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Welcome to personal finance for
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long-term investors, where we believe
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Benjamin Franklin's advice that an
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investment in knowledge pays the best
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interest both in finances and in your
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life. Every episode teaches you personal
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finance and long-term investing in
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simple terms. Now, here's your host,
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Jesse Kramer. Hello and welcome to
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episode 105 of Personal Finance for
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Long-Term Investors. My name is Jesse
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Kramer. Later today, Bill Y will be
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joining me. Bill is the co-host of
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Catching Up to Fi. FI as in financial
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independence. It's a podcast targeted
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toward late starters who now need to
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play a little bit of catch-up in their
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financial lives, but certainly still can
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achieve financial independence if they
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write the ship in time. And Bill has a
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lot of interesting lessons to share with
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us, especially targeted towards, you
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know, late bloomers to personal finance
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investing and financial independence.
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But before Bill joins us, I have some
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thoughts to share. And as always, we're
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going to start off with a quick review
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of the week. This one comes from
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MXXX. That is a lot of X's. And the
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title of this review, it's a five-star
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review on Apple Podcasts. The title is,
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"Great job explaining retiree issues. I
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recently spent a fair amount of time
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finding and educating myself on Roth
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conversions. Today, I listened to
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Jesse's podcast number 99, and it was
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all there in a few minutes of
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discussion." Well, MXXX, I'm glad this
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was helpful. The podcast has been
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helpful for you in your retirement
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planning. It's certainly a topic that
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I'd love to talk about and if you shoot
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me an email to
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[email protected], we'll get
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you hooked up with a supersoft podcast
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t-shirt. Okay, before Bill joins us
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today, I have a couple old articles,
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interesting thoughts I wanted to share.
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Again, targeted towards maybe some late
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bloomers or some people who are just
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discovering the world of personal
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finance and investing themselves. And
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then I'm recording this in in late
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March. And we've had a pretty tumultuous
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March and and part of February, too, in
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terms of investing in the stock market.
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So I want to share some thoughts with
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you guys about this concept of buying
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the dip which is essentially you know
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holding on to cash to some extent maybe
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hoarding cash waiting for a market to go
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into a minor correction a bare market an
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outright crash and then boom you pounce
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and invest once the price crashes. It's
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a concept that on its face makes a lot
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of sense but I think as you'll hear
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today there's much more to it than meets
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the eye and more often than not it
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actually might not be worthwhile. So,
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we'll get to that article and those
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thoughts eventually, but first a couple
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articles, some thoughts targeted towards
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again the late bloomer. So, the first
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one is called the stupidly simple secret
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sauce of personal finance. Some people
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out there, you'll hear them say, you
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know, take your income, divide it into
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five equal buckets, take each bucket,
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multiply it by your age, you know, if
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Mercury is in retrograde, convert two
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buckets to Bitcoin, otherwise use 14% of
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your future social security income,
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calculated Pratta, and buy lottery
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tickets, something like that. Well, that
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is stupidly complicated. But people
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understandably, they yearn for hidden
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knowledge, for secret knowledge, the
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secret sauce, and they hear things like
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that rambling that I just had, and they
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go, "Oh, that sounds like secret sauce
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to me. Maybe that's what I need to do."
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But personal finance does not have to be
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complicated. The real secret sauce of
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personal finance, in fact, is incredibly
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simple. So, we're going to talk about
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four stupidly simple rules first off the
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bat. the following four rules, they
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aren't highlighted enough in the
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personal finance space. Or or maybe they
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are, but I think maybe because they're
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so simple, we we overlook them. But
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these rules provide the easy answer to,
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for example, how a frugal teacher can
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end up in a better financial scenario
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than some slick Wall Street banker or
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than some doctor. As you'll hear later
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today, you know, Bill Bill Ya is a
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emergency room doctor. And despite
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spending the first maybe 20 to 25 years
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as a doctor after medical school, he
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still ended up in a position where, you
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know what, he was a little bit lost
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financially. And it's because I think
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you'll hear him attest to this fact. He
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didn't have all these four rules in
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place. And they are number one, spend
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less than you earn. Number two, double
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down on the above and spend way less
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than you earn. Number three, find ways
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to earn more money, but don't increase
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your spending while you do so. And then
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number four, invest. Make your money
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grow on itself. As hopefully we all
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know, but you know, even today, this
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morning with a client, I had this
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conversation that there are two equally
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important inputs to the final product of
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good financial planning. The first input
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is how much money comes in. The second
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input, or maybe it's an output, but it's
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how much money goes out. It's how much
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you spend. And we all love to focus on
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money coming in, right? Salary. uh if
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not for salary, how would I compare
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myself to another human being? asks many
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of the modern midases around us. But
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salary alone or income alone, that's an
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incomplete statistic. Much like in a way
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like batting average was described in
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Michael Lewis's Moneyball, if you're
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familiar with that, it accounts for some
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results, but it does not account for all
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results. And that's why savings rate is
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a much better statistic at least when it
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comes to personal financial health
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because you know saving 50% of your
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income is is noticeably better than only
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saving 10% of your income and it doesn't
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matter whether you're a teacher or a
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banker or someone else. Whereas if we
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only compare salaries alone and we say
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well someone's earning 50% more than
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someone else that's not enough to really
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come to a good conclusion. My second
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stupidly simple rule of personal finance
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is that the winners are loud but the
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losers stay silent. Now, what do I mean
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by that? Well, we've all seen a headline
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that looks something like this.
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28-year-old turns $30,000 into 1 million
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with Tesla stock or with Bitcoin or with
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something like that. We love winners. We
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love the stories of, you know, woman
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gets rich off of great stock pick. Man
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shorts a company right before it goes
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bankrupt. Uh, dog digs a hole in the
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backyard and owner finds gold. We love
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those stories. Planet Money had a had a
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great episode a couple years ago on
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people making money off of Hertz, the
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rental car. They had a bankruptcy and
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then they had this subsequent roller
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coaster of their stock price and a bunch
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of people made a bunch of money off of
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that fact. And much like a roller
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coaster, making money creates this wild
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and exciting curiosity. You know, who
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doesn't like a story about someone
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making lots of money? It's a big short.
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It's one of my favorite books in movies.
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Making billions of dollars is is a cool
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story. But people are rarely publicized
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when they screw up. Mundane failures
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aren't in vogue. They never really have
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been. You know, man spends $50,000 on
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silver coins and never really sees a
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return. A woman neglects free retirement
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accounts and regrets her choice. Some
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bros buy crypto at the top and they lose
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their shirts. Oh, those aren't stories
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that stick with us. They aren't stories
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that are written about, but they should
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be, right? Those should be the stories
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that we hear and they should be
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cautionary tales of of what not to do.
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Instead, we hear stories through the
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filter of survivorship bias, right? The
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winners make the cut and we hear those
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stories. The losers don't get
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publicized. For every winner you hear
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about, you should consider the silent
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losers. Your slow and steady solution,
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it might seem lame compared to the
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people who are taking rockets to the
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moon, but a lot of those rockets
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actually blew up on the pad, and we
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shouldn't forget that fact. The next
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stupidly simple rule is that boring is
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best. Picking stocks, it's fun. So is
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picking horses, but unless you're
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really, really good at it, it's probably
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a losing bet for you. And let's face it,
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most of us are not really good at that.
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There's some really good breakdowns out
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there and I've I've written one or two
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I'll share in the show notes about luck
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versus skill in stock picking. You can't
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just be above average, right? That's not
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good enough. You've got to be
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consistently above average, far above
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average for a long period of time. The
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alternative to such complex stock
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picking analysis over over long periods
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is to invest in something like a boring
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index fund. It's what Buffett recommends
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to a lot of people like us. I mean, he
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does it his own way and he's really
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really good at doing it his own way. And
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you're right, he he doesn't invest his
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own money in index funds. Not yet. He
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said that a lot of his estate would go
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into index funds once he dies. But the
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idea is that if you know enough to be
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like Warren Buffett, well, go ahead,
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pick individual stocks, buy whole
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companies, and make your money that way.
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That's what he does all day every day.
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And he's been doing that for over 80
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years now, something like that, right?
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He bought his first stock, I think,
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before he was 13, and now he's 93 years
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old. For the rest of us, we might want
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to do something simpler so that we can
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go out and live our own lives. And
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that's not the only one where there
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there's a contrast in personal finance
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and investing between something that's
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exciting versus something that's good.
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Gold and Bitcoin can be exciting. Is
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saving tax dollars via investing in a
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401k. Is that exciting? I don't know. It
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sounds pretty boring to me. And yet
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maximizing your tax advantage investing
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accounts. It's one of the best methods
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for the average American to achieve a
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healthy retirement. It's like saying,
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"Hey, eating carrots and jogging every
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day, it'll help you lose weight." Great.
