Q&A: Everyone Is Arguing About Roth IRAs And We Have Thoughts

Summary

Afford Anything Podcast Episode Summary: "Q&A: Everyone Is Arguing About Roth IRAs And We Have Thoughts"

Release Date: February 18, 2025

In this insightful episode of Afford Anything, host Paula Pant and co-host Joe Salsihai delve into the ongoing debate surrounding Roth IRAs versus Traditional IRAs, offering expert advice and nuanced perspectives to help listeners make informed financial decisions.

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1. Introduction to the Main Topic

As tax season approaches, the conversation kicks off with a listener, Jesse from Seattle, posing a pertinent question about the merits of contributing to a Roth IRA versus a Traditional IRA. Jesse outlines his scenario:

Jesse [02:00]: "My effective tax rate in retirement will likely be much lower than my highest marginal tax rate of 22%. It seems better to contribute to a Traditional IRA and invest additional funds in a taxable brokerage account instead of a Roth IRA."

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2. Jesse's Question: Roth vs. Traditional IRA

Jesse questions whether his logic favoring a Traditional IRA over a Roth IRA is flawed, given his anticipation of lower tax rates in retirement.

Joe responds by emphasizing the importance of personal financial planning and cautions against relying solely on current assumptions about tax rates:

Joe [04:57]: "You do you. Because you're the one that has to sleep at night with your financial plan... Understand how these experts got where they got, because each has chosen their path for specific reasons."

Paula echoes this sentiment, sharing her experience of disagreeing with a financial planner's advice:

Paula [05:19]: "I met with a financial planner who advised not to pay off mortgages due to low interest rates. I knew I had other reasons for wanting to pay them off, so I did."

3. Challenging Assumptions and Tax Rate Projections

The discussion shifts to challenging assumptions, particularly regarding the stability of current tax rates. Joe references tax expert Ed Slott, highlighting the potential for future tax rate increases due to the growing federal debt:

Joe [08:28]: "Rates today, if you go back over the last 150 years, our rates are pretty damn low right now. Any move is a bet... I'm choosing not to bet with my Roth assumption."

Paula adds historical context, likening current tax rates to the post-ZIRP era interest rates:

Paula [10:29]: "Tax rates are historically very low and might renormalize at some point."

4. Tax Optimization vs. Flexibility: The Tax Triangle

Joe introduces the concept of the Tax Triangle, advocating for diversification across different account types to maintain flexibility regardless of future tax changes:

Joe [12:00]: "The Tax Triangle ensures you have money in different pots, so you don't have to make bets on future tax rates. Flexibility is key."

Paula concurs, emphasizing the importance of staying nimble in financial planning:

Paula [12:10]: "Rather than optimize for a point-in-time analysis, you're optimizing for flexibility so that you have the ability to stay nimble no matter what the government does."

5. Listener Cameron's Question: Becoming Work Optional in Four Years

An anonymous listener, later referred to as Cameron, seeks advice on transitioning to a work-optional lifestyle in four years. Cameron outlines a solid financial foundation with:

• Net Worth: $1.6 million
• Assets: Paid-off home, retirement accounts, brokerage investments, HSA, and cash savings
• Goals: Adjust investment allocations and plan Roth conversions to bridge a nine-year gap until typical retirement fund access at 59½.

Paula and Joe commend Cameron's preparedness, highlighting:

• Cash Reserves: $100,000 provides a three-year safety net
• Debt Management: Zero debt ensures financial stability
• Asset Allocation Strategies: Discussing the bucket strategy versus maintaining an efficient frontier portfolio

Paula [34:25]: "They have $100,000 in cash already, which sets them up for a three-bucket approach."

Joe [37:18]: "I like the two-bucket approach... having a bucket for the next five years and the rest on the efficient frontier."

Key Strategies Discussed:

• Bucket Strategy: Separating funds into short-term and long-term buckets to manage immediate expenses and future growth.
• Sequence of Returns Risk: Protecting against market downturns during the initial retirement phase.
• 72(t) Distributions: Accessing retirement funds early without penalties by following IRS rules.

Paula [42:14]: "Your allocation should take a dip right at retirement, then jump back up again because the deeper you are into retirement, the more risk you can take on."

6. Listener Luz's Question: Handling Stock Options and Company Stock

Luz, a 31-year-old with stock options and restricted stock units (RSUs) from her employer, seeks advice on managing and diversifying her company stock holdings.

Key Points Addressed:

• Over-Concentration Risk: Maintaining company stock beyond 10% of the portfolio increases volatility and risk.

  Paula [54:43]: "We've seen many examples where employees had excessive company stock and suffered when the company's performance declined."

• Diversification Strategies: Gradually selling company stock and reallocating to diversified investments to mitigate risk.

  Joe [59:37]: "From a risk management standpoint, avoid over-concentration."

• Handling RSUs: Establishing a systematic plan to sell vested RSUs to prevent overexposure to employer stock.

Joe [60:04]: "Once RSUs become unrestricted, set up a financial plan to systematically unload the stock."

Historical Examples Cited:

• Procter & Gamble: Even stable blue-chip stocks can experience significant declines, underscoring the need for diversification.
• Nvidia Incident: Rapid stock drops highlight the unpredictability of even leading companies.

Joe [62:00]: "If you work at Nvidia, you might think your stock cannot go wrong, but market dynamics can change rapidly."

7. Closing Remarks

As the episode wraps up, Paula and Joe reinforce the importance of metacognition in financial planning—thinking about how to think critically about financial decisions. They encourage listeners to utilize various retirement calculators, embrace flexibility in their financial strategies, and avoid over-optimizing based on static assumptions.

Joe [46:34]: "It's like a stress test—put your retirement through various scenarios to see what happens."

Paula [46:44]: "Use multiple calculators to understand a broad spectrum of outcomes and spot any strange outliers."

Final Takeaways:

• Roth vs. Traditional IRA: Favoring Roth IRAs for their flexibility and tax-free withdrawals, while maintaining diversified investment accounts.
• Asset Allocation: Adopting strategies like the bucket approach to manage risks associated with market volatility and retirement withdrawals.
• Diversification: Avoiding over-concentration in employer stock to protect against unforeseen company downturns.

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This episode underscores the nuanced nature of financial planning, advocating for flexibility, diversification, and a deep understanding of personal financial goals over rigid adherence to traditional advice. Whether navigating retirement strategies or managing employer-provided stock, Paula Pant and Joe Salsihai provide actionable insights to empower listeners in making smarter financial choices.

Transcript

[Paula Pant]

Hey, Joe, if your marginal tax rate today is high, but in retirement, your effective tax rate is going to be a lot lower, do you think that's a case for bucking conventional wisdom?

[Joe Salsihai]

Ooh, I. I don't like the premise of your question.

[Paula Pant]

Because, you know, there are people who would say if your marginal tax rate today is high, but your effective tax rate in retirement is lower, then why contribute to a Roth? Why do it?

