Afford Anything - Q&A: Your Kids Just Inherited $350,000 Each. Now What?

Episode Date: May 19, 2026

RSVP for Paula's Open House to Your First Rental Property TONIGHT (May 19th): ⁠https://affordanything.com/openhouse⁠ #716: When does a financial decision stop being purely about maximizing returns—and start becoming about building the life you actually want? Karen recently inherited sizable trusts for their children and is now navigating the complicated intersection of investing, taxes, legacy planning, and future financial aid eligibility. Matt has spent years building a solid index fund portfolio, but as retirement gets closer, he’s wrestling with a familiar investor problem: how do you know when optimizing becomes overthinking? Kate is trying to decide whether $35,000 should go into the stock market—or into building a backyard gym that could generate income while dramatically improving her family’s day-to-day quality of life. We’ve got a lot to unpack today, so let’s get into it. Book by Michael J. McFall - Grind: A No-BS Approach to Take Your Business from Concept to Cash Flow Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, there's a major phenomenon that's about to happen that people really aren't talking about much, and it's called the Great Wealth Transfer. Have you heard this phrase? No, I was hoping for like the great ice cream transfer. That'd be cool. Jeff, where would the ice cream transfer from? And too? From Andy's ice cream and Texarkana to my mouth. Well, you could make that happen using the wealth from the transfer to purchase ice cream. Cool. You see, it is a unit of exchange. I'm in now. I'm in. Let's do this.

Well, so the great wealth transfer references baby boomers who were the largest generation prior to the millennials. The oldest ones are now entering their 80s. And soon their accumulated wealth will pass to younger generations. And so that is something that is going to start happening with more and more frequency. We don't really hear a lot of people talk about it. there's a lot of emotion, a lot of shame around the notion of inheritance. But it's something we're going to unpack in today's episode. Well, and I think part of the reason people don't talk about it is they're not sure who to wealth transfer to.

And if you're struggling with that, just write me, Joe at stackybenjamins.com. I'll be happy to help. You'd be happy to be the recipient. I'll volunteer. How generous of you, Joe. Thank you. Well, welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars. Financial psychology, increasing your

income, investing, real estate and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode ish. I answer questions from you, and I do so with my buddy, the former financial planner, Joe Sal C-high. What's up, Joe? I am super excited these questions. I previewed them, Paula. I snuck ahead. Ooh. They're amazing. They are amazing. And our first question today comes from Karen. Hi, Paul and Joe. I really appreciate all the advice you share and have learned so much over the years. Our families found its way into the great wealth transfer and we'd value your perspective on handling this thoughtfully.

An elderly relative passed away and left a trust for our children currently valued at about $350,000 each. Our kids are now 9 and 14 and the trust distribution age is 35. The portfolio has about 40 line items in it that fall into two main components from what I can tell. The first is individual stocks across tech, industrial finance, energy sectors. He took a lot of pride in these, and each one has a story to tell, so we are inclined to leave them as part of his legacy for the kids. The other 20 are actively managed mutual funds focused on income and preservation and diversification with relatively high fees from what I can see. They seem suited for a retiree, not long-term growth as the kids would need. We've paused on making any changes to avoid any emotional decisions, but we are going to be meeting with an advisor soon that's been managing these for him.

So we'd appreciate some thoughts on a few things. The first is an investment strategy. Given 20 or 25 years before they can even touch this money, we would love to shift from some of those higher fee and income focus funds to lower cost index funds like BTI, perhaps, while keeping those individual stocks. Is there something more nuanced that we should think of when thinking of this approach? A side question to that one is about taxes. What should we consider on how to be tax efficient as this grows? Are there things we can do to prepare them for the future and tax implications? And then third, financial aid. How might a trust like this impact financial aid or their FAFSA? Each child has about $50,000 in a $529 and they are currently interested in state schools.

schools, but we know a lot can change between now and then. We are interested in having them retain some financial responsibility in that decision, but we're just curious how this is going to impact all of that as we look ahead to the future. I understand these are a lot of personal choices, but expect many other families are going to face similar questions as this transfer of wealth happens. So I'd love to hear your thoughts and frame of mind that I should go into this conversation with the financial advisor. Thank you. Karen, thank you so much for the question. And Paula, there's a lot to unpack here. But it is fairly straightforward. Number one, what a generous gift and just incredible. And it's true that often money, while money doesn't have any,

I mean, a dollar is a dollar, a stock is a stock, but it often comes packed with a lot of emotion like these individual stocks. And by the way, you know, Karen, when you're talking about the managed funds with the higher fees, I believe that might be more a product of your relatives age than anything else. You know, back in the early 90s when I was starting practicing, Paula, my practice was all all funds that had managers. Yeah. You know, when I was in high school and I was asking my dad what to invest in, he pointed me towards actively managed mutual funds. I was the person who later in adulthood came back and I taught my dad about index funds. Yeah, it's 100% I think a product of age.

Now, the fact that they have high fees just comes with the fact that they're actively managed. So I'll bet they're pretty good funds. But what I also like is the fact that you discerning that these are more for also his generation. You know, when you're looking at age 35 for your kids, Based on the fact that they have a long time until they reach age 35, these are not appropriate at all. So great on you for discerning that. Now, let's do a couple things before we start making moves. Number one is I would like you to go into that estate planning and a trust work. Go into the trust work and read because there might be a clause that says something about health education support and maintenance.

and I'll bet it's there. And what that means, what that clause is going to to shine a light on is whether if there is a need for health, education, support, or maintenance, your kids can take it before age 35. Now, that doesn't mean they're going to, but we just want to be clear about the timeframe before you make any moves. Because on the surface, Paula, this is age 35 and beyond money. But if your child runs into issues and this becomes the best place to take money from before age 35 and it qualifies for one of those four things. And by the way, let's think about how wide those terms are. Health education support and maintenance. There are very few things I do inside of a day that I can't qualify for one of those four things.