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I bet it would. But isn't there a magic
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weight loss pill out there or some
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Himalayan calorie burning meditation
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technique? We yearn for solutions to be
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exciting and exotic. But they don't have
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to be. Boring and rich or exciting and
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broke. For me, it's an easy choice. My
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next rule is that you make the economy
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go. At least in part, you and I make the
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economy go around. It's our purchases
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that keep money flowing. And that flow
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of money greases the wheels of the
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economy. There's an enormous vested
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interest in ensuring that average Jane
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and average Joe spend a significant
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portion of their incomes. The
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advertising industry is predicated on
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that interest, right? Drink this beer
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because you'll be the most interesting
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man in the world. Buy this computer so
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you're not an Orwellian drone. That's a
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famous Apple ad from 1984. You know,
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these shoes will make you cool, just
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like insert your favorite athlete here.
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We're urged to consume until we're fat
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and broke. And once obese and opulent,
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we're urged to lose that weight and
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store that stuff. and the cycle
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continues. To the powers that be, you
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are a consumer. You make the economy go
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around. Well, something like the
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fulfillment curve is the antidote to
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that mindset. If you really know what
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you're spending and how it correlates to
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what makes you happy, you'll most likely
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spend less. And once you have your
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personal answer to that question,
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maintaining these stupidly simple rules
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of personal finance becomes a really
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easy task. The next one is that
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measurement is the key to management.
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frequent contributor to the the best
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interest blog, Peter Ducker, had this
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famous quote from the 60s or 70s when he
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was kind of at at his peak. And the
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quote is, "You can't manage what you
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don't measure." So to manage would be to
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analyze, take care of, and improve. And
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to measure would be to watch, to
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observe, to take notes, to quantify. Let
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me present two people to you. One of
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them tracks every single calorie she
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eats. The other one pays no heed to what
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she slides down her gullet. All else
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being equal, who do you think is going
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to end up healthier? Now, the first
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instinct, it's the woman who measures
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all of her food intake. Why? Well,
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because we know that her abundant
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self-nowledge is likely going to lead
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her to make smarter food choices. The
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woman who doesn't care, well, she
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doesn't care. And that's probably going
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to lead to worse food choices. And the
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same exact principle applies to personal
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finance. You don't have to track every
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single dollar, and you don't have to
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check your accounts on a daily basis,
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but you should have a really good idea
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of where your money is going and where
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your net worth stands. Are you
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improving? Are you slumping? Are you
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spending thousands of dollars on
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Nepalese meditation retreats? Measure
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your money and then improve. Now, what
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happens if you don't follow some of
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these stupidly simple rules? The secret
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sauce. The stupidly simple secret sauce.
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Well, you might end up something like
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Dave. And in uh July 2020, I wrote this
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article. Do you know Dave? Somewhere in
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middle America, there's a man named
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Dave. You might know him. Today, for the
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first time ever, Dave is realizing that
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he's in a financial death spiral. Dave
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makes about $60,000 per year. He knows
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he pays some taxes, but he's not sure
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how much. All Dave knows is that his
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monthly take-home income ends up around
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$3,000. Right off the top, Dave pays
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$1,200 for rent. His apartment is sick,
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or perhaps on fleek. Pick your parlance
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of the times. It's a modern, stylish,
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could easily fit another person in his
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apartment, but Dave likes to live alone.
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Fair enough, Dave. And after driving a a
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junky Honda Civic in high school and
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college, Dave is finally able to afford
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a nicer car. So, he leases changing cars
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every 2 years. Currently, he's behind
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the wheel of an Audi A3. It's 320 bucks
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a month, but insurance and gas brings it
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up to about 500 bucks a month. Dave's
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young, his friends are young. They all
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like to socialize around town. And a
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couple drinks and dinner later, the $35
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bill comes. And life gets a little slow
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in middle America. So Dave does this a
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few times a week. Spends about 250 bucks
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a month on dining out. What about some
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other stuff? Well, Dave isn't really
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sure, you know, whether it's Amazon
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purchases, groceries, gifts for his mom
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on Mother's Day. Dave knows that he buys
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these things. It's just that he doesn't
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really know how much or how often. He's
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unaware that he's spending another $400
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a month on all these things. Like most
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his peers, Dave has student loans. He
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pays 500 bucks a month. And in the 5
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years since college, he's paid about
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$30,000 towards his loans. That's crazy.
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Now, his statement says he still owes 90
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grand out of the original $100,000 in
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debt. But by Dave's math, 100 grand
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minus the 30 grand he's paid. Well, that
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means he only owes 70 left. So, the loan
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company must be wrong. He thinks, well,
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they're not. Dave's dad annoys him about
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saving for retirement. You know, get
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that compound. Dad suggests that
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compound. At 27, Dave isn't even halfway
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to retirement age. He's got more
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pertinent things to consider than
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retirement, he thinks. So, let's add it
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up. All of Dave's finances, we just laid
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them out. And if you've been keeping
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track, well, good for you, because Dave
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really hasn't. The first problem is that
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Dave's total expenses are greater than
00:12:47
his income. He makes 3,000 a month, but
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he spends about 3100 a month. Now, it's
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not that big of a difference, right? But
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for the 5 years since college, that $100
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monthly deficit, it ends up on Dave's
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credit cards. $100 a month multiplied by
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five years. That's about $6,000 of
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credit card debt. Dave looks at his Visa
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bill, he sees a charge for $90 per month
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of interest, and that interest doesn't
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even affect his $6,000 in debt. What the
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heck is that? When Dave adds up his net
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worth, he finds that he's about $90,000
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in debt in total. And a lot of people
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are in lots of debt, he thinks,
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especially young people, college loans.
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It's normal, Dave thinks. Well, chronic
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smoking used to be normal, too. And much
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like an empisemic, Dave is in trouble.
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To the outside world, Dave's a
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reasonable example of a successful young
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guy. And I'll give Dave some credit. It
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seems like he has some nice things going
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for him. Education, steady income, nice
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apartment, nice car. What's not to like?
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Well, Dave's multiple and repeated
00:13:43
financial mistakes are catching up to
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him. And let's call a few of them out.
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After working for 5 years, he's
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decreased his debts by only 10%. He
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isn't aware of what he spends per month,
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and therefore, he's in credit card debt.
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Despite being in debt, he's still
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spending a significant amount of his
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money on luxuries and fun. And our young
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years, yes, we want to enjoy being
00:14:02
young. They're also some of the best
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times to invest for retirement, and Dave
00:14:05
hasn't done anything there yet. These
00:14:07
mistakes are easy to avoid, but nobody
00:14:09
ever really taught Dave about them. In
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fact, I would argue that our economy,
00:14:12
much like we just described, it's
00:14:14
actually a funnel designed to trap
00:14:16
people like Dave. Even though Dave's in
00:14:18
trouble, his path to improvement is
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pretty well defined. He should start off
00:14:21
by setting some financial goals. Right
00:14:22
now, he's foundering. He's got no real
00:14:24
direction. And Dave, much like his dad
00:14:27
said, he needs to get that compound,
00:14:29
right? Dad is right. Our younger years
00:14:30
are the best time to invest. And Dave
00:14:32
really needs a budget or he needs to be
00:14:34
tracking his finances somehow, right?
00:14:36
Money in versus money out. I used to use
00:14:38
the tool uh you need a budget. I
00:14:40
currently use a tool called e-oney.
00:14:42
Whatever tool you use, you've got to
00:14:44
track your finances. You've got to track
00:14:46
money coming in and money going out. Of
00:14:48
course, Dave could find some pretty easy
00:14:50
ways to spend less. He could get a
00:14:51
roommate, drive a cheaper car, spend
00:14:53
less at the Fish Fry Friday, whatever it
00:14:55
is. And in my opinion, those are all
00:14:57
secondary effects that occur after he
00:14:59
sets a goal, after he creates some sort
00:15:01
of budget or tracking system. I mean,
00:15:03
maybe Dave really likes his Audi that
00:15:05
he's driving. Fine, that's fine. But
00:15:07
something in his budget needs to give.
00:15:09
It's up to Dave to make that choice.