[Joe Salsihai]

Hmm. Very interesting.

[Paula Pant]

I know you well enough to know that signifies the restraint that comes right before a rant.

[Joe Salsihai]

Me? I don't rant.

[Paula Pant]

We will see whether or not that statement is true in the next few minutes. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade off, and that applies to your time, money, focus, and energy. This show covers five pillars. Financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I fire. I'm your host, Paula Pant. Every other episode, we answer questions from you and we do so with my buddy, the former financial planner, Joe Salsihai. What's up, Joe?

[Joe Salsihai]

What's up, Paula?

[Paula Pant]

You know, we're two months away from tax day.

[Joe Salsihai]

Yeah, we're kind of in early tax season, I would say.

[Paula Pant]

Exactly. It's the beginning of tax season, and so naturally taxes are on people's mind, and that leads to this question about Roth now or Roth later from Jesse.

[Jesse]

Hey, Paula and Joe, this is Jesse from Seattle. I recently started listening to both of your podcasts and I've enjoyed listening so far. A couple weeks ago, a listener named Vaughn called in to ask about the benefits of Roth over traditional accounts. You discussed the value of being able to cram more tax free money into a Roth given given that both traditional and Roth accounts have the same annual contribution limits. One thing I think is missing from this discussion is the difference between marginal and effective tax rates. And that's something that I've heard financial planners Cody Garrett and Sean Mulaney discuss pretty comprehensively during interviews with other podcasters. Just as an example, my effective tax rate in retirement, which, if current tax law remains the same, will likely be much lower than my highest marginal tax rate, which is 22%, unless tax rates go up precipitously. So I went through these calculations and it seems like I'm much better off contributing to a traditional account, which reduces my tax obligation today by 22%, and then putting any additional funds in my brokerage account. The money in the brokerage account will be taxed comparatively by much lower long term capital gains rates. Which are actually 0% for single earners up to $48,350 and then for couples up to $96,700 in 2025. But if I was investing solely in a Roth, that would have me pay a higher marginal tax today so that I could pay nothing to in taxes in the future, which seems like that trade off doesn't seem as good to me. So for people with a high savings rates, especially who are planning on living on 60% or less of their current income, it seems like traditional IRAs and 401s are a much better deal. I guess my question is, what am I missing here? Is there something about my logic that is incorrect? Looking forward to hearing your response and thanks for the excellent show, Jesse.

[Joe Salsihai]

Thank you for the kind words and also for listening to both of our shows. If you called in just a little bit earlier, you and I may have had a beer in Seattle. Maybe we did have a beer together in Seattle because, Paula, about a week and a half ago, I was in Seattle speaking at the retirement conference and we did a meetup of Friends of Personal Finance. So let's dive into this. The first thing I think I need to say is you do you. Because you're the one that has to sleep at night with your financial plan. If you've done what sounds like a bunch of calculations and you're happy with what you came up with, it's far better than taking my word for it. So I love the fact that you're not taking somebody's word for it. You're diving in and getting into this conversation around traditional versus Roth. I've often said in the past I've said this about the efficient frontier. I can't stand it when somebody's choosing between Paul Merriman portfolios or Rick Perry portfolios or JL Collins portfolio. Don't take somebody's word for it. Understand how these quote, experts got where they got, because when you look under the hood, there's a reason each of them chose to go the way that they chose to go. So I love the fact that you're doing. You're doing that.

[Paula Pant]

I'll echo that and say I personally have met with a financial planner and disobeyed the advice that he gave me. Specifically, I met with a financial planner and he told me not to pay off any of my mortgages because I had very low interest rates. This was during the ZIRP era. He said, you're young, you've got low interest rates. Keep the leverage. And I went, thank you.

[Joe Salsihai]

But no, but what I love about that, because I love advisors who will give me very good advice that challenges what I'm going to do.

[Paula Pant]

Yeah.

[Joe Salsihai]

And I still have the right and the ability, and I should, because I'm the CEO of my personal financial situation, to say no. Now, what's funny about that particular instance, Paula, I would keep that advisor on my staff.

[Paula Pant]

Yeah.

[Joe Salsihai]

Yeah, I would totally keep them. Keep bringing this stuff that I'm not gonna do.

[Paula Pant]

Right. Yeah. It's sound advice and I understand the logic. But in my personal case, I had other reasons for wanting to pay those off, so I did.

[Joe Salsihai]

Let's dive into what you and I said about the Roth versus traditional.

[Paula Pant]

Yes, both of us are Roth Stans.

[Joe Salsihai]

I recently spoke to a couple of people that are in innovation at Microsoft, and you'll hear the interview soon on the Stacking Benjamin show if you listen to my podcast. But one thing I loved that one of these people said, Paula, was the key to anything is to look at your plan and figure out where the assumptions are. Where have I assumed more than I should have maybe assumed? Because this is where the key lies. And what I love about this advice completely is this echoes all the CEOs, all the smart people I've met who love this advice that was popularized by Carol Dweck, which is having a growth mentality. I think it's a growth mentality to say, where am I wrong versus defending my position. Right. You get on social media, everybody's defending their position, whether it's about politics or whatever. And nobody's asking, where could I actually be wrong here? And maybe not even wrong. Maybe what's the other person acknowledging that I'm not or what am I under billing that they have is the biggest piece of the argument in their head. So it's not just about right or wrong. It's also about what are my biases. Paul and I both, first of all, were neither one of us, I think I'm not going to speak for you, Paula, but. But I don't think either one of us are Roth only all the time. But my bias, my heavy bias is tell me when I shouldn't do the Roth because otherwise I'm doing the Roth.

[Paula Pant]

Right.

[Joe Salsihai]

My bias is toward the Roth and then talk me out of it.

[Paula Pant]

Right. Roth is opt out rather than opt in.

[Joe Salsihai]

Exactly. So, number one, I'm not anti Jesse, what you're doing. And I don't think that Paul is either. And by the way, I've never met anybody in the afford anything community who like got to retirement and went, I didn't make it because I screwed up. The Roth versus traditional decision. You're going to be okay. You're going to be okay either way. Let me tell you what I'm solving for that is different than what you're solving for. You're basing your decisions. Now, all these calculations you did, all this time you spent, is based on the fact that stuff is going to stay the same.

[Paula Pant]

Joe, the moment that you said, see where the assumptions are within your calculation, I, I was like, 10 bucks says this is where Joe's going. I think I know where Joe's going.

