Should You Pay Off Your Mortgage Early?

Summary

Ask The Compound – "Should You Pay Off Your Mortgage Early?"

Podcast: Ask The Compound
Hosts: Ben Carlson & Duncan Hill
Date: November 5, 2025

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Episode Overview

On this episode of "Ask The Compound," Ben Carlson and Duncan Hill respond to listener questions on some of the hottest topics in investing and personal finance today. They dig into whether young investors should be worried about an AI-fueled market bubble, how much exposure to tech stocks is too much, and the ever-controversial question: Should you pay off a low-rate mortgage early? The hosts also explain the difference between buy-side and sell-side in the finance world and discuss the logic of keeping a significant cash allocation as part of retirement planning.

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Main Discussion Highlights

1. Should Young Investors Worry About Market Bubbles?

Timestamps: 03:02–08:15

• Main Takeaway:
  For young investors with long time horizons, market bubbles (like the current speculation around AI) are almost inevitable but should not be a central concern.
• Ben's Reflection:
  Ben shares wisdom from his own book, stressing investors should plan for multiple bear markets, recessions, and several bubbles over a multi-decade investing career.
• Behavioral Insight:
  Trying to time bubbles or moving in and out of markets typically harms long-term returns.
• Quote:

  “If you're 35, you should hope that sometimes stocks crash so you can buy them on the cheap.... You're more likely to make mistakes trying to time these things than just sitting them out.”
  — Ben Carlson (05:58)

• Bubble Lessons:
  • The dotcom bubble led to today’s fiber optic infrastructure.
  • Asset bubbles are a recurring feature, not an anomaly.

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2. How Much Tech Exposure Is Too Much?

Timestamps: 08:18–13:12

• Listener Concern:
  A listener with strong conviction in AI and tech wonders if it's reasonable to make tech 30% of their portfolio.
• Historical Context:
  Ben points out the last 15 years of tech returns have been extraordinary, but previous “melt-ups” (like the Nasdaq in the ‘90s and Japan in the ‘80s) eventually succumbed to sharp drawdowns.
• Market Cap Math:
  If you own an S&P 500 index fund, you’re already highly exposed to tech (the top 10 names — nine of which are tech — account for ~40% of holdings).
• Cautionary Perspective:

  “If you’re already overweight U.S. stocks, you probably have plenty of tech exposure as it is.”
  — Ben Carlson (10:13)

• Volatility Warning:
  Even the strongest tech names can suffer massive drawdowns (Apple, Amazon, Google, Meta, NVIDIA, Microsoft, and Tesla all have had major price collapses).
• Sizing Advice:
  If you decide to overweight tech, “size it appropriately and make sure you have the ability to lean into the pain somehow if and when these things get crushed.” (11:48)

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3. The Great Mortgage Payoff Debate

Timestamps: 13:12–17:53

• Listener Dilemma:
  Should someone divert money from index funds to paying off a 3.3% mortgage ahead of schedule?
• Diversification Fallacy:
  Ben pushes back on the claim that paying off a primary residence adds diversification:

  “If you're paying off your house...that's concentration risk. You literally live under the roof of your house.” (14:17)

• Psychological vs. Financial Logic:
  While some find immense peace in being debt-free, Ben stresses that a sub-3% mortgage is an “asset” in today’s rate environment and paying it off early may be irrational.
• Inflation Context:
  “You're borrowing for free on a real basis. Your house is an illiquid asset. So you put money into paying it down but then you can't spend it.” (15:42)
• Behavioral Finance Boundaries:
  Ben acknowledges behavioral finance is powerful, but warns against letting emotion override efficient financial decisions.
• Clear Policy:

  “If your mortgage rate is 5% or higher, I bless you: pay off that mortgage early if you want. That's a way higher hurdle rate. I just think 3% is different...I really think it's a poor financial decision, regardless of how you feel about debt.”
  — Ben Carlson (16:35)

• Memorable Moment:
  The hosts joke about Ben’s strong language on the issue:

  “You said it's insane...to spend money on your home and own it outright.”
  — Duncan Hill, referencing Ben (18:02)

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4. “Die With Zero” vs. Paying Off Your Home Early

Timestamps: 18:02–19:11

• Possible Contradiction?
  Ben is challenged on whether his "die with zero" philosophy conflicts with his opposition to aggressive mortgage payoff.
• Balanced Position:
  Ben clarifies: aim to have your mortgage paid off by retirement, but don’t rush it if you have a historically cheap rate.
• Cultural Context:
  Duncan connects with listeners burdened by high student loans, reflecting on differing attitudes to debt (18:57).

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5. Buy Side vs. Sell Side — What’s the Difference?

Timestamps: 19:26–21:38

• Definitions:
  • Buy Side: Asset managers, hedge funds, mutual funds, and ETFs — they invest money on clients’ behalf and purchase research.
  • Sell Side: Investment banks and brokerages — they provide research, facilitate trades, and help companies raise capital.
• Career Insights:
  Ben recounts an early finance internship, discovering he preferred buy side over sell side;

  “The biggest thing I learned working on the sell side is I wanted to be on the buy side.” (21:05)

• Incentive Structures:
  Each side has different clients and incentives, a key consideration for those interested in finance careers.

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6. Cash as Part of a Retirement Portfolio

Timestamps: 21:42–26:07

• Listener Question:
  Is it reasonable for a retiree to keep 8% of their portfolio in a treasury money market fund as part of overall fixed income?
• Host Support:
  Both Ben and Duncan approve; cash/cash-equivalents are a valid part of asset allocation, especially in retirement.
• Pros:
  • Liquidity, emergency reserves, buffer against market volatility, and “dry powder” for future opportunities.
  • Cash outperformed stocks and bonds during the inflation of the 1970s; now people more widely recognize its role.
• Main Risk:
  Money market yields will drop if/when the Fed cuts rates. It's important for retirees to be comfortable with lower future returns from cash allocations.
• Practical Rule:

  “How many years of spending do you want to have in cash to make you feel good to take risk elsewhere in your portfolio?”
  — Ben Carlson (25:13)

• Duncan’s Note:
  There are now more types of bond ETFs than ever before, adding complexity to fixed income investing (26:07).

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7. Tone, Community, and Miscellaneous Moments

• Community:
  The episode is lively, interactive, and self-deprecating, with Ben and Duncan referencing questions from the YouTube chat and poking fun at themselves and the finance industry.
• Ben in Vegas:
  Opens with Ben operating from Las Vegas and likening casinos to the stock market — but with the odds inverted.

  “The stock market, if it is a casino, it's the best casino there is, because the longer you stay in it, the higher your odds of success.” (02:33)

• Humor:
  Ben’s wife trusts ChatGPT’s answers over his (07:42), and the chat community is described as more fun than the actual show at times (26:27).

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Notable Quotes

| Timestamp | Speaker | Quote | |---|---|---| | 05:58 | Ben | “If you're 35, you should hope that sometimes stocks crash so you can buy them on the cheap..... You're more likely to make mistakes trying to time these things than just sitting them out.” | | 10:13 | Ben | “If you're already overweight U.S. stocks, you probably have plenty of tech exposure as it is.” | | 14:17 | Ben | “If you're paying off your house...that's concentration risk. You literally live under the roof of your house.” | | 15:42 | Ben | “You're borrowing for free on a real basis. Your house is an illiquid asset. So you put money into paying it down but then you can't spend it.” | | 16:35 | Ben | “If your mortgage rate is 5% or higher, I bless you: pay off that mortgage early if you want. That's a way higher hurdle rate. I just think 3% is different...I really think it's a poor financial decision, regardless of how you feel about debt.” | | 25:13 | Ben | “How many years of spending do you want to have in cash to make you feel good to take risk elsewhere in your portfolio?” | | 02:33 | Ben | “The stock market, if it is a casino, it's the best casino there is, because the longer you stay in it, the higher your odds of success.” |

