A (2:23)

If you ever get close enough, just slap a compound sticker on there for us.

B (2:26)

Yeah. Before we jump in today, can I just share. Share something I thought was really funny to kick off my day. John, hit the tweet. You just out here just trolling people? First thing to start the day. Ben tweeted more Americans who own $70,000 trucks and go on three vacations a year are living paycheck to paycheck than at any time in history.

A (2:48)

You know, 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.

B (2:56)

It's a very high percentage. Yeah.

A (2:57)

Think about it. Am I. Am I'm good at satire? Is that. I don't know, but I try.

B (3:02)

Yeah, I enjoyed it.

A (3:04)

All right. All right, Duncan, if I can make you laugh, I've earned my keep on social media.

B (3:09)

Well, you did.

A (3:10)

Let's do some questions up.

B (3:11)

First day, we got one from Matt. I saved one of your articles from a couple of years ago that showed figures from all of the bear Markets from 1950 to 2020. It included a table with the percentage drop at the trough, number of days to the bottom, the date, number of days to break even, and the time to recovery expressed in years. Do you have similar stats for a 6040 portfolio that would better reflect what the average client experiences? I'm trying to get a handle on the appropriate amount of emergency cash an investor should hold in a portfolio with confidence that this would see them through most major corrections and back to even. From a 100% equity portfolio, it looks like 24 months would get you through all but the worst bear markets. I'd expect the recovery time for a 6040 to be even shorter. Thank you. Your work has been incredibly valuable to me and I'm sure to many other advisors around the world.

A (4:03)

Oh, thank you, Matt. Everyone has a talent in life that is completely useless, right? One of my useless talents in life, most useless talents in life, is I have a photographic memory of charts and blog posts. Okay. Someone asks for an old like, I get this all the time from our advisors. Duncan's dog made it today. What's the dog's name?

B (4:23)

Wally. He's crying in the background because he wants attention. So I'm having to.

A (4:28)

Yeah, maybe Robert De Niro was right on Meet the Parents. That dogs are just needy. My dog all the time, it's so needy, she barks if I don't pay her attention. So someone asks for an old blog post or a graph or a table, I am on it. So I originally wrote about stock market bottoms and break evens during the COVID sell off in 2020 and then I updated that chart in 2022. So John, let's do a chart on. So this shows every historical bear market since the end of World War II. And then it shows the peak to trough months. How long did it take to go from the prior peak to the bottom and then the break even which is peak to trough and then back to where you were. So you completely round trip. So the average is for a bear market since World War II is call it 33% drawdown one year from peak to trough and then a little less than two years. So in the question Matt said 24 months, I got 21 as the average. Obviously as with all averages in the markets there's a wide range around them, right? The COVID break even was six months. We've also had 48 months is the longest one from the dot com bubble and that you broke even and then you went right back into the great financial crisis. The 7374 bear market was 46 months. So as always a wide range. You can do a chart off John, but I've never really dug into this for a 6040 portfolio and there's a reason why. Because I have daily data going back 100 years or so on the US stock market. There's no really daily data for a 6040 portfolio index. So because of fixed income they don't have daily index data. You can probably get it somewhere on Bloomberg but I don't have it. And so I did this with the caveat that I did it on a monthly basis. I have monthly returns for fixed income so I did this using the S&P 505 year treasury. So intermediate term bonds. So I did a 6040 portfolio monthly return. So it's not going to get all the daily gyration. So it But I say horseshoes and hand grenades close enough is good enough. Right? So John, let's do a chart on this. First is the 6040 portfolio. The drawdown profile of a 6040 portfolio. And you can see there's some decent sized drawdowns. This is the same time frame since the end of World War II. You'll notice there's no drawdowns here of more than 30% and there's not a lot of 20% ones either. There's only two 20% drawdowns on here again monthly basis. So don't come with the actuallys. So I decided to do this with only corrections because there's more 10% double digit corrections than just 20%. So John, you can do chart off here. So by my calculations, There have been eight double digit corrections for a 6040 portfolio since 1945. That compares with 44 double digit drawdowns for the stock market itself in that time. So the good News is a 6040 portfolio has done a really good job of dampening volatility and reducing drawdowns. Obviously that's one of the selling points of a balanced portfolio to begin with. So now let's look at the magnitude and length of those drawdowns. John, one more chart on. So These are the eight double digit corrections again since 1945. Average loss is around 20% peak to trough. Pretty similar to the stock market. It's around a year. Interestingly enough, the break even is longer for a 6040 portfolio than it is for just the stock market, which actually makes sense when you think about it. Fixed income has much lower returns. So it's good for you when stocks fall because it dampens that drawdown risk. You don't get the huge crashes in a 6040 portfolio or like you do in the stock market. But also it takes longer to earn your money back because fixed income returns, it's slow. It's like the tortoise versus the hare. It takes a lot.