But most trust have them. That's the reason why I want to look at that first so that we get very clear that this is age 35 money. Well, and to the spirit of that, because sure, there are many things that in a day, most things would qualify under one of those. I mean, support and maintenance, like those are fairly broad terms. Sure. But if we were to honor the spirit of what that is generally intended to mean, that would likely mean if a child, has an extreme health crisis, let's say a cancer diagnosis that requires an enormous amount of money to treat an enormous level of deductibles and out-of-pocket maximums that quickly

or maybe denied claims that quickly just spiral out of control. Under that health category, there would be money for that. Sure. And I'm not going to assign because I don't know what the spirit is of the clause. Did the attorney just put it in there, which is what happens to your point in many of these cases, right? They just go, okay, we're going to put an escape hatch on this. But sometimes some of the people I worked with, they wanted that in there. They're like, hey, if they want this money before age 35 and it is for an advanced degree, let's go to the education part. Well, then certainly at age 25, I want them to go get their doctorate. We're going to get back to college here in a minute. And what this is.

this generous gift might do to financial aid. But I don't know the spirit of any of that. But I just want to be clear before I start dictating what I think you should do with the money because it might be ironclad age 35 to your point, Paula, probably 35. And if not, and it's extreme, who cares if it stocks lost some money, it doesn't matter. But if it's not ironclad. So is that phrase there, is that clause there? And then second, what do you think the spirit of that would be? Speaking of spirit, let's start with the individual stocks. I love the fact that these individual stocks have a story. I love the fact that they have meaning to you and to your kids and to your relative. If they are significant amounts of money in those stocks, I think you can still honor that

by keeping a few but diversifying the rest. In other words, let's say that it's General Electric. And I'm going to say General Electric because back in the 90s, if we're using managed mutual funds, you know, those were pretty big in the 90s. So General Electric, hot company in the 1990s, Jack Welch running the company. GE is no longer in the Dow Jones Industrial Average. It's a company that has still doing some good stuff, but has fallen from that top tier to maybe a second tier company. If you own a bunch of General Electric, General Electric probably is not a company you want to have a lot of shares of. So you've got to decide how much that emotional attachment is. But if there's a thousand shares of General Electric and you can get the same emotional benefit by keeping 10 shares of General Electric just so you keep the legacy alive and the story alive, I wouldn't think for most investors, your relative looking down at you from.

wherever they are now, their ghost is not going to come back at you because you trimmed your exposure to some of these individual stocks. Yeah, I would agree with that. I do think it's beautiful that each individual stock has a story behind it. And I certainly think preserving that story, in part by owning some shares and then in part by using it as a vehicle, especially when the kids are young, for financial education, using it as a vehicle to bring your kids awareness to these companies and what they do and why that was so important to your relative. And particularly impressing that upon them at a young age, that's an amazing way to honor that story.

I think from that point then, we now have the amount of money that you're going to reinvest. We know how much that is. the next thing I'd like you to do is take this idea of putting it in the total stock market index and wipe that Karen from your thought process. Get rid of that. That's fantastic for somebody with a smaller amount of money. That is not fantastic for the amount of money that you're talking about. Frankly, you could do what I've always called building a ship, Paula, which is you have the hull of the ship, the sale of the ship,

the rudder of the ship and you can use just that design to get closer to the efficient frontier. So the basic ship design is 50% of the money inside of a large cap index fund. That would be like the S&P 500. You could even take that 50% and get fancy with it, but we don't even need to do that. You could go 30% S&P 500, 20% large cap value, which I think. think would do even a little better historically. But without getting fancy, just put half of it in an S&P 500 fund. Then take 25 to 30 percent and put that in an international fund. That's going to be your sale. It's going to sometimes do really well. Sometimes it won't do. Won't do really well. And then the third part that we call

either the rudder or the anchor because it can sometimes really weigh you down. But other times, when you roll that anchor in, you can speed along because you don't have it, which is small companies. So if you just went 50, 30, 20, 50% large cap, 30% international, 20% small cap, you're going to end up far better off than you will with just the total stock market index. But from there, I think it's going to be more along you, the actual time frame, the goals, your risk tolerance, yada, yada, yada. But I take that three fund portfolio all day long, Paula, over VTI. I would also point you to Paul Merriman has a four fund portfolio that I like and personally use. It's based on, and if you go to Paul Merriman's website, he has done extensive research on, the performance of this four-fund portfolio.

And it's shockingly similar to what I just told you. Yeah. Very, very similar. Paul Merriman's asset allocation thesis in his four-fund portfolio is equal parts, large-cat blend, large-cat value, small-cat blend, small-cat value. He's designed this assuming people want to invest only domestically. I do think an international allocation is also a good idea. But the basic four-fund portfolio,

large blend, large value, small blend, small value. Yeah, and Paul and I are working off the same motor portfolio theory research. I definitely prefer some international portfolio. I can see why for do it yourself investors, he realizes that we all have a home bias, no matter what country we live in, we have a home bias. And he can respect that home bias and you'll still do, you'll still do really well. But I think that either one of those, Karen, is far superior with that amount of money. And frankly, I don't like either one of those.

If you've listened to the show for any length of time, I like starting with the end of mind, your specific goal, and then building your own portfolio. It's stickier. You understand why you have it. You're less likely to blow it up, although I get the feeling you wouldn't blow up this portfolio anyway. So I think that's the place to start.

What's interesting is to me, and this is a whole other discussion, you know, the use of a financial planner in this discussion, I'm about to say something to people that have casually listened to me in the past, but I haven't really listened to what I've said, are going to think that I'm talking against all the stuff I've said before. I don't know that you need a financial planner for this, which doesn't sound like Joe Saul Seahy talking.

That does not. I was, uh-uh, not on my bingo card. But Paula, this is not what a financial planner does. A financial planner makes your life dovetail. Make sure that your risk management strategy has a lot to do with your asset allocation, has a lot to do with your budget, your emergency fund.

We're not using them for that. All we're using them for is to pick investments. And I think if you're only using a financial planner to pick investments, picking investments is easy enough. If you're not looking to dovetail it into the rest of your life, why the hell we pay in any fees to somebody for that? It is simple. You can do it yourself.

A financial planner is working off the same song sheet that you're working off. What I just said, working off Paul Merriman's research. I mean, if they're any good, they're working off the same stuff. I don't need a sounding board for that. Now, don't get me wrong, I think most people should have a financial planner, but it's for all this other stuff. But I think anybody who is using a financial planner just to be some investment guru, why? Like, that's not what they are. That's not what they're good at. It's not why you hire them. And I think that's why we get in trouble when we hire financial advisors, because that's what we're looking for is some kind of Harry Potter stock picking wizard. And that's not what they do.