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Timestamps for Key Segments

• Market bubbles & young investors: 03:02–08:15
• Tech stock allocation: 08:18–13:12
• Mortgage payoff debate: 13:12–17:53
• “Die With Zero” philosophy: 18:02–19:11
• Buy Side vs. Sell Side: 19:26–21:38
• Cash in retirement portfolios: 21:42–26:07

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Episode Takeaways

• Young investors should expect bubbles, but not let them dictate strategy, especially with long horizons.
• Many index funds already provide heavy tech exposure—a “tilt” higher comes with greater volatility risk.
• Paying off a low-rate mortgage is more a psychological comfort than a sound financial choice in low-interest environments.
• Buy-side and sell-side are distinct finance sectors; understanding both helps clarify market incentives.
• Cash reserves play a vital role in retirement security, but yields aren’t guaranteed to stay high.

For personal finance questions or topic suggestions, listeners can participate live or write to [e-mail].

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Transcript

[A]

Welcome to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. If you're a young investor with many decades ahead of you to invest, should you care if all this AI spending is a bubble? And if you're positive that AI, robotics, quantum computing, all this technology is going to change the world, is it unreasonable to have 30% or more of your portfolio exclusively in tech stocks? We're going to answer these questions and more on today. On today's show. Stick around, please. All right. Our email here is Ask the Compound [e-mail] on today's show, we'll be answering questions about how you should think about bubbles as a young investor, whether or not someone should go all in on tech stocks in their portfolio. When does it make sense to pay off your 3% mortgage? A lot of questions on this. Do you need to have a home paid off to die with zero? What's the difference between the buy side and the sell side? And does it make sense to hold your money in money markets in your fixed income allocation? If you're in the live chat, shoot us off a question. I'm coming to you live from Las Vegas. Today I walked into the casino and they handed me a meme stock right when I walked in the door.

[B]

Which one did you get?

[A]

A couple shares of Rigetti Computing. They had some GameStop shares they were giving away. Still, it was great.

[B]

Nice.

[A]

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[B]

So do you go into a casino with a number in mind of how much you're gonna spend? Do you budget?

[A]

I budget, yes. I bring in a certain amount and I say, this is an entertainment budget. If I lose, that entertainment budget is gone. And guess what? Last night, my entertainment budget was gone. Winning is like playing with house money. So I go into it assuming I'm going to lose all this money. The house has the edge, right? Right, Yeah.

[B]

I mean, I think it would be kind of crazy to go in assuming you're going to make money, right?

[A]

Yeah. I think some people do, though. Correct?

[B]

Probably, yeah.

[A]

But there's people who think that the stock market is like a casino. But the stock market, if it is, it's the best casino there is because the longer you stay in it, the higher your odds of success. It's the opposite in a regular casino. The longer you stay. But I'm happy. If I could play blackjack for five hours straight and I come out, at the end of the day, I'm even or I lose money. I'm okay. It's entertainment for me. I'm not trying to supplant my income.

[B]

Makes sense to me.

[A]

Let's go. A lot of questions. People calling me out this week. Let's do it.

[B]

Okay. Yeah. People are fired up. Up first. We got one from Twitter. What do you do if this is a bubble? This has to be an indicator, right? Ben, we've gotten like 10 bubble questions a week.

[A]

I feel like it's a lot of bubble. It's a lot of bubble questions. Yes. This is on toug of everyone's mind. Yeah.

[B]

Okay. What do you do if this is a bubble? Sit it out and maybe miss two to three years of 30% gains before it gets crushed by 70%. I think it's too costly not to be in the game. If your horizon is eight plus years. I think I'm going to let my money sit. This is kind of stream of consciousness. I'm 35. If AI isn't a bubble, it means my current livelihood might be having a major disruption, fueling significant gains in my portfolio. If it is a bubble, I. I'll just keep shoveling money in. If I were older, I'd probably be all over this.

