B (2:12)

Okay. First question is from Chris. About a year Ago, my financial Advisor recommended adding two actively managed ETFs to my retirement portfolio, specifically ACIO and DRSK. My idea was to broaden diversification and help reduce downside capture across the portfolio. Could you, Eli Li 5 this is.

A (2:32)

A new one, Eli. 5 that's a new one to me.

B (2:34)

I've never heard this explain like I'm 5 how these actively manage ETFs use equity hedging strategies.

A (2:41)

All right, great question. We just so happen to know the team at Aptus ETFs. Aptus is the one who runs both of these products. So let's go straight to the source. On this one we have Brian Jacobs, who is a portfolio manager with Aptis. Hey, Brian. Brian, great to have you here. I'm sure it's nice to hear advisors using your products. Correct.

C (2:56)

I think that's a great advisor right there.

A (2:59)

So before we get into the specifics of these products, I just want to spend a minute discussing the use of options in ETFs because it's still a relatively new thing. This is not something you could really do before. And these products are blowing up everywhere they're coming out of. People are providing crazy income. They're buffering against upside and downside. So let's just start with how you can use option to shape your exposure in the market and some of the pros and cons of using them.

C (3:23)

Absolutely. And I do have a seven year old, so I'll explain like a seven year old. So what options are even to take a step back, the way I'd like to think about it in the most part is you have the option to buy or the option to sell something. And so what options are really used for a lot of ways in investing is almost like an insurance premium where you're paying out a certain dollar amount to buy protection that would be on the downside. So to buy the protection or you're paying a premium and then later on if something goes up, you have the option to buy it at the lower price and capture that movement in the market. That's if you're the buyer. The other side is you're the seller, in which case you're collecting that call it premium upfront and then you're exposed to whatever the person who sold that premium to what they want to do given the market direction. And so the way that options are used within financial products, quite frankly, they could be used a number of ways. But the two most popular that we've seen most recently with ETFs becoming more popular are for Hedging a portfolio. And so equity hedge products, which are really popular, you own stocks and you buy a put. So if markets go down, you're protected on the downside. So that's the insurance side. And the other side we've seen that's been really popular of late has been covered calls. So they own stocks and they're selling away the upside to some extent to collect additional premium, which I don't think is correctly labeled as income. But a lot of times these are called yield products or income products, and those are probably the two most popular. But the big picture thing is they could be used any number of ways, packaged together, any number of ways to create really unique return streams for an investor.

A (4:47)

Yeah, and some funds use both of those.

C (4:48)

Right.

A (4:48)

They're trying to do the upside and the downside. And I think these funds that this person asked about is a good lesson here and a good starting point because one of them is used as more of like an equity fund. One of them uses more kind of fixed income, and it's kind of getting in the middle. And this is one of the places where, especially when rates were so much lower and maybe we're going to go back to that place someday, who knows? Advisors had a really hard time finding that middle ground. Right. I have stocks here, they're pretty risky, they're volatile. I have bonds here, they're not paying me anything. What if I want something in the middle? And a lot of it was alternative funds that they couldn't really understand and maybe didn't provide what they wanted. So I think that options have kind of stepped into that place where it could be more of a middle and provide you something of a, I don't know, 70, 30, 60, 40, 80, 20 exposure in a different direction. So let's start with stocks. So Acio, which is your biggest fund by assets, is that right?

C (5:35)

That's our largest fund. These two funds are actually our two largest ETFs. And just to take a step back, we have 13 ETFs, Aptus Capital, 12 of which are options oriented. So this is kind of right up our wheelhouse.

A (5:46)

In your wheelhouse. Okay, so this is a collared investment strategy. And we have a chart here. Why don't we pull it up? So why don't you tell us what we're looking at from just a strategy perspective with Collards, and then you can kind of explain what your fund is doing.

C (5:58)

So what I outlined earlier about the most common ETFs are either providing protection on the downside within the equity markets or, or giving away some upside for premium. A collar strategy really encompasses both of those strategies in one product. So what they do, and they look and feel kind of like buffered strategies, which I'm sure we'll get into in a little bit, in the sense that they provide an investor with a specific amount of downside protection. So if markets are down abruptly overnight or down over a period of time, you've paid a premium for some of that downside protection that we outlined earlier. And to pay for that, what a caller does is it sells away some upside of the market. So if stock markets, instead of going up, let's say 5, 10%, go up 30, 40%, you're capped out past a certain point where you're not collecting some of that return. So it's taking the return, I mean, taking the premium of selling away from the market and putting into that downside protection. With a product, in the ideal world, you're pushing the cap so where you're capped out of as high as possible and having the protection as close to the current price as possible.

