Q&A: I'm Burned Out But Not Quite Ready to Retire

Summary

Podcast Summary: Afford Anything with Paula Pant

Episode: Q&A: I'm Burned Out But Not Quite Ready to Retire
Date: February 10, 2026
Co-host: Joe Salsihai

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Episode Overview

This episode dives into three listener questions, each tackling practical decision-making around money, career burnout, and investing for both yourself and your kids. Paula Pant and her regular guest, Joe Salsihai, use real-life scenarios to explore how financial choices intersect with life satisfaction, critical thinking, and long-term planning.

The main themes include escaping career burnout before reaching one’s FIRE (Financial Independence, Retire Early) number, evaluating the effectiveness of a portfolio manager, and helping a teen get started with a Roth IRA. True to the podcast’s motto, the focus is on “affording anything but not everything”—with a special emphasis on keeping your spirit, mental energy, and time at the core of financial decisions.

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Key Questions and Advice Segments

1. Burned Out but Not Ready to Retire: Should I Jump Now or Stay the Course?

Listener: “Cheryl” (anonymous from New Zealand, teacher, age 38)
Segment Start: [01:20]

Context & Question

• Cheryl is mortgage-free, burned out from 15 years of teaching, and wants to move to relief (substitute) teaching for better work-life balance.
• She has ~$160K invested, $140K in KiwiSaver (locked until 65), small cash funds, and a 65% savings rate.
• To fully FIRE, she would need ~$900,000; working full-time longer could get her there in 7 years, which feels unsustainable.
• With relief teaching, she estimates having to draw $5–10K/year from savings for several years.
• Cheryl asks: Should she aggressively invest until she switches, build up cash reserves, or stay in her job longer to be closer to FIRE before switching?

Main Insights & Advice

• Acknowledge and Celebrate Progress

  • “A 65% after-tax savings rate. That’s incredible. Just huge. Round of applause.” —Paula [03:46]

• Value of Emergency and Sinking Funds

  • Joe explains how having cash set aside allows you to take investment risk elsewhere, supporting growth without anxiety. [04:39–06:29]
  • “She can be in growth funds like she is with the rest of her money, growing it without worry because of the fact that she knows that if something comes up in the short term, she doesn’t have to go near that money.” —Joe [05:32]

• Don’t Trade Your Spirit for Money

  • Both hosts emphatically advise against staying in a draining job for the money.
  • “No, don’t do that. Because it is so clear from your question that you are done. You are burned out. … I don’t want you to do anything that’s going to break that spirit.” —Paula [07:05]
  • Protect your mental health and spirit over continuing to chase a financial milestone in misery.

• Cash Flow Management: Aim for Minimum Pain

  • The gap created by switching to relief teaching is small and manageable.
  • They recommend making the change as soon as possible (perhaps staying only until the end of the academic year for continuity). [10:02]

• Give Yourself Room for Recovery and Exploration

  • After a career switch, reclaiming energy and creativity is likely to lead Cheryl to new opportunities or income sources within 1–3 years.
  • “For the first three to six months, you might need to just rest and recover. But I’m guessing after about six months, you will have so much more energy…” —Paula [08:35]

• Explore the Real Source of Burnout

  • Sometimes the issue is colleagues, a manager, or the institution—but if the love for teaching remains, a change of environment could help.
  • Citing outside research, Paula notes that “your relationship with a single person makes or breaks the job in so many cases.” [12:04–12:40]

• Optimize for Time, Well-Being, and Energy

  • “What we’re doing is changing the emphasis from money being the most important piece to your time is the most important piece. And both of these are finite resources.” —Joe [14:46]
  • Paula adds that “your spirit is the number one thing to solve for because that’s the source of everything that follows.” [15:22]

• Final Encouragement

  • With her low overhead, no mortgage, and high prior savings rate, Cheryl is “so close to being able to do that” (take the leap). [16:30]
  • “The sooner you do that, the sooner you’ll find the thing that is what you were meant to do.” —Paula [17:27]

Notable Moments

• “I know, Cheryl, that change will do you good.” —Joe [17:27] (With a playful Sheryl Crow reference)

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2. How Do I Judge My Portfolio Manager?

Listener: “Ray” (anonymous)
Segment Start: [23:12]

Context & Question

• Ray has a portfolio managed by a bank manager who favors dividend funds.
• After two years, the portfolio outperforms large cap, matches or underperforms in other places.
• Ray seeks benchmarks, wonders how long to judge performance, and questions if he should just go DIY with index funds.

Main Insights & Advice

• Dividend Funds: Not Universally the Best Strategy

  • Both hosts express skepticism about focusing long-term portfolios on dividend funds—especially when the investor doesn’t need income now.
  • “Those tend to be the funds that don’t grow as much over time. And you’ve clearly stated that growth is your priority.” —Paula [24:42]

• Communication and Clarity with Your Advisor

  • More important than the specific funds is the ability to articulate why certain choices are made. If you aren’t on the same page, that’s a red flag. [25:33]

• Build Your Own, Goal-Based Benchmark

  • “The only benchmark that matters, throw away all these other benchmarks, is: what rate of return do I need to reach my goal? Period, full stop.” —Joe [26:40]
  • Design your portfolio to hit your target, create a composite benchmark based on your real-life allocation, and judge your manager only by that standard.

