library. I've heard you can afford anything, but not everything. And I'm curious which books would make the cut for you if you could only spend $100. I look forward to hearing your thoughts. If I had a hundred dollars. If I had a hundred dollars. I buy books for my school.

I buy books for my school. All right. So what changes this answer, not changes, but like one of the ways in which I am approaching this answer is specifically what books would I buy for high school students? Yes. And honestly, this is actually pretty similar to what I would buy for adults. but specifically when I'm looking at it through the lens of what would I buy for high school students, there are two that jump out.

One is Rich Dad, Poor Dad by Robert Kiyosaki because it is such a foundational book. It's an easy read, but when I say an easy read, it is profound concepts stated simply. And the mindset shift that comes from this particular book, Robert Kiyosaki in this book, essentially talks about how we've all been taught that getting a whole bunch of degrees and getting a big fancy education and a big prestigious job is how you make a lot of money. But the reality is owning assets is how you make money. Now, a bunch of degrees and a big fancy job will get you a high income. But having a high income is not the same as owning assets. A high income can be used to purchase assets.

fundamentally what you need in order to become wealthy are assets, not income. And so he really lays that out in a way that is digestible. It's easy to understand. He really even highlights the distinction between being self-employed where you own a job to being a business owner, where you own an asset that can survive beyond your own lifetime. One of my favorite analogies comes directly from this book. It's this idea, and I remember how when I first read Rich Dad, Poor Dad, how this struck me that you can go to work every day with your lunch pail. But if you create an investment pool, whether it be a business with other people working for you, bringing in money, or investments, whether it be real estate stocks, whatever it might be,

that money goes to work every day with its lunch and come. back with more money. And then you realize this idea of passive income, which in a lot of ways is a lie, really what that's all couched in is you want to create a pool of money that's making money for you so that if one day you're sick, now you're beyond living this day-to-day existence. I thought that was really powerful. Yeah, your labor can create capital and your capital can create capital. And over time, the capital creates way more capital than you ever could. Right, exactly, because you're limited by the, the constraints of one human life. Two hands. Yeah. Yeah, exactly. Your capital is unlimited.

That was powerful. I will say in this book, because Paula, this was not on my list, but I 100% agree. This book changes people's viewpoint so much. They go, oh, wow, I never thought of it that way. Like, it's such a slap across the face for a lot of people in a good way, by the way, that well-meaning relative who's giving you the lovingly slap across the face. But I'll tell you, the downside about this book, I don't like the tactics he uses at the end of the book. He talks about microcap stocks and real estate are all you need to own and you're going to get there. I'm like, well, but I'm not going to throw out the baby with the bathwater, so to speak, as my mom says. I think 99% this book is wonderful. It's just absolutely wonderful.

To me, the downside is where Robert Kiyosaki has gone since publishing the book. I think the book is wonderful. Well, when you look at actually how that book was made, don't get me wrong, it was Kiyosaki's inspiration. But Sharon Lecter, his co-author, when you look at what she's done recently and what he's done, you can kind of see how that book might have gotten written, if you know what I mean. Yeah. With all due respect, I was debating whether or not I should say this publicly, but I'll simply say this. There is a reason that we have elected not to have him on this podcast. He will not be on stacking bedjments either.

Yeah. As in, you have made that choice, Joe. I have made that choice, yeah. I will never have him on stacking benchmarks. Yeah, I have also made that choice. We have had many opportunities to have him on the show, and we have declined. But this book? But the book is great.

Yeah. Honestly, it's one of my favorite books. Yeah. It's difficult to have a book that you love and that changed you and that inspired. to you in such meaningful ways and to have the current reality of the author. Do you want to just go back and forth on these, Paula? Because I have a list like yours. Yeah, yeah.

Let's hear yours. Yeah. So the first one on my list is one that we talked about earlier in the show. So I'm just going to go ahead and do that. This book was written specifically for the author's daughter. His goal was to give her this, let's not freak out about money. Oh, oh, oh, can I guess? Can I guess?

