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- [00:01]
A
Welcome to Ask the Compound, the show where you ask, we provide the answers. I am Ben Carlson. Let's say you're sitting on a bunch of cash, $150,000 worth. You want to invest some of it in a combination of stocks, fixed income, gold. How do you time it? You're worried about the markets. Do you put it all in at once? Do you average in combination of the two? We're going to talk lump sum versus dollar cost averaging and more on today's show. St. Our email here is askthecompoundshowmail.com, our inbox continues to be full of questions every week. We appreciate that we're not live today because I'm on the road this week, but everyone in the live chat can still fire off questions because we have an army of people here at the compound who are constantly looking for questions and pulling from all different places.
- [00:49]
B
We love the comments.
- [00:51]
A
Yes, as always on today's show, will AI lead to a buying opportunity in the future? How would you invest $150,000 in cash right now? Would you give up a 2.9% mortgage for a new home in Raleigh, North Carolina? Duncan knows where that is. I think is $1.5 million enough to retire on? And if you had $5 million or more, would you keep all of your money in stocks? Today's show is sponsored by our shop at the compound. Idontshop.com got a ton of merch there. T shirts, hats. Hats are the new thing. We've got all kinds of hats. Last year we did like the Patagonia version, Right. This year we have. What would you call yours, Duncan? The green one.
- [01:25]
B
I was saying it reminded me of the masters or something.
- [01:27]
A
Yeah, it's got a masters hat. I got one of those. I got. The green one. I got. So it's like a Michael and a Josh hat, like a dad hat and then like a flat bill. Right?
- [01:35]
B
Y. Anytime there's a compound hat, you know I'm gonna wear it out.
- [01:39]
A
My kids were using the compound towels last week on the beach. I don't shop.com for all of your compound merch needs. All right, great questions today. Let's do it.
- [01:50]
B
Okay, first up today we got one from Travis. In the event of a US Market correction downturn or AI bubble pop, would it be smart to shift new contributions back toward US equities while they're cheaper? In my mind, this seems logical because it would be an opportunity to buy when blood is in the streets. But I'm not sure if that crosses the line into market timing. My thinking is that I'm currently hedging my bets by buying non US equities to diversify my portfolio. But a US market downturn could create an opportunity to buy domestic equities at a discount. And for those that don't know that, Boyd in the streets. That's a like Buffett quote, right? Buy when there's blood in the streets.
- [02:30]
A
Buffett was not the first one to say. I don't know the exact origin of that one. But yes, something similar.
- [02:36]
B
It's fairly graphic. That's what I wanted to.
- [02:38]
A
It's interesting because when inflation first started to flare up a little bit, throw my blog post up here in 2021, I wrote about this. I said, could inflation give us a wonderful buying opportunity? This is right when inflation was still kind of kicking in. We didn't know for sure, but the Fed had, you know, done everything they did. They brought rates down to zero, borrowing rates were really low. The government printed trillions and trillions of dollars and sent it out. And so it seemed like inflation was at least a decent possibility. I never thought it would get like 9%, but I. It seemed like a good possibility. And guess what? Inflation was a wonderful buying opportunity. Daniel, throw up a chart here. Chart on The S&P 500 is up 120% from the inflation lows. That was in October of 2022. It's up 24.4percent, almost annualized in that time, which is kind of crazy. And it just so happened that inflation peaked and then a month later we got ChatGPT, which is kind of insane to think about chart off. So I certainly think AI could be that kind of buying opportunity if something happens. Because whatever, things get too. People get too excited, they extrapolate too far. That's what causes these bubbles. Even the dot com bubble burst. But we got everything out of that and more. Now the question is, even on days
- [03:49]
B
like today, didn't I see multiple chip stocks down 10% at some point today? I mean it's.
- [03:54]
A
Yeah. Are you worried about the one day correction again?
- [03:58]
B
I mean, I always get a little nervous when I see stocks down that much, but you know.
- [04:02]
A
Yeah, but you can't have stocks go up so much and not have these kind of times.
- [04:06]
B
When the and Tom Lee told us on TCAF a while back that we almost always get V shaped corrections now. Right. Or V shaped recoveries.
- [04:14]
A
Feels like this is the problem though, with something like this bursting. It depends. So in my book I talk about the two types of bear markets. Do you Remember what they are. Did you get to that point yet?