[A]

You're right. This is something of a. Someone is trying to think through and let us know what they're thinking and wants to hear our thoughts. Here's what I wrote in my book. Everything youg need to know about saving for retirement. I wrote this thing in my late 30s. I said I have somewhere in the order of four or five more decades remaining prepared financially over the rest of my life. In the coming 40 to 50 years I'm planning on experiencing at least 10 or more bear markets including five or six that constitute a market crash in stocks. There will also probably be at least seven to eight recessions at that time as well. Maybe more, maybe less. Now I think I'd like to amend that statement to say there will probably be four to five financial asset bubbles as well. I love this headline from the Onion. This is in 2008. Put it up there. Recession Plague Nation demands a new bubble to invest in. I love this. It's perfect. So in the late 1990s you can take that one off. We had the dot com bubble, right? And we couldn't accept that pain so we immediately went into a housing bubble in the early aughts. The 2008 financial crisis was caused by a credit bubble, right? I think we were free and clear of bubbles in the 2010s. If anything it was like an anti risk bubble because we had the negative yielding bonds and that sort of stuff. 2021 was definitely some sort of meme stock bubble people were investing in throwing crazy money in NFTs and bored apes and a number of those ethereum rocks and stuff. So that was a mini bubble. Now you could claim and everyone is that AI CapEx is a, is a new bubble. I think we can't, we just can't help ourselves. Right? I, I think this is just kind of the way things are. So the question is as a young investor, should you care? And I think the, the person asking this question is on to something like it's not that you should ignore these things altogether because obviously that's impossible. Like the, the, the old adage that you should just ignore the noise I think is it sounds like a great line for financial advisers and it's impossible today because everyone gets the updates and alerts and everything's in your face all the time. But should you do anything about it? That's the question. It depends on. Do you have a reasonable asset allocation in place? Do you have an investment plan in place? Are you investing regularly into the market? Do you have the intestinal fortitude to stick it out when stocks fall and get volatile and keep buying? So I always say that with buy and hold the buying is sometimes the hard part and the holding is sometimes the hard part depending on where we are in the cycle. But you have to do both for them to work right, even when it doesn't feel right. So I think this person is right, that you should probably be more concerned about a bubble if you're 65 than 35. Right. If you're 35, you should hope that sometimes stocks crash so you can buy them on the cheap. I also think you're more likely to make mistakes trying to time these things than you are just sitting them out and building off the occasion, building the occasional mania into your financial plan, whatever it is. If you're just going to hold all stocks, be ready for volatility, or you're going to hold more cash or bonds, whatever it is. I think that's the thing. So I do think for a young person, yes, this shouldn't concern you all that much unless you get freaked out by volatility. And the downside, if you were going.

[B]

To build a bubble though, it'd be harder to do better than this one. Right. I mean, this is because going back to talking about the crypto boom and Axie Infinity and the rocks and all the NFTs like there were still. I'd say the vast majority of Americans thought that was stupid. Right? But I feel like the vast majority of Americans now are using ChatGPT or Gemini or, you know, in word, whatever, you know, they're using something AI powered. And so this feels a lot more significant.

[A]

Yeah. But yeah, the question is like, will this bubble be worth it? Will it make us all the workers more efficient and will it give us all an AI, you know, assistant someday or something like that? Will it all be worth it? I think that's the infrastructure. Is it, Is it worth it? Right. And like, the dot com bubble was totally worth it because we grew all the fiber optic cables to have us to be streaming this show right now. Me in Las Vegas, you in Connecticut. Right. It's. We built all that out, so, yeah, you're right. Is it. It's probably going to be worth it. I think I use ChatGPT all the time now.

[B]

It's kind of crazy because even a year ago I, you know, I would have been like, I don't, I don't need that, you know?

[A]

But my wife doesn't trust anything I tell her. But if I tell her I got it from ChatGPT, then she trusts me.

[B]

That's funny. I mean, I do catch mistakes. Why don't you tell me?

