What Would You Do With a Guaranteed $50,000 a Year?

0:00 Put my money to work. >> That's right, Mr. Finchley. You can own a share of American business. There are over 1,200 companies listed on the New York Stock Exchange. Companies which employ more than 11 million people produce half of all the goods made in America. >> Welcome to Ask the Compound, the show where you ask and we answer on your host Ben Carlson. Let's say you have an inheritance that promises to pay you $50,000 a year for the next 20 years.

0:27 What would you do with it? How would you save it? Where would you invest it? How much of it would you spend? I'm going to answer these questions and more straight from our viewers and listeners on today's show. Let's do it. Our email here is askthecompoundshow@gmail.com. Welcome back to all of our listeners in the live chat. Duncan, did you were you ever Cheers watcher or was that past your time? >> not really, yeah. It was on like Nick at Nite, I think.

0:58 >> Yeah, I mean one of the great sitcoms of all time past your time a little bit. A place where everyone knows your name. I feel like that's the live chat here on occasion. One of the great sitcom themes of all time. Second only to the Growing Pains theme song. Also past your time probably. Anyway, before we get to today's questions, today's Ask the Compound is sponsored by Coveront. Scams are getting so sophisticated that it's hard to tell what's real and what isn't. And it got me thinking about how much of our financial lives are online.

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1:52 Sorry, coveront.com/compound using the code compound. One scam can cost you everything. Protect yourself now. Get 71% off at coveront.com/compound. The link in the description or scan the QR code on the screen. Duncan, you've been a victim of financial fraud before? Your parents? >> Yeah, through through my parents. Yeah. >> My parents have, too. Multiple times this year my parents have had someone log into their account, move money. It's not a fun experience. >> Yeah. Yeah. No, it's and it snowballs.

2:19 So you got to catch it at the beginning, which is where coveron and stuff like that come in really handy because you can nip it in the bud because they use one account to get into all of your accounts. >> Yes. >> So yeah. It's >> Exactly. All right, some feedback from last week's show. We got a lot of feedback actually. Mark says, you guys blew it on Carrie's question about investment clubs. They exist and I'm in one. They meet monthly and have a yearly meeting together. They meet online over Zoom because they're nine members spread from Alaska to Hawaii all the way to New Jersey. So they use this place called betterinvesting.com, which I've never heard before frankly. So I didn't look into this too much. But he said the people skew older, which makes sense for this kind of thing. But he said tell Carrie to go to better investing to find a club in her area. I did not know this was a thing.

2:59 >> Yeah, I mean to me the the online clubs aren't really the same thing, right? But yeah. This is this is looking for in-person ones? >> No, they do it online and then once a year they get together in person. >> Yeah, I guess. To me part of the camaraderie that people are looking for is in-person investment. >> I think you should start an Oly club. There would be dozens of shareholders out there, dozens of you.

3:22 >> They're all in Sweden. >> >> we also had a million responses to the dividend question from last week. The guy said he wanted to live off the income, don't touch the principal, but only have 10 to 15% losses. I put this out on Twitter. There was a million different responses. A lot of people said it can't be done, especially the lot of people just said, hey, your loss expectations are way too low. Many people have their own responses for the type of income that he should want. a lot of people said, hey, just buy bonds, buy an annuity. A lot of people said the option incomes fund, but those have the drawdown exposure.

3:52 that was the biggest thing is just update your drawdown priors. But there was a lot of people who had thoughts on that and they're all completely all over the map. >> Yeah, I love that topic because half the people are like this is the dumbest thing ever, and then half the people are like, what a great idea, you should definitely do it. >> Yeah, I had a lot of people say, hey, I'm a dividend growth investor. I've done something like this. So yeah, it's it's all over the map.

4:13 >> You know what I've been looking into that I like been that you'd be proud of? Shareholder yield. >> Okay. >> looking at buybacks and dividends. I've been looking at companies that >> Some of them also look at like debt repayment, yes. Because a lot of cuz a lot of companies buy back stock now instead of paying down and like the the dividend yield on the S&P looks low, but if you include buybacks in that yield, right, it's not that far from what it was previously.

4:34 >> Right. >> All right, let's get some questions. Good good one today. >> Okay. Up first, we got one I don't see a name, but hit us, Dan. I really enjoyed your 15-Year Stock Market Returns blog post. Even as a long-term student of the market, it was eye-opening to me. I'd forgotten how raging the bull markets were. And as usual, your conclusions were spot on. Would you consider writing a similar piece on the bear side of things for additional perspective?

5:03 >> All right, so this is a blog post I wrote a couple weeks ago. I looked at the rolling 15-Year Returns on the stock market. Okay? and I wasn't just fishing for compliments here in this this question. So Dan showed the chart here. This is the rolling 15-Year Returns for the S&P. You can see it's kind of follows a nice little wave. The only negative return over 15 years came following the it was Great Depression leading into World War II.

5:26 And over the last 15 years, we've had excellent returns, almost 16% per year. if you I tried to Dan a new chart off. I went over a lot of the really bad stuff in risk and reward. You can read that. It's one of the reasons I wrote it. It's like you have to take the good with the bad. But I I got some charts here to show like let's let's really talk about some of the bad stuff cuz all we we've talked about is good stuff.

5:46 This has been a raging bull market. So Dan chart number one. This is the Dow Jones Industrial Average. Starting in early 1966, the Dow Jones briefly almost hit 1,000. And then for the next 16 years, until 1982, it was range-bound and it was essentially unchanged, the Dow from 1966 to 1982. This is on a price basis after dividends it was a little higher on a total return basis because dividends were higher back then. But the Dow essentially went nowhere from 1966 to 1982 and after inflation was way worse.