00:15:11
Now, do you know Dave? Can you relate to
00:15:13
Dave? Maybe you're even named Dave. At
00:15:15
the end of the day, odds are we either
00:15:17
know someone or maybe we were at one
00:15:19
point this person, much like the first
00:15:21
article I read from, it's very easy to
00:15:23
slip into these traps in in personal
00:15:26
finance, but at the same time, the way
00:15:27
we get ourselves out of them can be
00:15:29
stupidly simple. And now, changing
00:15:31
gears, in the light of recent market
00:15:33
volatility, and again, I'm recording
00:15:35
this at the end of March where we've had
00:15:37
some back and forth volatility. The S&P
00:15:39
500 right now is about 8% off its highs,
00:15:41
which okay, first off, we do need to
00:15:43
zoom out and say it's not that big a
00:15:46
deal, at least in terms of of market
00:15:47
history, right? 8% drops happen probably
00:15:50
something like 80 or 90% of years have a
00:15:53
intraear 8% drop. So, it's not something
00:15:55
there we need to be worried about. If we
00:15:57
want to be worried about what's going on
00:15:58
out in the world, politically, socially,
00:16:00
internationally, those kind of things,
00:16:02
totally. I get it. I get it. You know,
00:16:04
there's nothing wrong with looking at
00:16:05
the news, looking at world events and
00:16:07
saying, "Huh, that that concerns me." I
00:16:09
think there is something different
00:16:10
though about tying that into your
00:16:11
portfolio and saying, "Ah, because I'm
00:16:14
worried about what's going on, I now
00:16:15
need to make drastic changes in in
00:16:17
investing for no other reason than just
00:16:20
looking back at at history and realizing
00:16:22
that chaos has always kind of been there
00:16:24
in the background, whether we realize it
00:16:26
or not. World War I, World War II, Great
00:16:28
Depression, stagflation, oil crisis,
00:16:31
nuclear arms race, Cold War. It goes on
00:16:34
and on and on and on and on. There's
00:16:36
always been a reason to sell. Did I
00:16:37
mention pandemics yet? Anyway, there's
00:16:39
always been a reason to sell. And that
00:16:41
leads to some people saying, "Ah, I'm
00:16:43
going to buy the dip." And much like
00:16:45
birds chirping at the rising sun,
00:16:47
investors talk about buying the dip at
00:16:49
the first hint of a of a stock market
00:16:51
pullback, correction, bare market. And
00:16:53
yes, buying the dip makes sense at first
00:16:55
blush because it suggests that we should
00:16:57
buy assets at at lower or the lowest
00:16:59
possible prices. But buying the dip is
00:17:02
actually a suboptimal a bad investing
00:17:05
strategy. And we need to talk about why.
00:17:07
Now, the basic buy the dip argument is
00:17:09
that buying stocks is a risk. The
00:17:11
stocks, their prices, they might go down
00:17:13
after you buy them. And holding on to
00:17:15
cash, that's a risk, too. Now, the cash
00:17:17
could be invested. It could grow with a
00:17:19
rising market. That's the opportunity
00:17:21
cost of not investing is that you miss
00:17:23
market growth as it grows away from you.
00:17:26
Now either choice to invest or not has
00:17:28
some sort of risk and reward. The risk
00:17:30
is that the market moves in the wrong
00:17:31
direction. The reward is that the market
00:17:33
moves in your favor. How do we answer
00:17:35
whether to buy the dip, whether to wait
00:17:37
for the market to drop in price before
00:17:39
we buy? Well, we can't predict what the
00:17:42
market will do in the future, but we can
00:17:44
look at previous market data to back
00:17:46
test a buy the dip strategy. And that's
00:17:48
what professionals typically do. And and
00:17:50
that's what we're going to do today.
00:17:51
Usually what we do is if we have some
00:17:53
sort of strategy in mind, we look and
00:17:54
see how did it perform in in past
00:17:56
history. Now before I insult too many
00:17:59
people today, we do have to baseline
00:18:00
ourselves a little bit. There are two
00:18:02
common definitions of buying the dip.
00:18:04
Kind of like there are two common
00:18:05
definitions of dollar cost averaging. It
00:18:07
is a little bit confusing. The first
00:18:09
scenario of buying the dip is that
00:18:11
you've been holding on to lots of cash
00:18:12
for many years waiting for some sort of
00:18:15
big crash. And then after that big
00:18:17
crash, you choose to buy stocks is most
00:18:20
likely. We're going to talk about stocks
00:18:21
today. Now, that is certainly a form of
00:18:23
timing the market. But is it the same as
00:18:25
buying the dip? I say yes. We'll come
00:18:27
back to this. The second scenario is
00:18:29
that you're holding a small amount of
00:18:30
cash expecting it to deploy into the
00:18:32
market soon. Maybe you just you did a a
00:18:35
quarterly or semiannual review of your
00:18:37
financial plan and you realized, you
00:18:38
know what, you've got a few thousand
00:18:40
extra in your bank account that you
00:18:41
really don't need. You should invest it.
00:18:43
It should go into part of your
00:18:44
portfolio. We don't want to find
00:18:45
ourselves holding too much cash. So you
00:18:47
have this cash, you want to deploy it,
00:18:49
and rather than deploying it today, you
00:18:51
say, "I'm going to give myself a month,
00:18:53
and I'm going to wait for the first red
00:18:55
day in the stock market, the first day
00:18:57
of like a 1% drop before buying."
00:18:59
Because even if the market only drops
00:19:01
that 1%, you end up buying that dip. And
00:19:04
then in future situations when you have
00:19:06
a little bit of extra cash on hand,
00:19:08
that's the way that you choose to
00:19:09
invest. Now, I consider both of these
00:19:12
scenarios to be a form of bad negative
00:19:15
market timing. I say that both of these
00:19:17
scenarios are a different form of buying
00:19:19
the dip. Now, some people disagree with
00:19:21
me. Some people they argue and say that
00:19:23
since they're dollar cost averaging
00:19:25
anyway since they're investing money on
00:19:28
a monthly basis or on a you know
00:19:30
bi-weekly basis anyway through their
00:19:32
401k or Roth IRA or something like that.
00:19:34
Well, why not wait for a red day for a
00:19:36
negative day in the market to execute
00:19:38
their purchase? Buy low, right? That's
00:19:40
the argument. Wait for a red day, buy
00:19:43
low. It makes sense. And in those
00:19:45
people's defense, I do see a significant
00:19:48
difference between the two scenarios I
00:19:49
outlined above. It's not just my
00:19:50
opinion. The difference that I perceive
00:19:52
in these two scenarios, it is backed up
00:19:54
by convincing analytical data, which
00:19:56
we'll talk about. holding on to cash for
00:19:59
years, you know, stockpiling this cash,
00:20:02
waiting for a big dip to then deploy
00:20:04
that cash. That is a humongous losing
00:20:06
scenario. It could literally cost an
00:20:08
investor millions of dollars over the
00:20:10
course of a 30-year investing timeline.
00:20:12
It underperforms basic dollar cost
00:20:15
averaging by as much as 800% in total
00:20:17
returns in historical back tests. Now,
00:20:20
the other scenario where you're only
00:20:22
holding on to cash for a few days or a
00:20:24
few weeks or a month, that's a little
00:20:26
bit better. Well, I shouldn't say that.
00:20:27
It's actually much better than the first
00:20:28
scenario, but it's still a losing
00:20:31
scenario. Over most historical 30-year
00:20:33
investing periods when we back test this
00:20:35
kind of wait and see, buy the dip. Let's
00:20:37
wait a few weeks. Attempting to buy that
00:20:40
dip, attempting to wait for that dip
00:20:42
would drag your overall portfolio down
00:20:44
by about 1% over a 30-year period. And
00:20:47
for someone retiring with $1 million,
00:20:49
holding on to cash to buy the dip would
00:20:51
have cost them something like $10,000
00:20:53
over 30 years. It's not a huge price to
00:20:55
pay, but it's certainly not good, and
00:20:57
it's not something that you just want to
00:20:58
opt into. Why would you opt into losing
00:21:01
out on $10,000 on a million-doll
00:21:03
portfolio? Now, some people would argue,
00:21:06
well, you have to wait for a little
00:21:07
bigger dip. Wait for the market to crash
00:21:09
by 2% before you invest or or wait for
00:21:11
the market to crash by 5% before you
00:21:13
invest. But the data is clear. The
00:21:15
bigger a dip that you're waiting for,
00:21:17
the bigger a dip you need to trigger you
00:21:20
to turn your cash into stocks, the more
00:21:22
painful, the more damage you're doing to
00:21:24
your own portfolio. So, no matter how
00:21:26
big of a dip you wait for, it'll impact
00:21:28
your portfolio negatively. And the
00:21:29
bigger the dip that you're waiting for,
00:21:31
the worse it'll be. The best thing to do
00:21:33
is to not buy the dip at all. Some of
00:21:35
you might be asking right now, but why?
00:21:36
Cuz I mean, we already talked about it.
00:21:38
Buying the dip on its surface makes
00:21:40
sense because we want to purchase
00:21:42
stocks. We want to invest at lower
00:21:43
prices. The best way to explain it is
00:21:46
with this simple example. Let's say Adam
00:21:48
has money to invest. And it's uh based
00:21:50
on when I wrote this article, it's April
00:21:52
2021. And this is using real data, by
00:21:54
the way. So on April 1st, the S&P 500
00:21:57
was valued at 4,020 on April 1st, 2021.
00:22:01
And Adam decided to wait before buying.
00:22:03
He wanted the market to drop so that he
00:22:04
could buy the dip. Unfortunately for
00:22:06
Adam, the S&P 500 increased by 4.1% in
00:22:09
the first two weeks of April 2021 from
00:22:12
4020 to 41.85. 85. Only then after a 4%
00:22:17
increase did the S&P dip. It dipped by
00:22:19
about 1.2% in in midappril back down to
00:22:23
4135. So should Adam buy that dip at
00:22:27
4135 even though 4135 is much higher
00:22:31
than where he was previously sitting at
00:22:32
the very beginning of April? It was
00:22:34
4020. 4135 versus 4020. Or should he
00:22:38
hold out for an even bigger dip? And
00:22:40
what if that bigger dip never comes?