[A]

You ask Chet. Oh, yeah. It's definitely not right all the time. You have to, you have to be careful and, and Fact check. And, but yeah, my wife will say, oh, I didn't ask ChatGPT about this. Then I'm. Then definitely it's like, why don't you just trust me? No, you have to trust the, the AI.

[B]

Yeah.

[A]

All right.

[B]

The coolest thing is you, you can, I'll, I'll show it a picture of something and say, like, what does this do in this old camera or a car or something? And it knows. It's, it's pretty good at that.

[A]

Yeah, it is. It's pretty neat. All right, let's do another one.

[B]

Okay. Up next, we got a question.

[A]

Another tech one.

[B]

Yeah, we got one from Kevin. I know my judgment might be clouded by the last 15 years, but I have such strong conviction about the technological growth and profits coming over the next 10 to 15 years. Driven by AI, quantum computing and robotics and aligned with my own investing time horizon. But it's made me seriously, seriously reflect on my portfolio allocations. VGT, which is the Vanguard Tech ETF, right. VGT is currently 10% of my portfolio and I recently made it a goal to increase the allocation to 20%. Talk me out of an allocation of 30%. If I can stomach the volatility and have strong conviction in the future of tech, why would I not do it?

[A]

Okay, good. Before we get to this good question. In the chat, is a bubble more problematic if you invest in just the s and P versus owning individual stocks that can fall 70% or so? I think that's a great question and something you have to think through. All right, so yeah, VGT is the Vanguard Information Technology Index Fund. It's funny because we were getting questions from people from our audience back in 2019, 2020, saying, hey, I'm going to go all in on tech stocks. What do you think? And I think a lot of them did it and are probably feeling pretty good about themselves. But it seemed late cycle then. So obviously timing this stuff is tough. Tech has been on an amazing run. So Daniel, let's do a chart on here. This is a growth of $10,000 in VGT going back to 2000, the start of 2010. So decade and a half, call it $10,000 turned into nearly 165,000 in this period. That's a total return of more than 1,500%, translates into annual returns of more than 19% per year. Like, this is just an amazing run. Chart off, please. So now, this week I wrote another piece about the melt ups of the past. So Daniel, do another chart on, please. So I compared the current run over the last 10 years in the Nasdaq 100, up over 500% to Nasdaq in the 1990s, which was more, it was like 800%. Japan in the 80s, which was right around the same 500%. And then the Dow in the 20s which is also around 500%. So this is a historic melt up move in terms of, you know, if you want to call it bubble activity, whatever, it's right in line with the past. So we're not just in the ballpark, we're sitting next to these guys in the dugout. Chart off please. So it is kind of crazy. So that's, that's the one thing that would give a lot of people pause is like, oh my gosh, this run has been amazing. It's also true that if you own AN S&P 500 index fund, the top 10 names make up 40% of the holdings. Now nine of those 10 are tech stocks, with the other one being Berkshire Hathaway. If you own a NASDAQ 100 index fund, the top 10 stocks make up 54% of the holdings. I'm sure that's pretty similar to that vgt. I'm sure the holdings are pretty, those are all tech stocks, right? So anything market cap weighted in the US gives you ton of exposure to tech. Nvidia is almost $5 trillion. Apple's almost 4 trillion, Microsoft's almost 4 trillion. Google is more than 3 trillion. These companies are massive. So I guess my first question would be what else do you own? If you're already overweight US Stocks, you probably have plenty of tech exposure as it is. So on the one hand it feels kind of late cycle this stuff because returns have been so strong. On the other hand it is kind of crazy that we haven't seen how transformational AI is going to be. The robots are coming at some point. Like self driving cars are going to be ubiquitous. Will that lead to better returns for people? Are we pulling it all forward? I don't know. And it's not like innovation is slowing down. So I think if you're going to do this, you do have to have the stomach for volatility. So someone in the, in the chat asked about individual stocks. Let's do a chart on here of this other one. This is from our guy chart Matt chart kid Matt at exhibit A. So he looks at the drawdowns in 2022 and earlier this year in 2025 for Apple, Amazon, Google, Meta, Nvidia, Microsoft and Tesla. Those are the MAG7 stocks. And these are Massive drawdowns. Right. We're talking about, you know, Meta was down 75%. Nvidia got cut in half or cut down by two thirds. These individual stocks themselves, if you go on in tech, like, it could be painful. So I think, what's the right number if you really want to go on in tech? I don't know. I'd say just size it appropriately and make sure you have the ability to lean into the pain somehow if and when these things get crushed. Because they probably will at some point. Whether it's an earnings miss or AI bubble or whatever it is. I don't know, somehow more risk, more reward kind of thing. Right. Like these stocks are going more volatile.