6:22 >> as a little aside can you explain to me I've never understood the Dow it's it's just like a group of stocks someone picked and was like yeah these seem like a good batch. >> 30 blue chip stocks yes it goes back to like 1896 Charles Dow did it I could give you history somewhere but it's funny because it's it's totally it's price weighted so it's not market cap weighted but it still essentially tracks the S and P over the long term which is kind of funny.

6:43 30 big blue chip stocks yes all right let's do the other one Dan. Next one S and P 500 this is from March of 2000 through the fall of 2011 well over a decade. Total returns this time including dividends the S and P was up two and a half percent in total so essentially nowhere for a dozen years. Just nothing no return S and P nothing and two enormous crashes more than a lost decade. That stinks let's do another one.

7:13 The 1930s these are the annual returns for the S and P 500 in the 1930s. From 1929 to 1941 the S and P was down 35 percent in total and that is despite calendar returns of 50 percent 47 percent and 32 percent and 29 percent. Nine out of 13 years were down the only years that were up were these massive gains and you were still down 35 percent in total just a brutal brutal period. Leading into World War II which is kind of funny chart off World War II bottomed at like 1942 1941 that the stock market.

7:46 It wasn't over for a few more years and the stock market totally saw it coming. Right forward looking. >> Huh. >> All right let's do one more I got a bunch of charts here. Negative five year returns now to be fair the S and P 500 over five year returns this is going back to 1926 is positive 89 percent of the time but those red returns you can see those down five returns. Five years can feel like an eternity. So Dan, do the next chart. This is the worst stretch. So I I found 10 times when the S&P was down on separate occasions 5% over five-year period. How it was down on a total return basis. These are the returns.

8:22 So the 1930s it was down 60 some percent over five years. Same thing in the World War II. But even in like the Great Financial Crisis over five-year period the S&P was down 30%. '70s it was down 20%. Dotcom bubble was down almost 20% over five-year period. Chart off. Five years is an eternity. Like we have cycles that last a week now. We're at a very long time to have your money go nowhere. That's that's when you start to freak out and go, oh my gosh, the stock market is literally never coming back.

8:53 >> I mean, yeah, if you don't get a 10 percent since a 10 percent swing in a week, are you even living? You know? >> I know, right? All right, next one. These are the all of the down years since the late 1920s. Every down year on the S&P 500. 26 down years out of last 98 in total. Average down year is -13.5%. There's a lot of big down years on here. Look at all those ones over 20% over 30%.

9:17 The worst down year ever in this 100-year period was a loss of almost 44% 1931. But even 2008 we're down 37% in the S&P. There's a lot of down years going to happen. 2022 happened recently. One more. This is all the bear markets since World War II. I did peak to trough drawdown. That's how a lot of people look at these things, but that's just the the top to the bottom. I also did break even. How long does it take to round trip go from peak to trough back to peak?

9:44 Which means this you essentially went nowhere. Right? the worst one was the dotcom bubble butt bursting. It took 48 months to make break even. And then the stock market essentially crashed again not long after that. Even the Great Financial Crisis was 37 months 46 months to break even during the after the 1973 74 bear market. Even 2022 it took two years. We peaked at like the very first trading day in in 2022. And two years later finally round tripped and broke even.

10:14 It's a long time. A lot of bad stuff. So I don't know I don't know when we're going to have another long bear market, but it will happen at some point. There's going to be a recession or a financial crisis. It will be painful. Duncan's going to panic. But you're going to be panicked like the first two weeks and then by by the end of the you'll be just be despondent. >> I mean I'm I'm getting >> you're going all the bonds. That's that's when I'll be buying hand over fist.

10:38 >> I I panicked to you on Slack, but I mean like I told you I'm buying leveraged ETFs, you know, so it's like my body is panicking, but my brain's like just buy this dip. We always get V-shaped recoveries, which at some point is going to completely destroy your portfolio. >> it won't be a V and those leveraged ETFs will be down 80 90% which by the way we're going to talk about those we we get a ton of questions about leveraged ETFs. So anyway, it'll feel like it's never going to end, but then it will end and life will go on and then we'll hit new highs again.

11:06 That's the circle of life. >> Yeah. Dave in the chat is asking you didn't mention Italy. How was your Italy trip? >> It was awesome. I I love the Italian people. I love the food. I love the sites. It's it's fantastic. I I you know as someone who considers myself very fashion forward, I have to tell you in Milan I'm very jealous of like the 15 up men. Like they have the best fashion sense of anyone there.

11:31 you know the the nice down coats, the the sweaters with the collar underneath and the the scarves and the nice shoes and everything fits right. yeah my kind of place. Love it. >> A a lot of hat culture? Wearing like berets or anything like that or >> Not not a lot of hats, but it's just yeah the Italian people are great. They're just they're so nice, so kind. They're always smiling. Loved it. It was awesome. And and a lot of people who watch our shows from there too who want to learn about investing.

11:59 Investing is a global phenomenon. It's not just in the states. It's all over the place. >> I think we need to do a show from the Cinque Terre. >> They told me it's impossible to get in there anymore. >> Really? >> Too many US tourists, yes. >> I can see that. >> trip. Who who's our guy >> who's always there from Italy in the chat? Michael? There's a We used to have a guy from Italy who's always in the chat.

12:18 Maybe he's not here this time. >> yeah, I I'm not sure who that who that was right off >> All right. Let's do another question. >> Okay. Up next, we got one from Who is this? Oh my god, so many things in the dock. Eric. Okay. I have a question that could cause a fight between Ben and Bill. I've received an annuitized inheritance of $50,000 a year for 20 years. My initial thought was to invest it in a brokerage account. However, we already have over a million dollars in our brokerage to fund a bridge for early retirement.