• Performance Drivers: Allocation, Fees, and Market Movement

  • Evaluate performance based on: (1) Are the asset classes and allocation right for your goal? (2) Are fees cannibalizing returns? (3) Are you simply experiencing market fluctuation? [28:15–29:55]

• Diversification vs. “Deworsification”

  • While reviewing Ray’s asset allocation, the hosts praise the professional structure (small/large caps, developing/emerging markets; minimal mid-cap overlap).
  • “That blend of asset classes does make a lot of sense.” —Paula [35:51]
  • Stresses the benefit of non-overlapping, low-correlation asset classes rather than excessive complexity. [32:13–34:13]

• Watch for Hidden Cost or Drag

  • Bank-managed portfolios may have higher fees due to share class selection or commissions. Check specific fund choices to confirm you’re getting value. [36:01]

Notable Quotes

• “A gain is a gain is a gain. … Mentally bucketing for any reason outside of tax planning doesn’t make sense from a rational mathematical standpoint.” —Paula [25:19]
• “My benchmark is a combination of large cap, international, small cap, mid cap—and then I’m no longer looking at ‘is my manager winning versus the S&P 500?’ Who cares? It does not matter…” —Joe [27:10]

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3. How Can High-Earning Parents Help a Teen Open a Roth IRA?

Listener: Nathan
Segment Start: [39:01]

Context & Question

• Nathan’s 14-year-old son earned his first W2 income.
• Parents are over the Roth IRA income limits—wondering if they can still help their child open and fund a Roth IRA, or if they must forgo the child tax credit and file separately.

Main Insights & Advice

• Good News: Child’s Earned Income Counts, Not Parent’s

  • “The parents’ income does not block a child’s Roth IRA. The child’s Roth IRA eligibility is based on the child’s earned income.” —Paula [40:44]
  • Parents can claim the child as a dependent and take the tax credit; it doesn’t impact the Roth IRA rules for the child.

• No Backdoor Roth Needed

  • As long as a minor has earned income below the Roth limit, a custodial Roth IRA can be funded up to their earned income (e.g., from a part-time job).

• Opportunity for Financial Education

  • Joe encourages Nathan to not only help his son invest but to use it as a chance to talk through investing lessons—returns, volatility, and sticking with the strategy.
  • “Some pretty powerful lessons you can teach… to work through those things at a young age while he’s still at home.” —Joe [42:27]

Notable Quotes

• “Keep claiming your son as a dependent. Keep the child tax credit and open a custodial Roth…” —Paula [43:44]
• “There were days, Paula, when I didn’t want to claim my kids, but that had nothing to do with taxes…” (joking) —Joe [44:00]

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Memorable Moments & Tone

• Lighthearted, supportive banter between Paula and Joe (e.g., Sheryl Crow song references, self-deprecating dad jokes).
• Underscoring the real-life tension between optimizing finances and safeguarding happiness.
• Refrains like “protect your spirit,” “optimize for time and energy,” and “the sooner you make a change, the sooner you’ll discover what lights you up.”

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Timed Highlights

| Timestamp | Segment/Quote | Speaker | |-----------|-------------------------------------------------------------|---------------------| | 03:46 | “A 65% after tax savings rate. That’s incredible…” | Paula Pant | | 07:05 | “No, don’t do that. Because it is so clear you are done...” | Paula Pant | | 14:46 | “What we’re doing is changing the emphasis from money…” | Joe Salsihai | | 24:42 | “I am, for the long term, not a huge fan of dividend funds” | Paula Pant | | 26:40 | “The only benchmark that matters... [is your goal].” | Joe Salsihai | | 35:51 | “I do like the overall composition of the portfolio.” | Paula Pant | | 40:44 | “Do you want to be the one to tell them, or should I?” | Paula Pant (to Joe) | | 43:44 | “Keep claiming your son as a dependent…” | Paula Pant |

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Takeaways for Listeners

• Safeguard your well-being even if it means slowing down your march to “full FIRE.”
• When evaluating investments or managers, benchmark against your goals—not arbitrary indices.
• Use life events—like your child’s first W2 job—not just as a savings opportunity, but for hands-on financial education.
• Celebrate hard-won milestones: debt freedom, sustainable living costs, and investments in happiness pay off.

Quote to Remember:
“Your spirit is the number one thing to solve for because that’s the source of everything that follows.” —Paula Pant [15:22]

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Transcript

[Anonymous Caller]

Foreign.

[Paula Pant]

Welcome to the Afford Anything podcast, the show that knows you can afford anything. Not everything. 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. I trained in economic reporting at Columbia. Every other episode is ish. Most Tuesdays I answer questions that come from you and I do so with my buddy, the former financial planner Joe Salsihai. Joe, I've got a situation for you.

[Joe Salsihai]

A situation?

[Paula Pant]

A situation. Imagine being in your 30s, totally mortgage free, you've paid off your mortgage, but you're extremely burned out of your job.

[Joe Salsihai]

I love the fact the mortgage is paid off.

[Paula Pant]

Right. All right, we're going to tackle that first. Then we're going to talk to somebody who's wondering how to evaluate a portfolio manager. Are they getting, you know. Yeah, there's some nuance in that. And then we're going to hear from a dad who's wondering about his kids. Roth Ira. 14 year old kids. Roth Ira.

[Joe Salsihai]

A head start.

[Paula Pant]

Yeah, exactly.

[Joe Salsihai]

Awesome.

[Paula Pant]

With that, we'll go to our first question today, which comes from Anonymous.

