Animal Spirits Podcast - Listener Mailbag

Episode Date: August 1, 2022

On today's show we answer questions straight from the listeners with some help from Rocket Dollar's Henry Yoshida.   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

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick 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 Ritthold's wealth management may maintain positions and the securities discussed in this podcast. Today's show is brought to you by Rockadala.

We're going to do listener questions. Okay, from now on, we need to timestamp these questions. I need to know when they were asked. It's important. It's important to the listener. It's important to me. Sean, you got it? Got it.

Start a little house cleaning. Oh, there we go. You said house cleaning? Yeah. That too. All right, so stick around at the end of our conversation. We get into some more of the personal finance. side that Henry Yoshida, CEO of Rocket Dollar, who happens to be a CFP, helps us answer.

All right, Ben, let's get right into the questions. Really enjoyed Josh's recent post on Bitcoin. See, I don't know when this was. How recent? I have no idea. In addition to crypto, I'm guessing it was old. In addition to crypto, you guys and Ben have talked about several other alternative asset classes, real estate, art startups, to diversify it from the stock market.

For a young long-term saver, what do you think is an appropriate percentage of the total long-term investment portfolio to allocate to these non-traditional investments, assuming the rest is in liquid equity and bond mutual funds and index funds. Thank you for the question. I would say at first, I don't know where a resting state might be, but at first you definitely want to start small. 5%. 5%. 5.10? Something like that. See what it feels like. Go a year, maybe two, without liquidity. See if you get any regrets. So anything else? Ben, what do you think? Yeah, I think keep it small, kind of like your speculative account. I think size it correctly, toe in the water. I think start slowly. I don't think there's any specific types of investments. It could depend on just

whatever you're interested in and what you think you can handle. But yeah, it's a completely different ballgame. Yeah, I guess in other words, if you think that you want to get to 20% of making that up, I wouldn't start out that way. And if you end up, you love real estate for whatever reason, it goes above what you originally stated. That's fine. But I would just start small, I'll dip your toes and see how it feels. All right. Next question. This next one's a Social Security one. I'm going to skip this one and I'm saving this for portfolio rescue because we are not going to be able to give the good answer on this one. It's about when to take Social Security benefits. 46. All right. Yeah, that's a Bill's sweet question. Yeah. My 38-year-old friend has a 2.8% 30-year fixed mortgage with roughly 24 years left and pays an extra $400 each month towards her principal. If she continues to pay $400 a month towards her principal, she has about 16 years remaining. So pay a little early, take off eight years. Not bad. Her house, has enjoyed strong appreciation of the past six years, about 85% according to Zillow. I told her I would slow pay the mortgage due to the phenomenal rate and significant appreciation and take the $400 a month and start diversifying to stock.

She currently only has a traditional IRA. What are your thoughts? That's right, Connor. It's good advice. It's pretty good advice from Connor. I think so too, especially if you don't have as much on the more liquid side of things than you are, is it house rich, I guess? Is this person she house rich?

Yeah, I mean, this just kept getting better and better. 2.8% mortgage. That's a win. Hold on to that thing for dear life. Think about this. The inflation rate is 9.1% right now. This person's mortgage is, what, negative 6.3% real? Beautiful.

That's pretty good. So when you consider what Ben just mentioned, along with the fact that her retirement accounts are on the light side, absolutely take a pause, redirect some of the dollars, especially in a bare market. Am I right? Yes. Get more liquid. You can't spend your house. My wife and I just sold a house and a high cost of. living location. Should we wait to buy the next one here? Or should we just buy and pray that we

can refi in the future? This is an interesting one because you could probably count on refinancing in the future, but do you really want to make decisions off of that, Ben? So it says they're close to San Francisco and they're renting right now. I have a hard time trying to time it like that. I think it just depends how much room you have. If you could swallow the five and a half percent 30 or whatever it is today. And it sucks because it was three and a half 18 months ago. And you say, you know what? Hopefully we get the opportunity to refine the future. That's one thing. But I think that if you're going to squeeze into a house, make your monthly budget really tight on the expectation of being able to refinance. What if you don't get that opportunity?