A (6:56)

Right.

C (6:57)

So in both worlds, all else equal.

A (6:59)

Right. So the place that you're really unhappy, I guess, for lack of a better word, with this strategy is in just a huge up market where markets are up 40% in a year or something. Is that the worst case for this?

C (7:10)

On a relative basis? That would be the worst case, Right?

A (7:12)

On a relative basis, because your upside is capped, right?

C (7:15)

Yes. For an investor, if the markets are up abruptly and you're still capturing up to the cap, they've still done well. But the opportunity cost or them calling because, hey, why didn't I capture the full market might be there?

A (7:26)

Right, because you're using that, that cap to protect the downside. And what kind of downside are you trying to protect here? Are you trying to protect against a calamitous event? Are you trying to protect against a run of the mill bare market, or is it change? How does the downside work?

C (7:39)

Yeah, so the important distinction with the product, acao, it's an active product, whereas the buffered strategies, which we'll talk about in a bit, are kind of set it and forget it. What we're trying to do is protect against the first 5% drawdown. But within this product, if we think that the market at that point in time is attractive, we're protected. We've collected something on our puts and we're putting a roll it back into the equity market and maybe be able to capture some of that rebound. And so this is constantly Reallocating the options to kind of fit with the dynamic that we think is most appropriate for the given market. So again, it's an active product. The big difference is buffered strategies, which again we'll talk about shortly, have kind of rules up front to say over the next 12 months, this is your floor, this is your cap. With a product like aco, it's much more consistent over that one year time frame. When markets are moving up, we'll constantly be resetting where that put is the downside and moving the cap higher. Whereas again, a buffered strategy was already set at the beginning of the year and is not going to be changing throughout the year.

A (8:38)

So I guess the person asking their advisor about this can kind of think of like we're trying to get rid of the tails here.

C (8:43)

Yeah, right, that's exactly right. We're absolutely trying to get rid of the tails. And the other aspect, which is one of the reasons this type of product has become more popular, is if structured a specific way within an etf, you can eliminate a lot of the taxes distributions that happen within a product. And so if you're viewing, let's say put options as a replacement for bonds because historically bonds are used to diversify. If you're using it as a replacement, you have a similar return. It's not going to be paying out the income that a bond would. So for non qualified taxable accounts, this could be a very tax efficient way to be exposed.

B (9:16)

That's what I was about to ask if these were mainly for, for tax advantaged accounts or, or if it didn't really matter as much.

C (9:22)

It doesn't really matter as much. There are a lot of products out there. The ones that are, are promoting yield or promoting income, those are really for qualified so non taxable accounts because they're so tax inefficient. But anything that's tax efficient can really be used kind of abroad across types of accounts.

A (9:37)

All right, so drsk, which you guys called De Risk, right, We call it De Risk, Correct. More of a fixed income, but it has an option component to it too. So pull up guys, pull up the chart on this one too and it shows the payoff.

C (9:49)

And I guess this product is a little bit more unique out in the marketplace where there are other again hedged equity like products we think we do is better in our opinion. But De Risk, so aptus defined risk ETF is really unique in what it offers to the market.

A (10:04)

Right. Because the payoff here looks different than that collard strategy where this looks like the Payoff on the upside can actually increase, obviously.

C (10:11)

Yeah. So the big difference for this is this is in our view, a fixed income replacement. What it does is it holds core fixed income bonds through corporate investment grade corporate ladders, ETFs. But then I mentioned earlier, you could be long a put, which means you're paying a premium to benefit if markets move lower. With this product also has is call options where we're long, meaning that we pay a premium to be exposed to the equity markets if they go higher. So this is a product that again core fixed income, but then has put options and call options on the equity market to provide both upside potential and downside protection if there's a sell off. So historically this has been around since 2018. It's done quite well and we think it's really unique offering.

A (10:51)

Right. It's a fixed income strategy. But the some of the income is coming from options potentially or an option payoff.

C (10:56)

I guess the payoff we're paying a premium. So we're paying part of the income that we're receiving from the bonds to pay for both upside and downside protection on equity markets.

A (11:05)

So it's kind of like because fixed income historically has been the anchor of the portfolio and the shock absorber. Right. When there's volatility in the stock market, you want your fixed income to be there to step in. And what you're doing here is by saying when there is volatility in the stock market, these options will allow you to pay off in your fixed income and the payoff could be big if there's huge volatility. That's the idea.