12:50 My next thought was to do a backdoor Roth through my wife's 401k and use the inheritance to replace her lost income. I'm 43 and my wife is 37, so it seems like the tax savings on the backdoor Roth would be a no-brainer. We have a 401k, HSA, two Roths, and four 529s. I can feel Ben's anger from here already with all of these accounts. Do you have any numbers on how much tax could be saved and whether the complexity is worth it? Thanks.

13:17 >> All right. They want me and Bill to fight. Let's bring them out here. >> Sounds like it, yeah. >> Yeah, wow. Bill, you know, throwing gloves. Well, Ben, do they Do they hand out those lapels like coming out of customs? Like where where does that come from? Or was that a guy from in Milan? Do he hook you up? >> Yeah, I I have to up my game. I'm telling you. Everyone there I I go to shop I I went shopping there in in in Milan.

13:37 And it's funny cuz I went to ChatGPT and I basically said like, I don't want to like I don't I don't want to be embarrassed and walk into a store and say like, hey, here's a $1,500 sweater and then walk out because I'm not going to buy it. So I put into ChatGPT I said, give me a place that's like nice looking clothes on a J. Crew budget, right? >> Yeah, that's what I'm talking about. >> They have a room with a tailor right in the store.

13:56 >> Wow. >> like the lady's looking at it and she's like, well, we need to take up a little bit of the sleeves here. We need to like take it in a little bit in the back. Like that's that's I mean, that's service, right? >> Wow. That is living. And you didn't have to use one of those frontier Italian models or how did it how did it work when you were talking to the to the model? No?

14:11 >> Yeah, I just had to get one of these. Yeah, before I >> Before we dive in, I we got >> to say thank you for your service, Bill. It's you're a perfect person here for a Veterans Day. >> Yeah, I appreciate it. I thought that was I thought so that's what was going on. So I did not dress up for the occasion, but thank you very much. I appreciate it. >> good. And we we we all we talked about this. We get tons of questions from our US service members, so we always appreciate that.

14:32 >> questions, yeah, involved the immigration of pensions. So yeah, Eric wants us to fight Ben. I don't what what is there to fight about? this this this seems pretty good. I think Ben >> wait did so just so this do you so they said this is an annuitized inheritance. So this is someone who is taking over an annuity from someone who has passed away for some there's a death benefit or something and they're getting this money each year.

14:51 not a bad place to be obviously. They seem to be doing pretty well. Like okay, I'm going to let you go first then I'll come from the top rope if we're going to fight. >> Okay, great. So I'll get ready in the ring. Yeah, so the what makes this different Ben from a lot of other planning cases is due to probably death or inheritance yeah. Unfortunately, there's an annuity income coming in and typically that those are paid for a certain period of time, sometimes for life, typically like old school annuities. And most of the time Ben, this is all ordinary income. There is no step up in basis on an insurance contract. So like life insurance >> grand is getting taxed every year?

15:24 >> Probably. Yeah, we don't know for sure cuz Eric didn't give us the details, but I'm presuming since he has that that income stream then yeah. And so Ben it just if you're thinking about it, if that's 50,000 $50,000 is a lot of money in the world and if that's replacing your income yeah, why not? Why not take the income that you're earning elsewhere and just shovel those dollars into a retirement plan? I don't I don't think that's contentious at all. Eric, I think that's a great idea.

15:47 >> So you think it makes sense for him to do this like the the backdoor Roth essentially? >> Yeah, I think he was trying to poke the bear. I think Ben he was trying to get your Italian, you know, fire started on how many different accounts, right? I think that's I think that's the the just >> is a lot. >> So I don't get triggered cuz like more Roth is good for me. I think everybody here would agree.

16:07 >> that was an egregious amount of accounts, honestly. I mean, maybe I'm telling on myself, but >> Later in the show, stick around. we're going to talk about a different kind of account that I would not argue for. However, Eric, I I think this is great. I think HSAs have a place, right? See, one of the only places you can get tax-free distributions for medical, 401k, it's just, you know, it's a you're you're going to fund your retire your retirement plan anyway. It's just a question of how much. And because you have $50,000 coming in, why not just shovel some extra money into the retirement plan?

16:35 >> So here's a question for us >> where right now here's where I'm going to here's where I'm going to fight you on though, Ben, okay? I would like Eric to take some of this is this is an inheritance, right? And now it's all it's all one big bucket of money. >> Yep. >> Carve out a little bit and spend some of it, please. >> Ben >> Take you got $50,000 coming in every year that you were not planning on.

16:55 >> Yeah. >> Don't put this all in a retirement plan. Take $10 or $15,000 a year and take your family on a vacation. >> Yeah. >> Do something fun. Buy something for the house. You don't need to just save every last penny of this. You already have a million accounts. Enjoy some of it, please. >> I do dig it, particularly since it's going to be multiple years. Eric's 43, right? And he's a he's a young man in in my in my terms of my life, but yeah.

17:16 >> if let's say our vacation fund is covered every single year for the next 20 years. >> Yeah, even 10 or $12,000 depending on, you know, what quadrant of the country. You can't afford an Italian trip there, but like ultimately yeah, you could go somewhere in Grand Rapids, beautiful Michigan. but you did mention too 48 to 529s. So do you know what this means, Ben? I I think there might be four mister and miss little Eric running around. So yeah, I I think ultimately Eric's got a lot of bases covered.