[Anonymous Caller from New Zealand (Cheryl)]

Hi Paula and Jo, I'm Anonymous calling from New Zealand. Long time listener, first time caller. I'm 38 and I'm at a crossroad and would love to hear how you think my situation through because I'm caught in a what if spiral. For context. I've been a teacher for 15 years. In the past two years I've felt really burned out and I focused on aggressively paying off my mortgage. Now I am mortgage free and I have lower expenses and I want to leverage it into better work life balance by moving to relief teaching. But I've gone from having one clear defined goal of fire to a lot of options that I don't know how to think through. I am considering working full time for a further two years until I am 40, then becoming a relief teacher to pay for my day to day living while my investments grow in the background. I currently only have $160,000 invested in a growth fund. I have $140,000 in KiwiSaver new Zealand's retirement account. I can't access that until 65. This is also invested in a growth fund, so I have a 10k emergency fund and another $15,000 cash that is earmarked for things like saving for a replacement car, an overseas holiday or a marathon major. If I could qualify. If I continued to work full time for approximately seven more years, I could fully fire with $900,000 as I estimate my spending will be $36,000 a year. However, I don't think my body and mind are going to hold up for another seven years. Talking with relief teachers, I can reliably earn between 25,000 to $30,000 per year relief teaching. But this means I may need to top up my living expenses from 5 to $10,000 each year until my investments have grown to $900,000. This could be 10 years or more. My question is, how do I best prepare myself to become a relief teacher on a fluctuating income? Do I invest aggressively for 2026 and then in 2027 contribute to a cash account so that I can cover the difference between income and expenses while rel Do I stop investing now and save a really big cash cushion or do I work three or four more years to build up my investments more? So I'm over halfway to fire before I move to relief teaching. I currently invest $1900 a fortnight and save $450 into cash savings which is approximately a 65% after tax save rate. I'm no type A spreadsheet queen with a dozen contingency plans. I stick to the KISS method. Keep it simple. Stupid in this situation has too many moving parts for me. Please help.

[Joe Salsihai]

It does have a lot of moving.

[Paula Pant]

Parts, Paula, but I love it. A 65% after tax savings rate. That's incredible. Just huge. Round of applause. Can we get a round of applause here? Thank you, Steve. Well, Anonymous, since you are a teacher, I thought we might honor someone else who was a teacher before switching to a different career. Oh, Sheryl Crow, the singer. Sheryl Crow, Really? Yeah. Sheryl Crow was a music teacher before her singing career took off.

[Joe Salsihai]

One day she just said, I just want to soak up the sun. No more teaching.

[Paula Pant]

Yeah. She soaked up the sun and wanted to tell everyone to lighten up. Yes, Sheryl Crow was a music teacher and then switched to doing something that she found more fulfilling that. So anonymous, we are going to call you Cheryl.

[Joe Salsihai]

Man, diving into this. Can we shine a light on something I think is really cool besides paying off the mortgage?

[Paula Pant]

Yeah.

[Joe Salsihai]

Which is something. I know that you spoke about this when Andy Hill was the guest on your show. Just how this idea of paying off your mortgage people go interest rate. Why would you do that? But bam, for Andy and here for Cheryl, paying off the mortgage fits the bill. Like it is the thing that is going to give her the flexibility to do what she wants much earlier. So I think that's cool. The other thing that's really cool that I think is often overlooked. The value of that emergency fund in the sinking fund, the $10,000 in the emergency fund, and the $15,000 for things like a car, whatever these big purchases might be. She doesn't have to worry about those things, Paula. And what I see happens in a portfolio is people invest more conservatively than they truly should because they're worried about what if something comes up. And so when people talk about risk management, the pushback I always get is, well, that, that emergency funds not earning a great rate of return. And it's not. But what's cool is, is that she can be in growth funds like she is with the rest of her money, growing it without worry because of the fact that she knows that if something comes up in the short term, she doesn't have to go near that money. So it's this. It's this ability to invest the way that you should instead of trying to cover all these what ifs and backing down your ability to earn a lot of money with your money, that truly is the magic of that emergency fund. So I love that. I think that's all great.

[Paula Pant]

Yeah. One thing that I love about your plan, Cheryl, is that your next chapter, which is to become a relief teacher, that will cover most of your living expenses, not all. There's still a small gap to plug, but that gap is relatively small. You know that next career relief teaching, or as we call it here, substitute teaching. Right. That's going to cover the bulk of what you need. So we're actually solving for a very small dollar amount when it comes to the budget deficit.

[Joe Salsihai]

Yeah.

[Paula Pant]

Cheryl, to your first question where you asked, hey, should I just suck it up and stay in this job for a while longer, you floated the idea of potentially working full time for seven more years so that you could fully fire with 900,000. No, don't do that. Because it is so clear from your question that you are done. You are burned out. You don't know if your body can take it. You don't know if your mind can take it. You don't know if your, your spirit can take it. Everything that you've done so far, paying off your mortgage, having a 65% savings rate, you have needed to have a strong spirit in order to be able to do that. And I don't want you to do anything that's going to break that spirit. And when we are in jobs that are not our calling, we know that. And that really can break the spirit. And so that's the first thing that I'm protecting for is I'm protecting for that spirit.

[Joe Salsihai]

I truly think, Paula, that the real question is, what am I going to do beyond get the hell out of here? That's where I think the magic is. I think that when she lights up about something else.

[Paula Pant]

Yeah.

[Joe Salsihai]

Whether it makes money or not. I mean, you'll be able to design a portfolio if it turns out to be a thing that doesn't make money. But once she finds the thing that lights her up, I think that is where I would be spending my time first before any of these money questions.

[Paula Pant]

Mm. I think, Jo, where you and I are in total agreement is the option of spending seven more years in this role is completely off the table. That's a no. That's a hard no. The option of becoming a relief teacher, a substitute teacher, is on the table. It sounds as though she's open to that. She's had conversations with other people who do that full time. She knows her income would decline and her income would also be fluctuating. And so there's a cash flow management question around should she start drawing down from some investments in order to be able to do that? My assumption, Cheryl, by the way, is that if you did that, here's what I'm guessing is going to happen. I'm guessing for the first three to six months, you might need to just rest and recover. But I'm guessing after about six months, you will have so much more energy because you won't be in the role that you're currently in, which is draining so much life from you, that with that new energy that you have, you will have ideas and an enthusiasm for other things that you would do in that time that would have some type of income generating outcome. Yeah.