C (11:25)

Yeah, that's the idea. So this will underperform just let's say a traditional bond portfolio if markets are basically flat. Right. So you're paying a premium and you're not collecting on either side. What we're ideally doing because we believe as a firm more broadly that fixed income historically has provided very little after inflation, after tax returns. If we can incorporate the call options to the upside to capture more returns, but then also incorporate the puts to provide that dampening effect that people expect from fixed income, then ideally, in a perfect world, again, it's not going to always play out this way. We could increase the return potential while keeping the diversification benefits.

A (12:01)

So Michael in the chat says, hey, your fund says a 3.7% yield. I guess that's like the SEC yield that you have to say. But it's probably not going to be similar to what you get in the product because of the way that you have the structured.

C (12:13)

So the bond portfolio is yielding about 5%. And so just from the coupon parts, it's very likely going to be similar to that. Because we have a.

A (12:22)

Because you said it's corporate bonds that's a little higher than Treasuries.

C (12:25)

It's a little higher than Treasuries. We are removing. We don't own 100%. It's about 90% allocated to bonds. So that distribution is likely going to be felt and distributed out. And then on top of that, the incremental return is going to be through whatever the options pay out. But we're going to be doing that part in a tax efficient manner where we're not going to be distributing that ideally.

A (12:45)

Right. Okay. Gun, can you understand what's going on here so far?

B (12:47)

I think so. I think so. You mentioned the mess with options. I know my way around some options.

A (12:53)

As far as I'm concerned. I don't mean to be throwing a softball here, but options to me are the kind of thing you want a professional to do and not do on your own. Trying to do them on your own because there's so much that goes into them. It's not a set it and forget it kind of thing. You have to manage around them based on the volatility and the level of rates and all these things because the prices of these options change based on market changes.

C (13:13)

I agree with that. And the other aspects, let's say with the buffered strategies, somebody could replicate that relatively easy because it's a once a year transaction, but then they're taxable. The way that a lot of these ETFs have structured it is that you're gaining the similar exposure that you could do on your own, but then it's wrapped within the etf, which can make it more tax efficient.

A (13:30)

All right, let's do the next question. Because we've gotten a ton of questions on buffers over the time. I don't think we've really covered them on the show. So let's do the next question.

B (13:36)

Yeah. Up next, we got one from David. I've been considering adding an allocation to some sort of buffered ETF to, to take a bit less risk. One thing I'm trying to wrap my head around is how much of a hit you're taking in terms of expected return over the long run relative to normal equity index funds. I'm sure it depends on the buffered etf, but I'd be curious what a ballpark estimate would be or the best way to think about it in general, it's a bit difficult to choose which one to go with because there's so many options.

A (14:03)

All right, so this went from like a niche product, almost a nothing, to more. They were more unstructured notes in these other types of products when they launched in late 2010 to something like $200 billion today. Right. And growing fast. I think BlackRock said these are going to be like 600, 700 billion by the end of this decade. And that wouldn't shock me, but they come in all shapes and sizes. It's like downside protection to a certain threshold. Right. I'm protected my first 10%. After that I have losses or I'm protected all the way to 40%. Like, there's a lot of different ways you can go. And as you mentioned, with your college fund, like the, you know, the amount of protection you have could cap your upside. And that's kind of the trade off with these. So you guys sound like you're coming out with a. Have buffers coming out or you will.

C (14:43)

We do. We have. So right now, we've launched in October, four quarterly buffers.

A (14:47)

Okay.

C (14:47)

And then the thing that has become really popular is called a fund of funds of buffered. So one ETF that holds multiple buffers, and that'll be. We'll be looking to create something with that pretty shortly.

A (14:57)

So how do you set expectations with these things? The person is asking, hey, how do I compare these to the stock market? Because obviously you. You're giving something up to get this protection. You can't have it all. So how do you position these things in terms of setting expectations?

C (15:09)

Absolutely. And as I pointed out earlier, the less risk you're taking within a buffered strategy, so the closer the protection is and the more you're protected, the less return. So something that looks and feels more like stocks is gonna have return more like stocks. What we like to do within our allocations, this is actually true for our ACAO project we mentioned earlier, is as a one for one equity replacement, it's likely going to be lower returning, lower risk. But if you use it to replace a broader allocation, so let's say a 60, 40, it could actually not necessarily be return reducing. Potentially, there's a lot of factors at play. I'm going to get into some numbers that go back 75 years to talk about what it has done historically. But really there's a lot of things at play to determine what kind of return you're going to have.

