Is It Time to Sell Some Stocks?

Summary

Ask The Compound – "Is It Time to Sell Some Stocks?"

Date: May 20, 2026
Host: The Compound (Ben Carlson and Duncan Hill)

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Episode Overview

This episode of Ask The Compound dives into timely questions from listeners on the hot-button topic: Is it time to sell some stocks, given the current market and political climate? Hosts Ben Carlson and Duncan Hill address concerns over energy stocks vs. S&P 500 performance, portfolio construction for different age groups, weighing job satisfaction against financial gain, how to navigate retirement allocations, differences in investment philosophies between spouses, and the logic behind sitting on "dry powder" (cash waiting to be invested). Throughout, Ben and Duncan maintain their conversational, candid, and occasionally humorous style while providing actionable, down-to-earth financial advice.

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Key Discussion Points & Insights

1. Energy Stocks vs. S&P 500: What Outperforms to 2028?

[03:24–09:07]

• Question: Which will outperform by 2028, energy stocks or the S&P 500?

• Ben reviews historical sector performance using multiple charts:

  • Energy is typically only ~3.5% of the S&P 500; betting on it is taking a sector-specific risk.
  • Energy led in 2026 (up ~40%), but lagged in 2025. Strong cyclicality noted.
  • Over rolling two-year periods since 1999, energy outperformed S&P 500 50% of the time, despite its volatile boom-bust cycle.

• Portfolio Insight: A 90/10 S&P/energy blend outperformed both standalone and had slightly lower volatility.

• Oil Price Note: Stable, not necessarily high, oil prices benefit the industry.

• Bottom Line: "It’s probably closer than I would assume. It's a coin toss." – Ben [08:44]

  “Energy is feast or famine… Energy stocks are way more volatile. It’s like 2/3 more volatile than the index.” – Ben [07:16]

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2. Does a 60/40 Portfolio Make Sense in Your 20s?

[09:32–13:26]

• Question: Young investor feels reluctant to go all-in on stocks despite understanding the math.

• Ben: Psychologically, if you can’t stomach volatility, a 60/40 (stocks/bonds) allocation is justified, even when most experts advise 100% stocks for long horizons.

• Key Point: The “perfect” portfolio on paper isn’t always the “best” in real life if you can’t stick with it.

  “The good strategy you can stick with is way better than the perfect strategy you can't stick with.” – Ben [11:29]

• Duncan: Risk tolerance is deeply personal, more innate than purely rational.

• Advice: Know yourself—emotional and risk disposition matters more than financial optimization.

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3. Should You Trade Job Passion for Money?

[13:27–17:48]

• Listener Dilemma: Stay in a beloved but lower-paying corporate job, or help run (and triple income through) a family business he’s less passionate about?

• Discussion: Weighs the allure of FIRE (financial independence, retire early) against the rare value of truly enjoying your work.

• Ben notes most people hate their jobs—don’t take loving yours for granted.

• Suggests creative solutions: negotiate for equity or take a phased approach.

• Two good options—there’s no “soul-selling” involved unless you’d truly hate the family business.

  "If you love what you do, that's a really hard thing to pass up." – Ben [17:07]

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4. Going 100% Stocks in Retirement: Smart or Risky?

[17:52–22:57]

• Listener Sherry: Has avoided bonds, even nearing retirement; struggles to shift out of stocks.

• Ben: Many struggle to buy bonds due to opportunity cost concerns. Some retirees stay mostly in stocks and “ride out the storms,” but the risk is having to sell in a drawdown.

• Historical Context: Since 1950, the market has fallen 10% or more 39 times, 20% or more 11 times, 40% or more 3 times.

• Alternative Approaches: “Barbell” portfolios (stocks + cash/money markets), keep a few years' worth of spending in cash/T-bills, not necessarily bonds.

• Duncan asks: Are there real alternatives to bonds? Ben: Not really—buffered ETFs and other strategies aren’t true substitutes, and still involve trade-offs.

  “You don’t want to sell your stocks while they are down for spending purposes. You want to sell your stocks when they’re up and have something else.” – Ben [19:23]

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5. When Spouses Disagree on Investments (Target Date Funds vs DIY)

[23:09–25:56]

• Scenario: One spouse invests via index funds, the other prefers target date funds (TDFs).

• Ben’s Take: If she’s hands-off and unfazed by volatility, TDFs are "a top quartile investor move"—they’re a fine solution, not worth arguing about unless costs are egregious.

• Expenses for TDFs at major providers (Vanguard, Schwab, Fidelity) tend to be low.

• The tradeoff is flexibility vs. simplicity; overall, TDFs are a solid default.