00:22:42
Right? the market is unpredictable. I
00:22:44
bet Adam or these hypothetical Adams
00:22:46
feel pretty conflicted, full of regret
00:22:48
when those things happened. Now, April
00:22:50
2021 was a very typical uh month in the
00:22:52
stock market. On the whole, the market
00:22:54
increased about 4% that month, but there
00:22:56
were a couple times with a a 1 or 1.5%
00:22:59
dip. For most months, just like April
00:23:01
2021, the best day to invest is the
00:23:04
first day of the month. And for most
00:23:05
years, the best day to invest is January
00:23:07
1st. Early is better most of the time,
00:23:10
right? the market in general goes up and
00:23:13
to the right. And if you know that, if
00:23:15
you zoom out on that fact, you'll
00:23:17
realize, sure, I mean, the market might
00:23:19
go down tomorrow or next week or next
00:23:21
month or next year. It's possible. But
00:23:24
on average, if you just ask yourself
00:23:25
this question over any month in market
00:23:29
history, you will have realized that
00:23:30
investing sooner is better than
00:23:32
investing later. Waiting for a dip is a
00:23:35
losing proposition. A future dip might
00:23:37
come, but it usually gets swamped out by
00:23:39
the larger gains in the meantime. That's
00:23:41
the other thing, right? There's always
00:23:43
going to be another 2% down day or 4%
00:23:46
down day or even more, a six or an 8%
00:23:49
down day. A really scary day in the
00:23:51
market. Those days are going to come. I
00:23:53
guarantee it. That's the way the market
00:23:55
works. But they usually get swamped out
00:23:57
by all the gains that occur between now
00:24:00
and then. So, waiting for lower prices,
00:24:02
yeah, it makes logical sense. But we
00:24:04
have to ask ourselves, what if lower
00:24:06
never comes? The problem isn't buying
00:24:08
the dip. The problem is waiting for the
00:24:11
dip. Here's a quick ad and then we'll
00:24:13
get back to the show. Every week I send
00:24:15
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00:24:17
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00:24:20
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00:24:23
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00:24:25
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00:24:28
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00:24:29
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00:24:32
It's a great primer to boost your
00:24:34
financial knowhow. But Jesse, I don't
00:24:37
want another email. Well, this might not
00:24:39
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00:24:41
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00:24:43
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00:24:51
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00:24:53
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00:24:56
bestinterest.blog. Again, that's a free,
00:24:58
no strings attached subscription at
00:25:00
bestinterinterest.blog. blog. And with
00:25:03
that, we're going to welcome Bill G onto
00:25:04
the podcast. Bill is a 57-year-old
00:25:07
practicing emergency physician, happily
00:25:09
married, family man, but he's got an
00:25:11
interesting backstory that's led him to
00:25:13
now being the co-host of of one of the
00:25:15
biggest upand cominging podcasts out
00:25:17
there, Catching Up to Fi. While Bill has
00:25:19
spent much of his life caring for other
00:25:21
people's health, he never learned or
00:25:23
didn't until recently learn how to care
00:25:25
for his own money and his own financial
00:25:27
well-being. He spent first and saved
00:25:30
second. didn't know much about investing
00:25:31
in personal finance. Seems that he made
00:25:34
most of the mistakes in in the financial
00:25:35
books and Bill will attest that waking
00:25:38
up from that reality was painful, full
00:25:40
of whatif regrets about his past and
00:25:42
even some shame. And and we dive into
00:25:44
that today. But the recovery has been
00:25:46
hard but incredibly rewarding for him.
00:25:49
And now Bill's mission is to help other
00:25:51
late starters start now, right? And get
00:25:53
others to start as early as possible on
00:25:55
their individual journeys to financial
00:25:57
independence. So without further ado,
00:25:59
let's welcome Bill Y to Personal Finance
00:26:02
for long-term investors.
00:26:05
[Music]
00:26:09
Bill, thank you for joining us today.
00:26:10
And as the listeners are now aware of
00:26:12
and and especially those who listen to
00:26:14
Catching Up Defi, your story is so
00:26:17
resonant with so many people who feel
00:26:20
like they're coming to personal finance,
00:26:22
they're coming to investing a little bit
00:26:23
later in their life. So, what was the
00:26:25
moment for you that kind of flipped the
00:26:27
switch inside your head? And then what
00:26:29
were some of the first major steps you
00:26:31
took to turn your boat around as it were
00:26:33
from whatever financial path you were on
00:26:35
before to this better financial path
00:26:37
now? Oh, it's funny you mentioned boat
00:26:39
because we had a boat named Yolo. That
00:26:42
was kind of the mentality. You know, as
00:26:44
as you may have mentioned, I'm a
00:26:45
physician. I came out of residency with
00:26:47
delayed gratification. I thought I
00:26:50
deserved a lot of things like the new
00:26:51
house, the new car, lived paycheck to
00:26:53
paycheck uh with my wife for the better
00:26:56
part of 20 years. Uh we made every
00:26:59
mistake in the book. We bought whole
00:27:01
life insurance. We had a so-called
00:27:04
private investment advisor that was with
00:27:07
now out them Northwest Mutual.
00:27:09
Unfortunately, bought a disability
00:27:11
policy from them. Uh eventually we were
00:27:14
in the private bank at JP Morgan and
00:27:16
paid them exorbitant fees to really do
00:27:18
us nothing and they didn't even talk us
00:27:20
out of selling. Uh they tried to maybe
00:27:23
but they didn't really try hard selling
00:27:25
at the bottom of the market in the great
00:27:27
financial crisis and de-risking our
00:27:29
portfolio. So we did that. We were house
00:27:31
poor because we'd renovated a house in
00:27:33
2007 that was underwater in 2008. Uh so
00:27:38
we were house poor. We had bottomed out
00:27:40
in the market and sold and then we kind
00:27:43
of missed because we weren't
00:27:45
aggressively saving a lot of the bull
00:27:47
market in the 2000s. And so we made what
00:27:52
I call the trifecta mistakes and we came
00:27:54
out the other side of that. I woke up at
00:27:57
age 50, let's say. And that's late. How
00:28:00
did I wake up at 50? I turned 50 and I
00:28:02
realized nobody was going to take care
00:28:05
of me but me. And that was a shock. I
00:28:09
was ashamed. I had my head in the sand.
00:28:12
I didn't know how to pull it out. There
00:28:14
began the journey of the late starter.
00:28:16
Can we dive into some of those emotions,
00:28:17
Bill? I know it it can maybe be a
00:28:19
challenging thing to talk about, but
00:28:21
it's one thing to get someone to
00:28:23
understand the numbers. We do plenty of
00:28:25
conversations here on this podcast
00:28:27
talking about the numbers, but at the
00:28:28
end of the day, a lot of these decisions
00:28:30
are emotional in some form or fashion.
00:28:32
And you just used a word there, shame.
00:28:35
Can you talk us through just some of the
00:28:37
some of the challenging feelings when
00:28:39
you realize like, oh, I'm not exactly
00:28:41
where I want to be, but I've got to do
00:28:42
something about this. There's kind of a
00:28:44
universal path for late starters. And
00:28:48
there's always a shock to the system,
00:28:50
whatever it be, like divorce, loss of a
00:28:53
job, there's always a financial shock.
00:28:55
And you go, "Oh my god, I'm not where I
00:28:57
want to be. I can't, you know, escape
00:29:00
this lack of emergency funds or FU money
00:29:03
that protects me from this shock. And so
00:29:07
it was shock, it was awe, it was shame,
00:29:09
it was regret. You would realize that,
00:29:12
as I said, you had your head in the
00:29:14
sand. I I got lost, as I referred to it,
00:29:16
is in the funnel of life. We grew our
00:29:19
family. We were focused on our kids. We
00:29:21
had a child with developmental
00:29:23
challenges that took a lot of focus and
00:29:25
money. Life just passed by so quickly in
00:29:28
this paycheck-top paycheck lifestyle. We
00:29:31
unfortunately spent first and saved last
00:29:35
around tax time. We did exactly the
00:29:37
reverse of what people should do. It's I
00:29:40
mean it's not complicated what you
00:29:41
should do. But nobody took me aside and
00:29:44
said plastics like in the graduate.
00:29:47
Nobody told me that save in your 401k,
00:29:49
max it out. That's all somebody needed
00:29:52
to tell me. And you know, I'd been
00:29:53
saving here and there, but we were
00:29:55
singledigit savers. It was what was left
00:29:58
over at tax time when we go, okay, there
00:29:59
was no dollar cost averaging. I didn't
00:30:01
know what that was. I didn't know what a
00:30:03
net worth statement was. I didn't know
00:30:05
what an expense report was. I just knew
00:30:08
if I had money left at the end of the
00:30:09
month in my checking account to make
00:30:11
sure I could pay off these big credit
00:30:13
card bills was, you know, literally
00:30:15
handtomouth.