A (15:50)

That makes more sense to me. Comparing it to a balanced portfolio rather than 100% in stocks, because it's not going to give you that same exposure. It can't, because you're protected on the downside. The reason you get that return in stocks is because you, you're open to that huge downside.

C (16:02)

Absolutely. And again, it's going to be dependent on the market environment. If volatility is really low, so paying for the options is very cheap, you're going to have a higher return. If markets go down a lot, the return of these products short term is going to be better than equities. But let's assume the last 75 years where equities did roughly 10%. What kind of return could you expect from something that is maybe protected against the first 15% of the market drawdown? That's a very common and popular etf. What we've done is looked at, okay, if that's your starting point, then let's look at what the return would have been historically based on what the cap is. And I'll get into this. Most of these products set the downside protection and then the result of whatever the top how much they have to give up past a certain point is going to be determined by the pricing of the options at that given point in time. If volatility is low and you're protected at 15%, you could have a higher cap. Volatility is higher, can have a lower cap.

A (16:52)

Right.

C (16:52)

And so if you've historically been capped out at 10%, meaning that over the next, if returns are more than 10 over the next 12 months, if that's your cap historically instead of 10, they've returned about 6.2%. And then for every additional 1% cap higher, it's been an incremental return of about 0.6%, meaning that if it's 11 cap 6.8, 7.48%. And so if volatility levels are lower and you can move your cap up to 13%, historically it's returned about 80% of the market. If the cap is only at 10%, return about 60, a little bit more than 60% of the market. That's kind of the starting point for framing. And the important part of that, again, the drivers of what's going to determine that cap is number one is going to be what are, what are current levels at a certain specific point in time. And number two is what's the cost of these buffered funds? And so buffered funds, in our opinion at our firm, are very easy. Set it and forget it. To create products, they require one real transaction at the beginning of the year, then you deal with flows. And we think that the kind of 75 to 1% cost of them just doesn't make sense. So our ETFs that we launch in that space are 25 bips at that point. We put some of that cost savings into pushing that cap up, which in our opinion will create a higher expected return over time relative to one that has a lower cap fee.

A (18:09)

Wars come for everyone, right? But that makes, I think that's a good way to position it as like the 60 to 80% of the stock return. But you're getting the downside, so that's like what you're giving up. So are you comfortable that that's the question for people?

C (18:20)

I think that is a good starting point. But again, if your view is the equity markets are going to return lower amounts and it's going to be due to a lot of drawdowns, the performance could be higher than that. If, on the other hand, if equity markets are very strong like they've been the past, call it five years, you could expect that.

A (18:34)

Obviously, we're talking a lot of math here. The psychology is the big thing for a lot of people here. Retirees who have a lot of money, that's, that's a big hurdle. That's why a lot of people love these. It's, it's peace of mind. That's what a lot of these strategies give you.

B (18:45)

This isn't really for someone who can white knuckle through, through just holding whatever, you know, broad index ETF over time. This is for someone who's going to get scared and sell out potentially. Right. And go to cash or something. This is something they can sleep, sleep at night with. It seems like is the, you know.

C (19:00)

It'S there with fixed income again, throughout a lot of its history, it's provided really good ballast to equities. But there are points in time where it doesn't. With this, there's almost a, well, there is a certainty that if you buy this at December 31, 2025, and your, your downside is through 15, if the markets are down 12, you're not going to be down, you know, that one year later you're not going to be down. In between those two periods, you could have some movement, but you know, with certainty you're not going to lose money in that period.

B (19:25)

Are AI and automation technologies going to allow you guys to do even more of these kind of tactical buffered products that get even more specific or track different things? Are you guys?

C (19:36)

Yeah, that's Constantly technology that allows like the scaling of kind of trading. I mean that's a whole other discussion of where is AI coming for for our industry. But by and large on the operation side and trading side, it's definitely. There's already tools coming in place that are going to be helpful for scaling for sure.

A (19:50)

Perfect. All right, Brian, this was very helpful. Appreciate it, man. Tell us where to find more on your writing and research and all that good stuff.

C (19:57)

If you type Aptis, Aptus Capital and blog into Google, it'll come up to our site. You could subscribe. I post there pretty frequently, probably at least two or three times a month. A variety of things. There's a buffered ETF suite landing page on our app, this homepage. So all information on ETFs are there and there's ever desire to learn more, by all means, reach out. We're always happy to talk. Thank you so much for having me.

A (20:20)

Yeah, appreciate the help. Duncan. We're going to look a poll how many people would use options and buffers in their portfolio.