[Joe Salsihai]

And I've been doing this between financial planning and financial media. I've been doing this, Paula, for over 30 years. The constant is it doesn't stay the same. It does not stay the same. So you can do as many calculations as you want and they're going to be wrong. And so instead I take the viewpoint that big time financial expert Ed Slott takes. I really appreciate his point of view and I'll tell you why in just a second. But Ed says it's just a simple math problem to look at the debt of the United States and look at the tax rate today. In fact, you look at the first moves that this current administration has made to try to lower the obligations of the US Government. It is a math problem because everybody knows it is a math problem that either we have to do what the administration seems to be doing now, which is cutting back federal workers, cutting back federal programs, and at some point we might have to do the other one, which is raise revenue, might have to raise rates. And if we look at rates today, if you go back and you look at the last 150 years of tax rates, federal tax rates, and especially focus on the last hundred years because that's more modern times. Our rates are pretty damn low right now.

[Paula Pant]

I mentioned the ZIRP era earlier. It's almost the equivalent of during that low interest rate era. Everyone getting so accustomed to it that in salient memory, in recent memory, we got anchored to that as the new normal. And so then when mortgage interest rates became historically normal, which is 6%, 7%, everyone felt that that was high because it's an aberration of where we were in the 2010s, but historically speaking, it's actually normal. So Joe, what you're saying is that's kind of analogous to where we are with tax rates right now. Tax rates are, historically speaking, very low and they might historically renormalize at some point. Yeah.

[Joe Salsihai]

Any move that you make is going to be a bet, right? It's going to be a bet. You're betting with your calculations, the tax rates are going to stay the same. I actually choose not to bet with my Roth assumption. I'll back down that statement just a smidge, but I'm going to stick with it. For right now, I'm choosing not to bet. And what do you mean by that? You are solving Jesse for tax optimization. Tax optimization to me is a trap. It's 100% a trap. And the reason is, throughout my career, whenever anybody has stuff optimizes and the government changes the rules, they were in my office then going, how do I get out of this optimized position? Which now is fubar because I over optimized for the way stuff used to be versus the way it is now. I don't want to fall into over optimization traps. Which is why I love what we call the tax triangle. It has nothing to do with calculations. It's an about assumption that things are going to change and that's the only constant. And you know what? And I also know with the tax triangle that if I try to to some degree balance out my triangle, no matter what the hell the government does, no matter what happens to tax rates, I've got money in these different pots that I can pull from so that I don't have to be making these bets. I don't want to make bets. Mm.

[Paula Pant]

So rather than optimize for a point in time analysis, you're optimizing for flexibility so that you have the ability to stay nimble no matter what the government does.

[Joe Salsihai]

Absolutely, 100%. Now let me back that down. There is one bet that I'm making. I feel very lucky, Paula, because you and I get to talk to a ton of experts non stop. It is the fun and what we do. By the way, I love the fact that I get to just have the curiosity of a 12 year old with these super smart people and ask them all the questions that I probably wouldn't ask them because I'm too much of an introvert outside of the microphone, but because I had the microphone like, ooh, Paul, let me ask you one more thing. And the thing that I am betting on, and I know where my assumption is, my assumption is that the government's not going to come back and tax the Roth later, that they're going to come up with some way to get at this money right now. The cynical Joe has always thought, like, I don't really trust Washington. I can imagine them going, oh, you know What? There's this huge pot of money policy over here that we said tax free. There's got to be a way that we can get around that. Without exception, every one of the people that are closer to this than I am have said that's going to be the last thing they touch because it's becoming like Social Security. You know why nobody screws with Social Security? Because it's the number one social program in America, and you've got to have some real guts. Right? So they're building a moat around Social Security and they're touching everything else. And we will see them. And this is what tax experts have told me. We will see, in all probability, Washington continue to go after other things before they go after Social Security because it is such a big social program. Roth IRA is becoming the same. There's a ton of money in Ross, and we are constantly adding more and more and more money at a faster rate per year than we were adding the year prior. So because we're adding so much to this pot, just imagine the outpouring of anger that will happen when people go after that pot. So could it happen? Absolutely. But that's my assumption. I know. That's my Achilles heel.

[Anonymous]

Yeah.

[Paula Pant]

I think it's far more likely that if the government were to go after the Roth, they would go after new contributions. They would change the rules related to new contributions, but any existing contributions, the terms would be grandfathered in. But, you know, Joe, that's an interesting way of looking at the question, because we could reframe the question from the opposite perspective. Imagine that you were a federal official and your job was to figure out how to get the most amount of tax revenue for the government. Would you rather be tapping a few billion dollars worth of traditional accounts, or would you rather be tapping a few billion dollars worth of Roth accounts? From a federal official's point of view, they know that they're getting tax revenue from the trad accounts, and they know that they've made a huge giveaway with the Roth accounts. The assumption is that they can't take back.

[Joe Salsihai]

Well, what they've done is they've sped up. What the government does like is the fact that they have sped up the. The process of us paying tax. Right. What we're telling people to do by putting money in a Roth is go ahead and pay the tax. Now, that fills government coffers. Today, sure, it's at the expense of tomorrow. But where we're at federally with the debt situation, the doomsday clock just ticked another second off. I don't know if you guys read about that the last couple weeks. We're now at 80 some seconds to go until doomsday. I don't know what that even means. But all of this mortgaging, I don't know. And is it an assumption? Sure it is. There are some cases where, where the traditional path is a better path. If you look at the recent changes, Very, very Recent changes, secure 2.0 changes to the financial aid situation, Money In a traditional 401k may be more advantageous than money in a Roth 401k. So if you're in a position where you are looking at the possibility of financial aid, you want to know how that program works, but just generally.

[Paula Pant]

Right. But that's hyper specific.

[Joe Salsihai]

Yeah, I'm still going to bias toward the Roth and there's certainly going to be exceptions to everything. Right. So our point isn't hard and fast Roth all the time. And I haven't heard what Sean said and I respect the hell out of Sean. I would love to have heard that conversation. I've spoken to Sean many times. I don't think he and I disagree a ton. So I don't know what exactly you're referring to with Sean's discussion on this topic, but I think that we all have biases. And Paula, and my recommendation would be to bias toward the Roth and then talk yourself out of it. And if you're high enough, if your income tax bracket is high enough and you think tax brackets are going to be much lower when you're retired and you're willing to bet your money on that than you do you. And I'm 100%, Paula, not against that.

[Paula Pant]

You know, going back to that earlier thought exercise of what would you do if you were a government official and you wanted to maximize tax revenue? I mean, heck, from that point of view, I'd be trying to tax the dividend income inside of a Roth. And that's some ordinary income tax right there. So when you think of it from that point of view, when you put yourself in the other party's shoes, it's a framework that allows you to see how powerful the benefit that you are getting is. But Joe, I think the most compelling thing that you said is when you described that experience as a financial planner of seeing all of these clients come into your office who optimized for a point point in time situation. And the problem with point in time optimization is that by designing so heavily for one specific circumstance, you remove the flexibility to be prepared for any scenario.