So I think you could safely cancel the meeting with the financial planner if that's what you want them for. And Frank, I don't think a 14 year old needs a financial planner anyway. So probably can cancel it. Wow. Was not expecting Joe to say that. You're welcome. I think if it's a fee only meeting and it costs a couple hundred bucks, have the meeting. It's probably going to be a free meeting.

And you can still have it and see what they say, which is fine. I don't think you need it, but it's fine. So that's the asset allocation piece. Let's move on to the next piece, which is what is this due to financial aid? Well, this does bad, bad, bad things. Very bad things. Extremely bad things. There is one way around it and you don't want to go there.

Well, there's two ways around it. Number one is just get rid of the money right now. Use that health education support and maintenance to YOLO and just get rid of it so it's not there. That's not an option. That would be the tail wagging the dog option. Yes. The second option, which is ugly as well, use a quote investment that FAFSA will not think of as investment. And FAFSA for people that don't know is the free application for student aid.

That's the form that you're going to fill out. So magically make this money disappear while leaving it invested. Paula, what is a quote investment that you could put this in? that FAFSA would not consider to be an investment. I hope you're not going to say something that begins with a W and then... Yes. Oh, no. Don't do it.

You're going to say the W word. Those are your two options. There's more esoteric options. By the way, the W word I think you're referring to is... Whole life insurance. Whole life insurance. Put it in whole life insurance. No.

No. No. How do you spell no? K-N-O-W. There is, that is not something you want to do, but it works. There's something else you can do. You could also take the money and you could invest it in ways, other ways that FAFSA does not think of as an investment.

And this is what really wealthy people do. This is why really wealthy people buy art. There might be appreciation in art, but art like gold is a store of value. The difference is FASA thinks of gold as an investment. it doesn't think of a climp or a or a morrow as a as a store of value. So go buy some art. Again, a horrible idea, a rotten idea. This is a fight they're having in New York City, by the way, around second homes right now, right? If we want to just look at the headlines right now, the mayor saying, hey, this second home is not a second home. This is a store of money because

we're barely taxing you anything based on the amount of money that you're storing in here. That's the fight they're actually having. Now they've, they've dumped it down to be tax the rich, right? Now we're having a fight over whether we should tax one class over another. That's not at all what this fight is really about. The fight is really about second property as store of value. Right, which is silly because there's property tax. You have to pay property taxes on those properties. Same property taxes that every other resident who does not have homestead exemption pays, right, because it is a second home. So it's non-homestead exemption. full property tax rate, plus you're paying building maintenance. So you're providing jobs for all of the

people in the building. And you're not using any of the city's resources because you're not actually there. Right. I don't want to get into the politics of that. I'm just saying that's what the real fight is. The real fight is, is this a store of value versus a home versus a lodging if we just want to get into the heat of it, which I think we can safely avoid? All those suck. The bigger question is if none of those work. what I just did, Karen and everybody else is I just went through like what your options are. The other option is you got this great gift. Pay the tuition. Use it to pay the tuition, which is not horrible.

So I would take the need-based financial aid and just it's off the table. Yeah, agree. To put it simply, there's no need-based financial aid when there's no need. Yeah. And there is now no need and therefore no need-based aid. just like we just talked about Paula with what's the spirit behind the health education, sport, maintenance. We don't know. Karen knows if it was a lawyer that put it in there or if, you know, there might have been some exceptions that the, that the relative wanted.

What's the spirit of need-based financial aid? You know, and if I've got this money and I'm sheltering it in art that I'm going to sell to put my kid through college, I don't know. that's the bad news, but it's good news, right? I mean, the good news is you have this opportunity. So I don't think it's horrible news that we're saying that you should pay the tuition. The last piece, the tax ramification, I think when you're using growth-based investments, the little tiny friction skid marks that index-based growth-oriented funds are going to leave. You know, when you look at these companies, most of these companies, if they pay a dividend, it's going to be minimal. It's not going to be huge. I think that getting wrapped up in a more complex tax strategy is largely a waste of time versus allocated for the time frame, pay the tax, freedom from worry. Can we do some esoteric stuff? Or should you maybe during the time frame, pay the tax, freedom from worry? Can we do some esoteric stuff? Or should you maybe during the, early years, maybe do some tax loss harvesting if it occurs. You know, so you, during year number

one, you invest, let's say in small cap, because it's the most volatile thing you're going to have, and small cap goes down. Should you then sell that for 30 days, stay out of it, and then buy it back or buy a similar but not equal index that has a similar volatility but is invested in something else so that you're able to claim that loss? A hundred percent do that. But I don't know, Paula. I don't get the feeling that tax planning is something I'm really going to worry about as much as the right allocation and time frame. Karen, you asked about three things. You asked about investment strategy.

You asked tax implications. And you asked about financial aid implications. That's how this shakes out in all three of those domains. I think zooming out, the other major piece of it is how to talk to your kids about the expectation around this money. I think one of the really beautiful ways that this was designed, you know, with this not going to them until they're 35, it means that they get it once they've had some time to mature.

I know people who have gotten big payouts at the age of 18, and that has done more harm than good at that age. But I think that this is a good time to start having those conversations with them, frequent ongoing conversations with them about investing, about compounding, about thoughtful use of money for big-ticket, major items such as buying a home at the age of 35 or setting up their own kids for success, essentially building a multi-generation family trust, or for providing for their own retirement. You know, if they opt not to touch this at 35, if they, and if at the age of 35, they make the decision to let it accumulate for an additional 30 years, walk through that exercise with them, show them what that compounding could do and what that could mean for them when they're in their 60s and 70s.

And then explain why that matters, because many people, especially when they're young, don't quite grasp that in your 60s or 70s, you just don't have necessarily the health, the energy levels, the desire to go out and crush it in your career the way that you desire that in your 30s and 40s. Many people do. I like the fact that this could also be not just financially a nice leg up, but also educationally. Educationally, is that a word? Yeah, educationally. Yeah. Could be a real leg up as well. Absolutely. A nice head start. Thank you, Karen, for the question. kudos to you for stewarding this so well. One of the greatest ways that you can honor someone who has passed you a legacy is by being a careful steward of what they have passed to you.

Congratulations to you for doing that. We're going to take a moment to hear from the sponsors who allow us to put the show on the air and deliver the show at no cost to you. When we come back, we're going to hear from Matt. Matt's in his early 50s. He wants to retire in about six years, and he has a 100% equity portfolio. He wants to talk about portfolio optimization. We're going to unpack his question after this. Welcome back.