B (8:02)

You're saying you should actively trade the fixed income portion?

A (8:05)

Is that that's one of the benefits of fixed income. When stocks are down, you can lean into the pain, right? So think about it. Fixed income acts as a shock absorber during market sell offs. So it makes sense that the losses are more muted and then the gains on the upside. So most, not all of stock drawdowns work out great because bonds are the anchor. So there's been 17 down years since 1945. The average loss for the S and P in those years is 13%. In those same years, five year treasuries are up an average of more than 5%. So the huge spread bonds do well in stock. And obviously this is not always because in 2022, stocks and bonds both did bad. That's with every market stat. It's most of the time, but not always. So I think the great thing about fixed income though in a balanced portfolio and why so many people are more comfortable with it is because you can also take distributions even though the break even is longer. You can take distributions from the fixed income portion to if you have to spend money or if you want to lean into the pain and buy stocks when they're down, that's your dry powder. So the whole point of having a diversified portfolio is you don't want to be selling stocks when they're down to fund your current lifestyle. So obviously, balanced portfolios are not a perfect solution because there is no such thing as a perfect solution in the markets. But I think a 6040 portfolio is still pretty good option. Despite the fact that people have been saying it's dead forever. Right? It's. It's always come back. So you get lower volatility, lower drawdowns, and more stability than investing solely in the stock market. The trade off there is, of course you're getting lower returns, but yeah, these numbers were actually better than I thought they would be.

B (9:42)

How do you feel about the fact that we won the trade war so quickly? Does that kind of mess up some of these calculations moving forward?

A (9:51)

Were there any winners in the trade war?

B (9:53)

I don't know. It seems like we won, right?

A (9:54)

I don't know. Heather in the chat says rotate to a 6040 when it drops or at 8020 when it drops. That's not a bad idea. You over rebalance when things go down. Get back to in line when things go up. I could see that.

B (10:05)

Target day funds also do this for you, right? They change the allocation based on your target year.

A (10:12)

Automatically rebalance. Yeah, but I was actually surprised there weren't more drawdowns for a 6040 portfolio. Again with a caveat that these are month end returns. And I guess this is one of the reasons why this is like the standard benchmark for a balanced portfolio. Because it works. Not dead. I wrote a eulogy for the 6040 portfolio probably five years ago.

B (10:35)

Not dead, but a little boring.

A (10:38)

Of course, boring is good when you're investing. Boring is good, Duncan.

B (10:42)

Sure.

A (10:43)

Remember that. All right, let's do another question.

B (10:46)

Up next. We got a question from Nishant. My wife and I currently have 5.1 million in stocks, 4.4 million in a brokerage account, and 700,000 and a 401k. My portfolio has performed quite well, though I'd attribute that to luck. Over the last seven years, my cumulative return and the brokerage account has been 256% with an annualized return of 20%, which has significantly outperformed the S&P 500.

A (11:13)

And he came with the receipts. He sent us his actual brokerage statement to show us these returns. This is like the not to brag of the year so far.

B (11:20)

No. Pretty. Pretty impressive.

A (11:21)

Keep Going.

B (11:22)

I'm aware of it. Consistently beating the market is not only challenging, but next to impossible. I know that a long term strategy of buying and holding index funds is often the best approach. My wife works full time and I'm part time. We're physicians in our early 40s and have a 9 year old daughter. How should I go about rebalancing our portfolio without incurring significant capital gains taxes? Or should I just leave it as it is?

A (11:44)

You know, there's this stigma out there that doctors tend to be horrible investors because they're so smart and so well educated that they become overconfident in their abilities, and that translates into terrible results in the market. Nishant here is the opposite of that. He's like crushing it.

B (11:59)

Yeah, I was actually gonna see if he's managing money for people.

A (12:02)

Yeah. $4.4 million in a brokerage account in your 40s is impressive. Nicely done. You won. Let's bring in our resident tax expert to talk about the what you can do here to diversify.

B (12:12)

Hey, Bill.

C (12:13)

Gentlemen. How's it going? I'm fresh off vacation. Actually ended today in Cena cuts of New York. And as you guys know, but I'd love to share with the audience. I shared a coffee with New York Times bestseller Malcolm Gladwell this morning. So I wanted to know, like, Duncan, what is your most random celebrity run in that you've had?

B (12:28)

Oh, random.

C (12:30)

Yeah.

A (12:32)

He rushed on a plane before.

C (12:34)

Yeah. Maybe on 40th street, like where we all work. I don't know.