[Joe Salsihai]

At the very least, I think she'll have the quiet right versus every day going, man, I don't like this. Now she'll be able to be in a quiet place where she can really see where the river is flowing.

[Paula Pant]

Right. Yeah. Because she also asked, so, you know, if she doesn't work for seven more years, should she work for three or four more years? No, quit as soon as reasonably possible. You know, if maybe you have to stay through the end of this academic year, but quit at the end of this academic year, you know, quit as soon as reasonably possible without doing harm to your current students.

[Joe Salsihai]

Well, and I think part of the question is which piece of it is the piece that isn't connecting? Is it the piece. Ostensibly, there's a reason she got into teaching in the first place, is that this particular role, you know, Sometimes the problem is. And we don't know any of this. Right. So this is 100 conjecture. We don't know any of this. But these are the questions that I'd be asking many of the smart people that you and I have interviewed, people that are phenomenal at finding this workplace harmony. Often it's just the change of scenery and being with a group, a different group of people that are doing the thing that you love. If she loves teaching, maybe it's just finding a different role. Maybe it's finding a different group of people, a different situation where she's with people that are letting her up and are affirming, you know, whatever teaching piece that she loves.

[Paula Pant]

Right.

[Joe Salsihai]

It could be that simple or it could be, no, teaching's not for me. It's something completely different. That is for me. I need to be done with teaching. I don't know the answer to that, but certainly finding something, beginning to explore what it is, that is the draining piece, I think it's going to start unlocking a lot of doors.

[Paula Pant]

Yeah. Because sometimes it could be the relationship with the manager or the relationship with the administration. Right. Sometimes it is that a person's view of their direct manager, whomever you directly report to, is across all industries. Your view of that person and your relationship with that person has a disproportionately large impact on whether or not you enjoy your job.

[Joe Salsihai]

Yeah.

[Paula Pant]

It's your relationship with a single person makes or breaks the job in so many cases.

[Joe Salsihai]

My son had this during his time at Microsoft. He had three different bosses. And it was funny. One boss, the job was okay. One boss, the job sucked. The third boss, the job was amazing.

[Paula Pant]

Yeah.

[Joe Salsihai]

And he just reflects back on his time at this major organization. Like, do you like Microsoft? He looks back and goes, you know what? My view of the entire company was based on who I was reporting to.

[Paula Pant]

Right.

[Joe Salsihai]

Sometimes it was good, sometimes it sucked, and sometimes it was phenomenal. And it was all based on one. One person.

[Paula Pant]

Yeah. And there's research that documents this, that your impression, a person's impression of their direct supervisor has an outsized, disproportionate impact. So, Cheryl, it might be the case that changing schools, changing administrations, working with a different group of colleagues, maybe that'll do it or maybe not. Maybe the solution is, and it sounds clear from your question, that the direction that you intend to go is to switch from full time teaching into relief teaching, to take the income hit that accompanies that, and then to solve for the question of how do I address that income Hit. And my direct answer to that is make that switch immediately, as soon as. When the academic year ends. Right. Don't wait for three or four years. Right. Make that switch as soon as you reasonably can without disrupting the school year. Because the sooner that you are relief teaching and the sooner that you have that time free and that energy back, the sooner you will have the space to figure out what else you're going to do to fill that time. And I'm guessing whatever that will be will produce some type of an income. So yes, you will be drawing down from your accounts in the short term, maybe for the next year or two or three, but I don't think that that's going to happen for the next decade. You're 38 now. If you leave this role by the time you're 39 or 40, I'm pretty sure that by the time you're 43, 44, you will have found something else that you will enjoy quite a lot more, that you don't have any sense right now of what that is because you're so busy with the day to day. But once that time is clear, you'll find the next thing.

[Joe Salsihai]

Mechanically, what we're doing is changing the emphasis from money being the most important piece to your time is the most important piece. And both of these are finite resources. But in money communities, we tend to optimize for more money when I certainly believe that optimizing for my time is incredibly valuable and I'm not going to get it back. So do the thing that gives me the time to do. What I really want to do is much more often what we should be solving for.

[Paula Pant]

Yeah. And I would say even beyond time, your mental bandwidth, your energy. I'm going to use the word spirit again. Your spirit is the number one thing to solve for because that's the source of everything that follows.

[Joe Salsihai]

Yeah, that's where I'm coming from. Paula, is that the time in a negative quantifiable.

[Paula Pant]

Yeah.

[Joe Salsihai]

Well, in the time in a negative mental space just isn't worth it, Right? It isn't worth it if I got to spend the next seven years trying to dig out. Now, if we're solving for quiet and the ability to be quiet, then what I'm doing is I'm building up that emergency fund to buy myself more time over the short run, full well, knowing that that is suboptimal, money wise, long term, it gives you the space when you need it, which is right now. I need that space right now. But I believe then it's easier then to build a plan for growth in the future when I'm in a headspace, that I'm putting it there in a much more healthy way.

[Paula Pant]

Right.

[Joe Salsihai]

The thing that really, really is exciting about this is how close she is to being able to do that because her overhead is so low.

