Animal Spirits Podcast - Animal Spirits: Listener Mailbag

Episode Date: May 23, 2022

On today’s show we answer questions from the listeners on Roth IRAs, HELOCs, budgeting for home improvements and more with some help from Henry Yoshida at Rocket Dollar.   Find complete shownotes on our blogs...‍ Ben Carlson’s A Wealth of Common Sense‍ Michael Batnick’s The Irrelevant Investor‍ Like us on Facebook‍ And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.‍ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits listener mailbag question and answers brought to you by Rocket Dollar. Rocket Dollar is a place where you can go for self-directed IRAs. Go to Rocket Dollar.com to learn more. And as always, you can go get the Rocket Dollar Guide to Self-Directed Retirement Plans and I'll link to our blogs. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Batnik and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholds wealth management may maintain positions in the securities discussed in this

podcast. Welcome to Animal Spirits with Michael and Ben. This week we are emptying out the inbox. Got a bunch of questions for people as usual. Remember, Animal Spiritspot at gmail.com. I was just thinking, I wish there was a way to chart the sentiment of our questions over time. That's true. Which, by the way, guilty.

I feel the same exact way as the audience. But on the way up, it's why shouldn't I use leverage? What's it been on the way down? We actually credit to our audience. We have had very, very few, actually zero. We have had zero panic emails. No capitulation yet. Our audience does not capitulate.

One of the people who sent in an email about should I invest in TQQQQQ That's the, what, triple-leveraged NASDAQ 100? Down almost 70%. He said when it's down 80% he's going to get in. He's a buyer still, I guess. He asked us about that. He said he's still going to stick to it even though he didn't get in the first time. Okay.

All right. 34, unfortunate to have received a bit of a windfall recently, enough that if we so decided, we could completely pay off our mortgage, which is 2.99% at 30% are fixed. I tend to be very strongly against this idea, but my life is very risk-averse and it would bring her a lot of comfort knowing we no longer have a mortgage in our early 30s. I get it, but I'm a number of... die and would rather put the money to use elsewhere in the market. We could be completely debt-free, which I know the huge milestone for her and I get it. As a compromise, I'm thinking we pay off

the mortgage completely, but then open to HELOC for several reasons. First off, good to just have that line of credit for the unknown. Secondly, we use it to front load and max out all of our tax advantage retirement accounts, IRAs, and stuff. And then I would almost even consider using another chunk of it to throw into a taxable account as well. I'm thinking this is essentially what the ultra-high net worth folks do with the margin loans. Obviously, this is a bit riskier and the rates will be higher, but still, am I thinking about this correctly? What am I missing? Do people actually do this, Andrew? Okay. Hang on. I wonder when this question came in, because there's no way that you would pay off a 30-year mortgage under 3% and then borrow at 6%.

Actually, this is the type of questions that only happened on the way up. Well, if this came in a few months ago, it would have made sense. Not to brag. Our inbox is pretty full. We've been some type of backlog. This shows how quickly it happened. But here's a thing. I like the idea of compromising. would have a very, very hard time letting go over 3% mortgage right now. Nope. Rates above 5% inflation is at 8%. 3% mortgage is if you have that and you lock that in, I would do everything in my power to hold on to that.

Now, what if you wanted to go a little further with a compromise and say, we're going to take 50% of this and pay down our debt? And then we're still going to take out a HELOC to use as a backstop. But I want to keep the rest of this in cash because what's the point of paying it off and then going back to the HELOC and then taking it out again? it seems like a step that what's the point if you're borrowing through the HELAC or barring with a mortgage. Either way, it's borrowing. How about this? Listen, I understand where you're coming from. This is not the right financial decision, but sometimes there are things that are more important

than money, like peace of mind. So I get it. So what we're going to do is we will pay off a quarter of our mortgage. Do a piece of it. But that 3% mortgage rate, I don't think you're going to regret holding on to that. That's my thought. Can you sell your three percent mortgage on the blockchain? That'd be amazing if there was a secondary market for more. Can you imagine what people would pay up for a three percent mortgage right now? Not bad. Five percent? Four percent. All right. 37 single no kids, no debt other than 17K on my car. Make $12,000 a month for taxes. Not to brag. Max out 457B. Own a rental property in California with about 140K in equity. Goals paid off in 20 years, about the same time I retire.