  “The fact that she wants to sit in a diversified portfolio, doesn't overreact to market downturns, doesn't check her accounts very often—by that criteria alone, she's basically a top quartile investor.” – Ben [24:14]

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6. Raising Dry Powder: Wisdom or Fear?

[26:25–30:06]

• Issue: Is intentionally holding extra cash (dry powder) in today’s market discipline or just fear?

• Ben’s Wisdom:

  • Trimming allocation (e.g., 80/20 → 60/40) is fine, going all in/out is not.
  • Key: Have a plan for what you’ll do in both directions before moving cash.
  • Cites NYU professor Aswath Damodaran, who recently reversed course after raising cash and then realizing his error.
  • Most investors who try this struggle to time the “re-entry”—often leading to paralysis.

• Recommendation: Lay out rules in advance: “If A happens, I will do B.”

  “If you’re going to make portfolio changes, you better have a plan of attack. You better know what you’re going to do next. Because the first move is the easy one; the second move is the hard one.” – Ben [28:13]

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Notable Quotes & Memorable Moments

• On energy stocks:

  “Energy is feast or famine.” – Ben [07:16]

• On young investors and portfolio risk:

  “The good strategy you can stick with is way better than the perfect strategy you can’t stick with.” – Ben [11:29]

• On career decisions:

  “If you love what you do, that's a really hard thing to pass up.” – Ben [17:07]

• On portfolio strategy in retirement:

  “You don’t want to sell your stocks while they are down for spending purposes. You want to sell your stocks when they’re up and have something else.” – Ben [19:23]

• On spouses and TDFs:

  “By that criteria alone, she's basically a top quartile investor.” – Ben [24:14]

• On market timing:

  “If you’re going to make portfolio changes, you better have a plan of attack.” – Ben [28:13]

• Humor:

  “We all felt Duncan looked like a beat reporter for the San Francisco Chronicle with the notebook.” – Ben [01:30]

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Timestamps for Important Segments

• [03:24] – Energy stocks vs. S&P 500 outlook through 2028
• [09:32] – 60/40 portfolio logic for young investors
• [13:27] – Choosing between passion and money in your career
• [17:52] – Can you go 100% stocks in retirement?
• [23:09] – When spouses disagree on TDFs vs. DIY portfolios
• [26:25] – When (if ever) does it make sense to hold more cash/dry powder?

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Conclusion

This episode is a must-listen for investors seeking grounded perspective on current markets and personal finance psychology. Ben and Duncan consistently reinforce that the best investment strategy is the one you can stick with—personal preferences, emotions, and risk tolerance matter as much as spreadsheets. Whether you’re tempted to time the market, holding out on bonds, or negotiating investment truce with a spouse, their thoughtful breakdowns and frequent real-life examples guide you toward smarter, more self-aware decisions.

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Note: For more context and upcoming questions, listeners can email askthecompoundshowmail.com. For disclosures, visit Ritholtz Wealth.

Transcript

[A]

Welcome. This is Ask the Compound, the show where you ask and we answer. There's still wars going on in the Middle east and Ukraine. It's a midterm election year. Inflation is ticking up again, as are interest rates. AI euphoria feels palatable. Is it time to sell some stocks while the music is still playing? I'll answer these questions and more on the show today. Let's do it. Our email here is askthecompoundshowmail.com Last week, we set two new records. One record, we did a book giveaway for my book risk and Reward, which was great. And we set a new record for questions. Everyone showed up for a free signed copy of the book. We got a million questions and we have enough questions to last the rest of the year. I think the response is so big, in fact, I said I'm going to give away copies of every question we use for the next two weeks. I'm going to make it three weeks.

[B]

Wow.

[A]

All right, I'll give. I'll send it a free toaster, too. Look at that. Something like that.

[B]

We also, Billy Mike in the chat here asked if they get one for being first in the chat today.

[A]

Okay. No, great try, though. Fine. Fine. Send us your address.

[B]

Sure.

[A]

We also set a new record last week for comments on Duncan's hair. Duncan always has a hat on and no one realized that he had these luscious locks below his hat because he had. No. He couldn't wear a hat last week because we had a party to go to.

[B]

Yeah.

[A]

And there's no hats allowed.

[B]

Yeah. Yeah. This. See, I'm not the only one that ended up being dressed up. I just didn't bring a change of clothes that day. So I was already wearing mine when we did the show. So. Yeah, that's why. That's why.

[A]

Yeah. We all put the picture back up real quick. We all felt Duncan looked like he is a beat reporter for the San Francisco Chronicle with the Notebook.

[B]

And I can see it.