[Joe Salsihai]

Can I give you one More reason why? Bias toward the Roth. That has nothing to do with me. It has to do with living more life. Because our goal isn't to optimize our money. Our goal is to live more life. There are interesting behavioral things that happen around taxes, especially with people in our community. The people I adoringly call my money nerd friends, right? Like me and like you money nerds. We obsess about this stuff that 90% of people don't, and generally we're better off for it. But in the area of taxation, I think we have a problem. What's interesting about annuities, and I'm going to bring this to 401 s here in a second. Do you know what's interesting about annuities? The way annuities are taxed. Annuities are taxed last in, first out. What does that mean if you buy an annuity? An annuity is a tax shelter. But when you put money in this tax shelter, it's going to grow because it's usually burdened with tons of fees. It doesn't grow that fast, but it does grow. And over time, you get this nice icing layer of taxable money on the inside of an annuity that you have to dig through before you get to the money that's not taxed. The money that you put in it, that's not tax because you already paid tax on the money when you earned it and then put it in the annuity. So much money stays in annuities. So much money stays in annuities. And when you ask people why they left the money in the annuity, the reason they left the money in the annuity was they didn't want to pay the tax. So they either took the money from someplace else, they didn't do the thing. The traditional 401k I've found, has been very much the same. Is as we're watching baby boomers now take money out of traditional 401ks. We watch Gen X, really struggle with this as they're beginning to reach that age. I believe that if your money's in a Roth, you're much more likely to take the trip. You're much more likely to do the experience. If you're worried about what's the tax on this money going to be, every time you reach for money, you're going to do less. That also increases my bias toward the Roth because I find Paul especially for my money nerd friends, taxes get in the way of experiences and we end up going, maybe I'll do that later. When Tax rates are more favorable, which is almost always the wrong decision.

[Paula Pant]

Right.

[Joe Salsihai]

This is a great question though, Jesse. You know, I love it. I love it because I love the, you know, dig a little deeper. Joe, how do you and Paula think about this? Like, how do we think? And I love some of the truisms we talked about today. Challenging your assumptions. Like this Microsoft innovation person just said to me, I think it's such a huge thing, Paula, it is so huge. What are the assumptions I've made around this decision? And challenging yourself to find those, whether you stick with your decision or not, I believe gives you a better and stronger outcome because you went through that exercise.

[Paula Pant]

Yeah. The reality is the federal debt is currently at its highest peacetime level in U.S. history. We have never, during peacetime, had such high debt. And our debt to GDP ratio has more than tripled since 2001. And that's for two reasons. It's rising spending and it's declining revenues. Both of those need to get addressed. That means the revenue side has got to come up. So bracing for a future with higher taxes and preparing ourselves for that seems to be the prudent approach.

[Joe Salsihai]

Well, and this goes back in line with every financial planning discussion you and I have had. My approach, usually Paula, is exactly that. Prep for the worst, hope for the best. But when I see a financial plan with these laughably optimistic projections, that's when I go, oh man, I think we need to back that down. And I'm generally optimistic by nature.

[Paula Pant]

Yeah, same.

[Joe Salsihai]

But not in my financial planning, because I love it. If I can make it as a pessimist, well then, shucks, world, shucks. Oh shucks, I can do it. And then I get even more optimistic.

[Paula Pant]

This is so rated G. You've actually said the word shock.

[Joe Salsihai]

Oh, shucks.

[Paula Pant]

Well, shucks, Jesse, shucks. Thanks so much for the question.

[Joe Salsihai]

Oh, Jesse, God love you.

[Paula Pant]

Up next, we're going to hear from a caller who is about four years away. She and her wife are four years away from becoming work optional. But before they reach work optionality, they need to figure a few things out. Some things related to their asset allocation, some things related to their Roth conversions. They need to fine tune the plan in these years leading up to work becoming optional. So what should they do? We're gonna answer that next. Small business owners. State Farm is there with small business insurance to fit your specific needs. Whether you're starting a new venture or growing an existing one, State Farm helps you choose the right coverage to protect what matters most. Working with a local State Farm agent helps you understand your coverage options. Offering local support to help you achieve your goals. Focus on turning your passion into a thriving business. Knowing your insurance can change as your business grows. State Farm Here to help you succeed with your business like a good neighbor, State Farm is there Were you hosting family during the holidays or were you traveling? I mean, there's a lot of holiday hustle. Even if you weren't hosting, you might have been traveling, you might have been wrapping gifts. Gifts. Now that the holidays are over, it's nice to get your home and your family back into a routine. So whether you're tidying up or clearing out, you could probably benefit from items from Wayfair that can help you just keep your home organized. I use Wayfair to get I've used it to get a lot of shelving I have right at my entry door, five shelves that are all used to stash shoes. Five sounds like a lot, but I live a Manhattan apartment so the shelves necessarily can't be that big. So then rather than having a big pile of shoes by the entry door, now there's a place to put them. But for you, maybe you need closet organization or clear storage bins. Or maybe just to get back into a routine, you need meal prep and food storage. These are all the essentials that you can find at Wayfair. Now Wayfair has a massive selection of items ranging from furniture to bath linens and towels and bedding essentials. There's something for every style in every home, and there's free and easy delivery. Give your home the refresh it needs with wayfair. Head to wayfair.com right now. That's W A Y-F A I R.com wayfair every style, every Home.

[Joe Salsihai]

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[Paula Pant]

Our next question comes from Anonymous.

[Anonymous]

Hi Paula and Joe, this is Anonymous. First, thank you so much for all that you do for the community. I've been a faithful listener for several years now, and while I love Paula's interview episodes, my favorites are still the Question episodes with the two of you my wife and I are in our mid-40s and roughly four years out, we think, from work optional. We both currently work full time with a gross income of about 150,000. Together we have a net worth of about 1.6 million and zero debt. Our net worth is broken down by 400,000 in our paid for home, 900,000 in retirement accounts, 220,000 in a taxable brokerage investment, 24,000 in HSA accounts which we max out and do not touch, and 100,000 in cash, mostly in a Vanguard plus high yield savings account. We continue to put money into our workplace retirement accounts, but we've moved what we used to be putting into maxing out our Roth IRAs to our brokerage investments for the time being because we didn't start early enough building up investments outside of retirement accounts that will bridge the roughly nine year gap that we'll have between work optional and when we can start tapping retirement funds. At 59 and a half, we will continue to invest in the workplace retirement accounts and also be putting as much as we can into our taxable brokerage account for the next four years. If the market averages 8%, we should have enough in the brokerage account to allow us to step away from work completely, although I might still work part time or do some contract work as I enjoy what I do and I'm afraid I might get bored if I walk away completely. What we're trying to figure out now is how to think about adjusting our investment allocations over the next four years. We have migrated toward the efficient frontier in the past couple of years in our retirement accounts, but are not super confident in when or how much to move some of those investments and which ones to bonds and or additional cash allocations. And perhaps we need to put some of what we're investing in the brokerage account into bonds instead of equities, but we just don't know for sure how to think through the allocations and the timing. We believe that we'll need 50 to 60,000 per year to start out with, adjusted over time for inflation. We will be doing Roth conversions during that time that we step away from work to help us with taxable income for using the open market health insurance subsidies, assuming that I'm not working part time, and we can also lean on Roth contributions if needed for the last couple of years. We do already have about 185 in Roth contributions that are accessible, but for now our goal is not to touch any of that if at all possible. Prior to 59 and a half anyhow, we would love some feedback for our situation.