Got approved to purchase a new home. Say the name of that city for me. San Luis Obispo. All right, there's no way. That's like Polo with Dada for me. That's not going to happen. This market is insane. Everything going for 50 to 150 over asking.

New home is about 799, which is 1 to 200 under what older homes are going for. Side note, it's a condo. A condo that is just 7 years old sold for 18. So I was going to put 25% down. Monthly payment will be high to start with current rates. So need to rent a room. Airbnb are room for a few years. I will make 20 to 30% more than a coming years with fixed raises, the perks are working for the government. What are your thoughts? Should I wait and see

if the market dips a bit or rent and not worry about buying right now? You first. I've always had a problem waiting for the housing market to dip. It's just, it doesn't happen very often. Sounds like something someone would say at the peak. There's a difference between someone listing a price really high and then bringing the value back down a little bit because it's not selling or housing prices nominally going down. What's the Daniel Kahneman thing for people keeping their housing prices high nominally because they just don't want to sell for less than what they paid? It just happens so rarely. Well, but there's such a gigantic gap between what people paid and what they're listing it for. Yes, there is. I do think that we're going to know very quickly.

Listen, if where's the 30 year, it's five and a half percent? Just about. Five and four eighths? Yes. That's kind of cool off the market, no? We'll talk about this on animal spirits coming up. But I think even if it just stabilizes the market, prices are still so much higher. I just think, like, waiting for the dip, good luck. How about this? If you could buy a condo for 600 today, I'm making that up, or you get a better opportunity to buy the same condo for $5.65. Does it really matter?

Exactly. Your monthly payment is not going to be that much different. Yeah, it's not like you're making an all-cash offer. And this is a long-term investment. So I say, find the right house and pull the trigger. All right, Ben said in the latest podcast, he's done with individual stock. I'm feeling the same way. The main reasons being I don't want to spend the energy, watch my individual stocks every day anymore,

and I'm probably not going to do the market long term anyway. I was wondering if you guys could talk about strategies for exiting individual stocks and moving the money into index funds all at once, gradually. This is like a trust-the-outcome type thing. Don't trust the process. There's no process. By the way, I've seen a lot of emails and comments lately about people saying that they're retiring from stock picking. This whole or deal, this last 18 months or so they will.

But there's a lot of people who are like, no way, I'm done. it. Here's the thing. Obviously, we can't give individual advice. Nobody knows where the market is going to go. All I would say is that the market's going lower. So, hear me closely. I'm just saying, today the market is in a downtrend. That is undeniable. I'm not saying the market's going low over the next 30 days. I don't know. Index funds are in a bare market. Individual stocks are in a depression right now. Yeah, I mean, the probability of stocks going lower when they're trending down is higher than when they're going higher. Staying the very obvious. So I don't know that there's a dollar cost out strategy, like a dollar cost exit average. I would just say,

what do you do? Well, first of all, you think through the tax implications, but I guess right now maybe it doesn't matter because you have losses that you're sitting on that could offset any gains you might have. I'm guessing a lot of people are sitting on losses. I like the Band-Dade approach. I'd say just go, if you're like can't stand owning stocks anymore, just get rid of them. Is there a way to programmatically sell like dollar cost averaging bit of reverse? I'm sure some platforms have to have that. That's a good question. I don't know. There's two ways to do this. Either sell it all today or put on your calendar that over the next 90 days, I will sell a third every fourth Thursday of the month. But you got to have a plan.

Don't just wing it. All right. Well, U.S. historic stock market data clearly supports buy and hold investing with more and more advisors touting international developed and EM allocations as part of a certified portfolio. Do international markets follow the same historical pattern of buy and hold working? Japan and Spain look pretty bad, but Germany or France seem better. I just want to put this out there. my new rule on Twitter is anytime someone earnestly replies with a now show Japan I block them if it's not a joke I'm gonna block