Our next question comes from Matt. Hey, Paul and Joe, it's Matt. I have a quick question. I have been investing for a long time. I'm in my low 50s and hope to retire in six years or so. I have a index portfolio of index funds at Fidelity, and I have a total market, a total international market, a small cap value from Avantus, and a mid-cap index, and that I'm 100% equities. And I want some advice on how to handle the idea of always wanting to tinker and adjust.

I like to digest podcast, books, blogs, and I learn new ideas, I learn new concepts, and it's tempting to want to change. I don't usually do that, but it's on my mind a lot. Like, is it better to add more of Vantus funds? What about a target index, target date index fund? What about the portfolio I have? What about needing bonds in the mix? And I would just love to hear you and Joe dissect that and talk about that because I think a lot of us probably have the same issue where we just have a desire to change things. Let perfect be the enemy a good kind of thing. Anyway, love your show. appreciate all you guys do and would love to hear an answer. Thank you. Matt, thank you for the question. Broadly speaking, my recommendation is pick one asset allocation.

And we can talk about in a minute we can talk about what that might be. Pick one asset allocation and then spend a little bit of money developing a hobby that's going to distract you from this. Seriously, try pickleball, try stand-up comedy. Learn how to paint. Pick up soccer. Matt, and just to be clear what I'm laughing about, I'm not laughing at you or the fact that you want to do this because this is me.

This is 100% me. I want to do the same thing. I love this stuff. You love this stuff. Paula loves this stuff. But every, every, every statistic shows the more you mess with it.

Exactly. The worse it gets. So pick one asset allocation, organize the portfolio. and then hands off. Yeah, but looking at his asset allocation, Paula, where he's using total market indexes, I think he can do better, especially if he's in his early 50s. Now, if you're just, if you're listening to this and you're starting out,

Matt's got the right allocation for you. Do what Matt's doing. And I bet Matt's been a successful investor because of what he sees done. Right. So that's our message to people in their 20s. Absolutely. Yep. Or whatever age you're starting out at, right?

Oh, yeah. True. Yeah, no matter what. But I think you get to a certain. point. Generally, I earmark that around $100,000 that you should start being more technical. So Matt, I don't disagree that you could be more technical. And I love the fact that you're looking at all these different ways to do that. I think rather than messing with the portfolio, I like the pickle recommendation, but I also like, here's something to tinker with, create an investment

policy statement because rather than messing with the investments, which will totally mess you up, that will completely mess you up. If you're going to make changes, make a machine that's lasting and then tweak the machine. Don't tweak the investments every 10 minutes. tweak the machine to make it better and then better and then better. And if you wonder if the machine is actually going to get better with the next move, what I would have is part of My investment policy statement is have a little sandbox portfolio that is your playpen with new ideas for the machine. So you got one investment policy statement that's 99% of your portfolio and 1% that's the rest and play with the piece that you want to add to your investment policy statement later. I'm thinking that I'm going to get more analytical about what value means.

and that's based on PE ratios or am I going to, let's do something else, kind of esoteric, am I going to branch into emerging markets versus just wide international, you know, or if we're going to get really, really, really esoteric, am I going to use bands to reallocate and rebalance my portfolio versus hard and fast numbers, right? So I let my portfolio drift a little bit. like these are some of the exciting things people talk about. And use a little piece to say, okay, I want to experiment with, does this make my asset allocation better?

Or does it just mess with it because I can't keep my hands off of my investment strategy? But I think if you're going to mess with anything, Paula, I create an investment policy statement. I agree with that. But then he runs the risk of messing with the investment policy statement. Well, unless he has his skunk work. works, as I mentioned, where he's going to then have this R&D piece of his investment policy statement, 1% of the portfolio, whatever it might be. Yeah.

I'm thinking about the psychology of why there is such a temptation to mess with a portfolio. And oftentimes it is that we want to have a sense of control over our net worth. I believe much of that. I don't think it's that. I don't think it's that, by the way. Yeah, I think it might be a little bit of that. But keep going. Take your whole, Paula, so I can. Well, my conclusion was going to stem from that premise. So if you accept the hypothesis premise that at least a portion of the reason, maybe not the entire reason, but that part of the reason that a person is tempted to mess with their portfolio is because they want a sense of control over their net worth.

If that is the case, then an alternate, a substitute way to develop a sense of control over your net worth is through entrepreneurship. Even small stakes, side hustle entrepreneurship, it doesn't have to be your day job. But I believe that if what you're looking for is more control over the earnings lever, the income lever, the make my net worth go up lever, entrepreneurship can scratch that itch. I 100% agree with that. 100% because I think that we don't think about portfolio wide enough. I think we always think about these investments. This should be passive. And that's my portfolio. And that's where I'm going to obsess about making money, which is my hypothesis, which I can get to in a minute. I think that if we widen that and we go, holy cow, the way to actually make more money I'm

missing out on is I'm not paying enough attention to my income streams. Once we add in our income streams, and we begin networking more, we begin thinking about these other semi-passive ways that we might be able to bring in money like that, that's an area where tinkering pays huge dividends. Right. Because there are infinite ways to do it. You know, there's, you could develop a product, you could develop a service, you could, you know, one thing that I like about real estate is that it's a bit of a hybrid between investing and entrepreneurship. It is in the F-WI-R-E framework. It is perfect that it is in between the I for investing and the E for entrepreneurship,

because it really is that Venn diagram intersection between the two. You know, there's also, if you want to go back to market strategies, you could take a small portion of your portfolio and get into options trading. Joe, oh my God. Okay, for those of you who are not watching, on YouTube. Go to YouTube and just look at the expression on Joe's face when I said that. Wow. This is, this is, that was priceless, Joe. You go from don't, don't mess with it to trade options. I'm talking about a tiny portion. I'm not

talking about your whole portfolio. I'm saying take 10 grand and we'll start with paper trading, right? Start with learning it. Start with some paper trading. do that for a year and then take 10 grand and then see what you can do. If you're really tempted to be hands on, that's a way that you could be hands on, but still leave the bulk of your portfolio intact and then just play with $10,000. And again, if you're just starting out, don't do that. Yeah, yeah, yeah, yeah. I'm talking about people with a lot of money.