can I guess? You got it. Oh, the simple path to wealth by J.L. Collins. I think this is perfect. It is written for people who are high school age. And it's a wonderful way to begin your investing journey with the right framework. You will be well off worrying about not the stock market, but worrying about what you need to do. Wonderful book and a great starting point. So the book that I was going to suggest, but then I kind of start. myself. When I was in high school, I read The Millionaire Next Door, and I got a lot of inspiration

from that because I had previously assumed that, as many teenagers too, like, oh, if you're rich, you probably inherited it, you came from a wealthy family, blah, blah, blah. And the data doesn't bear that out. And the Millionaire Next Door does a great job of highlighting that shows that the vast majority of millionaires in the United States are the first generation of their family to be millionaires and that over 50% of them never inherited anything, not even one single dollar, not even one dollar from their parents. And so this book really disrupted a lot of preconceived notions. And on top of that, it also showed that the majority of millionaires made their money by owning businesses and specifically owning quote-unquote boring businesses like pest control,

like HVAC, like a janitorial services company. So it goes back to our earlier conversation. Was podcasting in there? It was not in there. Well, but see, here's the reason that I might not recommend it. So the original book was written in the 90s before podcasting existed, I should add. And so a modern high schooler probably is not going to relate to a book that was written 30 years ago. Now, Dr. Thomas Stanley and his daughter, Dr. Sarah Stanley Fallow, came out with a secret.

to the book in... Just a few years ago. It was ballpark roughly 2015-2016-ish. Yeah. Somewhere in the 2015-2016 neighborhood of years. And so that book, which is called The Next Millionaire Next Door, is an update of the research that was done in the 90s. And so it gathers research from the 2010s and shows that the same applies that really

nothing has changed. Even think about the difference between the 90s and the 2010s. Now we're in the internet era. In the 2010s, actually, we're even in the smartphone social media era. And yet still, even in that context, nothing had changed. The best thing I like about this, both books, Paula, and I think it's really important for high schoolers living in the social media world is that ostentatious wealth is not the same as real wealth. Right. And, you know, Instagram and TikTok will have you believe completely otherwise. I need to look rich. I need to look like I'm doing stuff. Right.

And these books definitively prove that that is not true at all. Both of these books talk about how millionaires have a preference for cheap beer, the Budd-Light, Miller-like, Quartz-like type of a category of beers, right? They have a preference for that over some fancy, expensive wine. Which is why it took me so long. Your preference for fancy, expensive wine? Like the fancy, expensive one. That was my number one problem.

The fact I couldn't budget or didn't budget. So my knee-jerk reaction was to recommend these books. But the original one from the 90s, I think, is probably too old for a modern high schooler to relate to. And the new one, I mean, it's great. Okay, so what's your next one? Because I've got like five. Oh, geez. Gee, okay, well, let's hear yours.

Well, he's got a hundred bucks. He doesn't have five bucks. I'm assuming he's buying one copy of each. Or were you thinking he's buying like... Yeah, yeah. No, yeah, he's buying one copy of each. Yeah. So another book on my list, I think just the philosophy of your money or your life is really good in high school.

Hmm. I think this idea that if you learn from the very beginning not to trade your hours for dollars, especially for high schoolers that have had crappy jobs, because that's when I have my crappy jobs, that might be a good choice. You're looking at me like, nope, no. Wow. Yeah, well, I mean, that was also written in the 90s. Yeah, but it's one of these big idea books that I don't think the idea grows old. You know, it's funny. Every book on my list, I think, if not written pre-2000, was written a long time ago, but there's still big books for a reason, Paula. They have staying power for a reason because these books are speaking to something bigger.

Okay. Well, here's a big idea book that I think the right high schoolers would really connect with. The Almanac of Novel Ravi Kant. Wow. Right? That's a big idea book. Wow. That is a big idea book. That is the biggest of ideas. Well, and here's what I like about that pick because the rest of my picks are not about personal finance. Oh. I think when we when we talk about really a financial education, curriculum, like what is really important to get your money together? And I think it widens it, much like Paul on your show, you're widening the discussion to be about your thinking, right? Right. So for me, it's what are the skills that are going to help you build the portfolio? So I think these books are on here for different reasons. Simple path to wealth, don't worry about it. Money or your

life, don't trade your hours for your time. You get those things down. And then I think there's other skills that we bring to the tables, which is the other three on mine. But I think you're bridging that with this book. Yeah. Because this book is much more about thinking than about personal finance. Right. And it absolutely ties to money, but it is such a big idea book. And it's so brilliant. It's insightful. It's timeless. It's one of the best books I've ever encountered. Naval Ravi Kant is an absolute genius. And he doesn't publish a lot, but everything that he says is so deeply inspired. I always feel like his words are so reason like he thought about them for about 16 days before he said anything. He's more in the