[A]

Yeah, you look slick. I like the. I like, I like the look. On this week's show, we're answering questions straight from the compound audience about energy stocks versus the S&P 500. Does a 6040 portfolio make sense when you're in your 20s? Should you sell your soul to make more money on a job you hate? Can you go 100% stocks in retirement? What investments? What happens if you disagree about your investments with your spouse? And when does it make sense to raise dry powder? But first, today's episode is sponsored by public.com. feels like there are two types of investing platforms right now. You've got the legacy brokerages that look like they were designed in 1997. Then you've got the new wave, the ones that looked at investing and thought, you know what this needs? Sports betting. Neither seems like a great place to build your wealth. So that's where Public comes in. It's a modern investing platform for those who take it seriously. Stocks, options, bonds, crypto, they have it all. And the energy they're not spending on building a casino. It's going to AI. Public is the only investing platform where you can create agents that can monitor the market, manage your cash, and execute your trades. Just enter a prompt, approve the workflow, and put your agent to work. Go to public.comatc and earn an uncapped 1% match when you transfer your portfolio. Public.comatc paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC advisor services by Public Advisors, LLC. SEC registered advisor. Complete disclosure is available at public.comdisclosures mouthful. I got it.

[B]

You know, a lot of people think that sometimes we've messed up M audios two times speed because of how fast you you talk.

[A]

I'm a fast talker.

[B]

It's like once a month we get a comment like, someone messed up the audio Ben's playing at two times speed. I'm like, no, he's not. It's just how he talks.

[A]

I've always been a fast talker. I told you on my audiobook, they had to tell me for the first half of the first day, hey, slow down, slow down.

[B]

You could be an auctioneer.

[A]

That's true.

[B]

Yeah.

[A]

All right. Tons of good questions. Like I said, we got great ones today. Let's do it.

[B]

Okay. Yep. Up first today we got one wanting that book. My question to win a book, which investment will outperform from now to 2028? The S&P 500 or energy stocks?

[A]

All right, this is not something people would have asked last decade.

[B]

No.

[A]

Or even remember 2020, when oil and negative energy stocks were just dead?

[B]

Yeah.

[A]

It does only make up three and a half percent of the total S&P 500. So if you're betting on energy stocks, you are making a bet. It's interesting though. This year alone, let's throw up the first chart. This is from exhibit A. This shows sector performance in 2026. Energy is by far the best performer, crushing it up almost 40%. So this shows the square in the bottom is the drawdown it had at the Worst point this year, the bar is of course. And actually a lot of sectors are outperforming the S and P this year. Tech, staples, real estate, Comm services, industrials. Pretty good year. Pretty, pretty wide. So energy is crushing it. Go to the next one, please. This is 2025. Energy actually underperformed last year. Didn't do quite. It did. Okay, not just. So these things are cyclical. That's worth noting. Chart off, please. Now this decade, even with negative oil in 2020. Chart on. Energy's actually doing pretty good the first two or three years of the. Do the next one actually. Sorry. Then we'll flip flop. Okay, this one, yes. This decade alone, energy is doing pretty good. Even after doing pretty pitifully in that first couple years of 2020, 2021, it's now outperforming on a total return basis. Now go back to the other chart. This is the 2010s. Energy stunk out loud up until like 2014. It did okay. Exxon briefly became the biggest stock in the market. But then energy got absolutely walloped by the market. Stocks are up 250%. Energy is up 38%. Got crushed. Chart off, please.

[B]

I don't, I don't know if this is something that you, you would know given you're not like trading energy stocks. But the xle, does it include like clean energy stocks or. When people say xle, are they basically saying oil?

[A]

It's oil, right? More or less. But the question is like now to 2020. I don't know why the 2028 was so specific. Are they planning on like pulling out before the next presidential election or what? So we got a few years here until 2028. So the question is like, how do I looked at. So 1999 is when XLE started. Okay. That's the sector ETF for energy, which goes back quite a ways. I looked at rolling two year periods. I wanted to give this guy more of a definitive answer, look at a baseline. So let's throw this chart up. So this is rolling two year periods. The orange line is energy, blue line is the S and P. These are rolling 2 year returns using monthly returns. And you can see there's plenty of divergences. There's huge spikes in the early 2000s. Right. We had some inflation and there's a huge, enormous spike coming out of the negative oil into higher inflation in 2022 as energy stocks crushed.

[B]

Okay, that swing is incredible.

[A]

Yeah. And of course the downturn too. There's way more negative returns for energy. You can see energy was down 50% or so on a rolling two year basis. Let's do chart off. What percentage of the time did energy outperform the S and P since 1999 on a rolling two year basis? Duncan? The number surprised me.

[B]

Wait, can you repeat that? Someone just said, I'm glad Duncan's not in his narc suit. And it made me laugh.

[A]

You did kind of look like you were like one of the internal affairs, right? You're like, yeah. All right. So what percentage of the time did energy stocks outperform the S and p over a two year period?