My way of thinking of this is, so they're renting right now. They were just homeowners. What would you rather do? You're saying if you wanted to wait and that fat pitch never comes, rates don't go any lower or housing prices just don't fall as much as you think they would. Are you okay renting for longer? Because I think that's the thing. If you're really trying to make this a financial decision, I think it's more important. How do you want to live your life? Are you okay renting? Is it a financial decision? Then I guess that answers your question. I do think if you're someone like this who wants to make it a financial decision as opposed to like a psychic income thing where it's all about where you live and putting down roots and the financial

stuff you can figure it out, but being in a home is more important or whatever, I don't think it's the worst thing right now to wait, actually. I'm not a big fan of timing the housing market. I think if you're in this type of situation and you go, we're okay waiting six months in this rental because we're okay living here. I think your negotiating power is going to continue, like the inventory of homes for sale continues to rise. It's still way below previous averages. I think you're going to be in a better negotiating position in the coming six months than you were six months ago. I agree. I would be relatively okay overpaying if I had to get out of where I currently was living.

I think that is going to be a key fact to yours. If you have to get out, all right, you have to get out. And if you overpay for your home that you are going to be in from a long term, it's not the end of the world. They also said they don't have kids. But if you're comfortable where you can stay, then I would definitely stretch it out. It says they don't have kids. So they're probably a little more flexible.

All right. So then. I would wait. All right. 51 and on tractor tarot, 60, but of course, wouldn't mind shaving a few years off of that. My question is, what's a good investment option for extra money I make to use in 79 years? should be able to save extra cash each of the next several years, already maxing out 4-1K and

the catch-up contribution, max out the Roth also with a catch-up. So they're putting away some serious money here. Last few years, I maxed out iBonds as well. Wow, nice. I'll continue to do these things going forward. I'm just not sure what to invest in for that medium time frame of 7 to 9 years. I have an after-tax brokerage account in Vanguard's Total World Fund, but that seems better for a longer-term horizon. I think nine years is relatively long-term, especially with stocks down 20%. I think one of the things you could do, if you're going to retire early, So this person says they are on track to retire at 60, but wouldn't mind shaving a few years off that. So they're saying five to six years, ish. Okay.

But you're not going to invest in something in that time period that's going to totally change your life. You know what probably makes the most sense? Bonds? Building up like a cash or short-term bond reserve where you say, I've got my first two years of spending for retirement covered. And that would make me feel better about retiring. And then what if I retire in a bare market and the teeth of a bear market and all my investments are down? Now I have cash that can help me ride this out. I don't have to worry about it when I retire. So I think... Can I give you a family feud, good answer?

Bring it. Good answer. All right. Good answer. Great show, by the way. So I think that, if it's that short of a time period anywhere, you don't have the years for compounding ahead of time, then build up a cash position. And if not, yeah, keep putting in your world fund and sort of balance it out a little

bit. I think that's probably the best way to look at it is you're probably going to need it because that way you can let your retirement accounts grow for longer as well. All right. I am looking to start diversifying my money beyond the standard bank accounts. brokerage 41K, et cetera. I am intrigued by many of the conversations you have in the talk your book episodes, but it is pretty overwhelming as far as what is a realistic next option or two.

Do you have any recommendations as to what would be the next logical diversification place for someone looking to branch out? People are wanting to get into alternatives. I will caveat this with, we've gotten interested in a lot of this stuff that comes to us via talk your book, and some of them we didn't really know about before they even came on. We try to keep it pretty open mind, but we don't do a lot of research into these companies. be like the audience where we're learning from the first time. And so a lot of these stuff

we've kind of tried on our own, too. I just want to say, you don't have to do all of these things. Well, in fact, you probably should. I mean, I'm going to say you probably shouldn't. What you could do every single one. It's not a prerequisite. But yeah, I guess the point that we've made in the past is we do this stuff after we max out our 401ks and our IRAs and our 529 plans and all this stuff and emergency savings accounts. And then we're doing it with that sort of other bucket of fun money or taxable money, whatever it is. I would say get there first is my first recommendation. And again, you don't have to do this, is what I would say. I'm hesitant to give an answer on this, but I would say that a safe first step outside of stocks and bonds is

probably real estate. Is that fair? That's not a bad plan. And there's a lot of crowdfunded, diversified real estate platforms that we've had on here that you could look into. That's probably not a bad idea, commercial, residential real estate and some of the platforms we've talked to. And now to answer some more questions about retirement funds and taxes, we have joining us again, Henry Yoshida, the CEO of Rocket Dollar. We are joined today by Henry Yoshida. Henry is the founder and CEO of Rocket Dollar. Henry, thank you for coming back on today.