- [04:26]
B
Maybe not.
- [04:27]
A
Okay, so there's the. It depends what kind of bear. So the 2022 bear market, the S&P 500, fell 25%. Right. That was a run of the mill, textbook, non recessionary bear market. And so for AI, it really kind of depends. Is it a recessionary bear market in terms of how long it takes? So that's part of it. So that when you can buy and how bad it would be, it would kind of be like, is all these trillions of dollars in capex, is it going to tip us over into recession? And I think if there was a meaningful slowdown, it probably would because it just touches. The tentacles are touching so many different parts of the economy right now. So that would make sense if something did blow up, that it would potentially lead to a minor recession when this
- [05:08]
B
one's particularly freaking people out. Because if AI does really well, it could be bad for the overall economy, but it would be great for all of these stocks and companies, I suppose. Right. So it's kind of. That's what's scaring people.
- [05:20]
A
Yeah, we're in kind of a weird place where people think the two paths could be okay. This is a bubble and it pops and that's painful, or it's not a bubble and AI works and it puts a bunch of people out of jobs. Those aren't two. There's obviously a middle ground there. Those are the two extremes people are worried about. And the thing is, when the dot com bubble did burst, The NASDAQ fell 80%. It was like a Great Depression level calamity. Right. So there's probably some middle ground between an 80% crash and 25% crash. The Nasdaq fell, I don't know, 35% in the 2022. So that kind of depends on the length of the crash. But Travis's question here really is, does it make sense to shift from international back to US if this happens? The timing of these things is really hard. Thing is like, what if this somehow changes the course of the markets? Because what we've seen is that the AI trade has kind of galvanized the rest of the world. Right. And this thing has kind of gone global where emerging markets are crushing the US this year because of places like South Korea and Taiwan. They're part of the AI trade too. Right. China is keeping up the fact that a basket of Chinese AI stocks keeping up with a basket of USAI stocks this year as well. So you're having these things where it Might not be the case where the US Is the automatic winner of this. Like it seems like it's been the winner of everything else. Right. Coming out of COVID we were the winner. Coming out of the great financial crisis, we were the winner. What if AI somehow galvanizes the rest of the world? I guess the way I'm thinking about this in terms of hedging your bets is Cliff Asness once said, if you're going to sin, sin a little, like, don't go all the way. So yeah, if you want to over rebalance international stocks right now, I think that, sure, that makes sense. Then if you want to in a correction, over rebalance the U.S. stocks, sure. But trying to time that and think that you're going to get too cute with it, I think it's really hard to time these cycles. So I think over rebalancing in terms of risk, that, sure, give it a try. You might not be right, but I think that's better than just going all in or all out on these segments
- [07:16]
B
of the market and big picture too. If what they're kind of asking is if you should, historically, if you would benefit from buying indexes when they're down, the answer from your research is clearly yes. Right.
- [07:29]
A
So yeah, it probably doesn't matter what stocks you buy, you know, coming out of it. The thing is, the point is though, that a lot of times when, especially if it was a recession and this was an actual bubble bursting, most of the time the winners coming out are not the winners going in. That's what made Covid so weird. That had never really happened before is that the winners going in, the tech stocks were kind of the winners coming out. Usually you have a regime change and that didn't happen that time. And maybe it doesn't happen again this time, but that's the way I would think about it is that it's hard to tell the winners and losers. And I think AI has helped the rest of the world in a lot of ways in the global stock markets.
- [08:09]
B
Yeah, sure.
- [08:10]
A
Seems fair question though. But I agree with the premise that any sort of AI blow up would be a wonderful buying opportunity because the promise of AI helping in the future, it's not like it's going to go away. Even if people do get a little over their skis and we're forced to live through a bear market because of it. Good question. Next one.
- [08:32]
B
Okay, up next, we got one from Marco. I listened to your interview on the Bull and wanted to ask if you had $150,000 in cash today. How would you enter the market? I was thinking of building a portfolio with a global equity fund like the FTSE All World alongside a one to three year government bond ETF and a gold etf. But I'm stuck on how to go about entering the market. And the Bull is an Italian podcast you were on.
- [08:58]
A
Yeah, Throw it up, Daniel. So the Bull with Ricardo Spada is one of the bigger podcasts for investing in Italy. And I've been on the podcast a couple times. I did it for kind of book promotion. I love Italy. It's my favorite country in the entire world to travel to.