00:30:17
I hate to say and I'm a physician
00:30:19
remember I was highly trained, highly
00:30:21
educated in how to help people with
00:30:24
their health but I could not help myself
00:30:27
with my wealth. So yeah, there's a lot
00:30:30
of emotions associated with this and
00:30:32
then it migrates. You know, you wake up
00:30:34
and you go, okay, let's give myself
00:30:36
grace. Let's pause, try and figure out
00:30:40
what happened. Where do I stand? What is
00:30:42
my net worth? What are my assets? What
00:30:44
are my liabilities? What are my
00:30:46
expenses? What am I spending every
00:30:48
month? Just figure out where you stand.
00:30:51
And then so you plan at that point. You
00:30:53
write your investor policy statement.
00:30:55
You don't jump in and start working the
00:30:58
numbers. You got to work the emotions,
00:30:59
which is 80% of the battle, and you get
00:31:02
to the numbers, but that's the last
00:31:04
step. Investing is really the last step.
00:31:07
So, you pause, you plan, and then you
00:31:08
pivot. You change what you you've
00:31:11
learned from your mistakes hopefully,
00:31:13
and then you ask for help. You know, you
00:31:16
go down the rabbit hole. You whether
00:31:17
it's books, podcast, vlogs, your
00:31:19
podcast, my podcast that catching up to
00:31:22
five. I I call it me search because I
00:31:24
get to learn from experts like yourself
00:31:27
that we have as guests on the show. New
00:31:29
nuances to investing every time we
00:31:32
record. So you just need to open your
00:31:35
ears, open your eyes, ask for help, do
00:31:37
your own research, and then with your
00:31:40
investor policy statement, which is
00:31:41
comprehensive. It isn't just what
00:31:44
investments am I going to invest in? you
00:31:46
know, it's kind of my estate planning,
00:31:48
it's my insurance, it's all these other
00:31:50
facets of a financial plan, my giving
00:31:52
plan. There's a comprehensive look at
00:31:54
this and people need like yourselves,
00:31:57
financial advisors sometimes to work
00:31:59
through these things and put together
00:32:01
this plan and then you invest. I took
00:32:05
back my money from JP Morgan. I took it
00:32:08
back, put it in vanguard and I had read
00:32:10
things like the simple path to wealth,
00:32:12
set for life, you know, I will make you
00:32:15
rich by Sethi. I read these things.
00:32:16
Actually, if you can see behind me, I've
00:32:19
got two or three shelves of books. Yeah.
00:32:21
The thing that happened to me as a
00:32:22
physician was I was in analysis
00:32:25
paralysis, which is kind of the next
00:32:26
emotion. You're like, what do I do? It's
00:32:29
overwhelming. and know how do I but then
00:32:30
you got to learn how do I take a bite
00:32:33
out of this elephant one small bite at a
00:32:35
time to get where I need to go that
00:32:38
hopefully that answers your question. Oh
00:32:40
it totally does. It totally does. You
00:32:41
hit on a few things there that that kind
00:32:43
of got my brain spinning. One being
00:32:45
you're right. So even in this world of
00:32:47
professional financial planning which
00:32:49
certainly can get into some complexities
00:32:51
where do we almost always start the
00:32:53
conversation? Well there's that
00:32:54
emotional part of it or just trying to
00:32:56
understand the person we're sitting
00:32:57
across from. But when it gets into the
00:32:59
numbers, you mentioned four things in
00:33:01
your response there, Bill. You said I
00:33:03
needed to understand my income against
00:33:05
my expenses and I needed to understand
00:33:07
my assets versus my debts. I call those
00:33:09
the big four and they really are the
00:33:12
foundation numerically speaking at least
00:33:14
of any financial plan. And it's not
00:33:16
rocket science. It is something that
00:33:18
everybody out there listening can start
00:33:20
to do themselves and and can get to
00:33:22
completion themselves if they want to,
00:33:23
right? It's just this idea of if you
00:33:25
don't understand those numbers and and
00:33:27
how they interact with your life, you
00:33:29
will find yourself in a position where
00:33:30
you just say to yourself, I'm
00:33:32
uncomfortable with my money situation
00:33:34
because I don't understand it. Often you
00:33:36
start with your debts if you have debt
00:33:39
and you work those out and then you work
00:33:41
towards you have your emergency fund,
00:33:43
your debts, then your savings plan. You
00:33:46
follow a cash flow waterfall that I'm
00:33:47
sure you've talked about on your show
00:33:49
with buckets that you put your money in
00:33:52
as you flow down that cash flow
00:33:54
waterfall. And that's where the boring
00:33:56
middle start. That's really the second
00:33:57
phase of being a late starter. You go
00:33:59
down the rabbit hole. You learn all
00:34:00
these things. You get advice. You get
00:34:02
help. You've overcome your regret,
00:34:04
shame, and awe. You've given yourself
00:34:06
grace. And then you got to work the
00:34:08
plan. You know it. There's no magic
00:34:10
buttons here. You've got to follow, as I
00:34:13
didn't actually, the KISS principle of
00:34:15
keep it simple, stupid. I went complex.
00:34:18
I went all in on the Paul Marman 10
00:34:20
Funds for Life portfolio. You know, the
00:34:23
first book I'd ever read was by Bill
00:34:24
Bernstein, the intelligent asset
00:34:26
allocator, where I had to learn how to
00:34:28
use a financial calculator in order to
00:34:31
figure out some of the things he said.
00:34:32
It's not that complex. Start with, say,
00:34:35
the simple path to wealth. That may give
00:34:37
you enough knowledge to really get
00:34:39
started. That's one thing that we always
00:34:41
come back to as kind of the gospel of
00:34:43
simple index investing. It can get a
00:34:46
little more complex later, but you just
00:34:48
got to get started because you don't
00:34:50
necessarily have the time of an early
00:34:53
starter. You know, 35 year olds, as we
00:34:55
said, can feel late. 45 year olds can
00:34:57
feel late. 50 year olds, 55 year olds,
00:35:00
but it's never too late. You know, when
00:35:01
was the best time to plant a tree? 20
00:35:03
years ago. When's the second best time?
00:35:05
Today. Mhm. Late starters got to learn
00:35:08
is, you know, you you may be working a
00:35:10
little longer, but actually it's not
00:35:12
necessarily the case. The boring middle
00:35:14
can be 10 to 12 years. If you get it
00:35:17
right and read the shockingly simple
00:35:19
math of early retirement by Mr. Money
00:35:21
Mustache, you know what you need to save
00:35:23
and invest in order to find financial
00:35:25
freedom and independence within 10 to 12
00:35:28
years. Can you talk about your journey a
00:35:31
little bit more? And specifically, I'm
00:35:32
thinking about what your rabbit hole
00:35:35
period looked like and how long it was
00:35:37
from that moment you you kind of woke up
00:35:39
at 50. You spent some time just deep
00:35:41
diving into the Paul Maryman's and the
00:35:43
Bill Burn scenes of the world, the JL
00:35:45
Collins as well. But now, is it fair to
00:35:48
say you're in the boring middle? And
00:35:49
since you have an understanding of your
00:35:51
future financial plan, how long do you
00:35:54
foresee that boring middle period being
00:35:56
for you? Well, the analysis paralysis
00:35:58
probably lasted a year. It's scary. I
00:36:02
mean, it's scary to take over your money
00:36:04
and do it yourself. I mean, maybe 20% of
00:36:07
the people do it and 80% of the people
00:36:08
still have a financial advisor and that
00:36:10
is okay, but you need to find the right
00:36:13
one. So, the boring middle for me is
00:36:15
looking like because we didn't save
00:36:17
nothing. I don't know what our net worth
00:36:19
was when I woke up at 50. I could
00:36:21
probably figure it out, but it'd be
00:36:23
pretty complicated. I know where it
00:36:25
stands now, and we're about 80% of the
00:36:27
way to financial freedom. And so I've
00:36:30
gone from 50 to 59. I've got three or
00:36:33
four years left in my 12 to 14 year
00:36:36
journey. The problem we have is we
00:36:38
downsized our life, but we didn't
00:36:40
necessarily downsize all our expenses.
00:36:42
And we're needing to pursue a fat fire
00:36:45
lifestyle. Lean Fi, as you may have
00:36:48
talked about, is one thing. Coastf is
00:36:50
another. Standard FI is 25 times your
00:36:54
expenses. And then fat FI may be 30
00:36:57
times your expenses. So, you know,
00:36:59
that's where we're kind of at. And I
00:37:01
plan on, you know, retiring essentially
00:37:03
on time as most people do at 62 or 63.