Hey, thanks a lot, guys. Thanks for having me today. All right, we've got some good questions for you. So let's get right into them. We're going to start with a teacher. Two teachers. about to hit their fourth decade. Wait, is that fifth decade? Like the 20th century is the 1900s? Fifth decade. They're turning 40. Two young kids, $200,000 in retirement accounts, very nice, a mix of Roth and regular 403Bs.

As teachers, we are lucky that we can rely on a pension in retirement that will replace 60% of our annual final income when we retire in about 22 years. on the show I hear you constantly talk about maxing out your retirement accounts, but given our ability to earn income is limited as teachers, and we live in a high cost living area that is very difficult for us. We currently are contributing $8,500 a year to a Roth 403B. Huh, I didn't know that there's a thing, Roth 403B. Part of me worries that if I am contributing too much in the retirement account, I'm missing out on extra money I can get in my paycheck to spend now on my monthly budget. And at the same time, I feel like I need to make sure I have additional savings and retirement aside from the pension. How do I find the appropriate balance between these

two competing ideas? What are your thoughts? Thank you for the question, Russell. Yeah, thank you. For me, the key here is that the pensions are projected to cover 60% of retirement income. So I'll just kind of assume that maybe they're calculating this by saying, hey, we need 80% of the income that we make today while gainfully employed as teachers. And the pension is projected to cover 60% of that. And you indicate, this is a lot of a personal preference type of question that if you include in the question, Russell, that you feel like, hey, I may be over saving and I'm locking this up into my Roth 403B at the expense of my monthly budget today. If you're having trouble, you feel like you're saving too much to cover the monthly budget

and the monthly essentials today, then I think I'd be okay with you probably trying to tone it down a bit. I mean, at the end of the day, there are not a lot of people in America that have $200,000 saved up in their retirement accounts currently. And there's even fewer. a percentage now that are employed that would have 60% of their income covered through a pension plan. If you try to do like a net present value of that, the value of that pension for 60% of your income, put it over 30 years and bring it back at whatever discount rate, it'd be worth a lot of money to a lot of people, wouldn't it? Well, and you said 30. They said that they're going to hit full retirement in 22 years. So if you're 39 today, that's actually still in your early 50s.

So you're kind of one of these early retirees. So the net present value of that could be close to a, depending on the discount rate you use, three quarters of a million. Henry, no offense, but I have to check your math. They're 39. They're retiring 22 years. Oh, sorry. Yeah, you're right. 22 years.

You're right. Michael screwed you up to talking about that fifth decade thing. I brought it on him. You're like having me go ahead by 10 years. But I just think that, hey, these people, they're good savers. They're even contributing to the rock. Yeah, too good. Well, the whole point of retirement is to replace your income.

If you already know that a big chunk of it is going to be replaced. And to your point, most people say, I think it's like, what, 70 to 80 percent of income in retirement is the rule of thumb for a lot of people? Because you're not going to be spending as much and maybe taxes are lower, that sort of thing. So you don't have to replace 100 percent of it for most people in terms of spending. Sure. I think that and if you're even including in the question that you may be over saving at the expense of being able to cover my monthly budget today, by making that statement, that probably is the case. I mean, these are clearly responsible people who are thinking into the future, thinking the day and planning properly for their children. I think I might be okay kind of scaling that back and understanding that you got to giving Russell and his family permission to tone it down. Right. Yeah. Spend a little money. Spend a little money.