17:40 Totally agree, Ben, with that. With anything that you're not going to to to to find to to do your Italian trips on, I would say the the the retirement plan makes a lot of sense. So just very briefly he he said, well, how much of a difference can it make? can we chart on? We can combine, Ben, the 42G 401k limit so retirement plan. You can do $24,500 this year and then you can do a backdoor Roth. So you we Eric could plug up to $32,000 in a combination of Roth and pretax. And so on my top line here, what I'm showing for the folks at home, you can fund $32,000 this year and if you just, Ben, if you just do that one time, rule of seven, you're compounding $64,000 in in years, $128,000 in in 30 years, and $256,000 right, by the time we hit our early 80s. If you take a distribution there, Ben, you're going to pay $47,000 of tax. But if you make a decision to fund the retirement plans, you can effectively do that all Roth and the that that distribution comes out tax-free. So to quantify it, Eric, you could save in taxes more than one-year contribution to Roth-based retirement plans.

18:45 >> Yeah, not terrible. You could also say, hey, listen, grandma and grandpa passed away. They left us an annuity. Every single year, grandma and grandpa are funding our vacation to Disney World or wherever. >> That's great. >> kids are going to love that. That's a great message. Don't you think? >> And ever since Ben got back from Europe, just vacation maxing, right? For every asset compound answer, right? >> That was my my my layman question is are annuities always inheritable?

19:09 >> always. no. >> some of them like >> I would say not always. They they don't always have a death benefit, right? Sometimes they do, sometimes they don't, I would say. >> That's absolutely correct. What's very typical, Duncan, is you'll see survivor benefits on annuities. So you can accept a lower payout for those cuz ultimately the the survivor or you can have 10-year period certain. So I'm going to start an annuity, but if something happens to me, I want it to continue for a set period of time and then a beneficiary will continue to get paid.

19:34 >> Also, speaking of vacations, the only thing the Italians complained to me about was they said, hey, one of them said, I went to New York last month, and he said, I can't believe how expensive New York is. >> Wow. >> They can't handle the New York prices. >> getting mugged from across the Atlantic. >> Yes. They said, holy cow, do you know how much it costs for a burger in New York? I got a lot of that. So >> How much is a beer in in Milan?

19:55 >> I it's it's it's similar to most places. I guess it's not that expensive. >> I didn't know if it was like Budapest or Paris. >> And is it €50 a liter? Like I don't know if I would be complaining about fuel and energy prices coming from Europe, right? >> true. The the prices were not egregious in in Italy, I would say that. >> Okay. >> Even though Milan is kind of like the biggest city there.

20:14 >> Great. When in Rome. Yeah. >> Let's do another one. >> There you go. All right. Up next, we got one that's I I anonymous unless Anon is a Irish name. >> Yeah. >> >> Speaking of people from overseas. >> Yeah. Yeah. Wow. >> I'm a financial advisor from Cork, Ireland. I'm a CFA charter holder. No ethics breach for misuse of the letters here, but not a CFP. Some things I think about in my job are does every client really need a financial plan?

20:41 If you're very wealthy and very old and essentially the plan is to leave all of your future generation leave it all to your future generations, for example. I know you need some tax planning etc. But do you need a financial plan? Would a fixed fee type advisor work better in these instances? Sometimes I think we do a plan for the sake of it. >> Perfectly reasonable question and it's kind of funny it's coming from an advisor who maybe thinks like somebody clients don't but I think the hard the hardest ones are for the people who have a certain level of wealth.

21:11 Like as long as you like I don't know what that number is. Let's call it I don't know 20 million and above. We've clients like that Bill. If as long as you don't blow them up and put them in a Ponzi scheme or something they're probably going to be fine regardless of what they invest in, right? Stocks, bonds, T-bills, hedge funds, whatever. But I think there is a downside to having this much freedom. In fact, I would argue that people who have this level of freedom like need a plan more than anyone.

21:38 So Bill, we've worked with people who have you know eight figures, nine figures, billionaires, right? And they whatever they do with their money they're going to be okay. But here's the thing when you have more money than you know what to do with. The first Uber wealthy family I ever worked for here in Grand Rapids was billionaires. I helped manage their endowment fund, right? And they were constantly getting pitched from all walk from everywhere, every direction.

22:01 Here invest in our fund, invest in our product, invest in our solution. It was never ending. And it was very eye opening. And what I learned from that experience and I learned it from my first boss in the business about this that like you have to have some sort of plan or guidelines in place otherwise you just end up saying yes to everything or you have like you have no reason to say no to anything. Because most of the pitches guess what they sound okay.

22:23 Right? Most pitches sound good. So you need to figure out a way to give yourself permission to say no. And here's here's the example I give in some of the speeches I give to like advisors and investor groups across the country. Dan, throw my slide up here. Bill, you're familiar with this band here? >> Oh, yeah. >> So, yeah, the white They're kind of known for that. The White Stripes. So, I I show this slide to a lot of the talks I give. You can do Slide off here, Dan.

22:45 It's kind of funny. They When they first came out, this is like pre-social media internet days. People were like, Jack and Meg White, are they married? Are they brother and sister? Are they cousins? Like no one Remember there was kind of >> Yeah. >> Yeah, and they didn't like dispel any of them. It was kind of weird. So, >> do you know about all the drama between them and the Black Keys? They like hate each other? For real?

23:01 >> Really? >> No. For real, yeah. And if you think about the White Keys is two people, black keys, white stripes. >> I know. I mean, they're a little odd, so that doesn't surprise me. So, they had their >> So, it's like Neil Young and Leonard Skinnerd, but in the 2000s, but goth. >> They just feel like they kind of stole their thing. Yeah. >> Okay. >> >> So, they had this album called White Blood Cells in 2001. They're like breakout album. It was on all these lists of best album of the decade, right?