Yes. People for whom 10 grand is a rounding error. If 10 grand is a rounding error for you, then do it. Here's my thesis, Paula. and this is just from the large numbers of people that I met with. And this particular person would make me roll my eyes only because I felt very bad for them. And I could not talk them out of the fact that they have a huge, huge feeling of FOMO. And I think, Matt, this might be, this might be why.

part of the psychology of listening to so many podcasts, reading so many books, whatever, you're trying to uncover this thing. I would meet with these people many times a year, Paula, where they're like, okay, I met with 15 people and you're going to have this answer for this magical approach that I have never seen before that is totally going to work. And by the way, if I even, if they hadn't heard of the efficient frontier and asset allocation, we would set that up. If they hired me, these are the people that would fire me in the first 18 months. And the reason was, was because they soon realized that the way that I allocated money was also not a magic wand.

And in fact, I'm thinking of one specific client who fired me, who hired me and fired me. They hired me. They came into my office. The only reason I let them hire me, by the way, was because the man was married to one of my. kids' teachers, and I really liked her. But they had just fired their advisor. And the guy even told me, he said, wow, my ex-advisor was really rude when I was changing to you. And I said, really, why? Because often when somebody leaves, it's just not a fit. You're like, okay, you know, I'm not for everybody. That's fine. He said, yeah, she told me as I was telling her that I was letting her go, when you find your magic wand, let me know. When he fired me 18 months, later, you know what I told this guy?

When you find your magic wand, let me know. Because he's truly, and there's a lot of people, there are a lot of people that listen to financial podcasts that are trying to uncover this mystical, magical thing. It just doesn't exist. And what's cool is, is once you realize that and that sense of FOMO begins to go away, that's when you're able to really dive into the investment policy statement. Because that is where the magic is, Paula. Like if you're going to tinker with anything, tinker with my policy.

Because the cool thing is, is if your policy is I'm only going to evaluate it twice a year. In the next six months, you can change that policy statement 15 times and never touch an investment, which is fantastic. And by the way, these same people, if they stayed with me, this was always good. cool. We tweak and we tweak and we tweak and we tweak. And then we get to the investment policy statement day, the day we're actually going to turn the machinery on and make the move. These same people are so busy second guessing all the moves they made that they thought about the last six months and they changed. They second guess so much. They don't want to do any of it then.

Because you realize when you mess with the investment policy statement over and over and over and over and over. and you go, what is this for? What am I actually doing? The crux of that, though, is that you can mess with the policy statement all you want so long as you don't take action except for one to two days per year. Yeah, the only danger of messing with the investment policy statement is you change the policy statement to say, I can mess with the portfolio all the time. Right, right, right. Okay, so like the hard and fast do not break, like the ironclad rule is, one or two dates a year. Let's say your birthday, or maybe your birthday and your half birthday. Those are the two days of the year that you can mess with the portfolio.

Joe is laughing at me again. See, for anyone who's listening to this via audio, go to YouTube and just, just, Joe is having, there's like a third podcast going on just in Joe's face. Joe's face throughout this entire answer. is like the third guest on the podcast. I can't say this one though. I have to text you. Oh, dear.

But anyway, yeah. Oh, is this going to be, is this going to be not safe for work? Yes. Not safe for podcast. Not safe for podcast. Yes, exactly. So if you break that, you've pretty much broken everything. And if you don't have an investment policy statement, by the way, this is the place to

start, Paula. Start with. I'm only going to touch my. portfolio on this day. This is it. This is the only day that I'm going to do anything. That's a powerful investment policy statement for 90% of our audience because you're used to doing it when you're paying attention, which is some rando day that you happen to look, right? Either Schwab sent you something in the mail, Fidelity sent you a text, whatever Vanguard sent you an email and you go, oh yeah, I should look at that now. So it's random anyway. So just unrandomizing that day and making

at a set day. And the cool thing about that set day, too, that I love, look at all the geopolitical risk that we have right now. Look at all the inflationary risk we have right now. All of these things that make you want to make changes. And your brain keeps telling you today's the day. Today's, I got to do it today. I got to do it today. Well, if you pick a day in the future and you don't know what the geopolitical situation is going to be that day, you don't know what inflation is going to be that day. You've no idea what's happening in the stock. market that day, you give all that away, which is 100% what we need to do to be successful. We've got to give all that away. If we give that away, and instead, it is a randomly chosen

day that we chose before we knew any of the headlines, our decision making gets incredibly better immediately, gets way better. The risk, though, remember Liberation Day back in April when the tariffs were announced. And remember, there was a big market tank that happened right afterwards. And we got inundated with messages from people saying, what do I do right now? And so oftentimes, particularly when something sudden and severe happens in the markets, people will break their own policies and say, I need to take action immediately in response. We have a great YouTube video we just put out called Stock Market Maestrosse with a couple of. Oh, yeah, yeah. Claire Flynn Levy. Yeah. We're interviewing her. That's going to air sometime.

Our video with her and Lee, we talked through this. And Claire even said the big problem among pros, Paula, isn't that they have an investment policy statement. It's that they never use it. They never look at it. The true maestros use their investment policy statement. They stick to their investment policy statement. And that is a clear indicator between winners and losers. And, but, you know, pros don't react. The top pros do not react. They have a methodology. And if things fit their methodology, no matter what the circumstances are, they act, but it's not a react. There is no reaction to, I got to do this. You don't have to do anything. You do what it says in the manual you built during calmer waters. In order to do that, I think most people who are listening to this understand

that in principle and understand that in theory, but to actually execute it in real life, in real time, the behavioral component is so challenging. And that's where I go back to the principle of substitution. You need something in your life that will take your mind off it. It could be a hobby, pickleball painting, learn a musical instrument, join a band. It could be a hobby that takes your mind off it, learn how to kayak. Or it could be some other form of money making, whether that's something like trading with a very, very small portion of your portfolio, that keeps your brain active and engaged and it keeps you doing things, but it's confined to a small portion of the portfolio, or it could be some form of entrepreneurship,

some type of a side hustle, some income generator if the thing that's moving you is wanting to be able to pull that lever. And it doesn't have to be a side hustle. It could be your main job. I mean, how many people have not asked their boss for a raise? How many people have not done the things that their boss has already told them, hey, you could move the old company forward. Maybe that'll help your, whatever, your bonus next year, whatever it might be. It could be your main hustle that you work more. Yeah, it could be. But I think for the purposes of not tinkering with your portfolio, your brain needs to be fully engaged. And when you have complete autonomy over a thing, then your brain can engage with that thing more because you don't have the constraints of, bureaucracy confining what you can do. And so that's why, you know, if you can own something and you've got total autonomy, again, that's why I love real estate, you have the pure decision-making authority in that domain. And that means your brain can really start to tinker with that if you want it to. No matter which one you pick, Matt, I like all those. I really like all those. And I really like starting with having a more cohesive investment policy statement.