I can't take it anymore anytime I read about buying hold or long term investing yeah but what about Japan block that's it what's the credit suisse thing every year of the yearbook yeah what are the guys names

hang on oh ooh is that like a triumph of the op Denson and Swenson Triumph no Smarshita Dotson what is it that just sounded like names you made up for like anchorman people what is it i'm looking dimson and sampson dimson and marsh so they've been doing the first book they put

it's like triumph of the optimist and they look at every country's stock market going back till like 1900 and there are the outliers of like russia's stock market shut down in the early 1900s didn't open again until like the 1990s or something. China is awful. Spain, not great, Japan. But most of the stock markets around the world, buy and hold investing tends to work. And I think you're never going to get at zero percent or 100 percent in markets. It's always going to be somewhat in the middle. And the probability for buy and hold working is way higher than anything else. It's also, I wrote this this week, it's the worst form of investing except for all the others. What else is there? Well, I heard Truddy.

individual stocks in France is really easy. Yeah, right. Name one French company. Total. Okay. That's the only I need to do. I have a basic question about dividends from equities. If I don't need the dividend income, should I reinvest the dividends or sweep them out? My concern with reinvesting dividends is that I'll be taxed on money. I will not see. And stocks can go down, as we see now. On the other hand, if I retain the dividend, I still pay tax, and then what to do with the cash. Yeah, just reinvest. It's the simplest thing to do.

Don't overthink it. And that way you can be a total return kind of person. All the long-term returns you see are total returns. No one uses price return. That's dumb. Total returns, that's it. Dividends reinvested. It's just easier.

The only people who use price returns are the ones that are trying to compare the S&P to commodities. Yes, exactly. To make a bad point. Chart crimes. We got a lot of housing ones this week. saved cash over the years for a down payment in 2020 and 2020 and 2021, prices don't like crazy. So we couldn't do a 20% down payment. It had to wait and save more.

Time out. Isn't this such a win for the your cash for your house belongs in cash people? Oh, big time. Yes. And not grow stocks or something else crazy. Yeah. I saved for my whole down payment in Luna. Sorry. Now we can do 20% but stocks are falling and housing is still expensive. We are in the Bay Area so it's actually insane. We have started buying the dip. But if we keep buying more stocks as they drop, we will end up dipping into our house down payment and an emergency fund. So we are not sure what to do. I know stocks are probably going to give higher returns over the next five years than a house in the Bay Area. But emotionally, house buying has been on our list for a while from Mr. Fusion, what to do. Unless this is a rental property that's

purely from an investment perspective, I don't see how you can compare buying a house to buying stocks. They're not even in the same ballpark because one deals with your personal finances and where you live in the roof over your head, and the other one is a portfolio that doesn't provide those same things. Like, I'm sorry, but you can't sit on the back deck of your Apple shares to look out on your kids playing the lawn or something. It's a completely different equation between personal finance. There's apples and farce.

Yeah. So if you want to buy a house, don't worry about what it's going to look like. That's a problem with a lot of people is trying to do that comparison to your portfolio and what it's going to do, your house is probably not going to be a wonderful investment if you make it today. But if it gets you the psychic income of a place to live in a community, in the school system and neighborhood or whatever, and you're happy there, that's why you buy a house, not because it's going to be a good investment. All right. My wife and I bought a home a few years ago, and now we're ready to start getting around to all those larger house projects. We currently budget 1% of

the home value for annual home maintenance. Oh, that's interesting. I've never heard before. I read this one. And honestly, that's a wonderful idea that probably 99.9,000, 9% of homeowners do not do. Credit to Adam. This is a great idea. That's a really good idea, yes. All right, let's call us the 1% rule. All right, the problem is some of these projects are bigger than the 1% maintenance.

Oh, shit. Residing the house, new kitchen. Yeah, siding is expensive. How do you budget for these larger projects? Draw from our savings. If so, how much of a percentage is a good to draw from? Are there any RRI calculators? Nah, there's not a math thing.