[B]

It won't surprise you at all to learn that one of my biggest holdings for many years has been a tech etf. But, you know, years ago, I just thought to myself, in 10 years, RV's tech company is going to be more, you know, profitable and more important to the economy or less. And I just, I could never think of a scenario where they're not, other than like a doomsday scenario. So. So, yeah, with the right time horizon, with a long enough time horizon, to me it always has seemed like, well, yeah, I mean, technology is literally the future, right?

[A]

Yeah. It's not going away and it's such a big part of our everyday lives. And like I said, it's a big part of the stock market. Now, if you own the US Stock market in some capacity, you have a big time exposure to tech already. So leaning into it, I guess. Depends how much you already own. But, yeah, you're right. All right, let's do another one.

[B]

Okay. Up next, we got one from Will. Ben was fired up last week about the guy who paid off his mortgage early. He was almost yelling, I'm 42 and fortunate to be doing well financially. I have $270,000 left on my mortgage at a 3.3% interest rate. I plan to pay it off over the next 10 to 12 months. I would pay the majority of it simply by diverting funds that otherwise would go to index funds in a taxable brokerage account. This may be a. Not to brag, but I don't think this would meaningfully impact my quality of life. I view paying off my mortgage like a gift to myself. Maybe being 100% debt free doesn't make financial sense, and maybe it's not necessary, but it's still something I like to give myself. I also like that it would add more diversification to my net worth. Would Ben yell At me for this decision.

[A]

Hey, I don't yell. I guess I don't get fired up that often because we had a lot of people saying, man, Ben was fired up about this. Oh, yeah, it's kind of funny.

[B]

You were fired up. Yeah.

[A]

Hey, listen, I'm a man of principle. Sometimes I think you might have even.

[B]

Said you'd have to be an idiot or you use something, you use some strong language. I can't remember.

[A]

I would never use language. I don't know what you're talking about. First of all, I don't think this is diversifying yourself. If you're paying off your house, first of all, like, that's concentration risk. You, you literally live under the roof of your house. If you have most more of your money in that house, that's concentration risk. Right.

[B]

Most people's biggest asset is their house too. Right? Yeah.

[A]

You're concentrated in your local economy, your job, whatever. Listen, I heard a lot from people have paid off their mortgages. I totally get it. And this, this thing was driven by the guy from Twitter who shared that he paid off his 2.2.6 to 5 mortgage. Right. And let's be honest, the guy's probably lying. He's probably doing it for clickbait. No, I'm kidding. So this guy played off his low rate mortgage and there was two extreme reactions when this guy posted it. One was, why would you do this? Oh my gosh. And the other one was, listen, not all money decisions need to be driven by a spreadsheet. Those are the personal finance. So I heard from a lot of people who paid their mortgage off. And they always say, no one ever regrets paying off their mortgage early. Right. I get it. It's a psychological thing. Some people need peace of mind. They hate, hate, hate having that debt hang over them. I get it. Debt drives some people up the wall. However, my feeling is that 3% mortgage rates are different. This time really is different. Like maybe we'll see borrowing levels at. Borrowing rates at those levels again. But I think a 3% mortgage or a sub 3% mortgage is one of the best financial assets you could possibly hope for. Inflation is 3% right now. Mortgages are tax advantaged.

[B]

That's what I was about to say. Yeah, it's literally below inflation.