Go out to eat a little bit. Enjoy yourself today. Buy one of those rowbacks. Right, Ben? Got it. Yeah. All right. Was recently pitched an index life insurance product by some friends and how it's a great

investment. I looked to hear your thoughts on this area and when, if these policies fit into someone's plan, did a quick back test of 30 years using their 0% floor and 12% cap that mirrors is the S&P. Most of these insurance products, they exclude dividends, and found it underperforms just a simple index with dividends included. Yes, that's not a perfect test. So I'm curious if you ever back tested these types of policies with expenses, commissions, et cetera, to get a more accurate comparison. Also, the allure of these policies is the tax-free withdrawal, though you pay premiums with your tax dollars. They mentioned withdrawing or borrowing at 4%. Not sure if that was against

your cash value of the benefit. Curious how these tax-free withdrawals work against taxed withdrawals from an IRA. So I think this person has probably done more work than most people. for these types of things? Because most people, they hear these insurance products and they think there's no risk because I can't lose any money. And even if it's a cat that can still make some money. So what is your general thought on these types of products? Well, just at a high level, I mean, I think that your listeners listen in for guidance and sort of opinions and perspectives on the investment market. So I'm a big, big proponent. I mean, I've been a CFP for almost 20 years. And I just think that insurance has a different purpose for people's individual

lives from investments. And they shouldn't be combined. I'll start by saying that, look, my just sort of default stance is always that investments and insurance shouldn't be two things that are combined. And I get that insurance has gotten creative by making these hybrid products for investments and the way they sell these is tax-free withdrawals, the ability to not go below zero. But I think it just should be separated. I mean, it's been proven time and time again. And I think a lot of advisors agree with this, that you basically get yourself insurance at the point where you still have obligations. So that's a term insurance, invest that difference in the S&P 500 with normal growth. And I think over the long haul, if you keep those separated, you do net better.

And this isn't a tax conversation. This isn't a, hey, I can not lose money in this particular product situation. It's just that if you go low cost, invest for the long haul, the longer your period is actually the less likely are to lose money in the first place. and you know you need insurance for a defined period. So cover the mortgage, get through kids, undergrad and grad school and so forth. After that, the obligations aren't really there. At that point, you could pass away without having a lot of obligations and get that term insurance separated completely from your investment world.

It's just my thing. I don't even want to go into like the can't go below zero, the 4% tax free withdrawals, premiums are paid with after tax money. I wish that I had some of the illustrations. So I started my career at one of these life insurance companies selling whole life policies. Actually, I should note that I didn't sell anything, but that was the goal. The goal is to sell policies. And the illustrations made them look like no-brainers. It made investing in the stock market look like the dumbest thing you could possibly do. And unfortunately, alas, I do not have

any of them on hand. But I do remember, it's like, listen, look how much money you have by year 45. It's like, well, yeah. I mean, that's what compound interest is. Even 3% interest on 45 years turns into a lot of money. And by the way, like the no dividends, that's a big part of the returns of SMP 500. So to give that up, that's not smart either. And to your point, insurance is a way to manage risk or like you said, an obligation that you have. And investing in the financial markets is more of like wealth. It's like risk management versus wealth management. I think that you're right, that it's two completely different things. And I think one of the hardest part with these different types of products is they're very difficult to understand. A lot of people

don't know what they're paying for them. And they could fit into the right situation. But I think a lot of people are looking at them as like this savior to their portfolio. So they don't never have to worry about volatility or risk in the markets. And it's just trading one risk for another's way that I look at it. Exactly. And so there's one type of, let's say, longer term out there insurance policy. It's probably worthwhile to look into while you're in your 40s, maybe even early 50s, a long-term care insurance one, because that's an unpredictable future obligation that you may not want to burden another family member with in the later stages of your life. You look and work up the math if you have the income to be able to pay for

policy, that makes sense. The other obligations, you know that they eventually go away. So I just think that you maximize the money that you have in investments and the longer the time period you're invested, the less likely you're going to be down from the point you started. Michael's solution to long-term care is he hired a personal trainer this year. So he's just going to live to 100 and he's not going to need anything. Hey, one of my investors, he tells everyone he's going to live to 114. He's had the same personal trainer for 27 and he's 87 years old today. So maybe guys taking on some new clients. I read a book. This was the straw that broke the camel's back for me when I said, I got to get out of this place. One of the guys there gave me a book called Bank on yourself