[Joe Salsihai]

Thanks so much, Anonymous. Thank you for the kind words and thank you for a great question. I can't wait to dig into it. But Paula, you and I have a tradition which is that every anonymous person gets a name and, well, what are we going to call Anonymous?

[Paula Pant]

In order to name Anonymous, I started looking into famous people who have retired or gone work optional in their mid-40s. Predominantly. These are known actors, actresses. Doris Day retired at the age of 46, but one that caught my eye, that's a little bit more modern. Cameron Diaz.

[Joe Salsihai]

Wow. Yes.

[Paula Pant]

Cameron Diaz revealed to Gwyneth Paltrow on a podcast that she decided to retire at the age of 46 from. From acting because she found it was just too stressful and she needed to take a step back and focus on her own life. That was back in 2018. She was 46 back in 2018. So now that she's been retired for a while, she's stepping back into the spotlight and taking on some new projects. So I think she's a really good example of work optionality where at 46, she took a step back, took a breath, took a few years to regroup. Now seven years later, she's like, you know what? I've had a break. I'm actually looking forward to getting back into the public spotlight. Let's go.

[Joe Salsihai]

That's awesome.

[Paula Pant]

I think this anonymous caller should be Cameron.

[Joe Salsihai]

Okay, so let's go. Paula, what are we going to tell Cameron?

[Paula Pant]

Cameron? So your questions, you know, you asked about how to reallocate towards bonds or cash or cash equivalents as you get closer towards withdrawal. You asked about asset location. You talked about money that's going into a taxable brokerage account. You mentioned you're going to be doing Roth conversions. So what I hear specifically are questions about asset allocation and asset location and what all of that ties into. More generally are questions about how to prepare for withdrawal. And what I will say is withdrawing assets can certainly be more complex than accumulating. Like accumulating is the fun part. And with accumulation, you can't really get it wrong. Everybody likes to debate about ways to optimize accumulation, but at the end of the day, so long as you are accumulating, so long as you are contributing and accumulating, you're not getting it wrong.

[Joe Salsihai]

Making just positive steps forward.

[Paula Pant]

Exactly. And so withdrawal is really where the strategy has to come into play a heck of a lot more. A couple of things that you're doing that I really like. One is as we Talked about in the earlier answer. You have a good tax triangle built out. You've got money in taxable brokerage accounts. You've got some money in an HSA account which has maximum flexibility. You've got plans to do Roth conversions. So I like the approach that you have taken already. One thing that I noticed is you said that you've redirected what you used to put into Roth IRAs towards your taxable brokerage account. I would continue putting money into Roth IRAs because you have the option of withdrawing the principal contribution without any taxes or penalties. The gains on it, of course, need to stay in the account. But the principal contribution you can remove at any time and so that can be part of the money that you rely on during your work optional period. I'm happy to hear that you've already shifted your retirement accounts towards the efficient frontier. Joe, you and I have been beating that drum for the last few months now.

[Joe Salsihai]

Have we?

[Paula Pant]

And Cameron did it before we even started talking about it. She says that over the past few years we've shifted our retirement accounts towards the efficient frontier. So I'm happy to hear that. What I would do is first lay down a plan for how much of your cost of living is going to come from drawdowns versus how much of your cost of living is going to come from any type of part time or contract work. There seems to be, and of course this is quite natural, a little vagueness, a little uncertainty around how much part time work you'll be doing and what the expected compensation from that will be. But with a cost of living of between 50 to 60 thousand dollars, the first thing that I want to solve for is does half of that come from part time work and the other half come from portfolio withdrawals? Are we talking about a 5050 split here? Are we talking more about a 7030 split? And if it's 7030 in which direction and will this be constant over the span of time between when you become work optional and when you turn 59 and a half? Will it, do you expect it to be relatively consistent adjusted for inflation, or do you think that you will for the first few years of being work optional, completely go sabbatical, taper down, and then gradually ramp up again after you've had a year or two to take a break?

[Joe Salsihai]

Paula, allocation wise, I think there's two different ways she can go. She could either use her efficient frontier based portfolio in that portfolio if she's far enough down down the efficient frontier. In other words, it's the risk level is Low enough, it's going to give her some bond exposure when she does her reallocations every year. That will have her selling off some monies from stocks into bonds as she's consuming some of the bond portfolio. There are people that don't like to do that initially because if you retire and start withdrawing money on the unluckiest day ever, you end up with sequence of return risk that you're attacking your portfolio right at the time of greatest risk. So that's why people hesitate to do that. And frankly I do too. But it is something that if you're looking at the markets when you first retire and things have been going very well in your first several withdrawals, there's no issue. That's a fine way to do things and it actually is a very simple way to do things because now you have one pie chart of your investments. You can very easily just rebalance. But there is that Achilles heel. The other way to do it in a way that I think I prefer is this two bucket approach. The two bucket approach is I have my bucket that I'm going to spend money out of and that is maybe the next five year bucket and then I have the rest on the efficient frontier. Right, and that will make sure that you have enough money available outside of most market conditions. I may put some money in Giddy Mae's or Treasuries like a low risk bond fund to try to get the return up a little bit, but generally you're going to be pretty much in safe waters with that money. The way that I like to do that, by the way, is I like to backfill, I take a reasonable life expectancy, I make sure I have enough money in the efficient frontier to cover those later years and then the early years. Rather than carve out a piece of my portfolio from now on, maybe I'm saving into that short term bucket. I let the money that I've already saved ride and build and now I build the short term cash over these last few years. The downside here is that you're going to give up potentially a lot of return doing it this way. For accounting purposes though, and for ease of mind, it's so much easier to have a short term bucket and a long term bucket and some people even go three buckets, which I think introduces the level of complexity that you don't need. But if that makes you feel more comfortable, then you could do short term and midterm and a long term bucket.

[Paula Pant]

Well, it seems to me that she's starting to approach Something akin to a three bucket. Because they have $100,000 in cash and their cost of living is going to be between 50 to 60 thousand dollars and some portion of that will be supplemented by some type of part time or contract work. Let's just assume for the sake of hypothetical that they'll make $2,000 a month through part time or contract work, 2,000 net to them after taxes. If we assume 24,000 a year comes from part time work, then that means depending on if their cost of living is 50k a year, that would be about half. If it's 60k a year, it would be around a third, a little over a third. When we take that into account and we look at the fact that they have $100,000 in cash already, they've got the first three years covered. In theory, if they didn't want to pull any money out of their portfolio, they could theoretically live on that cash for three years. Now I'm not suggesting that they do that because of course it's always advisable to have an emergency fund to maintain some cash reserves. But it strikes me that the fact that they functionally have about three years worth of cash on hand is already naturally setting them up for a three bucket approach.