B (20:27)

Good idea. I'll do that. I still can't get over that some of the founders of Aptis are UNCW alumni. People are going to think this was like a plan.

A (20:35)

One of my Duncan is smiling from ear to ear. He loves hearing about.

B (20:38)

One of them is John Goldsberry who yeah, was a kind of a big time basketball player for uncw. It's pretty cool.

A (20:44)

All right, let's do another one.

B (20:45)

Okay. Someone cash money in the chat said came here for the zero day expiration spy options.

A (20:53)

Oh but it is, it is. It is kind of amazing that these types of strategies where you're doing these kind of hedging would have been 2 and 20, you know, 15 years ago and now retail investors can buy them for pennies on the dollar essentially. It's kind of amazing that this stuff exists and obviously you really have to go with eyes open to know what you're doing and that's why a lot of these places go directly to advisors to explain these declines because they are, they are kind of hard to understand as you can tell from our conversation. So going to your eyes wide open. But the fact that these kind of products are available for people who can understand them is pretty crazy. That this is, it's.

B (21:28)

Yeah. And again people in the comments might be like well you know, yeah, I look at a chart of spy over time. That's not the point. Like yes, your data would show that yes, that over long periods of time is going to outperform this is more tactical for someone who just can't stand to see big drawdowns.

A (21:45)

We get questions like this all the time from retirees. Like I'm interested in these things because listen, I've already made my money. I want some protection or I need some protection to sleep at night.

B (21:54)

Yeah, that makes sense.

A (21:56)

Next question.

B (21:57)

Okay, up next. We got one. I don't see a name here. Okay, great.

A (22:02)

Twitter.

B (22:03)

Oh, Twitter. Okay, great. Asset allocation chart. They're referring to your quilt from last week. It would be great to have a 10 year rolling annual returns chart for international stocks too to understand where we are in the cycle. Thank you.

A (22:14)

All right, pull up the chart question, guys. I've done this on my blog every year for the past 10 plus years I update this annual asset allocation quilt. It's got all the different asset classes and such. On the most recent version you can see in 2025 I noted it's the first time since 2017 that international developed and emerging market stocks outperformed the US stock market. So the first time in a very long time that happened. We could do chart off now. So someone asked for the follow up. Well, give me the ten year numbers. Right, that's great. They outperformed last year. So I ran these numbers. Let's do a chart on for here. International stocks. This is rolling 10 year returns, US versus international. And then you can see the bottom of the spread there chart kid. Matt did this one for me today. Very nicely done. You can see this thing is cyclical. So much of the 70s and 80s and even into the 90s, those 10 year returns were international stocks outperforming. So a very long time there you can see. Right, longer than people think. Then into the 90s, the 10 year returns flipped, went to US stocks in the 2000s, not as big of a outperformance. These are total returns, mind you, with dividends reinvested, international stocks outperformed again. Now we've been in a long period where US stocks outperformed. So the question is, well, was that a turn? Are we going to see the red again? Are we going to see international start to outperform? It's going to take a long time because you can see over the past 10 years, this is through the end of 2025, US stocks outperformed by almost 170%. So even with that outperformance last year, it's been a tough go at it for international stocks. Tr off. So this is the hard part about diversification. Like it doesn't work on a set Schedule. Right. Those cycles didn't happen in the same magnitude. They didn't happen over the same time frame. Pull that chart up one more time. In the 70s, international stocks outperformed by an enormous amount by almost 500%. By the end of the 80s, over 10 years, because Japan did so well this latest period, the US stocks have outperformed by a decent amount, but it's been more like the magnet or the length of time than the magnitude of outperformance. So these things aren't exactly equal. Chart off. So that's the hard part.

B (24:12)

I don't know if you, if you watched TCAF last week, but JC's sounding pretty bullish on international.

A (24:17)

Okay. International stocks rolled over 5%. He's bearish again, so take that for what it's worth. Come on.

B (24:25)

Hey, that's technicals.

A (24:27)

Yes, it is. Yes. The question is like, is this a blip or a new cycle? I don't know. That's the hard part. But I'm still willing to believe that almost everything is cyclical in markets. And that's kind of where I, I put this on my blog this week. The US makes up 4% of the world's population, 25% of world GDP and 65% of world stock market should though. Does that make sense? It kind of does. For how big and powerful companies are. Is that going to last? I don't know.

B (24:59)

I do wonder if.

A (24:59)

45% coming out of the great financial crisis.

B (25:01)

I do wonder if geopolitics are going to make Europe try to be a little more insular and able to be self sustaining and not rely on the US for as much.