at the insurance company. Bank on yourself. I'm looking at it right now. It says the life changing secret to growing and protecting your financial future. And unfortunately, this is a New York Times bestseller. And one of the taglines is what Wall Street banked and finance companies desperately don't want you to know. Yeah, that's it. It's always the secret. Yeah. We get a lot of these from new parents, actually. I think we got a lot of new parents in the audience. So this one says I'm a new dad. Congrats for that. Becoming a father later in life and I'm blessed enough to be in a reasonably good financial position. I'm a big believer in investing for the long term. My question is, how would you approach investing for the long term

for your trial? Let's assume we can max out 529 plans. Would you set up a Roth for them? And if we maxed out the RA, would you also set up a taxable brokerage account for additional investments? Any other vehicles we should consider, any pitfalls we should watch out for. We get this question all the time. Yeah, a lot of people that want to invest to their kids, which is great. But unfortunately, there is no easy way to do. I wish the government would allow you to just open up a Roth in your child's name without having any earned income or paying taxes or any weird forms. But what do you think, Henry, what do you think about life insurance for children? Get them started early. Build up that cash balance. Build it up. It's hard to work out what their income may be. So it's hard to work

out of multiple on that income against their obligation. So the thing is, if you had the inputs to the formula, you probably could do that. So maybe if you have, I don't know, if your child ends up becoming a child superstar movie star or something, then you might need to replace that income. and so forth. So you could think about it. Any secrets that Wall Street doesn't want this person to know about? So I don't know about that. I would say that maybe there is one that Wall Street probably doesn't want you to know. I don't know that dumping a bunch of money to the max and a 529 is the best thing possible. And the reason why Wall Street probably would not agree with that statement is that these particular products are actually have to be co-sponsored by an asset management firm. So some mutual

upon company. This is a way for them to get a lot of dollars that go into managed products with a fee overlay. They're pretty standard portfolios. And of course, you don't know what the future is going to hold. I mean, this is young children, a new addition to the family later in life. But I'm not quite confident that the post-secondary education system is going to be the same. Let's say when this newborn child is 18 years old. And 529s are pretty restricted to somewhat post-secondary education. And let me ask you a question, on that topic. Let's say that in 18 years from now, the college, the entire system looks radically different. Do we not think that some of the restrictions on these tax favorite accounts would be amended? So, yeah, I think that they probably will. Because remember, they used to have the education IRAs, which are now called Coverdale accounts. But the problem is that the limits are only $2,000 per year. So you can't really get to having an amount that will cover a lot of post-second. education at current prices and sort of the current rate that those are going up.

So maybe you expand the rules for the 529. My bigger issue with them is they tend to be pretty restrictive in terms of what you can invest in. You kind of have to go into that current age of the minor of the beneficiary on the 529 is portfolio for zero to three years of current age, four to six years and seven to nine. And if you look, they tend to be just a managed portfolio of surprise, surprise, just that asset manager's funds only. Do you think that a taxable account is the easiest solution for most people here

if they don't want to get crazy? Well, you know, I think the way this person is answering the question, the way they're approaching it, is to have optionality. Like, you don't know what the future is going to hold. I've mentioned this before in a previous question somewhat like this. But for me, I actually do custodial accounts for my own children. So I kind of balance. I have partially in a 529.

And actually, 529 is also allowed you to do the prepaid tuition program. So I live in the state of Texas. So I like that one because I know that, hey, I can control it and get it at today's price for prepaid tuition. But then I actually more heavily contribute to a custodial account, which I recognize is at my tax rate until they become the age of majority. And also 100% becomes their account to do with as they please. But that gives me the total freedom to go into any sort of low cost investments from an index fund standpoint that I want to go into. And those are pretty tax friendly. So even at my tax rate, they are generally pretty friendly.

as long as I don't do a lot of transactions. That's what I do. Now, because to do the Roth, they ask this, so why don't we address this? Because maybe not all the listeners know that you have to come up with some scenario where you're hiring your five-year-old. Put him to work. Put him to work. To, I don't know, organize Michael's bookshelf and alphabetize the books behind him or something

and you come up with some sort of rate that you actually pay this child of yours and whatever that income is because they have to have earned income, then goes into a Roth IRA that you establish on their behalf. And I think that's tough. I like the parent match when they become 15 and they get their first job at Chick-fil-A or McDonald's. That's understandable, but people have taken it to the extreme. Well, I had my kid as a guest on this podcast, they recorded the outro, paid them $6,000. I think that that's not really fair compensation and you're effectively creating earned income. Whatever the account is,