- [09:13]
B
How did you get so big in Italy? You're always, you're so. You're popular in Italy.
- [09:19]
A
I don't know, I'm just. Maybe it's because I like to drink wine. I love the people, I love the food, I love the sights. In fact, my publisher has sold the rights to the Italian version of Risk and Reward and it's going to be published in Italian sometime in the fall, probably October, maybe November. I'm in the works of trying to get an event or two over there, potentially going over there and doing some stuff. And actually Ricardo, who does.
- [09:42]
B
We definitely need to do an asset compound. Live from Italy.
- [09:45]
A
I would like that. So Ricardo is going to write a forward for me to the Italian version. So yes, all my Italian brethren. Yeah, I think October, maybe November, that Italian rights version is going to come out. So I pushed them for this too. I said I need, listen, the Italians love me. I need the Italian version of this book. So anyway, Marco's asking one of the favorite questions that we get here. We get it all the time since the show started, since before, like what do we do with the lump sum of cash? It's easily the one with popular questions. And it's a question for years and it's always going to be a question going forward because it's always scary to put a big slug of money to work in the markets. We know what the math says, 75 to 80% of the time, depending on look back period, 12 months in advance, the market's going to be higher. Those are good odds. But people always think in the back of their heads. But what if I'm part of the 20 to 25% where it's not higher? It happens. This is why so many more people are more comfortable with the dollar cost averaging or putting in half the money now and averaging the rest. It's like regret minimization is just a very effective psychological hedge. But Marco isn't Talking about just the stock market. He's talking about a diversified portfolio. So we're talking stocks, gold and bonds. Right. Short duration bonds. And I think the beauty of a diversified portfolio is that with a pre established asset allocation. So he picks his asset allocation. It's 60% stocks and 20% gold and 20% bonds or whatever it is. Right. 80% stocks, 10% gold, 10% bonds. Whatever you pick that allocation to be, you're still going to be sitting on something that you can redeploy. If you put money in and stocks fall, you have those short term bonds to, to buy. You also potentially have gold as a hedge. If gold falls, you have stocks and bonds as a hedge to buy those. In the past 50 years, Duncan, 50 years going back to like 1975, 1976, how many times have gold and the S and P both finished the year with a loss in the same year? Calendar year, five times, 50 years, pretty good. Four times 1981, 1990, 2000 and 2018. And the average decline for the stock market in those years was negative 5%. So not a huge loss either for stocks when they both go down. So I think the idea of going, having a diversified portfolio takes away the need to predict the future in many ways. Right. It also dampens the need to like time the market perfectly. Not that anyone can do that anyway. But I think Marco is picking asset allocation. Have those asset classes, put your money to work and then rebalance when necessary like that. This makes the timing thing easier, I think in a lot of ways, because he is. It's not just like cash or stocks, that's the really hard one. But diversified portfolio, that makes this timing stuff more of a moot point because he can just rebalance into the pain.
- [12:22]
B
Yeah, I mean horizon matters so much here. Right. Because as your data shows, if you're going to be invested for the long term or even what, three to five years, then it's less scary to lump sum if you're investing for a year or something. Okay, yeah, maybe that's a little dice here.
- [12:37]
A
And he's saying I'm going to keep some of it in a one to three year bond. So. So he still has that optionality, flexibility, whatever you want. And if you're really that worried, okay, fine, up your cash fixed income allocation and then slowly but surely put it back to work if the market should roll over. But yeah, diversified portfolio makes things a lot easier in terms of putting money to work. So yeah, put your money to work, rebalance when necessary. Boom. Buy my book when it Comes out in Italian version.
- [13:07]
B
Good advice.
- [13:09]
A
Buongiorno. Did I nail it?
- [13:11]
B
I think so.
- [13:12]
A
All right, another question.
- [13:15]
B
Okay, up next, we got one from Sam. I currently own my home with a 2.9% interest rate in Raleigh, North Carolina. That's not to brag, 2.9. Our family is growing and we're bursting at the seams in our one story ranch house. We've been looking for a house in the area, but keep getting outbid. And I can't stomach the mortgage payment that would be required to be the winning bidder. Financially, we can afford it. So should I just suck it up and go outside my comfort zone, or would it be better to put the money I have set aside for a down payment to work in the stock market for a year or two and hope for a pullback in mortgage rates? I like this question. I think I know what they're gonna say, what you're gonna say, but.