This is exactly what home equity line of credit is for. you're taking money out of your house to make your house better, then you can use that interest as tax deductible. This is the perfect reason for Helock. And if you've been in your house for a few years, it's probably gone up in price a little bit. Well, they said they bought it a few years ago. So, yeah. So I'm saying if you pull the money from your house and put it back into the house, that's exactly what home equity line of credit is for. You're actually literally using your house as collateral. It's a perfect reason for it. I wouldn't even think about going into the savings. I would Heelock this. How come home improvement people don't get back to you?

is that a national thing? I feel like it is. Now, here's a question. Do you use the first person that comes or do you get estimates more than one estimate? We've got a crew of people. Okay. What are you doing now? I have to paint because I had a bad leak. I have like lines in my ceiling. It just looks awful. You have lines on your ceiling and lines on your TV. Exactly. It matches perfectly. What else do I need to do? I need to do something in Logan's bedroom. But anyway, I can't, neither of them are calling us back. That's because they're so busy and they can just basically just do whatever they want. We had house painters come in. and we called them and they were like two days later. We're like, we have an opening for these two days. We're going to be there in two days. Like, okay, fine. So here's what we did. We moved all our stuff in the basement. And then we ended up moving some stuff around and putting stuff into different bedrooms and places. In our basement, not to brag, it's got a decent amount of space. So we have a big L couch there. But it's almost like the size of the couch. It's either got to be

on the wall or cord in the middle of the room and it doesn't fit right. The room is a little too big. Here's my dream. Okay. I've laid this out to my wife. Since I don't go to the movie theater anymore. I want to buy those movie theater lounge seats and make the basement a mini movie theater. What do you think about that? Oh, they sell those. Yes. I want to buy some. I want to buy two rows of movie theater seats and have a mini theater in my basement. What do you think? That's a great idea. He lock it. That's what I'm saying. All right. That's my dream. We have two children who are college undergraduates, both with designs on graduate school. They are fortunate to have family fund the 529 plans with balances that should cover their foreseeable costs.

When I were oldest start of college, we just paid all the tuition room and board with 529 funds. Now I'm thinking it would have been beneficial for them to obtain student loans and pay them off to build credit. Also, there is so much talk about student loan forgiveness, either as an entitlement or through a public start. Two questions. Should they consider taking out loans for the benefit of developing credit scores?

Is it wrong to consider taking out loans because someday the government may erase them? Thoughtful question. If I'm thinking in terms of the kids, I would say, F you, mom and dad, I'll get a credit card. I don't want to build up credit for paying off student loans. You can go ahead and just pay those off for me because you can build credit in other ways, obviously. I guess that makes sense a little bit to maybe give them a little financial responsibility for what they did. But I don't see how you could build in student loans could be forgiven as a financial plan because I think if that ever happened, there would be so many

rules and regulations on it in terms of income from you or your parents or it's going to be cut off at a certain level. I don't see how you could ever use that as a financial plan. Especially if you already had the 529s funded. You did fine and you paid it off for them. Good for you. I don't know. Teach them financial responsibility some other way. Buy them one of my books. That'll help their credit score even more than paying off student loans. All right. 26 year old, $300,000 income. Didn't I just say to hand me that I was 25 and unemployed? Yes. All right. No hate. No hate. Congrats. All right. 26 year old, $300,000 income. 100K, 401K, plus some other savings.

I have a lot of financial planning questions, but a full service advisor is not the place to go. Where do I get these questions answered? Reddit? No. So there's a few options. Lift off. Go to Lift off.

I was going to say that. I was going to give another plug to someone else first and then back into ours, but lift off. So we actually have people who are younger advisors and then specialize in working with younger people. And it's not necessarily a full service financial planning sort of thing, but it's a person to answer questions for you, give you automated investment options. You could try an hourly financial planner from a place like X, Y, planning.

Yeah, they're all over the place. So you could try something like that if you're not quite there yet. There's many more options now than there were before. All right, let's guess. What do you think this person does for a living? They've either got to be in tech or finance, right? I was going to say Google or Apollo, one of those type of places. All right.

And now to answer some retirement questions, I think he's been on three or four times in the show, is Henry Yoshita from Rocket Dollar. We welcome back to the show. Henry Yoshida from Rocket Dollar. Henry's been on to ask to answer some questions with us before. We get a ton of one about retirement. So we're going to hit Henry with some again. Henry, welcome back to the show. Thanks. How's it going? All right. This one comes from Zach. Started buying VTI. And for those who don't know, VTI is just the Vanguard total stock market index fund. In my taxable account in last year or so, that position is obviously down right now. Does it make sense to sell from this position to finish funding our Roth IRA? Contributions to tax loss harvest. If I buy VTI and IRAs, is it correct that I am. I am safe from the wash sale rule since it's a different account. Thanks for all the free advice. So basically they're talking about selling in a taxable account and then buying in an IRA. So they want to know, does that make them free and clear from the wash sale rule if you do it in a different account? And I guess different here is even taxable or tax deferred. The IRS, we give them a lot of flack, but they're pretty smart. They've thought about this before.