[Paula Pant]

Exactly. Mortgage is fully paid off, living expenses are low. That gives you so much freedom. A 65% savings rate throughout your 30s. I mean, that unlocks doors that allows you to really enjoy your 40s and 50s in a way that most people only dream of. So a huge congratulations to you for managing your money so well that you have the freedom to leave a job that is not your calling. The sooner you do that, the sooner you'll find the thing that is what you were meant to do. Well, thank you, Cheryl, for the question. I look forward to you leaving your job as soon as reasonably possible.

[Joe Salsihai]

And I know, Cheryl, that change will do you good.

[Paula Pant]

Ooh, that change would do you good. Do you good.

[Joe Salsihai]

That change.

[Paula Pant]

All right, well, we are going to hear from the sponsors who make this show possible. When we return, we're going to hear from a listener who hired a bank portfolio manager but isn't quite sure how to judge the results. And after that, we're going to hear from the father of a child, a 14 year old who just earned his first W2 income and wants to put that money into a Roth ira. Both of those are up next. The start of the year is a natural time to set goals for the year ahead. Do you want to pay off debt? Do you want to buy a home? Do you want to save a certain amount in your retirement accounts or your kids? 529 accounts set yourself up for financial success this year. Monarch is the all in one personal finance tool designed to make your life easier. It brings your entire financial life, budgeting accounts and investments, net worth and future planning together in one dashboard on your phone or laptop. 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[Anonymous Caller (Ray)]

Hey Paola, I love your podcast. So I have money invested with a portfolio manager at a bank. While I know some investing basics, I'm unsure how to evaluate whether he's doing a good job. I can compare returns after fees to benchmark funds, but the portfolio has only been invested for a few years. Setting aside short term volatility, how long should I wait before fairly assessing his performance against benchmarks? After two years, he's beating the large cap benchmark, underperforming by half in mid cap and matching or slightly trailing in small cap developed in emerging markets. Granted, large cap makes up half the equity portion of the portfolio, so it's weighted more heavily while mid cap is around 2%, with small cap in developed markets covering the majority of the rest of the portfolio. The manager favors dividend funds, arguing that I can use the income as needed. I understand this makes sense if I need money now, but I'd rather maximize long term returns for bigger purchases or retirement later. Sometimes I wonder if I'd get better results simply investing in an S P ETF for 10 to 20 years. Thanks in advance.

[Joe Salsihai]

I love this question, Paula, but first we have to give him a name. I have an idea.

[Paula Pant]

Oh, what's your idea?

[Joe Salsihai]

Well, he's a guy who aspires to be a great investor, so I think we got to think about people like Ray Dalio, right? So maybe we just call him Ray Ray.

[Paula Pant]

All right, I Love it. Ray, I agree with your instinct. I am, for the long term, not a huge fan of dividend focused funds either. I share your doubts about the portfolio manager. Really? For a couple of reasons. One is there's the strategy itself and then also there is what sounds like a lack of communication, coordination, education between the two of you. So there's two issues here. One is the relationship between you and this portfolio manager, and then the other is the substance of what the portfolio manager has said. I've got doubts in both arenas with regard to dividend focused funds. Those tend to be the funds that don't grow as much over time. And you've clearly stated that growth is your priority. And I understand by definition dividend focused funds bias towards an income stream, but you can also harvest capital gains if you want an income stream. I mean, we did an interview with Mir Statman, a behavioral economist who talks about how growth is growth. Returns are returns, whether it's capital gains or dividends. I mean, there are tax implications of the difference between the two. But ultimately, mentally bucketing for any reason outside of tax planning doesn't make sense from a rational mathematical standpoint. It's simply a mental model that people use.

[Joe Salsihai]

Well, dividend based fund, the capital gain might not be as high, but he can make up at least a good portion of that with the dividend income stream being reinvested. The problem is that creates friction if he's outside of a tax shelter.

[Paula Pant]

Exactly.

[Joe Salsihai]