[A]

Yes. You're borrowing for free on a real basis. Your house is an illiquid asset. So you put money into paying it down, but then you can't spend it. All I'm saying is think of what gives you more flexibility and peace of mind. Paying off your mortgage early and having that money sit in an illiquid asset so you don't have the monthly payments. Right. Or just parking that money in a money market or T bills and having a bigger pile of liquidity in case something goes wrong. What's better for you? Paying off $270,000 in your mortgage or having $270,000 sit in a T bill. I think one of them offers you better flexibility and more liquidity. Two makes more sense to me. Now listen, I think sometimes we take behavioral finance too far. I'm a big behavioral guy. I think behavior is the most important thing for the majority of investors. But I think sometimes you take it too. Like, hey, listen, if I bury all my money in the backyard, I can help. I can sleep better at night. Maybe that's true, but that doesn't help you. That doesn't mean it's a good financial decision. Listen, if your mortgage rate is 5% or higher, I bless you. Pay off that mortgage early if you want. That's a way higher hurdle rate. I just think 3% is different. That's where I stand. And I really think it's a poor financial decision. Regardless of how you feel about debt, regardless of how you frame it about psychology, sometimes you have to ignore your feelings when making financial decisions. For me, this is one of those times. And guess what? I'm not going to change anyone's mind. So it doesn't matter. Right. Read the next question.

[B]

What do you think the VIN diagram looks like of people who can't stand having a mortgage and people who have way too much cash? It's probably the same people, right?

[A]

Like these are people who, yeah, people are in a good financial position. You're right.

[B]

Well, but I'm saying people who also are more like risk averse and go to cash, you know, as soon as there's definitely.

[A]

I think it is, I think it's a risk thing too. Like I don't like, listen, if rates go to 3% again in the future, I'm borrowing up to my eyeballs. Give me more money to borrow. I think that's a really smart decision. And if you look at most wealthy people, Mark Zuckerberg took out a mortgage on his house. You don't think he could have bought it in cash? No. It gives you optionality and gives you flexibility.

[B]

Yeah, yeah. So you're not, you're not, you're not making fun of people. Just to be clear, you're not like making fun or calling people stupid for paying off their mortgage. If that's what they want to do. But you're just saying if you're looking at the numbers, it does not make sense if you're really, like, going wild.

[A]

I think that a 3% mortgage changes the equation enough for me to pound the table. And, you know, I don't pound the table that often. I'm usually a gray. This exists in a state of gray. Here, do the next one.

[B]

Okay, up next, we got one from Jacob. On one hand, Ben preaches die with zero. On the other hand, he says it's insane to spend. Oh, that was the word you use. Insane. Insane. To spend money on your home and own it outright. Sounds a little contradictory, but I'd love to get your thoughts, Ben.

[A]

Jacob, get out of here. Come on. I'm not. First of all, I'm not 100% in die with zero. I do lean more heavily in that direction. But here's the thing you said, like the Venn diagram. I'm guessing the Venn diagram of people who pay off their mortgage versus people who don't spend a lot of money. That's. Those people overlap a lot. Here's my plan. How about this? Have your mortgage paid off by the time you retire. That's. That's my goal. And again, if rates go back to 3%, I'm probably going to borrow even more. And maybe that goal gets pushed out, but I think that's. That's a. That's a worthy goal. By the time you retired, have that mortgage paid off. How's that?

[B]

Yeah, that makes sense. I'm from that. That cohort of Americans that have so much student loan debt that we're kind of numb to the idea of having a bunch of debt at a crazy rate.

[A]

Ye.

[B]

So to me, yeah, this sounds like such a first world problem to be like, oh, I'm trying to pay off a 2.8% mortgage or something early. It's like, come talk when you have 7.6% student loans in. Crazy. Crazy.

[A]

All right, someone in the chat says I can't riff a Zuckerberg because viewers are normal people that live paycheck to paycheck. That's the point. You need the flexibility more than Mark Zuckerberg does, probably. That's all I'm saying.

[B]

Yeah.