So the wash sale rules actually follow the individual, not the account. So you wouldn't be able to immediately sell VTI, Vanguard Total Stock Market Index, and then re-buy it in the Roth IRA. If you're using the same brokerage, they actually have a software system that will track it most of the major brokerages that you re-bought within 30 days. So you would be subject to not being able to do it. But I suppose the way around this would be... Just buy a different index fund. Yeah, you buy a different one that's from a different company. You basically could just buy one tracking the S&P 500 index or something like that. It's 30 days. So the other thing is you could be comfortable being out for 30 days as well before making that re-buy. Just up.

to you, but you're right. It's an index fund, so you'd buy some sort of like index fund, but they would track if you did the exact same thing. I'm sure that I shares as a total market fund. Oh, yeah. I shares Schwab. There's a ton of them. Plus, the Russell 3000 is the same thing as VTI. I mean, the 500 is close enough. The 3,000 definitely gets you there. And you're still talking about super low cost. One, basically, four basis points versus the VTI. I think it's three. I would be a little more worried about regulators if you could do that from account to account that you could just do the wash sale and they didn't know about it. That'd worry me a little more, but that's good enough. All right, let's do one more here. I'm a 25 year old living in Manhattan and making $150,000 a year in total compensation. News to me, after an $144,000 of income a year, you're no longer able to contribute to a Roth 401 IRA. I bet that does surprise a lot of people when you get there. Historically, I've been contributing $500 a month with a $6k a year. Contribute $6 a year. Contribute $6% to my $401 a year. What are my options here? Do I put more into my 401k? Do I invest in a normal taxable account, do any financial engineering with a backdoor Roth IRA. I feel like I now

have $500 a month of money that needs to be invested somewhere. Well, first of all, hey, congrats, man. Being able to phase out of contributing to Roth IRA is like an adult right of passage means that it done pretty well. And I'm pretty certain that a lot of people that are listening and myself included didn't achieve that goal at the age of 25. So that's just pretty awesome. Yeah, that's not bad, right? That's awesome. I was unemployed. I did it for a long time. So I mean, I definitely didn't have that. 25, but you're right. And I like the idea. I think I'd probably go, you're doing the 6% match to maximize the free money coming from the employer. So step one would be that you could probably

lob a call or an email in to human resources and ask them about why they don't turn on the Roth 401k option, because almost all providers, like they can easily add that. It doesn't cost anything to the employer for adding that option. So that's one, but that's not going to be the immediate one. But I do like the option of trying to do the backdoor Roth IRA. You're already making too much. You're single. So this person said they were single, or at least they indicated they were single because they're using the single limit for the Roth, that over $68,000 is, I think, an income for 2022. You can't deduct the contributions to a traditional IRA anyway. So you might as well make the max $6,000 contribution. It's non-deductible. And then basically you can recharacterize that as a Roth. And that's that. Are you a backdoor man? I got to say, I'm too lazy to do it sometimes. How much work is actually necessary for the backdoor Roth? I give to my SEPIRA instead. And we have a Roth 401K.

I just use that all as that, actually. That's kind of easier for me because I like to keep things as simple as possible. So how much work is it for someone to do this once a year to reclassify? Well, it's not a lot when it's your individual brokerage account. I would actually say it's harder if you tried to do the mega back door like through the 401k employer if they didn't allow that option because then you're having to do like actual take money out in service withdrawals. But the thing is it's not that hard.

This person sophisticated, by the way, they're asking questions. They're very on top of things with their money. and they say, hey, look, I got this $500 worth of money that I've budgeted to be in investments and I want to be as tax efficient as possible with it. Take the one hour it might take per year to do it. We actually have one more here, Henry, that we didn't give you ahead of time. I thought it would be right up your rally since you deal with the private markets. So this is for, to me and Michael, but I think you can make some comments here.