You've listened to a lot of stuff. You've heard all the different voices. Now put it into action. But I think the way to put it into action is in a way that won't scare you so much, which it clearly does. Or you wouldn't have called us and go, what do I do with all this? I got all this. Put it into an investment policy statement that makes a lot of sense to you.

Pick a day and then begin operating that machinery. And by the way, and start off with your investment policy statement being very, very light. In other words, just one or two. things. Don't make it super detailed, 26 different things you're going to do on that day. Just start small. And then if your machinery's acting the way you want, then either continue it or add a line. But add stuff at your own risk. Right. We should do a workshop sometime on writing an investment, an investment policy statement. Show of hands. Would people be into that if you are? shoot us an email if you subscribe to our newsletter.

Just hit reply to any of the newsletters that you've received and let us know if that's something that you would be into. If we get enough response, we'll go for it. Matt, thank you for the question. Matt, I realized we didn't actually address what the asset allocation should be. But I also get the sense, I don't think we need to necessarily deep dive into that. You heard us talk in the previous question when we were talking to Karen. We talked about Joe talked about 50, 30, 20.

I talked about Paul Merriman, the four-fund portfolio. And you strike me as somebody who's in this space enough that you've heard a lot of the arguments around various asset allocation feces. So for you, I think it's less of an informational gap and more of a behavioral one, which is why that was where our answer focused. But thank you for the question. And thank you for inspiring such a lively discussion. We're going to take one final break to hear from the sponsors who allow us to bring you this show at no cost to you. When we return, we are going to hear from Kate.

Kate and her husband are in their late 30s. They've got about 100,000 saved for retirement. They live in a duplex, their Airbnb one side of it. That covers their mortgage. They are thinking about some entrepreneurship ideas. What should they do next? We're going to tackle that right after this. Instacart makes grocery shopping easier.

And just because you're not doing the shopping yourself doesn't mean you don't care how it's done. With Instacart shopper notes, you can get particular about what you want right in the app, like rotissory chicken that's extra crispy, cheddar that's sharp as your skates, and lettuce you to actually pick yourself. Just leave a note for your shopper so they can get it right for you without having to ask. That way, you can get groceries just how you like. Download the Instacart app and shop today. Welcome back.

Our final question today comes from Kate. Paula, this is Kate. I need to ask you this question. I think you're the best one to answer it. My money situation is me and my husband are in our late 30s. We have minimal money saved for retirement, about $100,000 between us. My husband is going to receive a raise later this year. And we are going to put that towards maxing out both of our Roth IRAs.

every year until retirement. So we do have a plan manifesting in saving more for retirement. I am mostly a stay-at-home mom, but I do some personal training on the side. I also rent out one side of our duplex is an Airbnb, so that pays our mortgage. We sold our other house to move into this duplex, and we have a surplus of money. So we have about $35,000, and we're kind of agonizing about what to do with it. We have talked about two options and maybe you can think of more, but the two that we've mold over in our mind and thought about are A, doing just lump sum into an index fund and just letting it marinate there until we need to withdraw in many years. And then the second is kind of the small business entrepreneurial option, which would be that I would build a gym in

our side yard and take clients in that gym. that would allow me to probably make around $5,000 a year, which would, you know, I think be more than interest in the stock market. The real benefit to this is that right now I go to a gym myself and I do a couple classes, but I take my kids with me and they go into a daycare in which they get sick almost every single time because everybody takes their kids there and they're inevitably sick kids. We're perpetually sick in the winter months, mostly because of this little daycare area. And it really kind of impacts our quality of life.

I mean, we try to stay away as much, but I can only lean on my other child care options so much because I do work a little bit there. And then I do really enjoy working out as does my husband. So by building this gym, I could probably pay for it with my proceeds as well as keep my kids out of that daycare, at least for. for the winter months and be able to kind of pick and choose who they're socializing with so that it's not with sick children, but with well children so that we don't get sick quite as much and we can enjoy more of those winter months and miss less work. Anyways, you can tell that that's the option that I'd really like to go with, but I'm worried that it's a rash option because like I said, I'm kind of the entrepreneurial type and

I really like to go for stuff. But in this case, since it's kind of our 35,000 that we're last kind of expendable $35,000, I would really love your input on this. So thank you so much for your time. I look forward to your answer. Kate, thank you for the question. First of all, congratulations on everything that you're building. You are investing in the market. You bought a do. I love, can we get a round of applause for the fact that you bought a duplex and you're renting out one side of it and you're using that to cover the mortgage? Like round of applause, this is how it's done. I love that. I absolutely love your living situation.

I love what you have done by making housing affordable through the beauty of house hacking. I am such a house hacking advocate. I'm here to spread the word about house hacking and how much it can improve your life. So huge kudos to you for using a house hack to pay off your mortgage so that you've got some great cash flow that you can invest and use to build your net worth and to live a better life. So let's address your question. What I hear is that there are two problems that you need to solve. There's the problem of your kids getting sick at the gym daycare. And then there's the question of how do we invest this money?

and I worry that we're conflating those two questions. So I want to address each of those separately. And I'm glad you brought that up, Paula, because I thought there were two different things going on as well in this question. One is what you want to do with the money. And I also feel like the entrepreneurship piece in some ways is to justify what you want to do with the money. Yeah. Which, I frankly don't think you need to do that. I think it's the best use of money is to have the gym at home and it makes your lifestyle better today. All I would do is weigh out what does that mean the tradeoff is in the future? And I think that tradeoff might be wonderful. The issue I have with the entrepreneurial piece, though, is pretty big. And we can get into that after I think we hear what you were thinking.