[B]

15%.

[A]

50 since 1999. It's very surprising.

[B]

Wow.

[A]

Now throw that chart back up real quick, that last one. It's because you get those periods where it goes bananas like in early 2000. So it was. Energy was terrible in the 2010s but it's done pretty good this decade and it did pretty good in the first decade of this century. Chart off. So it's like overall that's very surprising.

[B]

Me, I thought it would be lagging most of the time.

[A]

Energy is feast for famine. Now someone like Nick Colas, who's been on with Josh on the compound before says you never want to sell energy stocks because these are like, this is the inflation hedge, right? Gold doesn't always work with inflation. Bitcoin obviously is not an inflation hedge like people thought. It's actually energy and you get those spikes because of it. The thing is, energy stocks are way more volatile. It's like 2/3 more volatile than the index. So it's way wider swings. But I looked at, okay, what if you did just like a 9010 energy? So let's throw this one. My little friend with a French hat on the beret, Claude. He did this for me. So actually since 1999, energy has slightly outperformed the S and P, which would be surprising to a lot of people. But that's obviously from the start of the dot com bubble, so whatever. But I looked at what if you did just a 90:10 portfolio, S&P, 90%, 10% in energy and you actually did better than both and you actually had a little lower volatility than the overall market. So like if you wanted to take a little bit of, you know, again, energy is only 3 1/2% of the of the index chart off. So yeah, I like the question, but again, these numbers surprise me.

[B]

That energy. So what's your answer? Which do you think?

[A]

I think the S and P energy has had the huge spike. Right. Is this war really going to go on for.

[B]

That's why I was asking about what exactly is included in there. And I meant to look and I forgot, but yeah, like if, if a bunch of battery tech companies are in there, then I would feel a little better about it. But yeah, if it's mainly legacy oil companies, then yeah.

[A]

It is kind of crazy to think about though. Oil prices are down on an inflation adjusted basis over the last 20, 25 years. So I think people assume that you need high oil prices. But Billy Bob told us on Landman, no, you don't need high oil prices. You need stable oil prices. That's what the industry needs anyway. The numbers were pretty surprising to me. I was, I was kind of shocked. So. So it's probably closer than I would assume. It's a coin toss.

[B]

Yeah, I'm very surprised by that. Good question.

[A]

Next question. Yeah, someone in the chat said, Ben, can I have a book? Quit asking me for free stuff, people go buy it.

[B]

It's true.

[A]

Go to my kids college fund.

[B]

Also on that note, if you see Ben's book out somewhere, you should obviously buy it, but also take a picture and share it with us. Share it on social. We like seeing where all it is.

[A]

The production guys are saying they saw it at the Barnes and Noble in Union Square in New York.

[B]

Yeah, yeah.

[A]

All right, next question.

[B]

Okay, up next, we got one from Cole. When I opened a Roth IRA in my early 20s, I went 60, 40 because 100% stock portfolio felt reckless even though I had 40 years ahead of me. The Scottrade rep helping me at the time actually chuckled and tried to nudge me towards more stocks. I knew the math favored them, but bonds just felt safer. What's the argument that actually moves the needle for a young investor who intellectually gets it but and has even been told directly, but emotionally still can't pull the trigger on a stock heavy portfolio.

[A]

I really like this question because the Scott trade guy chuckling at him. That's how a lot of people in the investment industry would react. Like, what are you doing? If you're young, in your 20s, you need to be as risk on as you can.

[B]

And you can relate to this. This is kind of like you Target

[A]

day fund, Ben, hey, hey, come on. I got everything in stocks. I'm very, I like risk. So in my book there's a chapter called the perfect Portfolio. And I go over this kind of exact idea. Okay? And so here's the things that I say that matter when you're creating a portfolio. Because I agree that yes, on paper, optimize this person should have all their money in stocks. They should be borrowing money to buy stocks in a world in a vacuum. Right. In a spreadsheet vacuum. So here's the things that matter when you're creating your portfolio. Your risk profile, your willingness, need, and ability to take risk. Your time horizon, okay, this person has the ability to take a lot of risk. They have a long time horizon. Current circumstances, I don't know. In their 20s, they didn't say what they have, but they have enough money to invest. They're probably doing okay. Goals. What do you. What are you trying to do with your money? Finally, the last one. This is the most important one. Your emotional disposition. How do you react to fear and greed? What is your relationship with emotionally charged financial decisions? It sounds to me like this person can't stomach the volatility of the stock market and needed a 6040 portfolio as, like, an emotional crutch. So I've used this George Carlin standup bit before. Have you ever noticed that when you're driving, anyone who's driving slower than you is an idiot and anyone driving faster than you is a maniac? Right?