spotlight than Naval, but he's enormously insightful. And he can convey tremendous wisdom succinctly is Morgan Howsell. And his book, The Psychology of Money. That almost made my list. It's a book about thinking. And also, of course, as the title indicates, a book about money. It's a big picture book. It's a book about how we think about risk, how we think about opportunity, how we think about disasters and think through choices. So it isn't a book about the nuts and bolts, the actionable tactics of budgeting. It's a big ideas book. My next book I put on the list specifically because I thought about you are going to spend most of your life earning money. And if you're going to earn money, knowing how that machinery works, I think it's going to be a huge part of your financial success. So I'm going to the income side of the equation. I think every high schooler should read the e-myth.

Really? Wow. Whether you build your own business or you work for somebody else, understanding that it's not about creativity inside the system, it's about building creativity outside of the system and then tweaking the machine. And when you look at life as a set of machinery versus working at trying to be brilliant for 15 minutes, and then you have to replicate that over and over and over and over versus document the process that you did and automate it, like the stuff I got personal finance-wise about automation really came for me from the e-muth. If I set my personal financial picture on

autopilot where the second that I find money, I'm able to add it into, the plus column on my balance sheet. Brilliant. Just absolutely brilliant. And that comes specifically from the e-muth. Don't work inside a business. Work on the business. Work on it rather than in it. Yeah. Yeah. And I think that if you're a high schooler and you read that and you work for somebody, then you know what your boss wants. Then I think you're going to be eligible for a raise much more quickly. Wow. I think you're going to cut through a lot of noise. I might disagree with you there, Joe. I think that... Well, it's okay being wrong once in a while. I think the book would be good for college students, but I think high school might be a little young for those concepts.

Well, then you're not going to like my next one either then. Oh, what is it? You will like my last one, but you won't like this one. Because this is a book that's in college classrooms all the time. You should get this book in high school. Because much like the E-Meth is a story. Why I think that high schoolers will latch on to this is because the fact that the E-Meth is a simple story makes it really easy. reading. And I think it makes these big, heady ideas easier. Same thing with the next book,

The Goal. I think the book, The Goal, which goes over the theory of constraints, but it does it in a way that there's a factory that's failing. This factory is failing. And they're sure they can't save it. And this guy's coming in to kind of mop stuff up and he's like, what if I can save it? And then he figures out about bottlenecks and about throughput and systems. And that book, man, I read this book very early on. And I think I would have gobbled this up in high school just because it was such a cool story about a business and how to turn it around. And once again, it wasn't about being brilliant. It was applying some science. It was bringing in these different ideas. So I like those two things in terms of how to make money.

Man, if out of high school, you've read the e-muth and the goal, you know 80% of the landscape by the time you hit college or your apprenticeship or whatever the military, whatever you decide to do, you've got this solid foundation already of how the business world works that I think will serve you for a good long time. Interesting. So the goal is the first book that we've discussed that I haven't read. I've never read that one. That's fabulous.

Fantastic. I'm still thinking about the millionaire next door slash the new millionaire next door. Yeah. Do I recommend it or not is still playing on my mind. The ideal circumstance would be to have both books because I think that they work best together when you read them both. The original book is powerful and it's beautifully written and the second book really builds on the first. That said, Evan only has $100. And if he's got to choose, I was debating this in my head.

I would still get that second book. Unfortunately, for high schoolers, I personally think the first is better, but I don't think a high schooler would relate to these examples from the 90s. I would get the second because I think high schoolers can relate to it because it's more modern, it's newer, it's internet, smartphone, social media age, and it reinforces those same underlying fundamental concepts. Love it, love it, love it, love it, love it. I like Scott Trench's book, set for life, by the way. Yeah, that's a great one. I think especially for a high schooler because it starts off with the assumption,

which a lot of high schoolers have, that they want a bazillion dollars, right? That life is about getting as much money as you possibly can. And if you want to get there, here's a roadmap. And so I think in high school I would have looked at set for life like it was a treasure map. But that's an honorable mention. Last book on my list, again, because I'm looking at fundamental foundational knowledge. Ooh, ooh, before your last book, I've got one more.

Oh. Richest Man in Babylon. 100%. Great idea. Yeah. It's short. It's a story. It's a simple read, but it's timeless concepts.

I think the books that are stories with the concepts built in, some of these heady concepts built in are the best way. Look at how many of them made our list. Right. Yeah. That's the fourth one we've recommended. That's a story. That's pretty powerful.