But if he's inside a tax shelter, I'm with you. A gain is a gain is a gain. So a dividend income strategy could produce more consistent gains than a growth strategy because of the fact that that dividend is by definition going to be more, more constant. It's going to be this river flow that is less likely to be a boom bust cycle like a, like a growth fund would be. So while I have doubts as well, my doubt is more along the communication about why the growth manager is using the dividend fund than the fact that he's using the dividend fund because maybe, maybe a dividend fund will get him there and it's inside of a tax out. I don't, I don't know. Yeah, I think his gut is right. I think his execution could definitely use some cleanup. First of all, when we look at volatility, you know, he said looking at volatility, of course the manager is going to skew left and right, the manager is going to skew left and right, but also the benchmark is going to skew left and right of what you're trying to do, Ray, the first benchmark, the only benchmark that matters, throw away all these other benchmarks, is what rate of return do I need to reach my goal? Period, full stop. That is my benchmark. And when I start with that, a lot of this stuff that's blowing in the wind no longer blows. Doesn't. Doesn't really matter because I then can design a portfolio around achieving that result. And then my benchmark that I create is a hybrid of all of these garbage benchmarks that you're looking at. And I call them garbage because for your goal, it doesn't matter if he beats emerging markets. It doesn't matter if he beats small cap. What matters is the hybrid, right? The hybrid of all of these things that I set in motion to reach my goal. So that's going to give me two things. It's going to give me a performance measurement, but it's also going to give me a risk measurement. What's the amount of risk that I want to take to get there? And that is a discussion that I have with my team, which might include the bank portfolio manager, might not around, okay, what's the level of acceptable risk that we're taking? And then I create this hybrid benchmark that, by the way, Paul, it doesn't look like anybody else's benchmark. This is my benchmark. And my benchmark is a combination of large cap, international, small cap, mid cap. And then I'm no longer looking at is my manager winning versus the S P500. Who cares? It does not matter whether he's beating the S. P500. The S&P500 has zero to do with your goals. So if he's overperforming here, he's underperforming here. Doesn't matter. My answer is we were looking for an 8% rate of return that quarter and we didn't get it. Why didn't we get it? There's two reasons. Well, there could be three reasons, actually. Reason number one is we have set up the benchmark incorrectly. So I'm, I'm, I'm in the wrong asset classes, and we set this up incorrectly. Reason number two is fees. Right? I paid more. Wow, look at that. I didn't put fees at the bottom. I actually put it in the middle. You like that. But it can be fees. He could be charging too much, right? I could be skewing lower because the manager's taking too much of my money and I'm not getting it. The third reason could just be that the market didn't deliver it. And this, by the way, is what the reason is when we underperform all the time. And then we ask, do I need to change my allocation to make this up? Do I need to save more money to make it up? Or is this just over time? Will it make it up? I like that a hell of a lot better than playing the. Well, he's underperforming on the emerging market side, but he's overperforming on the large cap side. And oh my God, I can't, I can't monitor that. You won't be able to monitor that. There's no way you can do that. Create your own benchmark based on your goal and monitor that. And then it's very easy to determine which of those three things is an app. You know what the market was, all the markets were down that are based on our allocation. And looking at the long term, I know that these markets historically have gotten me there over 20 years. So then I'm taking into account, Paula, the volatility, and I'm going, I've got two choices now. I can either, number one, change towards something that has more of a recency bias, which you can see the danger in that, right? Whatever has been, quote, doing better lately that screws up my portfolio return. I can adjust based on the change in my goal and the change of risk that I want to take. That might make sense. Okay. I want to take more risk. I can say I'm not going to change anything and I'm going to fill in. I'm going to change my savings rate to invest more heavily, knowing that this volatility, if I invest more heavily, I can invest while it's down. So when it comes up, I'm going to fill in even better. Right? I'm going to take advantage of the volatility in the market. I go from being like a kite blowing in the air and I'm just going wherever the wins, taking me to somebody who's much more in control. And I definitely prefer that way to benchmark my portfolio.

[Paula Pant]

Joe, what I hear you saying is essentially you're figuring out your spot on the efficient frontier and then evaluating whether or not the manager is executing that. Yeah, 100% in the manager's defense. And I do want to make this observation about the portfolio that they've constructed. They have a combination of small caps and large caps with only a very, very small allocation towards mid cap. And they also have both developed and emerging markets. What I hear within that construction is a healthy dose of low correlation Assets in which you have diversification without deworsification. Because sometimes when you have too many asset classes, having too many asset classes can feel like diversification, but they actually overlap in their performance and in their composition so much that it just introduces unnecessary complexity without really giving you the, the low correlative nature that is at the benefit of diversification. So the fact that it's skewing towards the two ends, small cap, large cap, us emerging. I like that component of it.

[Joe Salsihai]

Yeah. And the reason just to dive into that, that Paula can see that professionalism in the portfolio, is because mid cap will often do very closely what large cap does. It's just gonna. The highs are gonna be higher, the lows are gonna be low, but the structure of the highs and lows are gonna be based on many of the same stimuli. So you end up with a portfolio that just is a bigger roller coaster in mid cap than you have in large cap. But you don't end up with any portfolio differentiation that would change the game, like maybe a little bit of gold. As an example, like we talked about before, money will change the game. It will very much change the game in your portfolio.

[Paula Pant]

Or a dash of REITs can change the game in your portfolio a lot. Yeah, yeah. And this is then where we go back to the efficient frontier, because that's where you can see how you go out on the risk curve. And you can see how a dash of a handful of low correlative asset classes can boost your returns without unduly changing your risk profile. But then there are some asset classes that really just increase the volatility and don't boost your returns a whole lot. And so by, by tracking that, you're able to see, you know, that difference between diversification and diversification. And so I will say, in the manager's defense, it looks like while I don't like the selection of dividend focused funds as just a philosophical position, well.

[Joe Salsihai]

I don't like it based on the managers discussion of it.

[Paula Pant]

Right. Yeah, yeah.

[Joe Salsihai]

Just be fair about why I don't like it. I don't like it because the manager says, well, this is money. You can get it if you need it. And the client is clearly telling him, I don't need the money.

[Paula Pant]

Right, yeah, yeah, exactly.

[Joe Salsihai]

There are times when I used, back when I was a pro doing this, I would use dividend funds, but it was much more for stability and a lack of variability in the returns. I would try to use large company stocks and reinvest the dividend to solidify more of the returns. And lower the amount of roller coaster in the portfolio. So if he told you that rationale based on your long term approach, I go okay, cool. Awesome. That tells me a little about your risk tolerance, you know.

[Paula Pant]

Right. But I do like the overall composition of the portfolio. That blend of asset classes does make a lot of sense.

[Joe Salsihai]

Now asset allocation is the primary driver of the portfolio. But I would also love to see what specific funds then he's using in these different categories because that's when now that we've whittled this down to what is our benchmark and then what's the allocation that gets us there? This is where then fees is a distant third. Paula. But then I can look and see. Okay. Do we have any portfolio drag because of our asset selection?

[Paula Pant]

Right.

[Joe Salsihai]

And often. And this is what scares me most is that the reason I'm actually bringing that up when I'm the guy that I'm most shows is minimizing fees versus all these other things is that's where Paula bank person scares me because bank people generally pick funds that have more drag. Not always. Not. And I don't know what bank you're with. And maybe it's a, it's like a family office setup in the back of a bank and that could be something totally different. But if it's a person who's in an office at the front of the bank that the teller sent you to, that person is generally a commission based advisor and we could see some drag in the portfolio because of asset selection.