A (25:10)

It already happened. Germany started spending money for the first time in many, many years. The fiscal purse strings are loosened. Japan is letting their rates rise because they want more inflation, they want tax breaks and yeah, so I think these other countries are starting to wake up. Does that mean it's a long period of underperformance? I don't know. That might depend on how the AI cycle plays out and stuff. But I still think international diversification makes sense. That's where I fall on this. Didn't mean for JC to catch a stray there.

B (25:35)

We'll have to have JC come on and speak as well.

A (25:38)

He makes good wine. All right, next question.

B (25:40)

Okay, up next, we got one from Jeff. I have something of an existential question for you. I'm fast approaching retirement age with a not to brag level of wealth ntv.

A (25:51)

That'd be a good T shirt.

B (25:51)

It would. Yeah. We need, we need A not to brag shirt.

A (25:54)

So he's at almost $5 million. Okay, that's not the brag, which.

B (25:58)

Which I did make a not to Brad joke with some friends a while back and they gave me a really hard time about it. So I guess some people don't get it.

A (26:03)

But.

B (26:06)

Anyway, with a not to brag level of wealth of $4.7 million, most experts, including my advisor, would say that's enough money for financial independence. That means my wife and I don't need to work anymore. We can do what we want, when we want, if we want to. But that sounds boring. What am I supposed to do? Play golf every day? I like working. It gives me a sense of purpose. I don't want to sit on my butt all day doing nothing. I have more fun growing our nest egg than spending it down. Is there something wrong with me? Is it possible to somehow rewire my brain to enjoy our money or get off the hamster wheel?

A (26:38)

I'm picturing. This is from Jeff. I'm picturing him laying on one of those couches in the psychiatrist's office and I'm taking notes. And so I do think that there. And there's something wrong with you. I don't know, maybe. And obviously they do have enough for financial independence. This is a first world problem, obviously, right? Oh, boohoo. I'm sure that's what people in the comments are thinking. But I think there is this idea that in personal finance, where financial independence is the only thing that matters. Right. I'm going to save a pile of money rather than spend it, and then once I have this big pile of money, I can do what I want, when I want. I'm just going to sit back. But the step that they don't get to is, well, what are you going to do? Like, how are you going to define. Especially when work and financial independence are your main priorities? I think work can also be part of your financial independence. Right. I know there are a lot of people out there who want to retire early because they hate their jobs, but it sounds like this person likes working. And so I think work can be part of your financial independence if that's something that you prioritize if you don't have any habits or hobbies. I think one of the reasons some people lose their way when they retire is because work was such a meaningful part of their life. Work involves having relationships with people. We've seen that that's one of the biggest keys for happiness, is your relationships with people. When you pull that away, you Take away the power or the routine of gives you a reason to get out of bed in the morning. It keeps your brain functional. I've heard plenty of stories of people who completely lost their way once they retired and they felt like they had no purpose anymore. And there's actually been studies on this. There was a study done by Shell researchers on Shell employees, the oil company, right. They looked at like 3,500 employees who retarded age 55, 60 and 65. And they looked between January 1973 and December 2003, like 30 year period. Okay. And they found that people who retired later at 65 had higher mortality than people who retired at 55. Right. So you live longer the longer you worked. So mortality rates improved with an older retirement. Now they said, well, what if people who retired early had to do it because they were physically challenged or whatever? That could have been something. So these types of studies aren't perfect. I think the problem is retirement is still a relatively new concept. Up until the 20th century, your retirement plan for the majority of the population was you died, you worked and then you died. So in like 1880, I've got this book called the Evolution of Retirement that looked at this. And 81% of all 7 year olds were still in the labor force in 1880. And like half of all people over 65 who did retire lived with their kids. It wasn't like going to Florida and living on the beach and golfing all day. Most people simply couldn't afford retire retirement. Right. Leisure is still this relatively new thing. So if you were 20 in 19, in 1880, you could expect to live, spend less than 6% of your life in retirement, like two and a half years. Okay, Again, you worked and then you died. If you were 20 and 1990, you could expect to spend a third or more of your life in retirement. Right? Now, obviously working too much is a problem too if it involves a lot of stress. But I think if you value work, it can be part of your retirement plan if you have some rules. Okay, how about this? The no stress rule. Don't keep working if it stresses you out too much, no regrets rule. Don't keep working if it makes you miss out on family stuff, seeing the grandkids and seeing your kids and this stuff like that, especially if you already have the money.