23:24 fell in love with a girl. What's it? Hotel Yorba. We're going to be friends. Like you've heard a lot of these songs. >> Yeah. >> So, they made this entire album in of 18 songs in 10 days. And the New York Times did a story on them. They asked, how did you do this? And Jack White said, okay, we had rules in place to do this. He said, and I don't know music stuff. So, he said, no bass, no slide guitars, no covers, no guitar solos, and no blues. Like they had all these rules in place.

23:48 And they asked like they're like, why would you do this? Why would you have these rules? Why would you want to box yourself in? So, I'm going to read this quote from him. He said, I'm disgusted by artists or songwriters who pretend there are no rules. There's nothing guiding them in their creativity. We could have spent 6 months making our last album. We could have recorded 600 tracks. The whole point of the White Stripes is the liberation of limiting yourself, which I love that line, the liberation of limiting yourself.

24:09 And that's something that we have to do with like our family office of the clients. It's not just the plan that matters. It's like the filters and the guidelines and limitations. Like they need rules. So, I totally disagree with this premise that some people don't need a financial plan. The people who think they don't need a financial plan sometimes need it more than anyone. >> Well, Well, kind of I think you already hit the nail on the head. There's a difference in needing a financial plan and someone who's going to be okay regardless. Like I mean, yeah, they could still benefit from a financial plan though, right?

24:36 >> Yes. >> Yeah. Doing doing investments by the seat of your pants Ben, I think you're totally correct. You're opening the door for being vulnerable to emotional decision making, to to overleveraging, to to just kind of >> And and maybe being taken advantage of. >> Yeah, totally. Have either of you seen the Matthew Perry documentary came out a couple weeks ago? >> No, I would like to see it though. >> It was a tragic watch to be honest. You know, some nostalgia. But the thing and I don't mean to be harsh about this because RIP I just don't like to speak ill about anybody who's passed away. But when when you don't have an anchor, like when you don't have a family, I think in in Mr. Perry's case, you do kind of like end up with like a like a white plastic bag floating in the breeze, right? And like ultimately what what that person needed in my opinion diagnosing was was a North Star, something. So like it and on it does not need to be a complex thing. It doesn't need to be a money guide or money e money pro plan. It can be a piece of paper that says I'm going to take to draw $120,000 a year for spending and then the rest is going to go to the Fisher House Foundation, a great charity for veterans we try to recommend by the way.

25:33 And that's it. Like Ben, I I think the the plan doesn't have to be this high falutin thing. It can be a simple mission statement, right? That that ultimately is going to be your North Star and help you out. So yeah, I'd say anybody needs some sort of plan. Otherwise you're going to be floating in the breeze like >> And we've given we've given certain clients we say this is your bucket to fill up for those kind of things, right?

25:51 Your friends come and pitch you with plans or there's a political thing that you want to invest in or whatever for like >> and family, yeah. Wow. That's >> But you need you need so if you have a rule saying I will only invest this much money in these kind of things, then you can say you know what, my bucket is full for this year. I can't. Like you need permission to say no to those things sometimes. Otherwise you say yes to everything.

26:09 >> Yeah, and you need to write it down. so Cork Ireland, I've never been. I would love to go. I'm sure it's a lovely place. But the I took a look there there there's a film. Can we can we chart on the the photo I have here? The 2016 The Lobster. Have you gentlemen seen this great movie Colin Farrell and Rachel Weisz? >> What a bizarre movie. >> is a it's one of the weirder movies. You have 45 days to to find your partner or you get turned to an animal. And Colin Farrell gets props because most people, Ben, most people choose dogs, right?

26:35 Because dogs And that explains why dogs are everywhere. He chooses a lobster, which I would argue is a fate worse than death, right? Bottom feeders, bottom of the ocean, the trap comes along, like that's no fun. Anyway, Rachel Weisz 10 out of 10. Dead Pan doesn't begin to describe this movie, right? >> who's the who's the director of that? He's a really weird He always does really weird movies. >> of the Sacred Deer too, I think. I I can't think of >> And the movie with Emma Emma Stone. I can I'm not even going to pretend I can pronounce his name.

26:58 >> All right. Ireland's got to be my next stop on the book tour be after Italy because >> Fashion, those wools, those heavy wool sweaters. >> half of my my other half my mom's side of the family is the maiden name is Kennedy. So we're I've got my I mean my uncles look like they could be on the Lucky Charms box. >> was your fault. Wow. >> He looked like they could be on the Lucky Charms box.

27:20 >> I mean with red hair, you know, I'm just saying like very Irish. Two of my uncles are very Irish looking. >> Nothing Nothing wrong with that. >> Yeah. >> These are great Americans. >> Yeah. Listen, great question, but yes, I'm going to go the opposite direction. >> Let's do it. >> I'd love to go. >> Road show. >> Next question. >> Also Jack White Italian crossover Lazzaretto. Great song. I don't know if you're familiar with it. Yeah.

27:45 >> It's funny that song is like a sports anthem. Like the white shorts and like >> thing they would have ever wanted. >> very funny. It's very >> so commercial almost. Yeah. >> extremely funny. Yeah. >> He's He's a cool guy. I think he's he's probably cool with that. >> I'm guessing he really doesn't mind when that check hits his inbox. >> he just likes that people enjoy his stuff. >> And also Detroit, Michigan they're from.

28:05 >> Oh, I didn't know that. Wow. >> I forgot that. Yeah. Wow. See another one. And this the next question is also an international question. We're all over the globe today. >> Let's do it. >> Okay. next we got one from Viraj. Do you suggest keeping an emergency fund beyond one or two months of expenses? If so, how much? I'm 33 and currently keep about two months of expenses in cash with no separate emergency fund. My thinking is that my brokerage account, which is currently worth about five times my annual expenses, can serve as my emergency fund. The opportunity cost of keeping six to 12 months of expenses in cash or money market fund seems huge.