Given your previous comments about valuations within private markets, what are your thoughts on companies like equities and equity B, secfi that are aiming to create a marketplace or accessible products for mainstream investors to invest in privately head companies? I'm curious your thoughts, kind of in general on the private markets right now, but also these firms. When do you think we start seeing some big markdowns in private companies? Like, how long does that process last? Because you're dealing with people who are investing in these self-directed IRAs. When does that happen? How much of a lag are we talking here? If these companies actually do some sort of event that requires them to mark the market,

so like a new round of funding or a recap of that stock price. So it's not on a day-to-day basis, moment-to-moment basis like you see in the public markets, but I've seen a lot of news that these markdowns are happening right now. There's companies that need to raise capital or there's companies that just raised their last round at a number that they're not going to be able to achieve so they're going to get marked down. And so you're going to see these valuations come down. But again, it's like buying any other investments, maybe on platforms like Equities and who we work with, not as much so with the other ones that you named that you might get some opportunities to actually come into these at lower prices because most of the stocks that are offered on these platforms

are actually coming from longtime employees. So that's actually the source. vehicle in a lot of cases. So you have someone who's got a lower cost basis than you that's willing to get out. Maybe you get a discount to the last round, which has actually happened quite a bit even prior to the recent drawdowns in the market. Michael and I were talking on this today, like if there is a recession coming, it could be worse for tech people than other people. Could you see some fire sale prices from people who just have to get out because they thought they were going to be making a ton of money from an IPO or something that's not happening and they may need to sell and get whatever they can get?

Or maybe they paid a higher price to exercise a stock and they're below that. So they're thinking that, hey, look, cut my losses, get half my money. I've already paid money to exercise it. I could sell for half the way I put in. I got a down payment on a house that I need to take care of and so forth. Do we think that we're going to see companies start voluntarily writing down their own valuation, even if it's not with the price around or even if it's not Tiro doing it because they need to attract and retain employees? And people know that you can't pay me an equity competent valuation. That's four times what's realistic. I think companies are going to start doing that. They're going to have to reprice options. And my sort of meditation dealing with

my own drawdowns in the portfolio is I've decided to sort of use first summer book, rereading the intelligent investor kind of calms me. It's Benjamin Graham kind of telling me not to sell out of stuff. We're at that part of the cycle? I'm trying to get ahead of it. It's what people like myself do to meditate. So reading that. But one of his like red flags for companies is when you see them repricing the stock options that are given to employees, that's usually kind of not a good, good sign. But I understand that you need to do it for retention purposes, because now you have that, let's say, component of total compensation, like the earlier question we answered, maybe a good chunk of that comes from the equity value that's given to that person, not cash compensation.

So if that is underwater and they don't see, let's say, a two, three year turnaround, they may blow out of there. And I'm going to guess that a lot of these tech companies that are asset light, they're very human capital heavy. And that's what they need to run their business. I'm a bet over my skis here. But the idea that employees can be underwater. water, don't they get substantial discounts? Aren't the options price very low relative to where currently trades? They could be, but remember, I'm talking about different types of tech companies. So if you're talking about maybe like the earlier part of growth stage versus maybe late stage growth, in some of those cases, they could have been priced pretty high. And they could be

underwater if a recap were to happen or if there was any sort of like you socialize that you'd be interested in selling in the secondary. So you could be underwater at that standpoint. But you're right. If you're in, let's say, the Seed Series A stage of the business, then that 49A valuation, which probably establish your strike price, is probably much lower than that price. But Series C, D, and so forth, which is where you're going to have the bulk because they're bigger companies, more employees, you may be in a scenario where they're upside down. So one of the conversation pieces I hear all the time now is just everyone talking about housing prices and how crazy they are. This tech issue where a lot of these companies are now worth