[B]

Yeah. That's good.

[A]

I think that the strategy you can stick with, like the good strategy you can stick with is way better than the perfect strategy you can't stick with. So a lot of people would say you're nuts. 60, 40, this makes nuts. If you need that emotional crutch until you can feel like you're okay taking that much risk, I would rather have you in a 60, 40 portfolio than 100% stock portfolio that you're going to give up on and say, all right, get me out of here. I'm going all the cash. Like, that's a better outcome to me than trying to optimize for perfection. That is the kind of person that you are not. Yeah, right.

[B]

Yeah, that makes sense to me. I mean, yeah, I can't relate because I've always, you know, wanted more. More stocks personally. But I know it's. Some people, it's just like a mindset thing, right? Some people like roller coasters, some people don't. Some people like scary movies, some people don't. I think a lot more of this is like actually innate than we sometimes give credit for. You know, that risk is something that is very particular to an individual.

[A]

When I first started in the finance field, I naively assumed everyone should be like a robot and everyone should be Spock and they should. They should do exactly what they're supposed to do at that age. Now I don't believe that anymore because your life is shaped by your experiences, your emotional disposition. You said people like different things. People are. You're right, I am. I'm a roller coaster person. I'm aggressive. All of my long term money is in stocks. I know some people don't have the ability to do that, but I think it's okay. As long as you can understand what the trade offs are and admit it to yourself. That's the thing that matters. Right.

[B]

And the math isn't the end all be all, you know, at the end of the day. Right. Because it's like you say, the worst thing is someone to take more risk when they're comfortable with, end up with a big loss that scares them out of the market and then they miss out on, you know, a lifetime in the market or something. That's what you want to avoid.

[A]

Dave, in the chat, people are human. Emotions are neither good nor bad, they just are. It's what makes us human. And you have to understand like what's the lesser version of yourself? What's the trade offs you're willing to accept?

[B]

Yep.

[A]

Next question.

[B]

Well said. Okay, up next, we got one from Teddy. I'm 27 and make about $170,000 a year in a corporate job that I genuinely love. My family owns a small business and my dad wants to retire soon. My brother plans to take over, but realistically, he needs my help to make it work. If I join the family business, I'd like to, I'd likely triple my income. Financially it feels like a no brainer, especially since I'm very fire oriented and for those new here, that's financial independence. Retire early. But I can't shake the feeling that I'd be giving up work I truly enjoy just to accelerate wealth. What do you think about temporarily sacrificing passion for money? Is it rational to sell your soul for a few high earning years if it dramatically accelerates your financial independence? Or is loving your day to day work worth more than the extra income?

[A]

All right, so if his dad owns a Christmas tree farm, this could be a lifetime movie, right? Moving back home, take over the family business.

[B]

That would be a very sweetheart Christmas tree farm.

[A]

Yeah, I have a few friends who had a similar conundrum when it comes to the family business. And there's two ways to look at this. Going to work in the family business is easy. Like you have your life set up for you. It's there, just take it. The other one is what a lot of people do is no, no, no, no. I Don't want to take the easy route. I want to create my own path. I'm a principal person. The funny thing is that I've had a few friends who did this, and they went and tried to create their own, forge their own path, and they did it for a couple years, and then they went back to work with the family business anyway, because it's just. It's easy.

[B]

It's not a bad fallback plan. Yeah.

[A]

Yeah, exactly. So. And I don't blame people for accepting that option, as long as you work hard, brings new ideas to the table. Of course nepotism can go wrong, like when the next generation is too entitled. But this. This doesn't sound like that case at all, right? This person, he sounds like he's got a. Teddy's got a pretty good hat on his shoulders. Usually you join the family business because you hate the job you're in. He loves the job he's in, even if it means it earns less money. Here's a question I have for him, though. Why do you want to go the fire route if you have a job that you genuinely love? Do you know how many people out there absolutely despise the job that they have? That's why a lot of people do the fire out, because they hate their job. Like, I don't want to talk about my job with my friends because most of them actually hate their jobs. My wife is always like, don't talk about your job. You like your job. You love what you do. You're going to sound like a jerk if you talk about it. So I just, like, don't talk about it very much. I would say that tripling your income is something that's difficult for most people to pass up, even if it means selling your soul. So I think if he stayed in his current role, I would respect him as a person. That's a principled person. But if he takes. If he goes to work with his brother taking over the family business. Listen, man, you're good either way. I don't see a downside to either of these. It's not like you're selling your soul to go work for, you know, big corporation that's, you know, killing baby seals or something, right?

[B]

Well, I mean, we don't know what the family business is.