28:41 Plus, emergencies can happen more than once, meaning I'd have to keep replenishing the fund. The drag just doesn't seem worth it to me. I'm a listener from India where we don't have access to unemployment insurance or similar safety nets. >> That's interesting. They're they're kind of like the US was before the Great Depression where we didn't have a social safety net at all. No unemployment insurance, no social security, no SEC, none of that. I have a I have a question for you guys.

29:06 A trivia. What percentage of adults in the US have at least three months of savings in an emergency fund? If you had to guess. >> 35 >> Higher than I would have thought. 55% according to Fed data. >> That's great. >> Higher than It's a survey data, so take it for what you will. >> What would you answer? Of course I do. >> Yeah. Yeah. so I do think there are certain personal finance people who take the emergency saving things too far. Like you cannot invest until you have six or 12 months of expenses in emergency savings. I I certainly don't have that much because of kind of like what he's saying. I have these other avenues to explore. I have a brokerage account. I have a HELOC. You know he doesn't. but I think the fact that he has a brokerage account yes, kind of gives I think as long as you have another backstop, I don't think it's necessary that you have so much money in cash. How conservative are you on this stuff, Bill?

29:58 >> I I completely agree. Varaj is on the right track. Rules of thumb, gentlemen, they're rules of thumb, right? 4% withdrawal rate, be married for twice as long as you plan to be divorced. Whatever the rule is, you you can break the rules, right? You can play your own game. And ultimately, yeah, if if you're if you have a $10 million net worth, right? And it just doesn't make any sense to hold a percentage in that basis. But what's changed a lot, Jents, in the last couple of years in Varaj too for me is that for the first time in my career, like post 2023, 2024, you can get yield, right? With very very short-term securities. And so for me, Ben, I have definitely moved away from these high cash positions because I am doing more in US Treasuries. We talked about this too as the compounds to go.

30:39 And ultimately that that covers the base for me, because US Treasuries are highly liquid. But the difference between that and what you can invest in a short-term savings account once paying me tax, you know, a slightly higher 50 60 basis points more of state income tax-free yield versus liquidity. But the Treasury market's very deep and liquid. For our rules of thumb are rules of thumb. >> So someone in the in the chat says do not use your brokerage account as emergency fund, otherwise you'd be selling during a correction.

31:06 Fair enough, but that's also to your point, Bill. It's not just stocks in the brokerage account, it's something else as well. >> Yeah yeah. And I just increasingly in my own portfolio just been doing more and more barbells, right? Like keep the cash here, earn some yield, whatever it is, and then everything else is 30-year money. Particularly when it comes to things like Roth IRAs, right? And Roth 401 k's. I'm not going to touch that money till I'm 60.

31:26 >> I also think the best emergency fund is having a high savings rate. >> Yeah. >> If you have the ability to turn your savings off, that's an emergency fund. >> Someone I know does the same thing. and you know, my thinking has always been like you would have missed out on opportunity, you know, of gains in the market anyway without having the without having the money in the market. So yeah, if you have to withdraw the money during a downturn or something, to me it just it feels kind of like it's as wise as long.

31:54 >> Yeah, because the expected return is higher. >> Particularly once you build up. Yeah. And what's very popular >> is asking Oh, sorry. >> No no, go ahead, Duncan. Jason. >> James in the chat is asking do you do you consider credit available there? >> I was going to go a version of that. One of the things that we've been talking about a lot, Ben, this year and into last year is the ability to basically borrow from a portfolio, right? And and if rates are relatively stable, if you're looking at a box spread, something like that, ultimately you can have the best of both worlds, right?

32:21 You can draw cash out that's secured, right, by your assets in the portfolio as long as you don't touch margin rate. So Duncan, yes, I agree. I think there are there are ways to do this. but ultimately Ben, it all comes from having a high savings rate. I totally agree with your point. >> Yeah. But yeah, I would if I'm having if I'm relying on credit, I want multiple sources. I don't want just one source that we're relying on gets pulled because if you're in a financial crisis, that's like the >> That's right.

32:42 >> have said, hey, listen, my I thought I had a HELOC and then the housing market crashed and I was screwed. >> Yeah, and if they >> a very low probability event. >> Well, particularly if it's like equity in your home, but then there's fees associated with it, right? And so maybe maybe you're right. A lot of people found out in 08 09 long time ago now, but like these are this was during my financial lifetime professional career that like they went to go tap lines of credit and they weren't they weren't available. They were dry, right?

33:05 So I I do agree with that. >> And imagine suddenly Oh, go ahead, Ben. Yeah. >> Everyone in the chat was guessing way off on my thing too. So they're saying everyone's lying. 25% 8% 1/3 So everyone thought everyone in the survey is a liar. >> Wow. Yeah, American balance sheets in better shape than we thought. >> Mhm. >> Yeah, I was going to say with the credit thing too, imagine you you have an emergency, you put 10k on a credit card and you're suddenly paying 30% you know a month or 30% APR on that that's >> Well, and when when things go wrong, it's it's a lot of things going on at once, right? You you God forbid you lose your job, the portfolio is down 20 30% and and and yeah, then you can't borrow from your house because you don't have the ability to repay, right? So it it won't be one thing, it'll be multiple things.

33:47 >> So Chris actually in the chat says, how do I use my stocks to loan myself money? It's a margin account essentially or a box spread. Yeah. >> Yeah. >> We we did we did an episode on that I don't know 3 months ago or something where we talked about box spread loans. You can essentially borrow against you can use them as collateral. >> Yeah. >> Just make sure you don't borrow too much cuz if they lose money, then you're going to get margin called.