[Joe Salsihai]

Yeah, or she's got the, the short term bucket mostly taken care of and she can continue then very confidently putting money in the efficient frontier. I do like two versus three though. I just think three gets a little cumbersome. There's something else that she said that I'd like to also address, which is that because of the early age that they're thinking about work optional, that retirement funds don't allow her to take money before that specific time. You actually can get your money before that time and you can do it without penalty. The issue is that you have to follow some very specific IRS rules.

[Paula Pant]

So if somebody to SCP 72T.

[Joe Salsihai]

Yeah. So if somebody has over optimized and this is what happens a lot with older people, they stuff so much money into that traditional 401k, the classic 401k and now it's all pre tax and they feel like they can't get at it, they have to use 72T to get the money out. If they decide to retire early, there actually is good news around that. While you have to follow very specific rules, once you get it set up and it's rolling, it feels like a pension. And so you then can calculate every year exactly how much money you can count on, which makes it very easy then to budget the Bad news is if you want any serendipity in your life that you're going to just jaunt off to the Maldives for a vacation, I don't even know where that came from, but it sounds good to me right now. You can't do it because you're set on that pension number and you can't take more than that out. But, but there are certainly ways to do it. And while it can be a little bit restrictive, I haven't seen it be as much of a burden as people think that it is to get money out. I mean, don't get me wrong, I'm glad that the financial intelligence world has spread the word that you want to wait and you want to save that money. But truly, if you've done a good job of saving and a lot of people in this community have, you can set up this 72T. What's cool about that too is that it doesn't have to consume all of your assets. You can segregate part of your retirement assets and 72 t that number and then have the rest on a flexible, going to use it later number. So what I like doing sometimes in this situation, Paula, is solve for a number. I want to set up as a, like a pension of my own to come out of this account and then segregate that amount of money into a separate IRA. 72 t that money to give me this cash flow. And then the rest of it I'm saving for later. And I've got money in other buckets that I can supplement that with and I can get that money. So, Cameron, if you're willing to do a little bit more in depth financial planning and you're looking to increase your income streams in the early years, I wouldn't have that off the table.

[Paula Pant]

You know, Joe, you mentioned sequence of returns risk. And one of the methods of managing sequence of returns risk is for the bucket of money that you are planning on tapping in early in retirement, bringing down the level of risk that that bucket is exposed to for the first few years and then ratcheting it back.

[Joe Salsihai]

Up, hitting that gear shift right back up into our higher.

[Paula Pant]

And it's counterintuitive because conventional wisdom says that your allocation should get more conservative as you age. But it's actually almost like an inverse bell curve. Your allocation, your risk level takes a dip right at retirement, but then it jumps back up again because the deeper you are into retirement, the more risk you can take on because of the fact that you have avoided sequence of returns risk at the beginning.

[Joe Salsihai]

This always by the way, if you're listening to this and it makes no sense to you, I have to tell you, until I dove into the research, maybe it was the same for you, Paula. It didn't make any sense to me either. I'm like, risk now versus risk tomorrow versus risk yesterday, like, who the hell cares? And you go very deep into the weeds and it does matter.

[Paula Pant]

Right.

[Joe Salsihai]

I didn't think about the fact though, Paula, that they already have a hundred thousand dollars in cash.

[Paula Pant]

Right. Because what I see with that 100k is that they're already sort of doing that.

[Joe Salsihai]

Totally are.

[Paula Pant]

Right?

[Joe Salsihai]

Yes.

[Paula Pant]

They've already really got that covered. That plus the fact that their home is paid off. They're already de risking those first few years. And so sure, there might be a portion of their portfolio that would cover, let's say years three through six that they might want to de risk just a bit. Right. Take that little bucket that would cover years three through six and shift that more into bonds. But they really have the capacity to continue to stay aggressive and to continue to stay on the efficient frontier with the bulk of their portfolio. Certainly anything outside of those first five or six years because of the fact that they have cash covering those first three.

[Joe Salsihai]

This is the time Jesse was talking about spreadsheets and modeling tax brackets today versus text brackets later. And I mentioned that I'm not in love with that because it assumes we know what the future will be in this case. I do love doing this kind of year by year model. If I spend X amount of money per year, what is that going to do to my portfolio? I love these what if scenarios. So this is a case where I would look at specifically what is the maximum lifestyle I can live and have a, have a fairly reasonable feeling that I'm going to be okay. Just so I know whether I'm going to spend that money or not. I know what my constraints are. I know where I've done too much. If an opportunity arises and want to spend more money, I know exactly what that is. I also want to know that if I decide to take work or I don't decide to take work, what that means for my long term viability, my ability to stay retired, does it, Is there anything that'll be helpful there? And the reason I like that metric is I can then more accurately decide based on my needs whether I need to take this job or not. So if I'm offered an opportunity and they tell me what the amount of money is, that's going to have a huge implication on my quote Unquote, retirement. But I don't love the job. That puts me in a quandary. But I might still take the job because it's going to have a huge impact down the line. On the other hand, if I don't love the job and it's just okay, but I'd be okay without it, I can sit and wait for a better opportunity. I don't have to take it. This is a case where I love these if then scenarios. If this happens, then what else? And also we call them what if scenarios too. What if I do this? What if I do this? What if the stock market does this? What if tax brackets do this? And Jesse, back to you. I also like that. If you want to play with tax rates, play with what if tax rates go up by X, what if tax rates go up by Y? Like, do those what if calculations as well if you really want to get uber nerdy on Roth versus Traditional.

[Paula Pant]

Right. And you, you know, Joe, you mentioned spreadsheets, but there's a lot of software out there that can handle many of these types of projections. Projection Lab is one.

[Joe Salsihai]

Bolden B O L D I N used to be called the New Retirement Calculator.

[Paula Pant]

Financial Mentor has a bunch of retirement calculators on his website, including one called the Ultimate Retirement Calculator. There's also Fire Calc and there's also FI calc between the two. Fire Calc is the one that I hear about more often. But the reason that I'm naming so many is because ultimately any calculator is going to be constrained by the assumptions placed inside of it. And I mean that at two levels. There are the assumptions that the developers bake into it as well as the assumptions that the user inputs partially that's a reason why it's useful to use a lot of them. Right? To use a half a dozen. And look at the broad spectrum of outputs so that you can see the range. You can spot any strange outliers and try to figure out what was it that made that one an outlier. You can look for commonalities.

[Joe Salsihai]

I feel like it's like a stress test, right? Let's put my retirement through a bunch of stressful conditions and see what happens.