B (12:37)

I saw Jared Wedo in Bryant park one time. Walking, just walking through, wearing a hoodie.

A (12:41)

I saw Michael Shannon in Central park before. Oh, wow. As I was jogging.

C (12:46)

That's exciting. Yeah.

A (12:48)

Okay, so this year I always come back to this when I have tax talks with people. You always say, listen, if you have to pay taxes, that means you won. Right. That's better than the alternative of, hey, I get a write off. But guess what? My investment went down. So he obviously has some huge, probably huge taxes in here. I'm guessing mid-40s. 4.4 million in a brokerage account. Sounds like he's done pretty well. Paying taxes is the prize, but he. He knows he needs to diversify. So I give him credit for this. He. He knocked the COVID off the ball. He did great. He realizes, like, okay, part of this is probably luck. I think he sent us his stocks. It was all Mag7 companies. Basically, he got into the right time. He's got huge returns. So what is the objective here? Because we get clients like this coming to us all the time saying, hey, I put money into Tesla 10 years ago or Nvidia or whatever it is, but I hate paying taxes. What do I do?

C (13:43)

Yeah, Ben, I'm a company man, but this is our bread and butter. I mean, you're right, Nishant. I think out of all the doctors I've met, probably the most self aware comment I've ever heard. A lot of this is due to luck. Right? He's looking in the rearview mirror and saying this is probably not repeatable. And I think that's just again, so intelligent to his great credit.

A (13:59)

Yeah, self awareness is often lacking in.

C (14:01)

Investment success, financial management, not all of it.

B (14:05)

He should take a little bit of credit. You know, he obviously could have messed things up along the way and he didn't. Right?

C (14:09)

Take a lap. Yeah, but in the a $5 million portfolio with two physicians with high income like Nishant's going to be awesome no matter what happens. But Ben, to me, this speaks as a perfect solution for direct indexing. We use our friends at o' Shaughnessy Asset Management, Pat Conste and his team over there in Ari, and they're just great to work with. But there are a bunch of companies, providers that do this. So John, can we chart on number one, what they do, Nishant, and for the audience is they will take a portfolio that has done really, really well. And so this is an example just for those of you who are colorblind or can't really see the colors of somebody who has a large healthcare exposure, let's say, and that's the sun here in the middle of this portfolio with all the planetary and the satellites orbiting around. And what a direct index portfolio can do is take your existing portfolio and you can set the dials and say, listen, I don't want to realize a lot of capital gains this year. Maybe I'm going to take a sabbatical, take some time off. I'm going to go back to grad school to get another medical league. I don't know, in two years. I don't need to do it right now. What they can do is they can build the portfolio around your biggest position. Can we flip on chart two here? And what they can do over time is they can decrease the relative size and exposure of your large, let's say your Mag 7 experience stocks. And they can increase the exposure from the stocks around your portfolio through tax loss harvesting, through other methodologies. O' Shaughnessy charges a very modest investment management fee to do this. Other companies charge More in our experience. And this is something that for us and our company and our firm has been a game changer. This has been a paradigm shift in investing over the last six years. So, Nishant, I would definitely recommend a direct index to approach going forward.

A (15:40)

Someone asked in the, in the comments, didn't MEB favor open a fund that you can transfer your large gains into A fund. Michael actually talked to him on Y about this, and it is a cool idea. What is it? A 10? What's the number transfer?

C (15:53)

Yeah. Section 351 exchange, I think is what we're talking about here.

A (15:57)

Yeah, yeah. And the, The. The only. It's a really cool idea. The only problem is there's like caps on the number of. You can't do it with one stock or a handful of stocks. It has to be like 20 stocks or something. I think. Yeah, there's a bunch of. There's more rules to it than. So it could make sense for someone with a widely diversified portfolio. Not widely, but, you know, 20 or 30 stocks. But if you just have five or 10 names, then it doesn't really work. But the idea is that you can transfer these stocks with gains into an ETF, and then within that ETF, you can diversify into like an S&P 500 or something. And so that is kind of a cool idea, but there are some. There. There are more rules on it that make it a little harder than it sounds at first blush.

C (16:32)

Yes. Friend of the show MEB is doing that over at Cambria, to the best of my knowledge. I would also represent good friend and colleague Wes Gray and Jack at Alfred Architect and Pat Clear. They're doing great work over there on a similar mandate. But I would agree with you, Ben, that the complexity of that is to me, even beyond the pale. It's sort of like a more higher octane version of the exchange funds that were very famous in Boston and Eaton Vance and other companies for the last couple of years. I love the direct indexing approach because ultimately what Nishant wants is a more diversified portfolio. That instinct, I think is correct. You concentrate it on the way up, and now that you've made it, you're successful, you have a large capital balance. How do I diversify this thing without realizing large capital gains? Any of these approaches, I think would be wise.