B (29:56)

That's what I was thinking. I bet Remote has changed this calculus a lot for a lot of people, right? If you're able to work anywhere, then, yeah, maybe not missing out on as.

A (30:04)

Much and keep doing something right there's also the no asshole rule. Like if you're working, only work with people that you like and respect. Right. If you're still working and you're working with people you hate like that to me, like, why would you do that? So I think other than that, you have to obviously find some other sorts of hobbies and maybe that's consulting with young people who want to work in industry and giving back. It could be volunteer work and charity work. My dad retired at 62. He retired a little earlier than he thought and I think he kind of lost his way a little bit. But he took classes at community college and he got a part time job stocking shelves at the local winery so he could get 50% off cases of wine and stuff. Can you rewire your brain at this age? Probably not. Duncan, we both have parents in the baby boomer stage of life. Are they changing who they are at their stage of life?

B (30:49)

Well, my mom's in the chat, so I got to be careful.

A (30:51)

But Pam, are you going to change who you are? I don't think so. I think you just have to probably find some ways to introduce more balance in your life. Right. You can do work, but maybe the work is now giving back instead of trying to build more money and more money and more money. Right? Who cares about the money at this point? You've already got enough.

B (31:06)

To me, a lot of this comes down to, I think most people make friends and have most of the social interactions they have at work with people they work with. Even if it's now remote, it's a.

A (31:16)

Big part of it.

B (31:17)

They're still. It's like I talk with John, Dan, Nicole and Travis more than any of my friends. Right. Like I, yeah, I'm talking with them constantly every day on slack or five days a week, sometimes six. You know, like we're talking all the time. That's social connection. And so I think for a lot of people, they're afraid of losing that social connection. And, and so, yeah, like you're saying if maybe join some kind of club or league or something where you can maintain connections, because that is important. You don't just want to retire and sit at home all the time. That's. That's bad for you.

A (31:44)

And that's like, that's the part of the. Yeah, maybe you don't like golf, but something like that where you go to and you see people and that's, that's half the thing with it. Right. It's not the golf itself and mastering the game, it's playing with Your friends and having to be on the 19th hole or whatever.

B (31:55)

Right, right.

A (31:56)

Yeah. But obviously the whole point is everyone's personality is different. Some people need that early retirement and it's good for them. Some people retiring later is better for them, and you just got to find out what works for you.

B (32:05)

Well, and we always see this in Macart comments too. It's really funny to see the spectrum. There are people who are like, if I had a million dollars, I'd retire today and make it work. And then there are people that are like, oh, I would need 10 million.

A (32:14)

Or, oh, I couldn't possibly do it.

B (32:16)

You know, like, yeah, it's. It's funny. See?

A (32:18)

All right, we got one more.

B (32:20)

Okay. Last but not least, I'm curious about your take on having one spouse stay home. We both have great careers now and aren't in a position to immediately make the move, but it's foreseeable in the next 18 to 24 months. Young kids. I'm crazy busy. A common story. I know it seems like a simple math problem of net income versus expenses, but I'm curious what your thoughts are on the topic. Are there surprising expenses or savings benefits you've seen? My gut feeling is that this is one of those iceberg types type of things to analyze.

A (32:51)

We've gotten some questions on this over the years.

B (32:52)

Talking about the spectrum. This is the other end of the spectrum, right? Having someone in their peak working years go ahead and stop working.

A (33:00)

Okay. Someone in the chat says, I'm retired and read 40 books a year. I love it. Reading is a great thing to keep your mind sharp. Still. Okay. Very personal decision. Obviously, having someone stop working, it often gets judged harshly by your peers or your family members. Like, some people would judge you if one of you stops working to take care of the kids. Like, hey, what did you put all this work in for to get your job? And then some people would judge you if you work full time and send the kids to daycare. Like, what are you doing letting someone else raise your kids? Like, usually it's that they judge you based on what they did, not what like you should do. So my first piece of advice, figure out what works for you and your family. Obviously, with the cost of daycare, this can be a difficult choice. So either you pay a ton of money so both you can keep working, or one of you stops working. You save money on daycare, but now you lose out on that income and one spouse is forced to give up on their career aspirations for the time being. So it's not an easy decision.

B (33:46)

And I think people regularly say things like they spend $15,000 on child care a year. Does that sound right?