[Paula Pant]

Yeah, Cameron, I think you sound like you're already doing everything right. You're invested along the efficient frontier, plenty of cash. That is maybe my favorite part of what you've lined up so far. You have enough cash to be able to survive. Sequence of returns risk. Because when you retire or when you go work, optional sequence of Returns risk is your biggest threat and you've already amassed enough cash to be able to withstand that.

[Joe Salsihai]

Yeah, I think the two of them have put themselves in a very enviable position. So nice job of saving, great job of diversifying. Wonderful attention to debt management. Those are all going to work in your favor from here on out.

[Paula Pant]

Absolutely. So congratulations, Cameron. And if you have any additional questions, anything at all, please, please call back. Let us know. Keep us updated. Next we'll hear from Luz, who's looking for advice on how to handle stock options and company stock.

[Joe Salsihai]

Get in the zone AutoZone welcome to.

[Paula Pant]

The A to Z savings event at AutoZone. Yeah, happy to be here.

[Joe Salsihai]

Can I get some rotors? Would you like brake pads with that? How much are the brake pads free with the rotors? Free?

[Paula Pant]

Really, really free.

[Joe Salsihai]

Okay. I also need some oil. Would you like an oil filter with that? Yeah. How much is that?

[Paula Pant]

Free with five quarts of oil?

[Joe Salsihai]

Free. Really, really free.

[Paula Pant]

It's part of the A to Z Savings event.

[Joe Salsihai]

You might as well call it A to free at AutoZone. Get in the zone.

[Paula Pant]

Auto zone restrictions apply. Imagine what's possible when learning doesn't get in the way of life at Capella University. Our game changing flexpath learning format lets you set your own deadline so you can learn at a time and pace that works for you. It's an education you can tailor to your schedule. That means you don't have to put your life on hold to pursue your professional goals. Instead, enjoy learning your way and earn your degree without missing a beat. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo Our final question today comes from Luz.

[Luz]

Hello. Paola and Joe love the show. Let me get right to the question. As part of my bonus package, I get stock options every March. And I was wondering how big the spread between the exercise price and the actual stock price? Should it be before I exercise these stocks and once I exercise them, should I keep the stocks in my brokerage account or sell them off? Additionally, I have restricted stocks that become vested every bonus cycle. Should I keep those stocks or sell them to buy other stocks from different companies? Since I already have 9% of my investment portfolio for only my work company stocks. Additional information about me I'm 31 years old. I have about 92k in my Roth 401. I have student loans about 8k. They're subsidized, so very low interest rates. I have a car loan of 8k and at an interest rate of 4%, I have about 10k in savings and I own my own house with an interest rate lower than 3% and I do have some credit card debt, about 6k, but right now is in a promotional period of 0 APR. Given that my partner started his own company two years ago and I have become the breadwinner of the household during this time, these numbers are only mine since we haven't combined finance yet until we are officially married and have premium in place. So I was just wondering what your advice would be in terms of, you know, stock options and these company stocks that become vested every cycle. Thanks. Can't wait to hear your answer.

[Joe Salsihai]

Thank you so much for the question, Paula. I love this question because as always we're working on a theme here where in at least two of our three answers we don't start off by directly answering the question. We start off with kind of the rubric of how do we think? And back away. And then we answer the question thinking.

[Paula Pant]

About how to think. Metacognition.

[Anonymous]

Absolutely.

[Paula Pant]

What the show is all about.

[Joe Salsihai]

This question, the answer always begins with what is my goal? Because if I begin with my goal, I'm not going to make mistakes. Now why is that so important in this case when I'm talking about stock options? So for people not familiar with stock options, I don't really own the stock. I have an option to buy the stock at a set price and let's say the stock is trading just to keep it easy at 10 a share. And that's where my option price is now. It goes up to $12 a share, $13 a share, $14 a share. So the cool thing, Paula, is that I can exercise my option to buy it at 10. The stock's already at 14. And Cha Ching, I just made a 40% hypothetical return on my example. So even if it goes from 10 to 11, there's a 10% rate of return, which is incredible, right? So this question is a question. Back when I was a financial planner, I got all the time from people because I would go into companies and help the workers understand their benefits. I was in a part of their benefits package. So I was this third party guy coming in going, hey, if I were you, this is kind of the way I'd think about it. And the way I think about this is exactly the way loose that I think you're thinking about it because when you said I already have 9% of my portfolio of my company stock already, so am I looking to accumulate, am I looking to buy stock of other companies? And I'll tell you, I can't answer that question, I can tell you that pros across the board will tell you going above 5 to 10% of your portfolio in one company, especially the company that you already rely on for income, gets you into this danger zone where now the standard deviation, the risk, the ups and downs that you will have because of this one company, your employer becomes bigger than anybody would advise just from a risk management standpoint. So I'm assuming that your goal is to have a higher net worth and that you're not comfortable with more than the 9% you already have in this company stock.

[Paula Pant]

Right. Maybe 10% at the most. But it represents a lot of over concentration. And we have seen historically over and over and over so many examples of people who were employees of Procter and Gamble or. And then the stock crashed, or worse, most dramatically, employees of Enron.

[Joe Salsihai]

Yeah, and Enron is a great example because that was a huge company and very few people knew the mold that was inside of that company, the things that were happening. And so many people ended up losing their job over information that was not commonly available.

[Paula Pant]

Right.

[Joe Salsihai]

So I don't want to take that risk. But let's say that you were trying to accumulate. I'm going to start there. If you were trying to accumulate the stock, it frankly almost doesn't matter what the difference is in price because the stock's going to go where it goes. So heck, exercise it wherever you feel comfortable. Put the stock in your portfolio and now you own the stock. That is your goal. Now, writing somebody else's money as far as you can is a great strategy if you don't want to own the stock. Right. And generally because the market goes up about 70% of the time over long periods of time, it usually behooves you, if you're not trying to accumulate, to just wait until just before the expiration date of that option and then pull the trigger on the option because that gives the stock as much time as possible between the price, that is the strike price, meaning the price they're going to let you buy it at and the price it's currently trading at. It makes that delta bigger and bigger and bigger just because of the time value. Money. I want to wait as long as possible. So my answer is assuming that you don't want to accumulate more of the stock. I would highlight circle, put red beacon alarms because you don't want to miss this date. Right. If you go one minute over the expiration date, your opportunity's gone. You can't do anything with it. It's gone. So maybe A week or two before, pull the trigger on those stocks and then diversify it according to your goals. It's the same. By the way, you asked about RSUs, restricted stock units. Restricted stock units, you already own that stock. It is your money, but there's restrictions and it's usually tied to the amount of years that you're going to work with the company. So this is, Paula. A golden handcuffs that a company will wear will put on you going, hey, as long as you stay for the X number of years, these are yours. But they tell you they're yours. Now the way to think about them is they're not yours until that day that they become unrestricted. Right when they become unrestricted. I want to have a financial plan that doesn't look at the stock price, does not bet on the future, does not pay any attention to what the market is. I want to be systematically unloading this stock at whatever clip you feel comfortable with. When you look at insider trading, where you can go to Yahoo Finance or cnbc, you could look at the board of directors and the executives at a company, you can click a button and it will tell you how these insiders are divesting themselves of stock. You know, a really good financial plan. When you see I got rid of 5,000 shares the first day of the third quarter, the first day of the fourth quarter, the first day of the first quarter, first day of second quarter, that's when I know there's a good financial team in this person's corner helping them slowly diversify out of this position. When I look at insider trading, by the way, and this has nothing to do with Lucy's question, but when I see 35,000 shares go at once and I don't see any other transactions, then I start wondering what's going on with that company? Because they are trading based on maybe something that they know. Is it something they know or is it something going on in their personal life? I don't know. But that's when I get cause for concern. I love seeing though this attention to divesting that you'll see with most executives in a good financial plan the second those RSUs become available. You go, okay, once a quarter for the next year, I'm going to sell these off. Or if there's going to be more next year, I might just do it. All right now, if you want a.