A (17:18)

You don't have to do it all at once. You can dollar cost average out and set some sort of tax budget and have it take over time. The only thing is that you're opening yourself up to the risk of maybe these stocks falling. I was just looking at this before we got on. UnitedHealth is the third biggest company in the Dow. In the last month it's down 50%. Right. One of the biggest companies in the world. And it's down 50% a month when the stock market has been rising. And so the individual stock market risk is just so different than the market risk itself. And that's the thing that you want to avoid, especially after you've got the gains. And guess what? Paying long term capital gain taxes is better than losing 50% of 100%.

C (17:59)

And I love, Ben, I love your 351 idea. Again, I'm more direct indexing because I think that allows you to then take that tax loss you experience in, let's say UnitedHealth as an example. Right. And use that to offset the gains you might have in Google, Microsoft, Amazon, your other large tech companies. And ultimately, like, it's not, it's not a one stop thing to your point. It's not a one thing that you do and then you're done. It's how do you want to be on the other side of this? Right. And I think that the big challenge I have with exchange funds is your basis doesn't reset.

A (18:24)

You know, how long can you carry those losses forward? Because Duncan's going to be living off all the losses for the rest of his life indefinitely.

C (18:31)

Right. There's a step up in basis upon the passing of the primary taxpayer. So you can carry those things forward. Yeah. And yeah, unfortunately the grim reaper comes for us. All right. You can run where you can't hide, but yeah, I think Nishant is playing a slightly different game and I think he's going to be successful no matter what.

B (18:49)

I got to tell you, owe held up pretty well in all this market turmoil. A lot of stocks were down a lot more than oatly, uh, put it that way. Did they just do a 10 to 1 split reverse split? Yes, they did a while back. But yeah, they, they actually held up better than I thought they would.

A (19:05)

Couldn't possibly go down any further. So I think that was your hedge.

C (19:08)

I had somebody pitch me on, you know, the, the oat milks, the almond milks. Like why do we call them milks? Cuz they're not milk. Like they do not come from.

B (19:14)

Why do we call peanut butter butter?

C (19:15)

I. This is a great question. A little bit different. I see your distraction and I'll picture.

B (19:20)

I'm just saying, I mean let's. If we're gonna, we should call Them.

C (19:22)

Juice, like we should call them.

A (19:24)

We have very simple, simple brains. Yeah, we have to keep it. Keep it similar. All right, let's do the next one.

B (19:30)

All right. Up next, we got one from Chad. I'm in my mid-20s, working remotely for a big tech company in Boise. We've built a great community in the area and enjoy the access to the outdoors. I've been at the company for four years, and I've loved every moment. But they're cracking down on remote work. This would require my fiance and I to move to San Francisco. I've been wrestling with the decision to leave the company and take a fully remote job, knowing that my career income trajectory is going to be much lower from now on. The pay cut would be 50 to 70%. What makes it worse is I'm in line for a promotion in one to two years. This would make the pay difference even more egregious. I have no issues with going into an office, but there are no offices in the area. The life we've built here is what makes me seriously consider the fully remote job. Curious to hear your thoughts.

A (20:17)

I love. I love this question because it's a lifestyle versus money question. And I feel like this is a question that wouldn't have gotten asked in the past. I mean, the remote work thing was kind of off the table, but previous generations, it was, no, you go where the money is and the lifestyle is not. And I think young people have totally changed that mindset. And it's like, wait a minute.

B (20:35)

I think Covid changed that big time.

A (20:37)

Yeah. And I think it sounds like they don't have any kids yet. And I think the parent in me is thinking, well, no, you stay in Boise and you've got a great life. There's. I think. I think I would tell them if this was some of that. If this was my son or daughter, I think I'd probably tell them to move to San Francisco. When you're young and you have flexibility, I think you work and it's. I think he said in another part of the email that he might be getting a raise or a promotion soon or something. I think you try it out for a year, maybe if you don't like it, then you can always go take the pay cut. I think. I don't know. I think you're young enough where you have enough flexibility to try out something new. And I think that the pay cut is going to be very tough to swallow.

C (21:23)

Yeah. Yeah. Ben, I love this. And ultimately, I think this is a really interesting question for the three of us because ultimately we all enjoy some benefits of the work from home versus office hybrid. I think Duncan and me are the most hybridy. Right. Because we end up being in the office three or four days a week. But I enjoy my time at home where I am right now, coming out of vacation. But yeah, my gut was exactly mid 20s mentioned that. Really enjoys the outdoor lifestyle, I guess. There's a lot of great trails. Right. And great places to be outdoors. Outdoors in California. I think what makes this question, Ben, so difficult? Maybe this is more of a Duncan and Bill question. Is the cost of living difference between someone in the.