50 or 60 or 70% less than they were before, at what point does this? eventually hit like the Valley Palo Alto or San Francisco real estate market. Is that possible? Are people talking about this already? Well, I kind of feel like, I mean, they were getting, for the most part, an exodus before. So prices were inflated quite a bit, maybe heading into this, but you're right. I think that there's going to be just huge pressures of interest rates keep going up because you've got a lot of people that, or budgeting that, hey, look, I'm going to be able to get a house, 3% mortgage. I mean, 3%. 30-year fixed rate mortgage was available to someone with a 725 credit score higher a hundred days ago. That's not a long time in the grand scheme of

things. That number is 200, 250 basis points higher now. The calculus and the math on your monthly expected payment outflow is already been rocked in the last 100 days. Perfect. So Henry, we can still send people to rocket dollar to get your free guide to self-directed IRAs. Is that correct? That's correct. Yeah. And we actually added a new research hub too. So kind of talking about that people's attitudes are that they're still looking and very interested in alternatives generally, just as a ballast to the portfolio. And maybe for some people, think about it. Maybe it's an opportunity to get into investments that aren't normally available. They're being democratized through some of the platforms you talked about. But also, maybe it's a good thing to not see the values moving around

every minute of every day, too. Perfect. Thanks again, Henry for coming on. We appreciate it every time. Thanks a lot, guys. All right. I am 65 and just retired with about $3 million, mostly in equities. My approach over the past few years has been to keep. About three years of spending in bonds as a buffer for down markets. Now that I'm going to begin withdrawals, what's a good policy as to where to withdraw from? For example, I could withdraw some percentage from the bond buffer if the market is 20% off of its high. Otherwise, it's 100% equities. Likewise, it could rebalance to bring back the bomb buffer when the market crosses a higher threshold. Do you have any analyses or approaches that have worked well for you in the past? The problem with this type of thinking,

I like the idea of having some sort of if-then frameworks for how to rebalance. That's kind of the idea, I think, is that you let the markets tell you where to take money from. and you rebalance that way because that's the whole point of having an asset allocation is you have the allocation and then whatever you're a little heavy and you take it away from and that way you're not lighting up on something that's already down. I think the biggest thing is just to be flexible. You and I've talked about the 4% rule for a while. It's kind of funny. We had Wade Fow on the show with David Lau a few weeks ago on our talk of book and we got a lot of feedback on that. We have a lot of younger people that follow us, but also there's plenty of retirees who

like this kind of stuff and into the DIY. We got a lot of feedback for the 4% rule talk. Isn't that kind of surprising how many people appreciate that kind of stuff? The thing is, no one actually uses the 4% rule in practice. It sounds good, but like no one follows it to the letter of the law. There isn't one person that actually does that. You have to be kind of flexible, depending on because your spending patterns are going to change. So what do you think is reasonable? I think that it's reasonable to pull money from the better performing of the two.

If stocks have outperformed bonds, take it from stocks, take it from bonds. Exactly. I've heard another thing where someone will build up three or four years of cash holdings. And that's their buffer for when stocks are doing bad. Kind of a similar thing with bonds. But I think you have to have some sort of give and takes. You're not selling stocks when they're down. That's the whole point, that you don't have to sell stocks when they're down. What's next? Nine months ago, I rolled over 60% of my intermediate term treasury bond fund. That's the fixed portion of his 6040 portfolio, into an IRA for my 401K to take advantage of the 1.8% stable value fund. It worked out, and while I don't usually time the market, the Fed told us who's going to raise rates.

When they say they're done or rates reach 4%, I'll go back into my bond fund. Still leaves a large amount of money invested in my bond fund, however, just in case some exogenous event happens and people flee to the safety of bonds. Any thoughts on whether I should put the rest into the stable value fund or keep a portion in bonds just in case something terrible happens. happens. This is from Jeff. So here's the case for investing in bonds today. Rates are much higher than they were. We're talking close to 3% rates, depending on where you're investing on the yield curve. We could have a recession that could make rates fall. The market has already priced in

a ton of rate hikes. The market has done a lot of it for the Fed. Money could flood in to meet those higher rates from pensions and insurance companies and such. And I still think that there has to be a natural ceiling somewhere where the government cries uncle and says, we can't continue to pay so much in interest expense if rates get too high. That's the case for bonds right now. Are you saying that zero coupon bonds are a fat pitch? I'm just putting it out there. So this person, it sounds like, has a stable value fund. You get a set rate and there's no interest rate risk on it. If rates rise, you don't lose money. So this person has a little bit of money there and a little bit of money in intermediate bonds. They're diversified. I don't know. That kind of makes

sense to me if you have a little bit of a balance of both right now. Also, think about what you're trying to get out of the bonds. Is it current income? Is it price? appreciation? Is it a flight to safety if the market really rolls over? Or are you just happy getting 1.8%? It sounds like maybe you're splitting the baby, so not so bad. All about splitting a baby, that's a bad thing. Is that a bad thing in phrases and phraseology? Well, yeah. Is that the same thing saying split the difference? Well, split the baby was the story where you figured out who the real parent wasn't, the one who said split the baby in half. Yeah, let's do it. That's not a good person. So yeah.