[Paula Pant]

Right. So Ray, I hope this was helpful in allowing you to form a checklist of attributes that you can use to evaluate that manager.

[Joe Salsihai]

And I hope you have the returns of Ray Dalio.

[Paula Pant]

Well, we're going to take one more moment to hear from the sponsors who make the show possible. And when we return we're going to hear from the father of a 14 year old who is about to open a Roth IRA.

[Joe Salsihai]

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[Paula Pant]

Welcome back. Our final question today comes from Nathan.

[Anonymous Caller]

Hi Paula and Joe. I hope you're doing well. This is Nathan and I have a question about starting a Roth IRA for my son. He's 14 years old and just got his first W2 job this year. I'd like to contribute to a Roth IRA for him to give him a head start on compounding growth by contributing up to the amount he earns in 2025 on his W2, which will probably be around $1,000 this year. However, our family income is above the Roth IRA income limit to make a Roth ira contribution for 2025. So I'm wondering if there's another way I can fund a Roth IRA for my son to get him started. Since I've claimed both of my minor children on my income taxes each year, I wonder if I should not claim my son this year and do the individual 1040 easy form for him on the 2025 return and then his own individual income would be well below the income limit so he could contribute to a Roth IRA with financial assistance for my wife and me. Is that even possible to have a teenage child submit their own separate tax return? My wife and I would lose on the child tax credit if we don't claim him on our taxes. And I think the child tax credit this year is around $2,200 per year per child. I'm not sure I want to do the backdoor Roth just for the small Roth IRA contribution amount for my son in case it's helpful. Context Most extra income that we have goes toward our kids 529 plans, paying down our mortgage principal or maxing out our employer's 401k style plan. Thank you very much for any suggestions or ideas you have for how I can contribute to my son's Roth IRA when he was young, but our family income is too high for a regular Roth IRA contribution. Thank you so much.

[Joe Salsihai]

Oh Nathan, we've got good news.

[Paula Pant]

Very good news. Do you want to be the one to tell them or should I tell you? All right, so Nathan, the parents income does not block a child's Roth ira. The child's Roth IRA eligibility is based on the child's earned Income. So as long as your child has earned income, then doesn't matter what you make. You don't need to do a backdoor Roth. That's overkill. Your income as the parents does not hamper your child's ability to contribute to a Roth ira. Also, the child's status as a dependent, that doesn't block their ability to contribute to a Roth ira. So you don't need to give up the child tax credit. You can take the child tax credit, continue to claim your child as a dependent, open up a custodial Roth account, and as long as the child has earned income, the child can put their earned income into a custodial Roth.

[Joe Salsihai]

The only thing that hampers your child's ability to put money into their Roth is if they make so much money that they fall victim to the same income limitations that you do.

[Paula Pant]

Right. Like if your child is like an Olsen twin.

[Joe Salsihai]

And that would be fantastic if they couldn't put money in the Roth because they're making so much money. But not the case here.

[Paula Pant]

So I just, I just realized that was a very dated example. I should have said, like Zendaya or somebody here, you know? Yeah.

[Joe Salsihai]

You could have said a lot of different people.

[Paula Pant]

Selena Gomez. Yeah.

[Joe Salsihai]

Say you're of a certain age without saying you're of a certain age.

[Paula Pant]

I know, right. Wilson twins. Right. If you're Taylor Swift's parent. Right. Like if you, if your child is Taylor Swift, it's a different story.

[Joe Salsihai]

Could be. But great news there. And I love this idea. I love the Head Start, and I love the opportunities here, Paula, to teach your kid about investing. And so I wouldn't just open up the Roth ira, Nathan. I would also show them what you're investing in and show them what it owns. And then maybe on a quarterly basis, talk about it going up and down. Because he's going to have those same emotions that you had when you were first an investor. When it goes down the first time, he's going to ask you, why the heck are we still putting money in this? And so to be able to work through those things at a young age while he's still at home, some pretty powerful lessons you can teach. I know when I was speaking with David Gardner, one of the two brothers who created the MLE fool, he talked about all of his lessons about money came from the kitchen table with his dad, Clark Howard. His biggest lessons that made him the money geek extraordinaire that Clark Howard is were because of money lessons with his dad. Some pretty powerful moments that you can have with a kid that can affect their investing trajectory the rest of their life.

[Paula Pant]

Yeah. So keep claiming your son as a dependent. Keep the child tax credit and open a custodial roth and give your son the experience of putting his earned income into that custodial roth.

[Joe Salsihai]

There were days, Paula, when I didn't want to claim my kids, but that had nothing to do with taxes. Was like, I do not know them. They did not come from me.

[Paula Pant]

Never met them.

[Joe Salsihai]

Wasn't my problem.

[Paula Pant]

Yeah. Wow, that was a. That was a short answer, Joe.

[Joe Salsihai]

Succinct.

[Paula Pant]

Yeah, we knocked that one out of the park.

[Joe Salsihai]

Us being succinct. That's also anachronistic.

[Paula Pant]

Anachronistic. What a word.

[Joe Salsihai]

How about you're welcome?

[Paula Pant]

That's two words. Well, Joe, we did it again.

[Joe Salsihai]

We did it. Just fantastic.

[Paula Pant]

Joe, where can people find you if they'd like to learn more?