34:06 >> Exactly. Leverage leverage cuts both ways. >> Yeah. All right, let's do another question. >> Okay. Up next, we got one from Ali. I was wondering if it's worth contributing to Trump accounts for two young kids for the purpose of giving them a head start on retirement. I already fund their 529 accounts, but was thinking of maxing out the 5k per year for both of their Trump accounts and then converting to Roth when they turn 18 and it turns into a traditional IRA.

34:32 I believe the gains may be subject to the kitty tax. Never heard of that. So I I might I might need to wait until they're 23 but from my understanding, I can convert the contributions at 18 when they should have little to no income. This seems like a good way to give each kid a $100,000 plus Roth IRA that can compound tax-free. I was wondering if Bill thinks this is a good idea. >> What do you think, Bill?

34:59 >> I have changed my mind on a couple of things. I wanted to give Trump accounts a try. 530A is interesting opportunity. I think I'm on the opposite end of this now. I don't understand what purpose these things serve, right? And so outside of the the seed contribution, which is $1,000 for any child born I think from 2025 to 2029, I really don't see >> if right, if if you have a had a kid in the last few years, you obviously have to take that free money.

35:24 >> Yeah, but other than outside of that, I don't see the point because ultimately what I don't want is a non-qualified non-deductible IRA contribution, which is what these things are, to listener's point, once we get to age 18, then fine, you can take a distribution, but it it if you if you take it, there's there's a penalty. If you do that before age 59 and a half, and yes, it is taxed potentially as unearned income to the child, meaning that you're going to pay income tax at the parent's rate until the child is no longer is able to support themselves, which is you can be as late as age 25.

35:56 So I don't really see the point, right? I think Ben to me, 530A Trump accounts, that is the account too far, and I will fight you on that one. It's too much. >> All right, that's that makes sense to me. I cuz we've been getting a lot of questions on this too. Like is it so I I didn't I don't really understand the kitty tax. So that you're right, that when the kids like it sounds great that we're building wealth for them at an early age, but is it worth it when they have to actually turn on and take it out?

36:23 >> Yep. The the only reason to do this is if you have funded everything else, funded the college, funded the 529, and maybe you have a and you just you need a place to park $5,000. it's a way to do that. You do get some some some compound benefits, right? Because dividends, capital gains within the account are not taxed. But if the kid can't touch the money until 60, I don't it just doesn't really fit a a great need. I'd much rather have a Roth.

36:46 >> So, there aren't there's no rules in place that wasn't I thought there were rules in place if you use this for college or starting a business or >> No, no. No, those all got blown up. I mean, you can take distributions from IRAs, right, for education, right? There are exceptions to that. But the complexity for me, Ben, doesn't doesn't it's not worth the squeeze. and for for founding a business, no, that was a part of the house bill. It didn't make it into the final bill. They become IRAs when the child turns 18.

37:08 >> So, just fund all of their 16 accounts first and then do the Trump account. >> everything else out first. Yep, exactly. And maybe a vacation, too. I don't know. Take Ben Carlson's advice, Sully. >> There we go. All right. We got one more. >> All right. Last but not least, we got one from Michael. We're thinking about taking our overall asset allocation down from 60/40 to at least 55/45 if not 50/50 as we feel we can afford to take less risk.

37:34 That said, bonds seem to have their own risk these days, as you've shown. But even so, the basic way to take less risk is by shifting the stock allocation down in favor of bonds, right? >> All right. So, this this is a conversation we're having with our clients right now as well. There are a lot of people who are in a way better financial position than they would have thought of. If you would have built a financial plan 5 years ago, 7 years ago, 10 years ago, you set a reasonable return on your money.

38:00 You should have more money now based on what has happened in the housing market, based on what's happened in the stock market, even with bonds not doing well at all, right? It's like, oh my gosh, my plan was was supposed to be funded by this year. Now it's fully funded. I'm doing better. So, the fact that Michael is thinking about taking less risk cuz they're they can afford to, that's a great that you're in a great position, right? I've already won the game. Let's take a little less risk.

38:22 >> Yeah, exactly. And yeah. Yeah, and Ritholtz Wealth CEO, our friend and colleague Josh Brown, about a month ago, 2 months ago, rang the bell and said, listen, if you have not gone through financial planners at Ritholtz, all of us were in Charlotte, if you not gone through and reviewed clients' financial plans in light of the shift in the bond market and where we are in the market cycle, you're not doing your job was more or less the message. And that that did lead to a lot of folks sitting down, including with some clients I'm involved in, Ben, and having that conversation, because why take on that extra risk if you can achieve all your financial goals with lower volatility.

38:52 >> Now now, this gets back to our question about the rich people, because some people it's do do they need to take more risk? No, but they might want to take more risk still. So some clients say, okay, fine, I don't care. But like Michael is saying, no, I want to de-risk. I think the simplest way to de-risk any portfolio, the simplest hedge of all time is adding more cash to your portfolio. >> Yeah. >> If you really like you add T-bills or money markets or something but yes, I think bonds is another way of of doing something similar. But I I I still think that cash is the ultimate hedge that there is if you want to hedge anything, because you take out the nominal volatility. There's still real volatility because of inflation. But I think if you really want to de-risk, you could say, I'm going to take, you know, 5% of this and put it into T-bills and 5% is going to go whatever it is. I I think that's the way you want to like really de-risk.