00:37:07
And what does that mean? You know, I've
00:37:09
got to have a plan for what happens
00:37:11
after that. It isn't margaritas, my
00:37:13
ties, the beach, and golf. It's going to
00:37:15
be this podcast. It's going to be
00:37:17
educating people on these issues to try
00:37:20
and create generational financial
00:37:21
literacy where our kids are better off
00:37:24
than we were. Because my generation, I
00:37:28
refer to it as the average American. The
00:37:30
average American is a late starter. I'm
00:37:32
in the silent generation. We don't talk
00:37:34
about it because of the shame. We are
00:37:36
also the lost generation because we went
00:37:39
from defined benefit plans to defined
00:37:41
contribution plans. And nobody told me
00:37:43
the difference. My dad had a pension and
00:37:46
all of a sudden in Gen X, I wasn't going
00:37:48
to have one and I had to do it myself
00:37:50
and nobody told me really what a 401k
00:37:53
was. So, we need to wake up this
00:37:55
generation. so that our kids generation
00:37:57
doesn't fall into the same traps we did.
00:38:00
So when you wake up someone in this
00:38:02
generation, what are the most effective
00:38:04
levers that you've seen either for
00:38:05
yourself, Bill, or I'm just thinking of
00:38:06
of so many experiences you have from
00:38:08
your listeners? The most effective
00:38:10
levers that a late starter can pull on
00:38:12
to start making up for lost ground? Is
00:38:14
it simply about earning more? Simply
00:38:17
about just saving first, saving more
00:38:19
aggressively? Looking at their budget
00:38:21
and really starting to trim the fat?
00:38:23
What helps the most? Well, you've got to
00:38:25
maximize your savings rate and create
00:38:28
the gap, which means earning more. And
00:38:30
that's one of the levers that late
00:38:31
starters have to pull. They're in their
00:38:32
high income years. Take advantage of
00:38:34
that. We went from a say 10% savings
00:38:38
rate to a 35 40% savings rate within a
00:38:41
year. And guess what? We didn't really
00:38:44
feel a difference in our lifestyle. And
00:38:46
I was like, "Oh my goodness, where did
00:38:50
all that money go? It just trickled
00:38:52
through the civ of life. And as soon as
00:38:55
we harnessed the holes, took our house
00:38:58
from 4,500 ft² to 2,800 square feet. We
00:39:01
paid cash for cars where we hadn't done
00:39:03
that before and and bought used. You
00:39:05
know, we got control of our food budget
00:39:07
and well, we haven't gotten control of
00:39:09
our travel budget, but you got to let
00:39:10
something go there. I mean, you've got
00:39:12
to look at a balanced life. Personally,
00:39:15
I think the live on one income and the
00:39:17
two-income family or live on half,
00:39:20
meaning 40 to 50% is a great rule of
00:39:22
thumb and you need to start that early
00:39:25
because as soon as you let lifestyle
00:39:27
inflation run away from you, it is hard
00:39:29
to unwind that. So, you know, downsizing
00:39:32
is a lever. Increasing your income,
00:39:34
increasing your savings rate, decreasing
00:39:36
your expenses, those are all levers. But
00:39:38
you can't forget that late starters have
00:39:40
social security. That is a backs stop
00:39:43
and a lever that you have to plan on and
00:39:45
pull in your investment plan. It's going
00:39:47
to be there in some form or another.
00:39:49
Whether it's 80% of what it is now, but
00:39:52
don't forget about that. It is also a
00:39:55
powerful lever. Diving into that social
00:39:57
security, any recommendations or in
00:40:00
general for the late starters, does it
00:40:02
make sense for them to wait as long as
00:40:04
possible? Is it really just a case- by
00:40:06
case basis as to when they elect to
00:40:08
start collecting social security? Well,
00:40:10
if personal finance is personal, social
00:40:12
security is very personal. I have to
00:40:15
recommend in making this decision, you
00:40:16
go to open sec opensocial
00:40:19
securitycurity.com. It's a website
00:40:21
founded by Mike Piper. And generally in
00:40:24
a married couple, the high-income
00:40:26
professional, the higher income
00:40:27
professional should try and wait till
00:40:30
70. The advantages are tantamount.
00:40:33
They're huge. And then with regards to
00:40:35
the other spouse that's the lower
00:40:37
earning spouse, especially if it's a
00:40:39
female who has a longer lifespan, you
00:40:41
can take it earlier. You can take I mean
00:40:43
your full retirement age these days is
00:40:45
67, but you could potentially take it at
00:40:48
63, four or five and as long as you have
00:40:50
longevity on your side. The crossover
00:40:52
point tends to be in your early 80s.
00:40:55
That's exactly align with my
00:40:57
understanding of the question too. Going
00:40:59
back though to your previous answer,
00:41:01
Bill, and the interesting changes that
00:41:03
you made in your lifestyle and how it
00:41:06
seems like to some extent you barely
00:41:07
even notice the changes. I would think
00:41:10
that's more common for the average
00:41:11
listener than they suspect it is. And I
00:41:14
guess the other way of putting it is we
00:41:15
spend all this money in our life
00:41:17
currently and there's sometimes we don't
00:41:20
quite notice that the marginal benefit
00:41:22
for having spent that money. Do you have
00:41:23
any specific stories? I mean, you did
00:41:25
share some specifics already, but
00:41:26
whether it's a a listener story or
00:41:28
something from Jackie's story or from
00:41:30
your your own story where it's just
00:41:31
like, wow, I can't believe I was
00:41:33
spending X per month on this thing and I
00:41:36
cut it off and I barely even noticed it.
00:41:39
I want to tell you who Jackie is first.
00:41:40
Jackie, my partner, my co-host on the
00:41:43
podcast Catching Up to Five, her story
00:41:46
is incredibly inspirational. She woke up
00:41:48
at 38 with a net worth under say
00:41:51
$100,000 and by 49 she was retired with
00:41:54
a net worth of 1.3 million just by
00:41:57
making the right decisions. And
00:42:00
inspirationally she never made more than
00:42:03
five figures. She came from poverty. She
00:42:06
knew the value of money and setting her
00:42:08
free. She knew the value of an education
00:42:10
in increasing her income. And she's a
00:42:12
single mom that did it with a daughter.
00:42:15
It's just incredible. And another
00:42:17
incredible story was my previous co-host
00:42:19
Becky Heptig. I mean she and her husband
00:42:22
had a net worth of zero zero at 50. And
00:42:26
by 63 they were retired with 1.3 1.4
00:42:29
million just because of making the right
00:42:32
decisions with their money. That that
00:42:35
speaks to the path of 12 to 13 years.
00:42:38
Both of them kind of followed that path
00:42:40
and everybody has that available to them
00:42:44
should they wake up make a few right
00:42:46
decisions and just follow the path. We
00:42:49
had bought luxury cars and actually we
00:42:51
didn't buy them, we leased them. And
00:42:53
that's a huge difference. You know, buy
00:42:55
a three to five year old car for cash.
00:42:58
Let somebody else take the depreciation
00:42:59
hit. It makes a huge difference. I mean,
00:43:02
Rob Burgerer, who was on our show, said
00:43:03
cars are kind of a retirement buster.
00:43:06
Think about cars over your lifetime. And
00:43:09
if you and just like Rammit Sethi says,
00:43:12
who cares about the lattes? Make the
00:43:14
$30,000 decisions right. and you know,
00:43:18
keep your car expenses lower. For
00:43:20
example, we were buying luxury cars for
00:43:21
$50,000 when we could have been buying a
00:43:24
Honda or a Toyota for $25,000. And guess
00:43:27
what happens to the difference? You
00:43:29
invest it and there's opportunity costs
00:43:32
there that you give up if you buy the
00:43:34
expensive car and it can mean a million
00:43:37
dollars, right, over 20 years in
00:43:38
portfolio, literally. I mean, do the
00:43:40
math, right? Yeah. Yeah. I mean,
00:43:42
especially, you know, one of the other
00:43:43
big costs is housing. And someone might
00:43:45
listen to this and say like, well,
00:43:47
should I stretch for housing? And well,
00:43:48
the answer there is at the very least if
00:43:51
you go a little bit beyond your means to
00:43:53
buy a house. It is expensive. Mortgage
00:43:55
costs can be quite expensive, the
00:43:57
interest costs you pay. I will say
00:43:58
though, at the end of the day, you have
00:44:00
an asset that is most likely
00:44:02
appreciating even if in a small way.
00:44:04
Now, personally, I don't view
00:44:06
residential like my personal home as an
00:44:08
investment. But I am comforted by the
00:44:10
fact that it's most likely going to
00:44:12
retain its value in the long run. Well,
00:44:14
it's a store of equity. It's a store of
00:44:15
equity, but it's a let's say it's a
00:44:18
savings vehicle, but I don't view it as
00:44:20
an investment either. Correct. I view it
00:44:22
as a liability because the cash flows
00:44:24
out. No inward cash flow. So, I think
00:44:27
very strongly that a house is a
00:44:29
liability. Renting is not a bad thing.
00:44:32
You know, you don't have those all those
00:44:34
ancillary maintenance costs, all the big
00:44:36
surprises. You don't have the headaches.