[Paula Pant]

Deep dive into stock options and RSUs, episode 5:30, which we did with Brian Feroldi, is entirely about this topic. It's all about stock based compensation. Episode 5:30 you can go to [e-mail] Episode 530, where people run into trouble.

[Joe Salsihai]

And I'm sure Brian said this on the episode as well, is when you start going, well, you know, we got this new product coming out. Well, you know, taxes might change. Well, I got this raised this year and so I'm going to make more money. So I'm just going to. Don't play those games. When you start playing the games of talking yourself into deferring, diversifying because of something that might happen in the future, you, you run into trouble.

[Paula Pant]

I mentioned earlier Procter and Gamble and the reason I brought it up is because it is a stable blue chip company. Right. It feels secure. For those of you who are unfamiliar with it, it is a company that sells a lot of ordinary household products. The types of things that you find at Target, at Walmart, at the grocery store. It's the biggest US based maker of household goods. And it's widely considered to be a safe company. But In March of 2000, its shares plunged 30%. You had at that time a lot of people who worked at that company who had a ton of company stock thinking, this is Procter and Gamble. The dominant thinking was, you can't get safer than that. It's a blue chip, stable, stalwart company. So you had these people who not only relied on P and G for their paycheck, but also had an enormous amount of their portfolio in their company stock and boom. 30% for the type of company that they're not, an innovative tech company that's running a lot of risky bets.

[Joe Salsihai]

And I love that as a stable company. But let's look at some of the market leaders. I mean, let's look at an example. That's close, man. If you work at Nvidia the last few years, you're like, our stock cannot go wrong. Like, I am just gonna keep loading up on my stock. I could do this S&P 500 thing, but that's crazy. We are the S&P 500. We are Nvidia. Like, this is the thing. Why would I invest anywhere else? You can imagine people telling themselves that. And then this little Chinese thing happens a couple weeks ago.

[Paula Pant]

Deep seek. Yeah.

[Joe Salsihai]

And in one day, bam, the gig is the gigs may be up, right?

[Paula Pant]

Yeah. They dropped 17% in one day. Which granted, you know, when you drop 17% after growing 700%, you're still doing well.

[Joe Salsihai]

Yeah, yeah, you're going to be okay. However, just the thinking, there is still not the thinking that, that you want to have no matter how market dominant, when it comes to Nvidia or Procter and Gamble, they were market dominant too, in their industry.

[Paula Pant]

Right? Exactly. And just a textbook example of a stable blue chip stock you could say.

[Joe Salsihai]

That about, like Coca Cola, Right. You know, I used to work, by the way, at a bottling plant.

[Paula Pant]

Oh, it was so depressing.

[Joe Salsihai]

You're welcome.

[Paula Pant]

Oh, well, Luz, there's your answer. There's also your dad joke of the day.

[Joe Salsihai]

By the way, Cheryl asked me to sink her phone the other day, so I threw it in the river. She's still angry.

[Paula Pant]

And there's our sign that we need to sign off.

[Joe Salsihai]

All right, I'm just getting started. What are you talking about?

[Paula Pant]

Luz, thank you for the question. And best of luck with everything that you're doing, all of the. The wealth that you're growing. Joe, where can people find you if they'd like to hear more dad jokes?

[Joe Salsihai]

You can find me. And the Stacking Benjamin's crew, which includes on most Fridays, the Paula Pant at the Stacking Benjamin Show. And we've got a very fun February and March coming up. We are right now arranging a discussion in the next few weeks. I don't have it booked yet, so should I jinx it? I'm going to go ahead and jinx it because I think it's going to happen. We're going to talk to one of the top female sports agents in the country, in the world. And we're going to talk about treating your career like you're a rock star. Like you are somebody who is a professional. And I see us, we don't do that enough. We don't do that enough. We don't think about, you know what? I am this amazing human being. And if I start treating myself like the amazing human being I am, how would I make decisions differently? And Molly Fletcher's her name. Molly Fletcher says you'd make a lot of decisions differently. Wow.

[Paula Pant]

I can't wait to hear that interview.

[Joe Salsihai]

It's going to be awesome. But not as awesome as Paula Pant winning the trivia. Like just happened.

[Paula Pant]

Even a broken clock is right twice a day.

[Joe Salsihai]

I don't know. You certainly know your fraud prevention. I'll say that.

[Paula Pant]

Well, Jo, thank you for joining us once again. And thanks to all of you, the Afforder community, for being such an amazing community. If you enjoyed today's episode, please do three things. First, subscribe to our [e-mail] Newsletter it is completely free. Second, share this episode with your friends and family. It's the most important way you can spread the message of great financial health. And third, open your favorite podcast playing app and leave us up to a five star review. This week is the last week. Our course on rental property investing. Your first rental property is available. Enrollment closes on Friday. If you are interested in investing in real estate or if you are an accidental landlord, you have locked in a low interest rate. You need a move. You don't want to give up that low interest rate home, so you're going to hang on to it and rent it out. But you never planned on doing that and you want to make sure that you are doing it correctly. This course is for you. So whether you're an accidental landlord or whether you are an aspiring new real estate investor, somebody who wants to diversify your portfolio into buying properties, you will love this course. You can find out all about [e-mail] enroll. That's affordanything.com enroll. And remember, enrollment closes on Friday so you've got a deadline. I'll see you in class. I can't wait. Thank you again for tuning in. I'm Paula Pant.

[Joe Salsihai]

I'm Joe Salsihai and we'll meet you.

[Paula Pant]

In the next episode.

[Joe Salsihai]

That's my ADD right there. My pest control people calling me.

[Paula Pant]

Is that your cat's job?

[Joe Salsihai]

It is.