[A]

Yeah, that's true. How about this? How about to buy yourself some time? Like, tell your dad and your brother, like, hey, I want some equity in the family business here. Like, I don't want you to give away my share, but hire someone in the meantime. While I, like dad transitions into retirement, I figured this job out. Maybe you could be like a more of a silent partner. Obviously, I'm just spitballing here. I don't think there's a wrong answer. Don't stress about it. I think you're going to be good either way.

[B]

I think this is, this is a super complicated question though, right? Because how, how much would they hate the family business? Like, it really depends. Like you're saying if it's, if it's something they just wouldn't like as much, but it's still fine. That's one thing. If it's something that's going to make them miserable, then, you know, like we've talked about on the show plenty of times before, your health is important. You don't want to like have a situation where you're stressed out all the time and you end up having health issues or, you know, like that. That's an important factor.

[A]

Yes. You spend so much time of your day at your job thinking about your job. If you love what you do, that's a really hard thing to pass up. I just don't. I think going to work with your brother and you're tripling your income isn't, is like, that's not selling your soul as far as I'm concerned. I think, I think you have two great options.

[B]

So let me, let me pose this question to you. Counterculture Coffee down in North Carolina wants to hire you to come in and be their full time taste tester. And they will triple your salary. Are you taking it for triple. And you can always come back to your old job. It's waiting here. So would you do it for any period of time for triple the salary?

[A]

No, because I hate the smell of coffee. It would kill me every day. Right?

[B]

Yeah. There you go.

[A]

Even if my wife ran the store. Sorry. No, you do it. All right, let's do it.

[B]

I heard it here first. Up next, we got a question from Sherry. I've been managing my own portfolio for over 30 years. It's mostly ETFs and a small carve out of a stock portfolio for the love of the game. I've avoided having bonds in my portfolio my entire life. Any cash I raise has been kept in money market funds. I'm more comfortable with equities than bonds. But the other part is psychological as I'm always thinking about opportunity costs. I'm nearing retirement and it's time to step partially off this crack ride of equities and put some of my winnings into bonds. I Just really struggle with making the move to even a 10% bond portfolio and don't know where to begin or how to stop thinking about the stock market gains I'll be sacrificing. This is my favorite podcast, by the way, by far. Thank you for doing this. Week in and week out. Thank you, Sherry.

[A]

Sherry. Crack Ride. I've never heard that one before. I'm going to.

[B]

That made me laugh. Every time I've read that, I've laughed.

[A]

So we've heard this sentiment from a number of clients over the years. Some people just can't wrap their head around the idea of investing in something as conservative as bonds. That's you, Duncan. You hate bonds. You despise bonds, right?

[B]

I mean, yeah, I'm not a big

[A]

fan because you only invest in the riskiest bonds. You invest in 30 year treasuries, like the riskiest.

[B]

I was also in I bonds. Those were fine.

[A]

Okay, so some people, and some people just can't stomach the opportunity cost side of things. It's funny because Cole in question two was younger and a more conservative investor. Sherry in this question is older than Cole, but she's more aggressive. This is why knowing who you are matters. Now, the textbooks that obviously say you're both wrong. But again, I think knowing yourself as an investor is far more important than optimizing for spreadsheets. I have heard of some people who allocate basically their entire portfolio to stocks in retirement and they don't care. I'll live off the dividend income. It's fine. I'll write out the storms. Here's the hard part about this strategy. Chart on, please. This is drawdowns in the stock market. There's a lot of drawdowns. This is since 1950. 39 times the stock market fell 10% or worse, 11 times it fell 20% or worse, and 3 times it fell 40% or worse. Not great. Chart off, please. You don't want to sell your stocks while they are down for spending purposes. You want to sell your stocks when they're up and have something else. That's why the majority of investors lighten up their portfolio and their allocation to stocks as they approach retirement. Like, you have to create some sort of margin of safety. You don't want to sell stocks on a down. That's a double whammy. You're locking in losses. Okay, there's this thing like Warren Buffett doesn't have portfolio losses because he doesn't sell. Right. That's a little overextended analogy, but it doesn't have to be bonds either for the safe portion of your portfolio. You could do a barbell. You talked about anytime it's sold before it's money market. You could do use a money market fund. We've talked here about the 4% rule before. Maybe I'll throw the link to that one in the chat. Or the four year rule. Sorry, not the four percent rule. Four year rule was remember this guy, one of my blog readers retired to the peak of the dot com bubble. This is in early 2000 and lived through two huge crashes. And him and his wife survived these two gigantic crashes in a lost decade because they kept four years worth of spending in cash equivalents. So it's T bills or money markets or CDs or high yield savings account, whatever. So maybe you're more of a risk taker and you go, you know what? My barbell portfolio is going to be two to three years worth of spending in T bills or cash. And if you realize no no, no, I need more protection, it's five or six years, whatever it is, that's just a baseline. Investing is obviously trade offs all the way down. So maybe you'll get lucky and avoid sequence of return risk and there will be no lengthy bear markets for many years and you'll be fine. But I wouldn't count on it. You have to have some sort of fallback plan if and when the next lengthy bear market hits.