I like the parent match to get kids to have that motivation. So I started doing my eight-year-old daughter. And I said, any birthday money you get or whatever, you put it into your account, I'm going match at dollar for dollar. So you put in 20, I'm going to put in 20 as well. That seemed to get her to do that a little bit. And when your daughter is 15, 16, and the job becomes a real job at a place, a retail store, a fast food restaurant, whatever people's typical first jobs are, you could look at that, that's earned income. So if they work, let's say, 15 hours a week across the entire year and they made $2,000 at some fast food restaurant, the parent match I'm talking about is a lot of people establish that Roth IRA at 15, 16. That's a great head.

start in life. That makes sense to create the account. Before we let you go, what's going on a vodka dollar? What's the latest? Right now, this is kind of good. We tend to get a pulse on maybe where people are looking at investing. And we've seen a big uptick, I think on our side. We represent investors. Our people typically do it 100% equity. We've seen a big uptick in real estate investing on our platform. So I think that's that maybe now investors with a heavy equity component, which you would have inside of an IRA account because you can't do loans as easily. Wait, do you mean like residences primary or secondary or what exactly? As an investment, so I'm just seeing real estate investments kind of tick up.

I think people are a little bit afraid to kind of step back in at a low point into digital assets. We've seen an uptick on our side in residential single family investment property, real estate investing. And I think it's a combination of if you're the cash buyer, you have a lot more sort of leverage now than you might have had last year at this point. Prices are really high. They're coming down, I guess is what I'm saying.

and people are scooping up investment properties in our accounts. Interesting. That makes sense too because it's so far has been one of the best inflation hedges as well. I guess now maybe you're getting paid a little bit more for holding some things in cash on the sidelines, but I still think that a tangible asset investment in an environment where maybe the market is slowing down, the cash buyer is scooping it up. The Warren Buffets of the world are using a heavy cash balance sheet right now to go aggressively into investments while other people are trying to sell her wallet's down.

All right, Henry, this is great. As always, thank you very much for coming on. We appreciate it. We will send people to Rocketdollar. Is it dot com? Rockettdollar.com, yes. For what? For self-directed?

Go ahead. So we call them alternatives in an IRA. So if you want to do your alternative and private investments that you guys talk about on the show, so that could be your crypto, your real estate, make investments into private technology companies and startups, then you could do that using our accounts. You can access old IRA, old 401K dollars, put them into an account with us, keep the same bespoke tax treatment and make private and alternative investments. All right, Henry, thank you so much. We appreciate it. Yeah, thanks a lot, guys.

All right, let me read this one because it'd be weird if you actually, you want to read it because it mentions you first. Okay. Is this third person? Ben often says he is a target fund guy. True. My employer is starting a retirement fund program that will have a company matched to the employee contribution. One of the options for investments is a target date fund. The fund they are using has a management fee of 1.25%. Boo! What? Is that reasonable for target date No. No, it's not. That's way too high.

Come on now. Who is that? Come on. I would talk to your 401k person and tell them that is ridiculously high for pretty much any fund you have in your 401k plan, let alone a target day fund. What do you think is a reasonable fee for a target date fund? 50 basis points or less? Yeah. Right?

125. That's a lot. Dang. All right. So what I would do is I would have a really difficult time paying that. And it's not easy maybe, but try and reconstruct that. You can keep it very simple. You don't need more than a couple of index funds.

Read this next one. I think this person. Which one? Oh. I think zero hedges their financial advisor. Okay. Oh, boy. I just love my financial advisor.

Is that the one? Yes. Okay. She's done our taxes for 18 years and managed my 401 K, money for four years. She is really a friend. She has a thriving business with many employees. All right. I have no idea where this is going.

But let's continue. All right. trouble is. Subtract the $350k I made off Tesla, which she begged me to sell when I was 20K up, but refused. I have made $50K in four years. Stepping back, I'm feeling like I'm not getting ahead here. She is a perma bear.

Oh, for goodness six. She has a perma bear waiting for 2008 to return. She discouraged investing in the tech stocks when they were hot, so I missed gains there. Again, I would like a timestamp here because now this advice is probably pounding their chest. How do I handle possibly shifting my funds somewhere else? Or do I just stay put? I'm 66. Maybe I should be happy where I am and not be greedy.