00:44:39
And so these days with the cost of
00:44:40
housing and the interest rates, I think
00:44:42
there's going to be a generation of
00:44:44
longerterm renters. Quite possibly.
00:44:46
Quite possibly. But I think if you
00:44:47
compare that to going back to the car
00:44:50
example, right? Whether you're buying
00:44:52
new or buying used or leasing, at the
00:44:55
end of the day, call it 10, 12, 15 years
00:44:58
from now, you are going to have a rusty
00:45:00
car that no longer works and has no
00:45:01
appreciable value. I mean, one way or
00:45:03
the other, it's we all know it's a
00:45:05
depreciating asset. And to your point, I
00:45:08
think what you're saying is you just
00:45:09
want to minimize the pain of that
00:45:12
depreciation asset as best you can,
00:45:14
however that the math works out for you.
00:45:16
That's correct. I mean, minimize the
00:45:18
holes in the bucket. You know, make it
00:45:20
leak proof and then, you know, it'll
00:45:22
fill up and flow into your next bucket.
00:45:24
Money is potential energy. You create a
00:45:27
dam and then you you fill up the lake
00:45:30
behind it and then you release the
00:45:32
energy as you need it. I mean, it it
00:45:34
flows. It's infinite, but it's really in
00:45:36
in the end of the day is not something
00:45:38
we own beyond our death and it transfers
00:45:40
to other people, but you want to try and
00:45:42
make a perpetual store of energy that
00:45:45
lasts for generations, not just yours.
00:45:48
Here's a quick ad and then we'll get
00:45:49
back to the show. I still remember it
00:45:51
was 2019 and a guy from Fidelity came in
00:45:54
to speak to my then employer about
00:45:56
personal finance in general and about
00:45:57
our 401k plan in particular. There were
00:46:00
60 or so of us who attended, mostly 50
00:46:02
plus years old, clearly with retirement
00:46:04
on their minds. And nothing against this
00:46:07
individual from Fidelity, but
00:46:08
unfortunately the guy just didn't really
00:46:10
know what he was talking about. It ended
00:46:11
up being a major disappointment. And a
00:46:13
bunch of my colleagues afterwards said,
00:46:15
in short, you know, man, we're really
00:46:17
thirsty for good financial retirement
00:46:19
information. Where do we go find it?
00:46:21
Now, does that sound true, listeners,
00:46:23
for you and your colleagues? Last year,
00:46:26
either in person or via Zoom, I spoke to
00:46:28
about 800 employees at 11 different
00:46:30
organizations. Sometimes about personal
00:46:32
finance in general, sometimes about
00:46:34
specifics of their retirement plans,
00:46:36
sometimes about the the nitty-gritty
00:46:37
details of social security and
00:46:39
withdrawal planning and retirement math.
00:46:41
The point being, if you're interested in
00:46:43
inviting me to come talk money to you,
00:46:45
to your colleagues where you work, that
00:46:47
is absolutely something I'm interested
00:46:49
in talking to you about. Simply drop me
00:46:51
an email to [email protected] blog
00:46:53
and let's start a conversation.
00:46:55
Something on on catching up to FI. I
00:46:57
mean, have you found anybody who
00:46:59
started, you know, was very much a late
00:47:01
starter, but now has gone not only to
00:47:03
the point of their own retirement
00:47:05
planning, but is starting to think about
00:47:07
that next generation and and all the
00:47:09
assets they're going to be able to leave
00:47:10
behind or the the long-term impact that
00:47:12
they're going to be able to leave
00:47:12
behind, whether it's charity or their
00:47:15
children or or some other long-term
00:47:16
cause. There's a Bill Perkins book that
00:47:19
says, you know, die with zero. Sure.
00:47:21
that there's that option where you don't
00:47:23
create generational wealth and then you
00:47:25
maximize your quality of life during
00:47:27
life. That's not part of our investor
00:47:31
policy statement. I think we do want to
00:47:33
live something for the next generation.
00:47:35
It would be nice to have a perpetual
00:47:37
money machine that helps them, their
00:47:39
kids, their grandkids. You can look at
00:47:42
529s that way. Build up an educational
00:47:44
fund that passes down to generations so
00:47:47
they don't have to worry about
00:47:48
educational costs. build up a donor
00:47:51
adise fund where you can have perpetual
00:47:54
giving and they learn about giving as
00:47:56
part of their portfolio. Generational
00:47:59
wealth is to us important and you have
00:48:01
to plan for that because that means that
00:48:04
your number that you need to save maybe
00:48:06
need to be a little bit more. I'm
00:48:08
thinking about the late starters who are
00:48:10
tuning in right now or even I mean I can
00:48:12
think of some people Bill who are my age
00:48:13
and I know they listen to this podcast
00:48:15
and they're probably considering
00:48:16
themselves a late starter. So, it's not
00:48:18
just the 50 and 55 year olds. We're
00:48:19
going down into the 30s, too. But either
00:48:22
way, there's always going to be that
00:48:23
roadblock in their minds of I'm a little
00:48:26
late to this game. And therefore, they
00:48:28
might be susceptible to some of the I'll
00:48:31
call them the biggest myths out there
00:48:33
when it comes to financial planning in
00:48:34
general, or more specifically latestage
00:48:36
financial planning. What are some of the
00:48:38
more interesting myths that you and
00:48:40
Jackie have heard through your Facebook
00:48:42
group, say, Catching Up to Fire, or just
00:48:44
your work over there? And and how have
00:48:46
you helped people overcome those
00:48:48
mythological false mindsets? Well, one
00:48:51
myth is that risk is to your advantage.
00:48:53
You know, there's no magic buttons and
00:48:55
to take on too much risk as a late
00:48:57
starter is probably unwise. You know,
00:49:00
you really need a 10-year runway for
00:49:02
equities and you could be potentially
00:49:04
100% equities for 10 years, but you need
00:49:06
to wind that down as you get closer to
00:49:08
retirement. Within five years of
00:49:11
retirement, that should be wound down.
00:49:13
But then you got to be able to sleep at
00:49:14
night and you got to know your risk
00:49:16
tolerance. You know, your ability and
00:49:18
your need to take risk. Those are two
00:49:20
different things. And late starters do
00:49:23
need to take some risk. You can't be too
00:49:25
conservative because you need growth and
00:49:27
but their ability may not be
00:49:28
commensurate with their need. And trying
00:49:31
to assess that may take somebody as a
00:49:34
coach or an adviser to help you figure
00:49:36
that out. It may be hard to figure out
00:49:38
on your own because, you know, you make
00:49:40
a mistake like recent days where you
00:49:42
went all in and now we're in a 10%
00:49:44
correction and who knows how far that's
00:49:47
going to go because of what's happening
00:49:49
sort of as a manufactured crisis in the
00:49:52
economy that we might have expected and
00:49:54
some people did, but you know, not
00:49:56
getting too political. You got to stay
00:49:58
the course. That's another really
00:50:00
important thing for late starters is
00:50:03
don't like I did let your fear dictate
00:50:07
what you do next. And don't time the
00:50:09
market. Don't, you know, try and go all
00:50:12
out on January 20th and then figure out
00:50:15
when you need to go back in. You know,
00:50:17
they call it the whipssaw. You have to
00:50:18
be right twice to take advantage of
00:50:21
timing the market. Don't do it. That's a
00:50:23
myth, too. What other myths are there?
00:50:26
There's no magic button. You've got to
00:50:29
stay the course and, you know, do what
00:50:31
you would do if you were 35. Do it the
00:50:34
same thing at 55. The path doesn't
00:50:37
change except for the fact that the
00:50:39
older you are, the more aggressive you
00:50:41
need to be with savings and having a big
00:50:43
gap. And just as a time capsule,
00:50:45
listeners, Bill and I, we're chatting
00:50:47
here on March 11th. This episode
00:50:49
probably won't come out for a few weeks,
00:50:50
but the the S&P 500 right now live is
00:50:54
5573, as Bill alluded to, down about 10%
00:50:58
from its highs. We'll see by the time
00:50:59
this episode comes out where the market
00:51:01
is at. You you never quite know. It's a
00:51:03
fun uh this is one of the fun side
00:51:05
effects of podcasting, I think, is you
00:51:06
get to have conversations at a point in
00:51:08
time and then see what happens from
00:51:10
there. I said, "Yahoo, let's buy." And I
00:51:13
also said, "Yahoo, let's tax Lost
00:51:15
Harvest." And I'm sure you explained
00:51:17
those uh things and I mentioned it in my
00:51:19
community today was, you know, this is
00:51:20
your opportunity. Don't forget to tax
00:51:22
lost harvest in your taxable accounts.