[B]

Is there. I've asked this before but is there any kind of product or ETF that someone could consider if they really, really don't like the idea of bonds? Is there something that is close enough of a replacement? Like one of these defined outcomes?

[A]

Yeah, I would. Those are not bond proxies. Right. People have said over the years are dividends. Bond proxies are convertibles, trend following strategies, buffer ETFs. These types of things are, are they kind of decrease the volatility but they're not like bonds. They're not going to get a flight to safety as much as bonds. So I think that those, those are other strategies like risk managed strategies that can help and can work and they maybe they give you a little more upside I think so it's certainly worth thinking through. But I, I still think you want to have some form of liquidity that you, you know has more protection. Now there are some of those like

[B]

what about precious metals and utilities or something, you know, is there anything someone could do that really, really doesn't want some bonds that is a little more responsible than just being 100% equities no. Okay.

[A]

If you want the, I mean again, some of these buffered ETFs, you can get like a 0% floor and you're not going to lose any money. So like something like that. But then your upside is pretty well capped. Right. But for the most part there aren't. There aren't many bond substitutes that I can know. It's. It's different risks that you're taking and more volatility. And that's the thing I think you don't want at least for again a part of your portfolio. Maybe it's a year's worth of spending, something like that.

[B]

I still can't believe there's a three times levered long term bond etf.

[A]

I'm just surprised you haven't invested in it yet.

[B]

I probably was at some point.

[A]

Yeah, you probably were. All right, next question.

[B]

Okay, up next we got a question from Jay. I'm a boglehead style investor and a big believer in equity index funds for retirement. My wife, on the other hand, has always used target date funds and trusts that they're professionally designed for investors like her. She doesn't check her accounts very often and really doesn't care much about market downswings. I've tried to explain that those funds are based on generalized risk assumptions for an age group and not her specifically. I've shown her the math. And yet she's still stuck on the TDF. We have 25 years to go. What are your thoughts?

[A]

I'm thinking about starting Ben's couple counseling for portfolios. You know, it's like going to be two of us all sitting there and I'm going to be like, is the government debt crisis in the room with us right now? You know, one of those things. Listen, I don't know, man. It sounds to me like you've got to keep her. She doesn't check her accounts very often and really doesn't care much about market downswings. I don't know. That sounds pretty good to me. Are target funds perfect? No, you're right. They use generalized risk assumptions based on your chosen retirement date. Based on. But they're professionally managed.

[B]

Some of them are expensive too. If you look at the expense ratios.

[A]

Most of them, if you're using a, you know, Vanguard, Schwab, Fidelity, one of the big. Most of them are pretty low fees. Check the fees. They're diversified in a number of different asset classes. The regular rebalance back to target weights. Could you do better than target date funds? Absolutely. There are better options out there. Could you do way worse than target date funds. Yes, definitely. I think the fact that she wants to sit in a diversified portfolio, doesn't overreact to market downturns, doesn't check her accounts very often. By that criteria alone, she's basically a top quartile investor. Okay. I guess the onus is on you to prove that creating your own allocation of index funds is a better option than letting a fund company do it for you in a target day fund. I'd be curious to see the return differences. Not that's the be all end all. But with that much time left, I think you have plenty of time to talk to her about the benefits of being more flexible with your allocation. Right. And choosing the funds yourself and then being able to rebalance more often and not to pay the, the fees of a target day fund, but it, I don't know.

[B]

Yeah.

[A]

Trying to do okay, trying to pull

[B]

her out of target day funds reminds me of the dodgeball. That's a bold move or bold strategy, Cotton. Like right. If it blows up for whatever reason, if you're playing, you know, underperforms or doesn't do well, I mean you're, she's never going to forget that. Right. So it's totally on you then.

[A]

And you can talk to her about, hey listen, you picked this 2065 fund. Let's take a little more risk and go to 2075 or whatever it is. Like you can, you can play with them a little bit. But this I've heard way. We've heard way worse horror stories than this.

[B]

Yeah.

[A]

Don't be mad at her for not checking, not being upset on market downswings. Good for her.

[B]

Yeah.

[A]

All right, fair enough. Another question. We gotta, we, we gotta. We even did an extra question this week.

[B]

Yeah, I love the questions this week because there's such a. It's the, the continuum. We have people that are. They hate bonds and want all equities and we have people that are afraid of equities and.