I cannot imagine investing with a financial advisor who is a perma bear. I will say... That's like going to an nutritionist who's 600 pounds. Having your advisor tell you you probably... Not bad. Your advisor telling you to sell Tesla is probably not the worst thing in the world if it's not part of your financial plan or try to keep you out of hot tech stocks. That sounds reasonable to me for an advisor. Should they completely keep you out of doing that kind of stuff? They don't have to.

But if your advisor is a perma bear waiting for 2008 to return, I just don't see how that ends well for you at all. I don't know how defensive there being with your portfolio, what they're trying to do. It sounds like you're out of loss for words. I am a little bit. You don't have to invest with someone who's a permable, but you have to have a sense of optimism. about the markets. Otherwise, why would you invest money in the first place? If you think that Parma Bear Doom and Gloom stuff is going to win on, I don't get that. How do you handle if they wanted to shift your money from somewhere else from what it sounds like is a friendly situation? This is tough. I would just, hmm, I would just, making it sound easy. It's not easy.

But I think I would say that it's nothing personal, but you just. It's not you, it's me. Not a breakup expert. This is tough. But it sounds like the relationship needs to be severed. At the end of the day, this is about your financial future. And this person is not to be trusted. And I think you say, listen, I appreciate the help. You are a good friend. I like you a lot. But the personality difference here is making it so I'm having trouble reaching my financial goals. Ben, let's roll play. Ring, ring. I'm the advisor. Okay. Hi. Do you have some time to put outside zero hedge for a minute because I have to talk? Yeah, what's on your mind? You haven't made me a lot of money lately. You've shorted the market for the last seven years. Yes, we haven't been short. We have not been short, but have you seen inflation?

I would like to grow my money rather than just have it sit in cash. I'm trying to protect you. Okay. So I listen to this podcast called Animal Spirits, and they tell me that risk doesn't ever go away. It just changes shape. It sounds like they're stealing quotes from other people. you're fired all right it's not an easy conversation but i think you just have to tell them that it's a personality clash thing and you need someone who is more optimistic about the future

or at least we'll invest your money for the long term i'm in new zealand and i'm many of no doubt one of people who have started investing seriously on march 2020 wow the time i was congratulating myself how will i could pick stocks and of course now i'm down not doing great Fast forward to now, I'm dollar cost averaging each pace cycle and investing a third of my income into an ETF and managed funds. I don't have any exposure to bonds. I don't have a lot of knowledge or experience in bonds, but can invest both domestically or via ETFs on my share platform globally. I often hear you talk about a 6040 portfolio, but I'm 100 to 1 right now, which makes me a bit nervous. Is there anything you would recommend that I can read to help me decide what is right for me? I also wonder at what point do I have enough capital that would be worthwhile seeking professional investment advice rather than doing myself, Carolyn. So she has just started investing. in March 2020, one of these new people. I know we've heard a lot of stories about the millions of people who came into the market. She's one of them. This is the hardest thing for new investors to get right is the asset allocation. We don't know the age here, but if she just started investing, she's probably closer to the young side of things than retirement. I guess I will

say if you have her 100% portfolio of stocks versus 90%, it's probably not that much of a difference. That 10% buffer that bonds theoretically will give you, even though they haven't. this year is not enough to save you from fear and all that sort of stuff. Here's what I've done in the past. I've done blog posts where you just simply lay out the asset allocation all the way from 0% bonds to 0% stocks and everything in between. And I've looked at historical max drawdowns. And I think that's probably for the layman is probably a decent place to start.