A (22:00)

Someone in the chat did say that I bet the cost of living in San Fran is much higher. So that.

B (22:03)

That's what I was about to say is are they factoring that in? Because that would be a massive drop in their current income already.

C (22:08)

Yeah.

B (22:08)

Because if they kept the job that.

C (22:10)

Yeah. What our guy Seth is looking at is right now he's earning San Francisco income in Boise, you know, home prices. Right. The thing that kept in my mind, Ben was like, how do you. How do you achieve everything? Right? How do you get it all? Maybe that's not possible, but I would start there and that ultimately, Ben, is kind of where you are. Right. You work with this great group of people that I know and love. Right. John Daniel Joy Fishman in Portland, in Bend, Oregon. You know, this great team that's been together for more than now. You have to name everyone, go down the list of 70 people now. But it's been awesome. But we do have this kind of hybrid slash online environment. But we also get together, right? We're getting together in Chicago in the, in early June. So I, Seth, I would really try to hold on to that. It sounds like you enjoy your job. It sounds like these are good people. Obviously the money is great. The taxes to move to California would be brutal. Right. You're looking at going from a 5.7% highest marginal tax rate to 12.3% in California in the worst case scenario. So why not try that? Talk to the company, hey, can I work in Boise three weeks out of the month and can I come to San Francisco for a week? Right.

A (23:07)

I agree. Try to negotiate. I would do the same thing. If you're really that. And maybe they say nope, and you realize, okay, maybe they didn't like me as much as I thought. But test your limits to how much they really like you as an employee. You know, it's funny because when I first joined and you joined not too long after me, the Original conversation was with Barry and Josh and Michael and Chris was, Ben, when are you gonna move to Manhattan? Yeah. And we had just had our first daughter. My daughter Libby was 1 years old, I think.

C (23:35)

How about never? Does never work for you?

A (23:37)

Yeah. And so, yeah, like that conversation with my wife was ever gonna get off the ground. And I thought, oh my gosh, I guess I'm never gonna work for these guys. And we talked it over and it was my idea, like, where how many of our clients are even in New York? Why do I need to live in New York? And they all kind of went, yeah, you're right. And so I was the first remote employee. So I would, yeah. Have a conversation first about it before you just make this really big decision. Totally agree.

B (24:02)

The spectrum where.

A (24:02)

Oh, really?

B (24:03)

I, I took this, I took this job, you know, almost six years ago and it was like, can you be in New York in a month?

C (24:12)

One of my very favorite Duncan stories. Duncan, I remember you show up in suitcase, famously, right. And excuse me, a briefcase. Yeah. Why that was necessary, I don't know.

A (24:21)

But suit and tie, right?

C (24:22)

Yeah. He's a handsome guy. I remember it was thin, it was a blue, it was a very blue, very powdery blue. I enjoyed it quite a bit. But Duncan, the real estate agent in Brooklyn is pitching him on his 380 square foot apartment. And it's basically the size of a walk in closet. And she's saying, listen, dude, don't worry about it. It's Brooklyn. You're gonna have plenty of time to be outside. And there's restaurants and you'll be outside.

B (24:42)

This was August 2019.

C (24:45)

What happened four months later? Poor guy.

B (24:47)

Yeah.

A (24:48)

So someone in the chat, someone in the chat says that I work from home in Texas for a Silicon Valley company, but I get paid based on the state I live in. So I think a lot of these companies have realized that they're cracking down. So if he wants to stay in Boise, I was thinking like, could he stay in Boise but also get another tech job? But I think a lot of these companies have realized this and they're going to pay you based on the standard of living. So maybe if that's the case, and maybe you do some calculations and realize, like, man, staying in Boise really is going to be the cheaper option even if I take the big pay cut.

B (25:16)

Well, also think about this one's really hard because finding a good job that you like, that pays well and has good benefits is really hard.

C (25:23)

And he's online for a promotion. Exactly.

B (25:25)

But also finding a good Place to live that you like a lot is really hard too. So, like, you've already found a place you like a lot. I don't know. It's hard.

C (25:32)

Can I lay two more things out there just for the group? And so one of them is, hey, if your future is in tech, like Silicon Valley, I'm sorry, San Francisco's the place to be. Right. All the AI stuff is going on there. There's these network effects. And so I think one of my concerns for Seth would be if you stay in Boise, you could be lim your future career options.

A (25:49)

Especially in your 20s.