[Joe Salsihai]

We have some phenomenal mentors that we talked to on Stacking Benjamins. At the beginning of February, we talked to Whitney Elkins Hutton. Whitney used real estate to build her portfolio. But what I love, she's a partner in, by the way, more than $800 million in real estate. But that's not the way she started. She started off by getting very lucky with one income producing property and then deciding that she was going to buy another one. Totally messed that up. And what I love about talking to Whitney is often when we mess stuff up, Paula, we learn the wrong lesson often. I feel like as money geeks, we start with, hey, how do I get rich? How do I do whatever? Whitney just wanted to make this house not a failure.

[Anonymous Caller (Ray)]

Right.

[Joe Salsihai]

She wanted to learn the one skill. She wanted to get good at the one thing. And I think, I think this interview is a great discussion about where we should start on building generational wealth and how we learn when we're losing. We don't learn when we're high fiving ourselves because everything's going great. So, Whitney Elkins Hutton, first Wednesday of February on Stacking Benjamins. By the way, episode 1800 coming up.

[Paula Pant]

Wow, congratulations. 100 Jeebus.

[Joe Salsihai]

And I know for a guy that's like 23, how did I do that and all that? I don't know. I have no idea.

[Paula Pant]

Aren't your twins 27?

[Joe Salsihai]

Shut up. My twins are almost 31.

[Paula Pant]

Really?

[Joe Salsihai]

I know.

[Paula Pant]

Wow.

[Joe Salsihai]

Yeah. Which is weird that I had them in a negative age too. That is so strange. I have no idea what happened there. But yes, that's coming up on the Stacking Benjamin show.

[Paula Pant]

And Joe, you and I, sometime later this year are going to be together in person both in New York and also in Texas. We will be just planting some seeds right now. End of April, beginning of May. Jo, you're coming out to New York. So we are.

[Joe Salsihai]

Details to follow.

[Paula Pant]

Yeah, details to follow. Yeah.

[Joe Salsihai]

Trying to get the meetup together.

[Paula Pant]

Yeah, exactly. So anyone who's in the New York area, save the rough approximate date, end of April, beginning of May.

[Joe Salsihai]

And then in Dallas we will be before that.

[Paula Pant]

Yeah. Oh, look at that. That, that would be. When is Dallas? Dallas is beginning of April.

[Joe Salsihai]

Yeah. We're gonna see if we can get a meet up in Dallas. And I know by the way, we have some of our Stacky Benjamin's fans in Dallas who are trying to get together one of our bad groups, we call them, which are bad group Benjamins After Dark, which are groups of Stacking Benjamin's fans that get together. We have groups now in the Twin Cities. Our friend Chris Luger and Veronica Barnas do that group. We have a group in Seattle, Tacoma of stackers and one getting ready to roll in Boston. Boston is just about to start. But I'm super excited because as you and I record this, at Minnesota State University last night we had a group of 40 people brave the weather up there in the great north to get together to talk about, as you know, Paula, not about money as much, about life and values and using money to get more living. And it's just so cool to see these people come together. And what I really love about Minnesota State University and doing this on the Minnesota State University campus is that we have students that are a part of this group and then organizing this group, which is really exciting to see somebody who's in college who's organizing, getting a group of people together to talk about these shared experiences.

[Paula Pant]

Oh, that's wonderful.

[Joe Salsihai]

Awesome. And if you are in any of those communities, we're also in the process of talking about groups in Tucson and in Dallas. So just go to stacking benjamins.com bad.

[Paula Pant]

Bad benjamin's after Dark which tells you.

[Joe Salsihai]

What kind of meeting it is. It might not be like your mom's meetup group might be a little different. Although my mom's a badass. My mom would have this.

[Paula Pant]

That's amazing, Joe.

[Joe Salsihai]

Your mom's a badass. Your mom would have this meetup group. I've met your mom too, on multiple occasions.

[Paula Pant]

Yeah. Yeah. Awesome. So stacking benjamins.com bad awesome. Well, thank you Joe for being part of this community. Thank you for spending your time with the afforder community and thanks to all of you for being afforders. If you enjoyed today's episode, please share this with the people in your life. Share it with your portfolio manager at your bank. Share it with your 14 year old. Share it with your school teacher and your substitute teacher.

[Joe Salsihai]

Absolutely.

[Paula Pant]

Share it with the administration at your school.

[Joe Salsihai]

The bus driver who takes you to school.

[Paula Pant]

Aw. Share it with the behavioral economist who wants to talk through the mental bucketing of dividends versus gains.

[Joe Salsihai]

Share it with Sheryl Crow.

[Paula Pant]

Share it with all of those people and more. Because that is the single most important way that you spread the message of F double I, R E. Which, as we know, Joe hates acronyms.

[Joe Salsihai]

But that one's pretty fun.

[Paula Pant]

Oh, why thank you. Also, please subscribe to our newsletter. It's completely free. Affordanything.com Newsletter Joe, as you often say, it's free and worth every penny.

[Joe Salsihai]

And you know what? It's fabulous.

[Paula Pant]

Oh, thank you.

[Joe Salsihai]

It truly is fabulous.

[Paula Pant]

The US Mint just stopped minting pennies. They minted their final penny.

[Joe Salsihai]

I saw that.

[Paula Pant]

Yeah.

[Joe Salsihai]

Do we need a moment of silence?

[Paula Pant]

That's. We'll do it after the show ends. That'll be a moment of silence at the end of the show.

[Joe Salsihai]

A lot of Silas, Just consider the end of this show after it turns off automatically on your player. The moment of silence for the penny.

[Paula Pant]

Yes, absolutely. And make sure that you leave a Review up to 5 stars up to and including 5 stars to tell us what you enjoy about this show. Thank you so much for being an afforder. My name's Paula Pant.

[Joe Salsihai]

I'm Jos?

[Paula Pant]

Alsihai and we'll meet you in the next episode.