Yeah. I think I used the one recently too. Question for your fine gentleman regarding position sizing. I'm new to the world of self-directed investing, but decided to open a self-directed Roth in 2021. Question is regarding the most optimum position sizing for startup portfolio. Is it best to say start a position at 5% of the portfolio or start positions at 1,000 regardless of the portfolio size? Or is this more of a question of my risk aversion and should I just go full Wall Street Betts degenerate? Blah, blah, blah, blah, blah. There's an old one. By the way, he also says, I want to say Michael has the world's greatest collection of sweatshirts I've ever seen in my life. Did you plant this one? What we should do in the future is we should start putting

dates on when these questions come in. That's a good point. So obviously the Wall Street bets degenerate thing is probably, do you think the Wall Street bets people, do they try to short everything now? Are they long energy stocks? You don't hear much about that anymore. I would say that whatever our answer is is not, well, let's just put it to it right. I doubt this person's trading right now.

Probably not. But do you think like the- But it's a good question nonetheless. Yeah. The position size and thing matters. So a starter position doesn't matter? Is there a good rule of thumb even? Well, here's the potential danger in just trading individual stocks.

what if you start with 5% that it goes really well true that's what happened with a lot of people for in 2020 it went way too well for people yeah and you're like passive why would I do that one person in this Q&A was trying to give up an individual stocks this person's trying to get started I think the position sizing thing is more what percentage of your portfolio do you want individual stocks oh interesting okay okay yeah 5% I'm saying that matters more than how many stocks you won. If you go all your money is in individual stocks, then the position size and things matters a lot. If you're just doing 10%, what's the optimal number of individual stocks to hold? I don't know. I mean, I guess if you really did the math on it, you could say 20 or 25 names,

but do individual retail investors really have the bandwidth to follow 20 to 25 names and really know what they're investing in? I don't know. I like the idea of having a smaller percentage of your portfolio and a smaller number of stocks. So you have 10% of your portfolio and you hold five stocks. So that's what you do. Spread yourself too thin. You have 3% of your portfolio in Shopify, and now you have 0.4% of your portfolio on Shopify. Something like that. Yes. And guess what? It did matter that much. Are you really going to be a stock picker for life? Or you're going to speculate? Most people don't fall in love with stock picking. Most people try it out. They dabble. And then they're like, all right, then they're done that. Because even companies like Amazon can fall 40%

and Netflix can fall 70%. And you realize like, oh, that looks way easier just looking at a chart of those when it happened before. Actually, living through it, I don't think I can do that. I agree. If this person is asking and they don't really have a plan yet, then they are speculating and keep it a smaller amount. That's what I would say. That's my way of looking at the world.

What's the last question? Hi, Michael. We're finally seeing the higher low trend you've been talking about. Is it time to buy? No or not. Explain to me the higher low thing. They attach to chart here. Okay.

I'm looking at, let's pull up the cues, for example. The NASDAQ one- What the higher low thing mean for technical analysis? The Q's bottomed. The low was, call it 285. We're recording this on Monday. That was on Thursday. So they bottomed on Thursday, had a big update on Friday.

Now they're down a tiny bit. Anyway, we have not seen a higher low. We have not seen a higher low. We've seen lower lows, right? We need confirmation, Ben. We haven't gotten it yet. And if you are going to use a higher low, that's also you're out, by the way. If you violate the prior low,

Sionara. See, this is why buy and hold investing is so much easier. Guess what? Of course. That's it. I don't have to think about Fibonacci's and retracements and trend lines. More fun for the rest of us. All right.

That's all I'm saying. All right. If you have a question, hit us up, Animal Spiritspot at gmail.com. Thanks again to Henry for joining us from Rocket Dollar, and we will see you next time. Thank you. Thank you. Thank you.

Thank you. Thank you.