Ask The Compound – Podcast Summary
Episode: I Timed the Market. Now What?
Date: May 14, 2025
Hosts: Ben Carlson, Duncan Hill
Guest: Bill (resident tax expert)
Main Theme:
This episode tackles the real-world dilemmas listeners face around market timing, portfolio drawdowns, diversifying highly concentrated portfolios with tax efficiency, lifestyle versus career decisions, and benchmarking investment performance. With a signature mix of humor, candid stories, and expert advice, the hosts dig into the emotional and practical aspects of managing money and long-term investing.
Key Discussion Points & Insights
1. Historical Drawdowns in 60/40 Portfolios
[03:11–10:43]
- Listener Question: What are the worst drawdowns for a 60/40 portfolio, and how does its recovery time compare to 100% equities?
- Ben’s Analysis:
- Reviewed bear markets since WWII: average 33% drawdown, 1 year to bottom, 21 months to breakeven.
- 60/40 portfolios have had only 8 double-digit corrections (vs. 44 for stocks) since 1945—lower volatility and better drawdown dampening.
- Average 60/40 correction: ~20% peak-to-trough, ~ one year to hit bottom, but longer to recover than 100% equities due to the "slow and steady" nature of bonds.
“The good news is a 60/40 portfolio has done a really good job of dampening volatility and reducing drawdowns.” — Ben [07:22] “Boring is good when you’re investing. Boring is good, Duncan.” — Ben [10:38]
Notable Stats
- “17 down years since 1945... S&P down an average 13%, five-year Treasuries up over 5%.” — Ben [08:26]
- Exception: Both stocks and bonds lost in 2022.
2. Tax-Efficient Diversification After “Winning” With Mega-Cap Stocks
[10:46–18:49]
- Listener Question (Nishant): Large brokerage gains, highly concentrated in “Mag 7” stocks. How to rebalance/diversify without a big tax bill?
- Expert Input: Bill, resident tax expert
- Advice & Solutions:
- Direct Indexing: Firms like O’Shaughnessy Asset Management can slowly diversify the portfolio while managing tax impact.
- Alternative—Exchange Funds: Noted as complex, usually require diversifying at least 20 stocks; otherwise, use direct indexing.
- Emphasized the risk of “waiting too long”—individual stocks can drop rapidly before diversification.
“Paying long-term capital gain taxes is better than losing 50% of 100%.” — Ben [17:18]
“The instinct to diversify after a big win is correct—concentration is for getting rich, diversification is for staying rich.” — Bill [16:32] - Tax Loss Carryforward: Losses can be used against gains indefinitely, with step-up basis at death.
3. Lifestyle vs. Income: Should I Move for My Job?
[19:30–26:30]
- Listener Question: Mid-20s, works remotely in Boise, must relocate to SF for job or take a 50-70% pay cut. What’s the right move?
- Hosts’ Perspectives:
- Weighs lifestyle happiness and community built in Boise vs. career trajectory and income in SF.
- Suggests negotiating hybrid/remote arrangement first.
“When you’re young and have flexibility, I think you work... you can always change paths later.” — Ben [20:37]
- Work/Life Realities:
- Remote work often leads to “always on” burnout; in-person can sometimes help boundaries.
- Cost of living tradeoffs are real—after-tax and after-expense income in SF may not feel as rewarding.
- Career Considerations:
- Tech career prospects are strongest in Silicon Valley; staying remote could limit future opportunities.
“Finding a good job you like that pays well and finding a place to live you love—those are both rare.” — Duncan [25:16]
- Final Thought:
“The ultimate regret minimization question: what would you regret more?” — Ben [26:25]
4. Market Timing Regrets: What Now?
[27:17–34:35]
- Listener (Sam): Timed exit successfully during a market drop, but missed the rebound and is now stuck in cash—what should he do?
- Hosts’ Advice:
- Treat your cash as a lump sum inheritance—ignore the sunk cost of missing gains, and reinvest according to your actual target allocation.
- Don’t create arbitrary rules for re-entering (“wait for a 20% drop” etc.), as these rarely work out.
“Let go of the other stuff... Move on.” — Ben [28:48]
- Bill’s Confession:
- “I moved 25% of my retirement into bonds on March 27th. I completely screwed this up... I had a plan to rebalance and followed it.” [29:06]
- Stresses that even professionals are vulnerable to emotional decision-making.
- The key is having a plan for re-entry and sticking with it.
- Quote:
“Time in the market will always defeat timing the market.” — Bill [32:50] “Always a bad time to invest... wars, invasions, everything else. If you just take the long view, Sam, you realize this is a losing game, trying to time when you invest in the market.” — Bill [32:08]
5. Benchmarking Retirement Portfolios the Right Way
[34:37–38:50]
- Listener (Casey): Feels like underperforming by comparing results to the S&P 500—should a 60/40 or 70/30 portfolio use another benchmark?
- Ben:
- Institutional funds obsess over benchmarks, but “the only benchmark that matters is: are you on track to reach your financial goals?”
- Recommends using a target date fund with a similar allocation as a better reference, not the S&P alone.
“Just looking at the largest stocks in the US index is folly, to be honest.” — Bill [36:40]
- Diversification’s Downside:
- “Diversification means always having to say you’re sorry about something—something will always outperform or underperform.” — Bill [37:26]
- Most Panelists:
- 100% equities in their own retirement accounts (because of age/risk tolerance).
- 60/40 more suitable for those at or near retirement, or with less risk tolerance.
- Sequence Risk:
- “Dollar cost averaging works on the way up, doesn’t work very well on the way down.” — Bill [38:11]
Memorable Quotes & Moments
-
On internet sarcasm:
“Sometimes I just do this stuff to see how many people don’t understand sarcasm. And guess what? It’s a higher percentage of people than you would think.” — Ben [02:48]
-
On finding celebrity run-ins:
“I saw Michael Shannon in Central Park before, as I was jogging.” — Ben [12:41]
-
On humility after a big run:
“Paying taxes is the prize—but he knows he needs to diversify.” — Ben [12:48]
-
Professional’s confession:
“Forgive me fathers for I’ve sinned... I moved 25% of my retirement account into bonds... I completely screwed this up.” — Bill [29:06]
Timestamps for Major Segments
- [03:11] — History of 60/40 drawdowns and recovery times
- [10:46] — Handling large concentrated stock gains, direct indexing, and tax issues
- [19:30] — Relocation vs. remote/lifestyle tradeoff for a big tech job
- [27:17] — What to do after timing the market and missing the bounce
- [34:37] — Choosing the right performance benchmark for your portfolio
Closing Takeaways
- Diversification pays off over time, but always feels imperfect in the moment.
- You can't “win” the market timing game—long-term, automatic investing is a surer bet than tactical moves, even for professionals.
- Benchmarks are useful, but reaching your own financial goals is the only metric that truly matters.
If you have your own questions, the hosts invite listeners to email: askthecompoundshowmail.com
The original episode delivers financial wisdom with transparency, humor, real-life examples, and tactical suggestions to help listeners invest and plan smarter—without the hype.