A (33:53)

It just sounds astronomical. This is something my wife and I went through. We had, we had our twins, which obviously threw a wrench into it. And we. So we had. Our daughter was three. So we had three kids under the age of three or under. So all in daycare age. And my wife worked and she worked at the hospital. She didn't have a very flexible job. And so we had three kids in daycare. And I think the annual cost was probably 20, 25,000 a year. It was unbelievable. And so we had some very serious conversations about this. My wife is kind of like, is it really worth it? After all my taxes and everything, how much money am I actually making? And I'm rushing home from work to pick them up. And it was hard. And once we went through Covid, life got turned upside down and it was like, school is on now, school is off now, school is on now, school is off. And so we made the decision that she stopped working. But it wasn't easy. It was tough. It was tough for her to give up her job. She went to school for and liked working with her co workers and, and the patience and everything. But some people, I don't know how they do it. Once kids get into school because drop off is at 8:45 every day, pickup is at 3:45. How do you work a full day when you have to pick up the kids from school and drop them off? And it's. And then you get extracurricular stuff. And so it's, it's a really, it's a hard, it's. It's not easy. So anyone who makes this decision, I don't judge them because what. Either way you go. I do think he's. He asked about like ways that you can. Like surprising expenses or savings or benefits. Like one of them is just time, right? Having one spouse not work is just time to help around the house and plan stuff and get the kids where they need to go. And hey, a kid's sick all the time in the winter, all the time someone's sick. In the past, that meant, okay, I gotta call and I gotta stay home. I can't really work, gotta stick with the kids. And so the time is a big one. But I think the daycare one is once daycare's done and our kids went to public school, that was a huge raise for our budget because we stopped paying it, right? So we had this window where you had to Pay it. And then when it's done it's like, oh, we don't have that expense anymore. This is huge. It's like getting back a mortgage payment every month. So that's a big one. I think the way that I would do this is probably test run it. So if you're thinking of having one of the spouses quit, try to live on one income for like six months or so and stash the rest of it in savings. That's what we did. We like built up a big pile before we did it. So I think that's a test run on the math side of things and it builds up a buffer when the income does get turned off. I think whatever you do, don't like second guess it. There's going to be either way you're going to probably second guess one or the other. I think just make the decision that's right for you and your family and just don't let other people cloud your judgment.

B (36:18)

Going back to Jeff's question, the question prior this probably wouldn't work well for Jeff. Right. He's saying for my own sanity, I need a job and I like working and it gives me value. So that type of personality is probably not going to do well being like, oh yeah, now I stay home and, and take care of the, the kids. They might need that like outside thing that gives them some kind of, you know, value or makes them feel needed. But see, I think it's, it's up to the individual person probably.

A (36:45)

Nicole in our chat says she would volunteer as Rithol daycare.

B (36:52)

There we go. No, no, I think Nicole's saying she would volunteer to do the trial of.

A (36:58)

Not working for that too. Okay. But yeah, obviously a hard decision. I want to do one quick follow up from last week. Dan. We had lots of back and forth on this. Dan was deciding whether he should keep saving a lot of money and contributing to his investment accounts or do a mortgage and have the mortgage payment take up all his investing. He sent up a follow up and said, hey, I'm still saving for retirement but basically all my taxable brokerage account stuff I couldn't put into there anymore. If I bought versus Rent. And we had a big back and forth on this one and I said if, if it's too, if, if you're totally house poor on the mortgage payment, it's all of your budget, I'd be, I'd be careful. So sounds like he does have more of a margin of safety than we thought. But it's still, I think that's a. That's a trade off. Like do I want to build my portfolio? Do you want to build up my home equity?

B (37:42)

Right. Yeah. It's a little trickier of a decision to make.

A (37:47)

All right. And Nicole wanted me to mention I don't shop.com we I think when these first were released, the blue compound hats went sold out really quickly.

B (37:57)

Like they're back almost immediately.

A (37:59)

Yeah, the other ones are. So that's back in stock. We have a.

B (38:03)

The black ones are now out of stock.

A (38:04)

Now those are gone. This is a good one. The compound hoodie, which I guess we are getting rid of.

B (38:08)

We're retiring it.

A (38:09)

Yeah, retiring it. Get that one and while you can. So itonshop.com for all of your compound needs. Thanks to Brian for coming on today and helping. Thanks everyone in the live chat. The chat was going crazy today.

B (38:20)

We had over 1500 people watching.

A (38:22)

All right, put put questions in the live chat, as always, or on YouTube or email us askthecompoundshowmail.com we appreciate everyone in the live chat, as always, watching on Twitter, listening on your podcast. Leave us a review, subscribe all that good stuff and we'll see you next week.

B (38:37)

See you, everyone.

D (38:41)

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.

E (39:06)

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B (39:34)

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