C (25:51)

Exactly, especially in your 20s. However, Ben, I think it's really hard. It's really hard to gauge these things. I don't think there's a right or wrong answer. We can go to the finances, we go to here. I think at the end of the day, I would seek to find ways to stay at your work, but enjoy all the benefits that you have in Boise and if the company can pay for a week out of the month. Right. But I also kind of do see things from the company's standpoint. There are a lot of network effects and compound effects, just getting people together. Right. It's something that is very important for collaboration, communication. It's particularly hard in a hybrid environment. Right. If everybody's in person, that's one meeting. If everybody's online, that's a different type of meeting. I see both sides of this. Seth, good luck. Good luck.

A (26:25)

The ultimate regret minimization question, like, what would you regret more? It's a hard one to answer in.

B (26:30)

A weird way too. I think you're seeing a lot of people working fully remote are suffering from greater burnout than people working in person because you're never off. You know, like when I worked from the office five days a week before the pandemic, I usually Left by like 7pm at the latest on night. So we had a video dropping or something, but now, you know, we're all doing stuff. We'll. We'll respond to slacks at 10pm you know what I mean? Like everyone, you're always on when you're, when you're remote. So in a weird way, you could get a little better work life balance maybe. Unless they're wanting it both ways. Come back to office.

C (27:03)

Yeah, Everybody wants all the money and the lowest cost of living. Yeah. I don't know what you sickos are. I wouldn't impose this on anybody else, but I never stopped working. I'm literally on vacation. This is my vacation and I chose to be here. With you, the ask the compound audience.

A (27:15)

What a guy. Next question.

B (27:17)

Okay, up next, we got a question from Sam. I was one of the guys that emailed you last month bragging about how I went to cash because I was positive Trump would do something to crash the market. Hey, I was right for a brief moment. That turned into a true not to brag because now markets have completely recovered and I don't know what to do. I assumed things would get a lot worse before they got better and I would have plenty of time to buy. I'm still not convinced all of the Trump volatility is gone, but I feel stuck sitting in T bills. What's my next move? I like this question.

A (27:46)

Credit to him for actually writing back in because we had a lot of those questions that I, I can't remember if this is one we read or not, but from my recollection, I think a lot of the people said I sold like coming into the year. So it's not like they sold at the bottom. Well, yeah, that's a lot of YouTube sinking ceiling.

B (28:02)

We had a lot of YouTube comments of people being like, you idiots. You didn't know this was going to happen. I knew this was going to happen so I sold all my stocks in January.

A (28:08)

Yeah, a lot of people were, people were spiking the football and they felt pretty good. And credit to him for saying this, but here's, here's the thing. I would try to, as much as you can, make this a sunk cost decision, whatever the decision for the sale is, it's think of it as you have a lump sum. So if you, if you just got a lump sum today, an inheritance, a bonus at work, whatever it is, how would you then decide to invest it? Not take away all the baggage of the market timing decision and the fact that we've probably round tripped from where you, you sold. The market went down, the market went up and you're back to where you were now. I think you're still in an okay position where if you would have sold on April 8 or whatever it is before the market bottomed and went up 10%. Now it's up 20% from the bottom. Whatever it is, that feels even worse that now you're even more paralyzed. So I would, I think you make it a sunk cost decision and think I get a lump sum of cash pile today, how am I investing it? And that's how you move forward. Let go of the other, all the other stuff that's attached to this. Move on.

C (29:06)

Gentlemen, I have a confession to make. Forgive Me fathers for I've sinned. These are the times that tribe men souls. John, can we chart on? I moved 25% retirement retirement account into bonds on March 27th. It really freaked me out. I could have written Sam's question. And so I can speak from experience from this. I've been 100% stocks from my first Roth area contribution in 1995. John, can we chart off. So it was 30 years of believing in markets, investing the whole thing. And I have to be honest, I completely screwed this up. So I'm right here with. Listen to me. The best thing to do is admit that you made a mistake and learn from this. You just paid some tuition to the market. Market prices are higher today than they were at any point in the last during the trade war. I did not trust myself, gentlemen, to make the decision to reinvest and basically get back to where I want to be, which is 100% stocks for now. So I made a plan. And I made a plan and I said I left my ongoing contributions at 100%. I didn't change those. So this was just my existing balance. And then on April 30, I made a plan. I wrote it down. I was going to reallocate to 100% if stocks are within 10% of where they were when I left and if we had positive momentum similar to Goaltender, the tactical management strategy that we use, both of those conditions were met. That's what I did. And so I reinvested. At the end of the day, it.

B (30:25)

Looks like he's about to jump through the screen and grab you.