- [13:54]
A
All right, well, I. Listen, I. Maybe you don't. You're the North Carolina expert here. Where are you from in North Carolina? Again, not Raleigh high point.
- [14:04]
B
So it's. It's like a little over an hour away.
- [14:06]
A
Okay, is this, is this a, like a burgeoning area for families to move to?
- [14:12]
B
So the Raleigh, Raleigh, Durham area has Research Triangle park, and it exploded during COVID Everyone wanted to move there. It's a lower cost of living, great quality of life. You're like an hour and a half from the beach, an hour, hour and a half from the mountains. It's a really great location. And, and, and so, yeah, it boomed in the work from home period. And the prices of homes have not come down from there. From, from.
- [14:37]
A
I look, the median numbers I saw were somewhere in the 5 to $600,000 range. If you wanted to look at a good family area with schools or something. So pretty, pretty decently high, I think.
- [14:46]
B
Also the area, the Carolina, the hurricanes just won the Stanley Cup.
- [14:51]
A
So yeah, there you go.
- [14:52]
B
You got them right there.
- [14:54]
A
So you know how much I love low mortgage rates from a personal finance perspective, right? A 2.9% fixed rate mortgage is the best inflation hedge. Latest inflation reading was 4.2%. So on a real basis, you're effectively borrowing for free. The thing is, if you trade up, your payment's going to be way higher. So I ran some back of the envelope numbers. I said, So I chose $600,000. Dan, throw the chart up here. I assumed a 10% down payment. Maybe it's higher than that with your equity. 6.75% is the current rate. So that's like a $3,500 monthly payment. Daniel. The next one, if you did it just with that 2.9%, you know, it's like 2200. So, you know, 12 or $1,300 more a month. And the house you bought before probably was way lower. So I'm guessing we're talking more like a, I don't know, $1,500, $2,000 a month different in payments because the price was probably lower than you bought and the rate was lower. So that is very, very tough to stomach. Obviously, from purely spreadsheet perspective, I would have a hard time giving up my 3% mortgage. But here's the only question that matters. Is this going to make your life better if you do this? Because if the answer is yes, and it seems like since you say you're bursting at the seams in your current home, then I'd say yes, Suck it up. That is what the money is for, right? Life is short, and I hate trying to time the housing market or the mortgage rates market. Imagine telling yourself four years ago when mortgage rates first hit 6%, that, you know, I'm just going to wait till I fall back below 6% and then I'll buy then. And they haven't come back since then. And then you wasted four years of your life waiting. Potentially, I think, especially with a family, you know, that's two more. Two or three more years of life in a house that's only gonna feel smaller as your kids get bigger and they accumulate more stuff. I know people say that, like, big material purchases way off, but I'm a big believer that your home is one of the places that can pay dividends over and over again if you find the right one that makes you happy. So tough pill to swallow getting rid of that, like, sweet, succulent sub 3% mortgage rate. Like, oh, my gosh, it's so, so awesome. I guess you could always price out an addition on your current home if that's an option. But I think if you find a bigger house you love and the numbers work, I'd say just do it. You can always refinance down the line if rates do end up falling. Right. And so from a financial perspective, this is a terrible decision. From a standard of living perspective, I think you probably have to do this if you have kids. You have to. If you can afford it.
- [17:26]
B
Yeah. No, I mean, that makes sense to me.
- [17:28]
A
Is that what you thought I was gonna say?
- [17:31]
B
Yeah. Yeah. I mean, well, and I knew you weren't Gonna like the idea of investing the down payment for a year or two and just seeing what.
- [17:37]
A
Yeah, seeing what happens. Yeah, I don't like that idea. We got when housing prices first started to take off in late 2020, like housing prices were up 10% or something and we got a bunch of emails from people saying, ah, I'm just going to wait till they pull back. This can't last forever. And then housing prices are up 20%, then 30, then 40, then 50. And all those people who wait. I just think timing the housing market is. I'm not saying that's going to happen again, obviously. That would be crazy. I don't see any scenario where that could happen. But the idea of trying to time the mortgage rate. If you find a house you like and you can make the numbers work, just do it.