When you're thinking about asset allocation, I think you should start with how bad can get because asset allocation is about long-term investing. and long-term investing is about not selling at the wrong time. And not selling at the wrong time is about experiencing declines that you can actually survive. So with that in mind, you go to a little table that I've created on my website, http.c.c.com slash. So no, seriously, I would start there is what does sort of the risk-reward profile look like, generally speaking, at different levels? If this person is listening, send us an email. I'll send you a copy of my first book. I did the whole thing you did to the table where 2008 was when I was looking at that point, and I looked

at the different asset locations, what your loss would have been in 2008, and then what your gains would have been over 20 or 30 years. You know, that's the answer. That's the answer. What do you recommend I do? I'll send you a copy by book. Because that asset allocation choice is harder than it sounds. I also think if you're just starting out investing, make sure you have that cash reserve as well to see you through the stuff so you don't sell out of stocks if you're 100% in stocks. But yeah, it's tough. Okay. If inflation keeps exceeding estimates, why are tips not appreciating? All right. I pulled up a chart here. The inflation component is just one component. Hang on. Let me look at the returns here first. So this is year to date. I shares tips bond

ETF. So right now we're looking at just the tips. Yeah. So tips. I shares TIP ETF is down 7% this year. I share's core aggregate bond fund, which is the ag, is down 8.5%. So being invested in tips in a year, when inflation is the highest has been in 40 plus years, has not saved you very much this year. So now you can go into your explanation. Why is this the case? Well, because these are still bonds. And when interest rates rise, the price of bonds goes down, even though the inflation component has protected you a little bit or made the damage a little bit less severe. Here's a comparison. Defensive stocks are still stocks in a bare market. So they will go down less than the overall market, but they're going to get hit. So these are bonds.

These are bonds. And there's no getting around the fact that when interest rates rise as dramatically as they have over the last 12 months. One rate's bottom. It can't remember. It doesn't matter. When interest rates go from 1.3% to 3.6%, your bonds are going to lose money. And I don't care how much inflation protection there is in there. The other thing to remember is that a fund like TIP, which is the biggest TIP fund there is, I would imagine, is invested in longer term, like 20-year average duration bonds.

So a lot of people have actually shifted to a shorter term. So, like, Vanguard has this short-term tips fund. I think it's V-Tip. And this year, that fund is down 80 basis points. So shorter terms, you're right. Bonds act like bonds when rates are rising. The rising rates have totally offset the inflation. And the other thing is that these bonds actually take into account the expected inflation rate.

You say inflation is higher than expected, but the bond market kind of has priced a lot of this in. That's part of it. But yes, I think a lot of people are probably, a little concerned that their tips funds are not doing as well as they thought the way because inflation side. It's not just that inflation is high. This just goes to show, I'm not believing anybody here obviously, but marketing nomenclature matters. Inflation protected bonds. Hey, jackass. Inflation's at a four year highs. My tips are down. I don't get it. Yeah, I understand. Okay. All right, Ben, I've got a few questions for you while I have you.

Let's do it. No, I don't. Okay. Remember, if you have one for us, Animal Spirits Pod, at gmail.com. We just had another mailbag last week for our NFT holders. That's still a thing. Exclusive. There you go. It's called utility right there. Yep. We did an exclusive one for them. That's kind of fun. Maybe everyone's in a while if we get a really good question, we'll do a crossover and bring them onto this one. Has that our inbox been light lately? Are we a little bit light? We need to refill the coffers. Sure. If people have questions, send them our way. But we still get questions all the time. What was the one we laughed at last week? Someone emailed

in and asked, hey, Ben, you have any good workout tips for me? did they say like all kidding aside i think they're like pretty serious about it it was a serious question i am the target date fund of workout routines so don't ask me for well the person asked like i'm kind of bored with my workout routine i want to spice it up a little bit i'm not the guy to go for that i'm a routine kind of guy i don't change it up very often well let me ask you a question do you do full body workouts at the gym or do you do like legs shoulders then back one day then arms and what i do tuesday's back and arms is it not yes i have different days for different parts of the body.

Is it on your calendar? It's all of my head, Michael. It's mental calendar. Yeah. How about with your personal trainer? What do you do? Full body workout? Wednesday's abs and shoulders.

Thursdays. No, I don't know. He mixes it up. It's out of my hands. I outsource it. I wish I had a better answer. I got nothing. By the way, though,

supply chain update real quick. I did get an email in the last couple months. The Beaufax dumbbells are finally back. Remember they're gone for like 15 months for the pandemic? Yeah. jackass is we're buying blowflexes and then jacking up the prices yeah not cool all right if you have a question for us animalspot at gmail.com we'll do these once a quarter yeah right thank you to henry thank you to ben thank you to the listeners at level spiritspod at gmail.com

Thank you. Thank you.