A (30:27)

No, I'm not. I. Listen, I. The. The. The hard part about this is if you do it, you don't have a plan. Yeah, that's. That's the hardest part.

C (30:36)

I think so.

A (30:37)

So I don't. I don't know. I. Things were. Did seem pretty scary. And guess what? Regardless of the stuff you missed out on, you were sitting on huge gains, regardless. And I told this to people, if you are super, super freaked out, you're sitting on 15% annual returns over the past five years still, and you want to take some off the table and go from 80, 20 to 70, 30 or 90, 10 to 60, whatever it is, I'm okay with that if it allows you to sleep at night and stick with that. But then you don't just go rushing back in because stocks go up again. That's the hard part.

C (31:10)

I think for me, Ben, the way I rationalize this the way makes me look like a complete and total jackass, but I am a human being and I do this stuff and I look at it every day. John, can we show the last chart that I have? This was the rationalization goes back to Senator Orrin Haas. Tariffs not only impose immense economic costs, but also fail to achieve their primary policy directives and foster dysfunction along the way. I believe this in the core of my heart. I think that when you start tinkering with the economy and saying, hey, we're not going to allow free trade to happen. Going back to ADAM SMITH In 1776, I fundamentally felt that the markets had changed. And what I did not factor in is that, hey, this is a very deep, large economy. Nobody's ever done this at this scale. Right. Nobody's ever been to the United States and done anything like this. And furthermore, something like. Ben, 80% of US GDP is services. Right. I mean, most of economic activity doesn't depend on stuff getting on and off a boat. Right. It's something we focus on right now. So those are the mistakes that I made, but I think where I won. And this is what I'd urge Sam to do. I did have a plan to go back in. It didn't depend on. Exactly. Stock prices. Right. Because again, Ben, to your point, you will always find a way to not to invest. You will always find some other reason to be scared. The great chart that Michael put together years ago was like, it's always a bad time to invest. Right. You know, wars, invasions, everything else. And if you just take the long view, Sam, you realize this is a losing game. Trying to time when you invest in the market.

A (32:31)

And if you missed out on a 12% gain with a portion of your portfolio in 20 years, it's probably not going to matter. So that's. That's why get back into whatever your allocation is supposed to be as quickly as possible, probably. And don't worry about it too much because it's not gonna. It's not the. The little. That's not gonna matter that much.

C (32:50)

Correct. Yep. Time in the market will always defeat timing the market.

B (32:54)

Obviously not. Not a investment advice, but just going on like feeling. Gut feeling. I mean, do you think we're out of the woods? This feels like it was a little too easy to me.

C (33:04)

We're never out of the woods. Don't get me wrong.

A (33:06)

No, the market is never out of the woods. Who knows? Something else will come into the woods. So it's.

C (33:12)

And does a bear in the woods? I don't know. Yeah, let's ask. Or in hass.

B (33:15)

Yeah.

A (33:16)

Yes.

B (33:16)

Yeah. I mean, it yeah, it, I don't know if that was it then awesome. But yeah.

C (33:21)

Yeah.

A (33:22)

I don't think you make your plan to. I'm going to buy in when the stocks are down 20. I'm going to stubbornly wait until that happens because you could be waiting a very long time. That's the, that's the plan that, that tends to get you is I'm going to wait until this, this line in the sand is hit. And if it doesn't get hit, I'm staying out and I've seen too many people get caught. See you later. Never happens.

C (33:42)

And I do want to credit our friend and colleague. Speaking of being a company man, certified financial planner Alex Palumbo, who was having this conversation with in the office about two weeks ago and he basically berated me, called me a fool and idiot and he was 100% right. And so I think at the end of the day, Ben, this is part of the reason that we all have jobs, is that I think it's very difficult to make these decisions with your own money. I fell into a trap. Sam fell into a trap. I'm not going to let that happen again. I'm going to go back and realize these are 30 year dollars. The market price today does not matter. It doesn't matter because I'm not going to touch this money until my birthday begins with a six. It's a long time from now.

A (34:18)

Or a 59 and a half.

B (34:19)

I was able to take Ben's advice. I didn't check my 401k because I'm pretty sure it's 100% equity still. So it would have looked pretty wrong.

A (34:27)

Never look during a bear market, only during a bull market. That's my rule.

B (34:30)

I took your advice.

C (34:31)

My Reynolds wealth friend and colleague, Nick Magi. Just keep buying. That's the one.

A (34:35)

That's the way. All right, we got one more question.

B (34:37)

Okay. Last but not least, we got a question from Casey. Most people that are investing for retirement are constantly comparing our retirement account returns to s and P500. But that really isn't the right benchmark. I have to admit that since my account is always trailing the s and P 500 and up years, it makes me feel like I'm not keeping up. Is there a better benchmark for a 60, 40 or 70, 30 retirement strategy?