- [18:14]
B
It is rough out there though, because, you know, I've been looking at places, you know, we've been looking for over a year now, just kind of keeping an eye on the market. And we looked at a place yesterday and was like, oh, I wonder what this area is like. And I looked at the neighboring house and it sold for 600,000 in 2021 and his estimate now is 1.2 million. I was like, you're right, double that's.
- [18:39]
A
And I'm sure if this guy and his family been living in Raleigh and you said like they had a big boom in the housing market because all these people moved there, he's probably looking at it like, man, six years ago that house would have gone for this and now it goes for this. That is hard to wrap your head around that, like this is the new normal and the switch happened so fast.
- [18:58]
B
Yeah, yeah.
- [19:00]
A
And the fact that there's not a lot of supply these days, that makes it harder too. So the competition, I'm sure a place like this, the competition as you said, like you know, university towns and a ton of people coming there for other jobs. Yeah, it's tough, but if you can make it work, I think you probably have to do it.
- [19:16]
B
Yeah, it sounds in that way. It sounds like a no brainer if you're putting quality of life into the calculation.
- [19:22]
A
All right, let's do another one.
- [19:23]
B
That's what you need to figure out. You need to figure out a calculator for finances that factors in that weights for quality of life. Figure that out.
- [19:32]
A
That's why finance is qualitative, not quantitative. Yeah.
- [19:37]
B
Okay, up next, we got one from Dean. My parents are considering retirement in a couple of years. Dad will be collecting his Social Security Next year, which will cover most of their living expenses. However, they've been debating how much they need in order to feel safe retiring. Their goal is 1.5 million, but my mom is nervous about not being enough. They have everything paid off, and I would guess their cost of living is about $30,000 a year. They're very frugal and always have been. What would you tell them?
- [20:05]
A
All right, let's test your financial knowledge a little more. What do you think the average monthly check size is for Social Security payments for an individual? Yeah, individual.
- [20:15]
B
2,000.
- [20:16]
A
Yeah, right up 2,000. 2,100, something like that. So he thought about just his dad, but let's say like both of the parents received an average Social Security check size, right? That's $4,000 a month, almost 50k a year. So Social Security alone would cover them. Even if it's just his dad, it's pretty darn close to covering their living expenses. He now didn't say anything in here about like what their age is, but you know, mom is worried about outliving the money. The thing is, Social Security is also longevity insurance, okay? It's literally designed to prevent outliving your money because it's a guaranteed government annuity, pays out every single month until you pass away. And it automatically adjusts upward for inflation every single year until it goes bankrupt.
- [21:01]
B
Right?
- [21:02]
A
Well, yeah, but by then the boomers will be gone and we'll have to deal with it. Not till that's a ways away. So because it covers the vast majority of their living expenses, their survival doesn't actually depend that much on the stock market. The portfolio then is a way to balance out like, you know, needs for the grandkids maybe, or the kids or bigger purchases. Like I, I think one of the big things is you're like, we don't know what your parents aspirations are, but it might be helpful for them to speak to someone, an advisor, just to get peace of mind in their plan because they're doing more than fine. They are. They're perfectly set up. Especially if they're living on $30,000 a year. I would actually tell them to enjoy their wealth a little bit, figure out what they want to do in retirement, like what are their goals? And I'm not talking about money. Financial planning requires, like, knowing the kind of life you want to purchase with those finances. So you can't just be in a fetal position, worried all the time. Not everyone has that same, those same financial resources in retirement. Everyone has the same amount of time in a day, in a Week in a month, whatever it is. Like, your parents need to plan for their money, but also plan for their time. Like that's the big thing and that's what hopefully an advisor could give you is. I always say the biggest question that our advisors at Ritholts are answering for people is, am I going to be okay? And it sounds like that's the big worry that your parents have. So you talk to an advisor with them maybe and get an objective third party to tell them, listen, yeah, you're fine. Your Social Security covers your living expenses. Have some fun, go on vacations like, or help with the kids a little bit. Something, you know, you can actually enjoy your money. And if they're spending that little, their portfolio is probably going to be even bigger down the line than it is today.
- [22:43]
B
I wonder how many Americans retire pretty much just on Social Security, don't have a meaningful retirement.
- [22:50]
A
So the number is there's roughly 10% of people retirement age or older who are in financial poverty. And that number would be 40% without Social Security. So it's a, it's a. Social Security really does help people out a lot. It's probably one of the best government programs that we've ever instituted. And without it, people would. There. A lot of people would be in a world of pain where that. You're right, that is their, their government check is their. Is their retirement plan.