[A]

But this is what makes a market. Right? It's, it's. People are all over. This is why markets can be so crazy. Because we have different opinions, different time horizons, different risk appetites. This is why markets are so volatile, because of stuff like this.

[B]

It's almost like personal finance is personal.

[A]

Weird, right?

[B]

Yep. All right, up next we got a question from Gabrielle or Gabriel. I actually not sure. I'm a 48 year old Escor owner, who knows timing the market is a loser's game. But in a midterm year with S and P at all time highs and AI euphoria feeling somewhere between 1997 and 1999. It's consciously. Is consciously sizing down my equity deployment and holding modest dry powder intelligent risk management. Or am I just dressing up in fear and language of discipline?

[A]

Very intelligent question. Yeah.

[B]

Is that. Can you help me though? Is that Gabriel or Gabriel?

[A]

Yeah, it's Gabriel.

[B]

Gabriel. Okay. Yeah, sorry. Sorry about that.

[A]

Yeah, we have a. I have a niece who's named Gabriel. All right, so first of all, like, my only rule here is just don't guess. Okay? I want some rules. I want some sort of allocation. So if you're going to go from 80, 20 to 60, 40, do I have a problem with that? No, I don't have a problem with that. If you're going 100% stocks to 75, 25, I'm okay with that. Right. It's all or nothing. Those are the ones that really get you. I talked about enamel spirits this week, but it's worth mentioning Ask about the Odoran. One of the smartest. He's an NYU professor, has written all these books about fundamental analysis. He's one of the smartest investors alive. He talked in November about how he was worried about. He had all these same concerns about euphoria and AI is driving the market. And he said, I'm raising cash for the first time in my career. And then he went back on the podcast this week and he goes, you know what? When I said that, I was wrong. Obviously, this is hard. Market timing is very hard. So I guess the question is like, will you regret raising, I don't know, 10% of your portfolio or 20% of your portfolio in cash if the market keeps ripping from here? What if we have three more years left of a bull market? Then what? What's your plan? Wait for an even bigger crash to put back in? Let's say you do raise cash and the market falls. When are you going to reinvest? You doing specific companies? Are you doing just target day funds, index funds? What will be your definition of I was wrong to do this? At what point? So these are the kind of things I want you to think about before you do this. Maybe you're more comfortable being in a conservative allocation for a number of years. Like, you know what? It's fine. This is going to help me sleep at night. I am not the type of investor who thinks that you should just sit on your hands and do nothing at all times. I do think doing nothing most of the time is your best bet. But I do think that there Are times when you have to like risk manage. Right. But I think you have to, if you're going to make portfolio changes, you better have a plan of attack. You better know what you're going to do next. Because the second, the first move is the easy one, the second move is the hard one. What if I'm wrong or what if I'm right? Right. Because most of the time people think I went to cash, the market fell 10%, but what if it falls 20? I'm going to wait. Then you never get back in. Right.

[B]

And you guys hear stories like that all the time.

[A]

All the time. Well, the market rips 20% so I think you have to set some pre established ground rules. I'm going to buy here. If the market goes higher and it's like, oh my gosh, I was wrong, I'm going to just buy back in and you know, toss it up. You know that, okay, tuition market, gods, whatever market falls, I'm going to start buying it down 10%. Then I'm going to buy more at 15 and I'm going to buy more at 20 and if I don't get to those levels, then what am I going to do? You have to have like, you have to do a pre mortem here, not a postmortem.

[B]

Yeah, it's very easy to end up in a snip snap situation where you know, you're just back and forth, back and forth.

[A]

That's, that's what you don't want to get yourself into where you're constantly second guessing yourself. Then you're like, was that risk management or did I just add more stress to myself? Right. So I just, I want you to lay out the rules ahead before you even do anything. If A happens, I will do B. If X happens, I will do Y. Is not by triple levered ETFs like Duncan ever.

[B]

I have a strategy.

[A]

I'm sure you do. Thanks to everyone in the chat as always. Bunch of good questions today. I love it.

[B]

68% of the chat in the poll said that they think the S and P will outdo XLE from now to 2028.

[A]

Interesting. They believe in, like I said, they

[B]

believe in the S and P. Okay.

[A]

That's like a mean reversion kind of play. Ask the compound. ShowMail.com is our email here. Thanks Anne. For everyone to send in the questions. We have so many good questions to use going forward. For those who got a question on the show today, send us an email with your address. We'll have, we'll send you a book. I'm going to sign it. What do we got to do? Subscribe to the Compound. If you haven't yet, leave us a five star review for the podcast. Leave me a nice review for my book. That'd be helpful and we'll see you next time.

[B]

See you everyone. Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill, and any of their guests are solely their own opinions and do not

[A]

reflect the opinion of Ritholtz Wealth Management.

[B]

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.