Yeah, I don't, well, with the entrepreneurship piece, I don't hear any type of a market analysis behind this. I don't hear, I don't hear you say, and maybe in the span of a voicemail, you just didn't have the time to say it. But I don't hear you say, hey, I've taken a look at the offerings in the area. I've taken a look at the demand in the area. I've had 20 meetings with people who run home-based exercise businesses within a 50, mile radius of here. I've had 20 coffee meetings with similar people who would be quote-unquote competitors based on all of those meetings and based on looking at the demand and then based on looking at what the insurance requirements are and the liability associated with it. And based on looking at some of the most effective ways to advertise and promote, based on all of that research, I have come to the conclusion that this is a viable route. Like I don't hear that. being done. I don't hear this being treated like a business. I hear that this gym is something that you want and monetizing it would make you feel better about spending the money.

Yeah, you feel more comfortable with it. Yeah. The issue with entrepreneurship is it can suck the fun out of this gym 100%. That's the first thing. Number two is, is that the runway to profitability is far longer than new entrepreneurs think. Number one is if you think it's going to make 5,000, we need to cut that in half immediately. It's going to be, it's going to make you 2,500. Oh, it might lose you. I mean, one. Oh, 100%. Because you're going to need scheduling software. You're going to need insurance. You're going to need, I mean, there's structure and scaffolding. You're going to need a website. You're going to need probably an assistant. At some point, you're going to need to hire somebody to help you with the managerial, the day-to-day operational tasks.

once you spend on all of those administrative and operational overhead components, would you be okay with this gym if you lost $5,000 in the first year? And the amount of time that you're going to put in, every entrepreneur will tell you you need to $3X the amount of time you think you're going to spend on it. Right. You're going to spend a lot more time with a lot less profitability, getting it off the ground. You also need to take the runway to profitability and also $3X that. because it's going to make money more slowly.

It's going to make less money. And it's also going to be a time suck, especially when you start out. Because starting out, you really have to, you have to grind if it's going to be profitable. You have to. A new entrepreneur. Now, that's not the end-all be-all. A big problem with entrepreneurship later on for a mature business is often the entrepreneur is still grinding and they need to actually instead build systems and trust their people more. But that's,

that's phase three, right? Phase one is entrepreneur is salesperson, fitness expert. It's like five different roles. Marketing person, infrastructure person, hiring manager, HR, function, tax, bookkeeping. It's all your job. A hundred percent your job. So when I heard entrepreneurial piece I didn't like it. Yeah. I really, I didn't like it. And again, there simply may have not been enough time in the span of a few minute voicemail to express the due diligence that may or may not have been done. But I heard no indication of due diligence being done.

And when a person has a business idea, but I don't hear any diligence behind it, I'm immediately, that's a big red flag. that goes up right away. And I think the temptation to monetize the thing that you want, it's a psychological method of making yourself feel better about the cash outlay, feel better about the spending. But the reality is, dollars are fungible. A dollar is a dollar is a dollar, no matter how it's earned and no matter how it's spent. You do not have to monetize the thing that you want in order to justify that thing.

you can monetize something completely different and use that proceeds from that completely different thing to purchase the thing that you want. You know, the fact that you live in a duplex and your Airbnb being the other side, perfect example, right? Like in that case, sure, half of your house pays for the other half. So it's a one-to-one of half of one asset pays for the other half of that same asset. But let's imagine, let's fast forward 25, 30 years into the future when your house is paid off. The income from that Airbnb will pay for your groceries. It'll pay for your clothing. It'll pay for your trip to Disney World.

Right. So the proceeds from a given asset don't have to pay for expenses related to the same asset. It's a mental bucketing that we like to do, but it's unnecessary. And so if you want to have a home gym, you don't have to monetize that gym. You can monetize anything that you think would be worth monetizing, which is to say you could build a business around anything. And maybe, I mean, I don't know, I haven't done the diligence. Maybe in your location a gym would be a great thing to build a business around.

I don't. The point is, I am not aware. aware of any diligence that has been done and therefore I cannot state whether or not a gym would be a good idea in your location given supply, demand, logistics, liability. I don't know what that looks like. And on the surface, just doing a little bit of math, you know, when you talk about hiring an assistant, building the business, if she just wants it to be what's called a lifestyle business, Paula. It very well might be within her reach. $5,000 a year is $416 a month. She gets eight people to pay her just over $50 a month to be their workout coach and to come to her gym. Those might be

friends of hers that trust her more than other people. But that's top line revenue now. Yeah. She still is going to need to look into liability insurance if somebody gets hurt. and her premises, she has to have that, just the simple cost of running a company, there's going to be hundreds of dollars, if not maybe $1,000 off of that. But I'm not saying it may not be as complicated and difficult as we're making it.

I think it's more just the fact that I wouldn't be justifying the gym to have it. Well, and if she's got eight people, she's going to need, she's going to need a quick book subscription. She's going to need a like a savvy cow or something in order to manage scheduling. She's going to need a little bit of sass here and there. Nothing major.

No, I do think a thousand of the five thousand goes away though. Yeah, yeah. A thousand of the five thousand. And with eight people, sure, maybe she starts with friends of hers, but there's going to be inconsistency, right? People go on vacation. People move away. people join Soul Cycle and decide that they don't want to do this anymore.

And so in order for her to consistently have eight people, she's going to need to be marketing and selling. All the time. All the time, all the time, all the time. If you are not constantly growing top of funnel, then you are shrinking. Which also ask most entrepreneurs. Some entrepreneurs really love marketing, but for the vast majority of entrepreneurs, marketing is the grind. Right.

Especially if you're in love with the activity. If you're in love of the activity of teaching people better fitness, marketing's a grind. If you're in love with running a business, marketing's not so much of a grind. Right, right. But there's also expense associated with it, right? That's where more operational overhead and eventually more members on the team comes in. Oh, you're talking about cost of client acquisition. Yeah, exactly.

Yeah. That's a great metric for business owners because you're obviously trying. to make the cost of finding a new person go down. And often a mistake that you and I see, we have had people, small business owners pitch both of us, Paula. We've talked about this before to market their business on our podcast. And I've told people on my end, you should not be marketing this way. This is not at all what I would do with a business your size. Now, you go and you look at advertisers on stacky bedgments and I'm sure advertisers don't afford anything of the same way, a company like Quince that's on your channel and on mine, it's perfect. It's the perfect

size company. But you and I were talking at one point to a coffee manufacturer, you know, it sure felt like a startup in somebody's basement. I don't know that to be the case, but it was a really small company. And it's, it's so hard. I believe they're out of business now, unfortunately. they did make great coffee. If you're interested in the life of a startup entrepreneur, I'm going to mention a book that I've mentioned before, not the one you think, Paula, but the other one. Is it the goal?