- [23:19]
B
Yeah, it's. And I mean, I guess it's the closest thing we have to forced savings. Right? Because you pay into it regardless of if you want to or not.
- [23:27]
A
But again, his parents have overed above that. Right. They have $1.5 million that they can potentially still grow and still spend a decent chunk of and be fine. Right. We're talking pulling an additional. I don't know if it's a 4% rule, pulling an additional 50 grand or whatever out of there. Right. A year on top of their. So they could, they could double their current lifestyle if they wanted in terms of spending and be okay. They'd be fine. Yeah, they're good. Your parents are fine. They might not, but you telling them might not help. They might need to hear it from a third party.
- [24:03]
B
Right. Or show them this podcast.
- [24:05]
A
There you go.
- [24:06]
B
Send them my stamp of approval.
- [24:08]
A
Boom. Spend the money. All right, one more question.
- [24:12]
B
All right, last but not least, we got one from John. How often do you see people with 5 million plus invested solely in things like VTI, spy or the usual low cost index funds through retirement? Isn't this how people like Warren Buffett take A disciplined approach to market psychology. If one lives their life with reasonable expenses in retirement, so what if the market destroys 30%? Isn't the potential upside of more growth worth it? Your own stats on recoveries, if I recall, indicate that the market comes back something like 90% of the time in only two years. I believe I've heard Jay Powell even take takes this approach of all index funds, even though it may be in a blind trust.
- [24:53]
A
I didn't know what Jerome Powell's financial plan was, so I had to look this up. It does sound like through financial disclosures, the Fed, he has basically all of his liquid net worth tied up in index funds. Now, he used to work in private equity, I believe, and this may have more to do with a conflict of interest things than anything with him, but he's got tens and tens of millions of dollars. I saw Powell's worth anywhere from 20 to 80 million dollars or something. He's obviously fine. And he does have most of it in just index funds. So you're right, some people do this. Now I always hearken back on this that I learned in level three of the cfa. All right? Now, after I passed my level three of the cfa, after I took it, I spent three years going through this stupid exam and took my wife to Chili's and ordered a bucket of beer because I knew I passed it. Nothing but the high life for me.
- [25:39]
B
Nice.
- [25:40]
A
So something I learned in CFA level three, that was the written one. I had to do a written exam for that one. Everyone needs to understand their willingness, need and ability to take risk. Duncan, you've probably heard me say this before. So your need to take risk is just the return required to reach your financial goals. So if you have $5 million plus, you probably don't need a huge return to reach your goals. You've already kind of, you've won the game. And some financial advisors say, if you've already won the game, why do you need to keep playing? Put your money in safer assets, live off of them, Put it in tips, short term tips or something like that. Your ability to take risk is like what are your circumstances, your income, your portfolio size, your net worth, liquidity, needs, spending habits, savings rate, all that stuff. So that stuff is pretty easy to quantify the need and the ability, right? That stuff is, you can put that into chat GPT, it could probably give you a decent approximation. The hard one is your willingness to take risk. That's like balancing your desire to grow your portfolio and your desire to sleep at night. And those two things are not always in concert with one another. Right. I can't. You wanted me to quantify that in the last question. I can't do it. There's no way to quantify it. And so because your willingness to take risk is like, that's the fulcrum. Right. Because once you've won the game, you don't act. You have the ability to take a lot of risk. If you have $5 million plus. Right. As long as you're not spending and absorbing on money, you have a really high ability to take risk. But you don't need to take risk. So the question is, what do you want to do? That's a hard thing to answer. So I think, like, would you be able to sleep at night knowing that your $7 million portfolio in a month could be worth $4 million or it could be worth $11 million, depending on what the stock market does. Right. You know, in Covid, we were down 35% in six weeks or whatever. That's the trade off of having an all stock portfolio. And sometimes people with an ultra high net worth, which I will say, I don't know if that's 5 million plus. I don't know if it's 10 million plus. Sometimes those are the hardest people to give investment advice to because you could put your money into anything and you'd be fine. I don't know if John, who wrote this question, if that's the boat that he falls into, if he's in the $5 million plus, maybe he is sometimes that it's the hardest one because you feel like you have no limitations. So you can invest in anything. Right. I could put all my money in T bills and I'd be fine. I could put all my money in private equity and probably fine. I could put it in S&P 500 and be fine. So what should you do? That's why you need some guidelines and limitations to like, to guide your actions.