I think you need to be organized. I just think if I would have learned earlier how to be organized, it would have made all the difference. I'm not naturally an organized person. I know when my kids were in high school, they weren't that organized. I went through this book with my high schoolers, and it was helpful. Did it stick? I don't know.

They're almost 30. Sometimes I wonder. But I think there are so many good lessons in David Allen getting things done. I think the idea of getting things done is something high schoolers can appreciate. I think they can apply it right away. I think David Allen is a great person to latch onto when it comes to how to accomplish more, which they're going to need to do. They're going to need that no matter what they decide to do out of high school.

So that was kind of mine. I also thought about another really heady book. You know how much I love this book. But I think you need a little life experience before you do this last one. it's an easy read, happy money. Oh, yeah, by Ken Honda. It's a cute book. It's an easy read.

Yeah, I agree. I think you need to be in like your at least mid-20s to really appreciate it. Yeah, that book hit me really hard. Hit me much harder than the fire movement idea did because it's so much about gratitude and sense of community and honor. Absolutely love it. Big ideas, very simply put happy money. But I'm with you. I'm going to cross that one off.

Set for life. I think is really good high school material. Beautiful. So, Evan, there are your answers. That was fun. We should do this every holiday season. Paula Joe's top five. Yeah, exactly.

That's wonderful. All right, Joe, well, we did it again. I can't believe it's over already. Where can people find you if they'd like to hear more of you? I mentioned this the last time I was here, and I'd just like to mention it again, which is that I am working with a small cohort to get through. And by the way, I assumed I wasn't going to talk about my book. So my book's great for everybody all the time.

No matter who you are. And Paula pants in it. Page 13 or 17. Either page 13 or page 17, one of the two. It is page 13. I looked it up. Really? Oh, you did.

You confirmed. Oh, great. Yes. And Paula on the book tour. Best page in the book. Would sign page 13 for people. I would. Yeah.

Yes. congratulations on finding my page. I know. And when Doug was with us, Mom's Neighbor Doug from the Stacky Benjamin show, Doug would write in the very front, congratulations on meeting me. That was where I got it from, actually. It was a play on Doug's joke. It was so good.

But I'm taking a small cohort of people through not just the efficient frontier, which we talked about, but how to timeline your goals, these tech strategies that get in your way, like how do you fundamentally understand these things, insurances, risk management of financial plan from the beginning to the end and starting near the end of January, I'm taking a very small group of people through my book. It's 10, 90-minute sessions. We did a survey of people last year that went through this on a scale of 1 to 10 before they went through, that we called the book club. On a scale of 1 to 10 before you did the book club with me, how comfortable did you feel with your overall financial picture? The average answer,

Paula was a five. Afterwards, how did you feel on a scale of one to ten? Nine. And the testimonials were huge. They didn't like just the fact that they were learning from me systematically how to do this, but also that they had this little group of people that they could also work with together. And when one person struggled with stuff, one of the great comments we got was sometimes I was struggling with stuff and I didn't even realize the right question to ask and somebody else would ask the right question. And so I could learn from somebody else's question, which was very helpful. So to get in, it's stacking benjamins.com slash book club. And it's not for everybody. And it's going to be a very small group, but I really look forward to working with a few people to go through

the lessons in stacked and build a financial plan. Let's go. Oh, wonderful. Well, thanks to all of you for being part of the Afford Anything community. If you enjoyed today's episode, please do three things. first and foremost, share this with a friend. A family member, a neighbor, a colleague, a loved one, a liked one, a tolerated one. Share it with the people in your life. That's the best way that you can spread the message of great financial health and robust financial education. Number two, make sure that you're following this podcast on Apple Podcasts, on Spotify, in your favorite podcast playing app, wherever it is, whatever it may be. Also find us on YouTube.

YouTube.com slash afford anything. And number three, please subscribe to the newsletter. Affordanithing.com slash newsletter. We are reviving it. We're bringing it back. We're being more regular about it. So fresh content, insights, ideas delivered straight to your inbox. We don't publish this.

This is not on the podcast. This is not on YouTube. This is unique material that only people who subscribe to the newsletter will get, and it's absolutely zero cost. Affordanything.com slash newsletter. Thank you again for tuning in. My name is Paula Pan. I'm Joe Solcihai.

And we'll meet you in the next episode.