No, no, the goal is a fine book. I thought you were going to say the e-myth, though, because everybody knows that I love that book. Yeah. But it's a book that I mentioned here before, but less frequently, but that I think all new entrepreneurs should read. It's called Grind, speaking of coffee,

and it's by the creator of a five. chain in the Midwest called Big Bee Coffee. Grind is a great book about what it takes to begin a company. Fantastic book. And I love the double entendre of the word grind for a coffee company. Yeah. Great read. He's a fun storyteller and he makes you realize what it's going to take, especially on that marketing end. And you know what the best marketing is, by the way? What's that? Have a great product that people want more of. Yeah. And often new market get so obsessed with the perfect marketing campaign, they forget that if you just make the product better,

then your customer becomes your marketer. Right. But making the product better, that is also expensive. Product development is expensive. Product iteration is expensive. It's all expensive. Well, and look at how the game changes too, Paula.

You and I using tools now that we weren't using two years ago, just because the game has changed. Yeah. Yeah, I look at, you know, your first rental property. And the costs, just the overwhelming costs of iteration, product development and product iteration and support. There's a lot. There's a lot under the hood. There's a lot that goes into it.

I think it would shock a lot of people. Anyway, I don't mean that, Kate, I don't want to dissuade you. But because I think that entrepreneurship is, obviously, Joe and I are both entrepreneurs. It is a wonderful, wonderful life path and a wonderful way to spend your time, way to engage your brain, way to leave a legacy, way to impact people. I can't say enough good things about it, but I fear that you want the right thing for the wrong reasons. That's why I started this by saying I hear two questions.

I hear how do I keep my kids out of this daycare where they get sick? and then I also hear the question of how do I invest this lump sum of money? And it seems like the question that you're really trying to solve is how do I keep my kids out of this daycare where they get sick? And if that's the question you're trying to solve, let's solve that question, right? That's very different than, is this a viable business? That's such a different question. But Kate, here's what I would say, because you did describe yourself as naturally

entrepreneurially inclined. And I want to be clear, even though it sounds as though Joe and I have both been discouraging of the idea, I am not against the idea of spending this on building a gym that you would monetize. I simply don't think that there's adequate due diligence to be able to evaluate this idea. So I want to see you spend 50 hours doing due diligence on the the idea. I want to see you have 20 meetings with people who run similar businesses within a 50 mile span of where you live. I want to see you put a plan together and it doesn't have to be some big formal fancy plan. It can be handwritten notes, but I want to see you put a detailed plan together with how would you market and how would you acquire clients and what would be your

tech stack. And once all of that is done, you'll know. Like, you will know if this is a good idea or not by the time you go through that work. That's my homework assignment for you. Go through that due diligence exercise. And at the end of that exercise, you're going to know the answer. And maybe it's a great idea. Maybe, I mean, maybe it's, you're entrepreneurial inclined. You have already had experience as a personal. trainer. Maybe it's a perfect fit, but only the due diligence will tell us that. So thank you, Kate, for the question. And please, after you finish your homework, after those 50 hours of diligence, call us back and let us know what the outcome of that diligence was. Actually, let us know the process. Walk us through the process that you went through and then let us know what the outcome was. Joe, we've done it again. I can't believe we did it.

again. Wasn't that when I previewed, I said these were going to be great questions. These are fantastic questions. And I think that all three of these wonderful people, Kate, Karen, and Matt have questions that I think a lot of the afford anything audience has. Yeah, it was a great representative sample of what's on people's mind. Well, Joe, where can people find you if they'd like to learn more? Well, I think a great place to find us because of the fact that if you're familiar with stacking Benjamin's and afford anything that Paula and I generally have a great one to punch when it comes to interviewing people. We have a very different questions. We have a fantastic YouTube video that I think will probably, just knowing you, Paula, go really well hand in hand with your

upcoming interview with Claire Flynn Levy, which is her and her co-host, Lee Freeman Shore. They all have hyphenated names, which is why I like them so much, the three of us together. We have all the hyphens. But not only do we have a great YouTube video at the Stacky Benjamin's YouTube channel, we also have what we call a cheat sheet, which is all of the lessons that you learn in the video that you can download. We tell you how to do that at the beginning of the video. So go to our YouTube page and look up stock market maestroes,

and you'll see my conversation, which I think will be a nice lead-in to probably some of the grittier questions that I'm sure you're going to ask Claire when you guys have your upcoming talk. Yeah, when Claire and I talk, I kick off the conversation by asking her about being a fund manager in 2008. Yeah. Boy. Right. I did not ask that. I did not ask that.

We talked a lot, though, about investment policy statements. We talk a lot about that. And I did not ask that. See? Yeah, there we go. It always is a great one. People, I hear this all the time when I talk to people in our community. They're like, I love listening to the two of you interview people because they're so different.

And they're very complimentary. Excellent. Well, thank you, Joe. If you are listening to this on the day that it comes out, Tuesday, May 19, tonight, we are hosting an open house. It is at 8 p.m. Eastern, 5 p.m. Pacific. We're hosting an open house where we're going to talk all about rental property investing. And we're going to show you the inside of your first rental property property, which is our course on rental property investing. It's incredibly robust. We're going to pull back. back the curtain, show you what's inside, talk you through the A to Z of the tools, the resources, the support that you will need if you want to be a successful real estate investor, rental property investor. That is tonight, Tuesday, May 19, 8 p.m. Eastern, 5 p.m. Pacific. You can sign up by going to afford anything.com slash open house. That's afford anything.com slash open house.

And if you are listening to this after that open house is over, never fear, you can still go to that link and it will lead you to a page that has loads of information about your first rental property. Our course is open for enrollment only for the next two days. We're going to close our doors on Thursday. So you've got 48 hours to enroll. So go to afford anything.com slash open house. If it's prior to the open house, you can sign up for the open house. you can sign up for the open house there. And if you're listening to this after the open house has happened,

you're going to go to a page where you'll learn a ton about the course and you'll have an opportunity for the next 48 hours, you'll have the opportunity to enroll. So again, afford anything.com slash open house, no matter what day you're listening to this, go there, because it will lead you somewhere good. All right. Thank you so much for being part of this community.

I'm Paula Pan. I'm Josalci. Hi. and we will meet you in the next episode.