00:51:24
Take the losses now. Let the government
00:51:26
help you stomach those losses and then
00:51:29
uh lower your basis and, you know, let
00:51:32
it ride. It's only going to go up and to
00:51:33
the right. Don't let shortterm swings
00:51:36
dictate your long-term vision. Did you
00:51:38
chat about the wash sale rule at all in
00:51:40
your in your group when talking about
00:51:41
the tax loss harvesting bill? Yeah, you
00:51:43
got to be careful with 30 31 days, but
00:51:46
as long as you buy a different index,
00:51:48
for example, if you trade total market
00:51:50
US for S&P 500, you've avoided the wash
00:51:53
sale and you can do it on the same day.
00:51:55
If you try and buy the same thing on the
00:51:57
same day or within 30 days prior to and
00:52:00
after, you're going to get into a little
00:52:02
bit of trouble and you won't gain all
00:52:04
those losses. Yeah. Yeah. It's
00:52:06
interesting. I've maybe what we'll do is
00:52:07
we'll throw an article in the show notes
00:52:09
that I wrote about tax loss harvesting
00:52:10
cuz on net there definitely is a benefit
00:52:13
there but as you alluded to you are
00:52:16
lowering the basis of your portfolio and
00:52:19
essentially it kicks the tax can down
00:52:21
the road right eventually that those
00:52:25
capital gains will be realized or
00:52:27
eventually you'll die and then pass the
00:52:29
assets along to your heirs at a stepped
00:52:31
up basis and so I guess what I'm saying
00:52:32
is most likely for most people The taxes
00:52:36
will come due eventually. It's just a
00:52:38
matter of, you know what, maybe you're
00:52:39
in a really high tax year this year and
00:52:41
it makes sense to tax lost harvest to
00:52:43
your to your advantage because when you
00:52:44
kick that can down the road, you'll have
00:52:46
some more control over realizing them in
00:52:48
a in a lower tax year. Something like
00:52:50
that. You asked about inspirational
00:52:52
stories and it doesn't have to be all
00:52:53
paper assets. We had a guest on our
00:52:56
show, Monica Scodieri. The name of the
00:52:58
show was Mama Are We Poor? and she had
00:53:01
come from poverty but used real estate
00:53:03
to her advantage to get where she needed
00:53:05
to go again in 10 to 12 years and that
00:53:08
was her vehicle. You don't have to use
00:53:10
stocks, bonds and alternatives in paper
00:53:13
assets to get where you want to go. You
00:53:15
can start a business. All these things
00:53:17
are maybe a little bit more risky and
00:53:18
the more work because it's a job. Yeah,
00:53:20
I personally choose to be passive. Well,
00:53:23
let's end on thinking about some of the
00:53:26
traditional investment advice or
00:53:28
traditional just personal finance,
00:53:30
financial planning advice that either
00:53:32
needs to be drastically modified or
00:53:35
tweaked for the late starter. Does
00:53:37
anything come to mind as something that
00:53:38
you say to yourself, Bill, like, yeah,
00:53:40
that that really does work if you're 25
00:53:42
or 30 and just getting going, but if
00:53:44
you're coming to this situation at age
00:53:46
50, we have to rethink what's going on
00:53:48
here. Compound growth works great if
00:53:51
you're young. It works better. It works
00:53:54
a little bit better. Not better, but as
00:53:56
you age, you have less time for
00:53:58
doubling. Remember the the rule of 72.
00:54:01
Generally, 7 to 10 years, uh, you'll
00:54:03
double your money and you're losing
00:54:05
doubling time. So, you have to save more
00:54:07
aggressively. That's a big difference.
00:54:10
You have to downsize your life so you
00:54:12
have a a bigger gap. That's, you know,
00:54:14
people need to live within their means,
00:54:18
not have too much house as we talked
00:54:20
about, not have too much car, you know,
00:54:22
and but then again, remember, you're
00:54:24
investing for the long run. It isn't
00:54:26
just a 10 or 15 year runway to your
00:54:28
retirement. You've got 30 years ahead of
00:54:30
you if all things go well. So, it is a
00:54:34
long time long-term investment and you
00:54:36
will more than likely have more than you
00:54:39
started with when you retire. So, you
00:54:41
have to make a plan for that. Yeah. You
00:54:43
just hit on something there. Speaking of
00:54:45
myths or m
00:54:46
misconceptions, that runway or that
00:54:48
timeline that we're talking about,
00:54:50
right? Let's say I'm I'm 55. I'm
00:54:51
listening to this podcast right now.
00:54:53
You're right. Some of your dollars might
00:54:55
have this five or sevenyear timeline
00:54:57
until you hopefully retire and start
00:54:58
spending them. But a lot of your dollars
00:55:01
have a a runway until you're 70 or 80.
00:55:04
They have a 15 or a 25 or a 30 plus year
00:55:07
timeline ahead of them. And it's each
00:55:09
dollar has its own unique timeline and
00:55:11
it kind of all comprises a total
00:55:13
portfolio. So a misconception that I
00:55:16
hear is someone says, "Oh, I'm 58. I'd
00:55:17
like to retire by 60 and that's why I've
00:55:20
moved my entire portfolio to bonds
00:55:22
because it's only two years away." And I
00:55:24
kind of hear that and say, "Whoa, so
00:55:25
much of your timeline is still a decade
00:55:28
plus away." Well, you need you need to
00:55:30
beat inflation. You know, you can't
00:55:32
forget. Absolutely. And bonds won't
00:55:34
necessarily get you there. You got to
00:55:36
have a have a gap there. you know, keep
00:55:38
your cost of your investments low so
00:55:40
that the gap works for you. But
00:55:43
remember, inflation is a huge cost.
00:55:45
Taxes are a huge cost, and unless you
00:55:47
have growth assets, you could be in real
00:55:49
trouble later on as your money loses
00:55:51
value over 30 years. Oh, exactly right.
00:55:54
I feel like we've covered a lot of
00:55:55
interesting, you know, little little uh
00:55:57
little pockets of information that apply
00:55:59
to the late starter today, Bill. And if
00:56:01
anyone wants to join your community, cuz
00:56:04
that's really it's more than just tuning
00:56:05
in to the Catching Up to Thai podcast.
00:56:08
It really is a community that you've
00:56:09
built. How can someone get in touch with
00:56:11
you, get in touch with Jackie, and join
00:56:13
the conversations that you guys are
00:56:15
having? The first thing I'd recommend a
00:56:17
new late starter to do is listen to
00:56:19
episode 100. That is the odyssey of the
00:56:21
late starter. We tell you exactly as
00:56:23
we've talked about today, the things you
00:56:25
need to do. But as far as joining the
00:56:27
community of Catching Up to Fi, we have
00:56:29
a Facebook community of over 17,000
00:56:31
members. We have great moderators. It's
00:56:34
a great place to be vulnerable. It's a
00:56:36
great place to crowdsource some of your
00:56:38
questions. It's a great place to meet
00:56:40
people, to take things offline. We have
00:56:42
a lot of like yourself, we have a lot of
00:56:45
really intelligent people in that
00:56:46
community that are ready, willing, and
00:56:47
able to help you with your journey and
00:56:50
your questions. And a lot of people will
00:56:51
tell their stories. And what you realize
00:56:53
is there's commonalities to all of them.
00:56:56
And the best part about it is you're not
00:56:58
alone. You know, in the podcast, we're
00:57:01
trying to have a dialogue. In the
00:57:02
community, we're having a dialogue.
00:57:03
We're going to start a newsletter that
00:57:04
will also allow for a dialogue. So, join
00:57:07
us at Catching Up Defy. We've had people
00:57:10
binge on all 120 some odd podcasts and
00:57:13
leave us a review and it just warms our
00:57:16
hearts. As a physician, I've been taking
00:57:18
care of people for better part of 30
00:57:20
years. And I've received more gratitude
00:57:23
for what we were created at Catching Up
00:57:25
Defy in the last two years than all
00:57:27
those 30 years. So, it's an incredible
00:57:30
thing. It's a great thing to be a part
00:57:32
of this creative community and it's a
00:57:34
great legacy for me to leave this
00:57:36
behind. Awesome. Well, thank you so
00:57:38
much, Bill, for for all the work you do,
00:57:40
and I I can't recommend catching up to
00:57:42
VI highly enough. What else can I say
00:57:45
other than than thank you and extend my
00:57:46
gratitude? And so once again, thank you,
00:57:48
Bill Y, for stopping by Personal Finance
00:57:51
for Long-Term Investors. Well, thank you
00:57:53
for having me. Thanks for tuning in to
00:57:55
this episode of Personal Finance for
00:57:57
Long-Term Investors. If you have a
00:57:59
question for Jesse to answer on a future
00:58:01
episode, send him an email over at his
00:58:03
blog, The Best Interest. His email
00:58:05
address is
00:58:08
jessevestinterest.blog. Again, that's
00:58:09
jessevestinterest.blog.
00:58:12
Did you enjoy the show? Subscribe, rate,
00:58:14
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00:58:16
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00:58:21
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00:58:23
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00:58:25
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00:58:28
Finance for Long-Term Investors is a
00:58:30
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00:58:32
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00:58:34
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00:58:36
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00:58:37
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