- [28:13]
B
Yep. At the same time, small drops hurt you more, right?
- [28:18]
A
Yeah.
- [28:19]
B
Just from a numbers standpoint, if 2% down to hurts a lot more, I guess from just a sheer number standpoint, when you have five plus million, definitely
- [28:27]
A
you have $5 million, the market falls 20% in a run of the mill bear market. Oh, my gosh. I lost more than a million dollars. Are you kidding me? Yeah. Think about it. It's a dollar perspective. You're right. That matters way more than the percentages at that point. So you just have to kind of figure out if that trade off is worth it to you. And then we've talked in the past about maybe having more of a barbell portfolio where we have something to see you through so you don't have to sell. I think that's the part that really stings for a lot of people is, yeah, I'm going to be fine. The stock market falls 30%, but I still have 3 million bucks or whatever it is. I'll be okay. But are you also selling your stocks to fund your lifestyle? That's painful when you have to sell and then you can't let them rebound. That's where the problem comes in.
- [29:13]
B
Do you think there's a misconception about Warren Buffett and his investing over the years? Because I hear people a lot of times reference kind of like John here, that Buffett is, you know, just like by the market and, you know, kind of risk averse and, and this kind of thing. But like, if you look at his career, he wasn't risk averse. Right. He invested in a lot of small businesses that definitely could have gone out of business. And he talked about looking for, you know, he's the one that talked about looking for cigarette butts and stuff like that. Right. I feel like sometimes he doesn't get credit for being as, you know, comfortable with risk as his career shows that he was.
- [29:48]
A
You think people think Buffett is conservative?
- [29:51]
B
I, I see a lot of people think that, yeah. Like he.
- [29:54]
A
Because I think right now and.
- [29:56]
B
Well, and because I think he said something one time about how when he dies, just put it all into, into the index. Yeah. So I think a lot of people think now that he's an index investor and he's just like, that's what he believes in. That's how he's always invested. But it's not.
- [30:11]
A
He has, well, plus he has the insurance business that kicks off a bunch of cash that allows him to invest. You're right. He invested in a ton of private businesses and the stock book is very concentrated. I don't know. 12 stocks make up the brunt of the stock portfolio.
- [30:27]
B
Yeah, I think a lot of people think he's the mild mannered, responsible, not risky.
- [30:32]
A
He's also 95 years old. Sure. But yeah, if you have that much money, you're ultra high net worth. Could you invest it all in the stock market and be okay? Probably, yeah, probably. And you'd probably end up with more money than you know what to do with. But it's just, can you handle that? That's the hard, it's the willingness to take risk. That's the hard part that you can't quantify. You can't simulate it until you actually go through it. No one knows how they're going to react to that situation. It's a lot harder. That's why I think it's so interesting. As millennials hit their middle age and have some financial assets, it was pretty easy for millennials to continue to buy stocks in the great financial crisis because none of us had any money. Right. It's easier to live through that situation when, oh no, my $10,000 portfolio turned into $5,000. Like, so what, you're gonna be putting more money into the market than that every year? What happens when you actually have a six figure portfolio or a seven figure portfolio? What do you then what do you do? It's harder to see those losses.
- [31:32]
B
Yeah. It has to adjust.
- [31:34]
A
Yeah, that, that, that's generally why people become more conservative as they age. But are there people who do just keep all their money in stocks and are better off for it? Sure, some people can handle that.
- [31:45]
B
We got a lot of them in the chat, in the comments every week.
- [31:47]
A
Yes. Right. Steady hand.
- [31:49]
B
I see what people are talking about there. Yeah, we got a lot of diamond hands.
- [31:53]
A
Yeah. All right. If you're in the chat, leave us a question, leave us a comment, leave us a review. What else? Check out I don't shop.com for all your compound merch needs. Send us an email askthecompoundshowmail.com and we will see you next time. Thanks, everyone.
- [32:07]
B
See you, everyone. Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [32:34]
A
This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block. Or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it, ready to make anything online make sense. There's no place like Chrome. Check responses. Setup required. Compatibility and availability. Various 18.