39:41 But yes, bonds are another step function of that, fixed income. That that's a very >> tips, yeah, I bonds, there's a lot of ways to attack this problem. You're just you're trading one risk for another, right, Ben? You don't get the drawdowns, but maybe you're not as inflation protected as you might be otherwise. But hey, a balanced portfolio is going to have all these bases covered, right? You're not going to see that much difference between a 60/40 and a 50/50 portfolio. It it but if it helps you sleep at night, totally worth it.

40:05 >> You're right. The the drawdown difference between a 60/40 and a 50/50 might be a few percentage points. It's not going to be like a complete difference. But yeah, it it gives if it gives you a few more years of safety. We always we always talk about like think about your safe allocation, whatever it is, in terms of years worth of spending, right? If you're spending 4 or 5% of your portfolio and you go from 8 years of spending to 10 years, that can give you some extra peace of mind.

40:29 >> Yep, totally. Yeah, and this was again a a big topic for the advisor offsite. I just came back from this morning you know, Ritholtz Wealth Advisors, like Eric Zipfel, like Alan Brockhouse, Adam Day. These are conversations we're having with clients all the time, right? And there's no flashing light that says, hey, it's now's the time to downshift your portfolio. But I think over time, as we continue to age, move along the age curve, very very thing to do, particularly while the sun is shining in November.

40:52 >> Yes. And, now that bond yields are higher. I know Duncan always not a not always a fan of bonds. >> He will be. Let's check back in in 2015. >> I have some short-term government bonds now. You'd be proud of me. Yeah. >> All right. And you're probably earning what? Four plus percent on them, right? >> Something like that. I mean, before taxes. >> Yeah. >> Yeah. >> All right. >> Spea- speaking about the government for which it stands, can we pull on my last two charts here? I want to give a very happy Veteran's Day shout-out to my friend and colleague, your Naval Flight Officer Patrick Haley. Patrick joined the company two years before me.

41:23 I think he was employee number five six. He predates you, right, Ben? I mean, he's >> He was there before me, yes. >> This guy is AG. Patrick Haley, to his immense credit, was in the air on the East Coast on 9/11/2001 when it mattered most. so I'm very, very proud to serve with Patrick. next next slide, please. And I I have this picture was taken when I was 23 years old, gentlemen, and I'm 46 today.

41:44 >> Gordon. >> What are you sipping on there, Bill? Coffee? >> That was coffee. Yep, general order number one, gentlemen. >> Coffee in the middle of the desert. All right. >> There's no booze. There's no sex in the champagne room. There's no booze in the desert. thank you very much. it's probably my favorite. yeah. So, but yeah, we were A Company, Duncan. And yeah, that was my tank. Air Guardian was a tank, you know. Tolkien was big in the early 2000s and >> So, you everyone gets to name their tank? That's a thing?

42:08 >> Yeah, the crew. The crew gets together and every time there's a new tank commander, new changeover, yeah, you get to rename the tank. And yeah, I let my gunner pick that one. So, that was pretty cool. >> what what kind of plane is that that Patrick is standing in front of? It's the one with the big like disc on top of it. >> I I the the name escapes me, but yeah, it's the the central thing. If you watch one of the great American movies, Top Gun Maverick, at the very end, the the woman's in there and she gives them the go command. She's like, you are go for launch. And Maverick's like, So, yeah. just a couple other vets to shout out. Patrick Cleary, West Gray at Alpha Architect, just great great Americans, Lance Widner, CFA Society of New York, my friend Todd Hurtling, my battle buddy, best man at my wedding at Fort Hood, Texas. He's a brigade commander right now. He's been 23 years of active service. And I want to shout out box car founder and CEO Joseph Colangelo, who I learned is a lieutenant in the Navy today. He's he's solving a problem for me getting my ass from New Jersey to New York City three four five days a week.

43:03 >> So wait, your best man who's been in the Army still for 23 he's going to have a great pension. >> Yeah, well yes. And his father you recognize his father maybe CNN contributor Mark Hurtling just great and Scott his brother just great great great Americans. And just final point for me because mom and dad watch the show every once in a while my dad. He was originally the original Bill Sweet, the OG Bill Sweet more than 23 years he retired in 97 from West Point New York a cold warrior.

43:27 Notice that the Germans did not invade Germany through the Fulda Gap because that gentleman was standing there at the Brandenburg Gates from 1979 to 1987. >> I'm guessing it's not a coincidence that your dad retired the same year Roth IRAs came on board. >> Was it a coincidence? I don't know. Hey, we were right at West Point New York a lot of lollygagging going on. >> And while we're doing the sublime thanks style song you know where we're thanking everyone Sean in the chat I think is a is a vet so thank you Sean. He also said it's E2 Hawkeye.

43:59 >> Thank you. Great great great. Yeah, great great just can I can I shout another podcast School of War with with Air McClain they did this whole thing on the on the V22 Osprey just this last week really really interesting stuff about how that thing actually works. That thing is huge. I had no idea. So check that out in the chat. >> All right. >> That's my favorite plane. >> that thing's cool so yeah. But thank you gentlemen. I have been warmed warmly warmed back into the country unlike a lot of Vietnam vets I think 50 60 years ago and I I never take it for granted. If somebody says takes the time to say thank you that that is a very meaningful thing to me. So thank you both. It's a it's an honor and privilege to work with you. Thank you.

44:37 >> Thank you Bill and I'm glad to hear you're not going to be turning into John Rambo. >> No. No, I think 20 years I I think I'm okay. I think I'm all right. Not that out of my system in Kentucky. Yeah. >> Duncan like that one. All right. If you have a question for us ask the compound show at gmail.com send them to us send it by people always say Bill's name specifically. Here's one for Bill Sweet.

44:55 We appreciate that. >> Yeah, he's three times and I appear. >> Thanks everyone in the live chat. We'll see you next time. >> Thanks everyone. >>