A (34:59)

All right, good question. I do think I grew up in the institutional investing world. Foundations and endowments and pensions. And I saw that they became so enamored with benchmarks of the market benchmark or this blended benchmark. Or peer benchmarks, are we doing better than our peers that it often screwed up their investment process? Just looking at these other benchmarks all the time, and they're looking at them on a monthly basis, a quarterly basis. And it's funny because these funds were set up to last in perpetuity, right? They're the longest term funds you can have, but they're looking at quarterly investment performance to figure out what they want to do. It always screwed them up. And so I a lot of times think the benchmarking thing in general is harmful to individuals. But I think if you want to have something, a simple target date fund is probably your easiest bet. Find a target date fund that matches your portfolio. A 65, 35 or A 75, 20, whatever the number is. Find that target date fund for your retirement year. And that's probably the best you can do as far as a benchmark. It's a diversified set of asset classes and all that stuff.

C (36:01)

Yeah, I love it. And Ben, you're the CFA here, so please do beat me down with the baseball bat if I'm off on any of this. But the point is not the actual allocation, right? It's like if you look at modern portfolio theory, there's not a lot of difference between a 6040 or a 7030 or a 5050 portfolio. I think what's important is the mix, right? And you get a lot of benefits from that slow and steady rebalancing process that you do along the way. And that's where you get that efficient markets, that's where you get that frontier. This is all great, great academic investing theory. So I think it's not important what the benchmark is, just as long as it's diversified and you pick something that fits your.

A (36:33)

Yeah, but if you have a 6040 portfolio, comparing it to an S&P 500 ETF or index fund, that doesn't make any sense.

C (36:40)

And hey, this year, Ben, I would argue a lot of investors learned the benefits of investing with companies outside the US Right, due to currency effects, due to this tariff stuff that did not impact stocks in France, Germany, it didn't impact Spotify stock as an example, right? And so it's a big, big, big world out there. And so I think just looking at the largest stocks in the US Index is, is. Is folly, to be honest.

A (37:00)

And I also think if I'm being like, put my wisdom hat on here, like the only benchmark that matters is your am I on track to reach my financial goals? That's the benchmark. That's those Are the goal posts you should care about? Am I, Am I increasing my savings rate? Am I saving more money each year? Am I building up and compounding over time? That's the benchmark that matters.

B (37:18)

Is it too cute to say if all you really care about is performing as well as the S&P 500, you should just be all S&P 500.

C (37:26)

Then you never get left behind. Yeah. Diversification, Duncan means always having to say you're sorry about something. Right. Because something will always out and underperform.

A (37:33)

True. Giancarlo in the chat asks us, do you guys actually have a 6040 portfolio split in your retirement accounts? I'm 100% equities in my retirement accounts.

B (37:41)

Yeah, same.

C (37:42)

I was 100% equities until March 27th of 2025. But I'm back now.

A (37:46)

So the people, most of the people who are Invested in a 64 portfolio are people who can't stomach volatility or they're in or approaching retirement. Those are the people who have a more balanced portfolio and probably should have a balanced portfolio. We have clients who, who are in retirement and still have a lot of take a lot of risk and have a more equity heavy portfolio because of their circumstances or how much they're spending or they're just more comfortable with it. But most retirees have more of a balanced portfolio.

C (38:11)

Yeah. And I think the shift there Ben is are you adding to the portfolio. Right. And if which case volatility is your friend. Right. You actually do want a more volat to a market if you're adding semi monthly like Duncan, Ben and Bill, when I process our 401 contribution from Rith wealth every two weeks. But in the distribution phase, Ben, that's when you do not want that type of volatility that destroys things. Dollar cost averaging works on the way up, it doesn't work very well on the way down due to sequence of returns risk.

B (38:37)

I moved all my levered ETFs to my Roth IRA. So you'd be proud not paying taxes on any of those gains anymore.

C (38:43)

Yeah, I paid no taxes when I mucked with my 401. Right. Because it was a retirement account. I think that's the place to do that tax sav.

A (38:50)

Thank you for entering the circle of trust with us today, Bill.

C (38:52)

Yeah, I feel good. Nobody made an American Pope joke. I'm actually really proud of you. I wanted to shout Seth Keeley for bringing up Louisville Sluggers, which I have my own signed bat soon to be found in compound merch. Let's do this thing, guys.

A (39:05)

All right, remember our email here askthecompoundshowmail.com if you have a question for us. Thanks to everyone in the live chat on YouTube. Thanks everyone following live on Twitter as well. We'll see you next time.

B (39:15)

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.