[A]

Again, I'm never changing anyone's mind on this time value. Never. All right, next question.

[B]

Okay. I just like dropping that because I read it in one finance book, so now I just save it all the time. Okay, up next, we have a question from Mitch. What's the difference between buy side and Sell side. I'm so glad someone asked this, because people throw this around in finance all the time. Like, everyone knows exactly what it means, and a lot of people do not know what it means. So what does this mean?

[A]

Yeah, this is a good inside baseball finance question. Right? Okay. So my very first internship in finance, Daniel, Throw this up, was on the sell side. And I basically, the first day I was there, I asked my boss to explain it to me. It's funny, they knew. I knew so little about what was going on in the world of finance that they gave me a Wall Street Journal every day and said, just read this. All right, take this off. So the buy side is firms that invest money on behalf of their clients. Asset managers, hedge funds, mutual funds, ETFs, private equity. So the buy side manages money on behalf of their clients. The sell side provides research and then facilitates transactions. So that's investment banks, brokerage firms, broker dealers. So the sell side issues and sell securities. The IPOs, they help companies borrow money and issue debt. M and A, all that stuff. So my time on the sell side was for an investment research analyst. And they covered two different fields. One of them was actually tech, and the other one is like, industrials. And they offer buy hold, Sell strong, Sell strong, buy those types of ratings. And the buy side buys that research. And it's funny because people look at the buy hold and say, like, these people are such idiots. But no one pays for those. Those recommendations. Right. They pay for the underlying research of the company and the sector and the trends and the numbers, and that's what they're paying for. So. So that's the difference. And honestly, the biggest thing I learned working on the sell side is that I wanted to be on the buy side. That's what I learned. I learned what I didn't want to do by working on the sell side.

[B]

Okay.

[A]

So I definitely didn't want to work in investment banking.

[B]

So both sides have valuable research, or is one superior for, like, the average investor?

[A]

No, they have different incentives.

[B]

Right?

[A]

Yeah. Yes. Yes. Def. Yeah, there are different career risk involved and different. That's a good way to put it. Yeah, it's just different things.

[B]

It was Charlie Munger that said, show me an incentive and I'll show you the outcome. Right.

[A]

Nailed it.

[B]

I think. Yeah.

[A]

All right. Okay, next question. We got one more.

[B]

Last but not least, we got a question from a. I hold about 8% of my portfolio in cash within a taxable account, primarily in the Vanguard Treasury Money market fund. Its SEC yield is. Is approximately 4.2, 5%. Since I reside in California, the income is exempt from state taxes, which adds to its appeal. I consider this cash position part of my overall fixed income allocation, which totals around 30%. The remaining 22% is invested in intermediate term bond funds held in a tax in tax deferred accounts. As a retiree, I maintain this level of cash for many of the reasons you outlined. Emergency reserves, a buffer against market volatility, and potential dry powder for future opportunities. Does this approach seem reasonable to you? Would you suggest any adjustments?

[A]

Okay, first, Matt says hi from Punta Cana. Uh, way to go, Matt. Beautiful area.

[B]

Nice.

[A]

Do the, do the zipline and enjoy Miami Vice for us.

[B]

Oh, yeah, that's where you always go.

[A]

No, I went there. We went there last year, first time.

[B]

Oh, okay. I thought you'd been there a couple of times.

[A]

Yeah. Cool place. Um, very nice people. So it is funny to me to think through how many of the questions that we get on a weekly basis are people asking for permission, right? Can I do something like this? Does this make sense? Is it reasonable? And that shows, I think that's one of the reasons not to like, talk about our inside baseball for industry. That's one of the reasons a lot of people hire a financial advisor in the first place or wealth manager. Like they want someone to help them make the decisions and just do it. Some people can, well, what about this and what about that on this hand, on the other hand. And so some people just need that.

[B]

It's also our audience. They're not know it alls. They're people that want to learn and want to like, honestly.

[A]

And honestly, if you're asking is this reasonable and you've probably thought through it pretty good, like it probably is, right? The people who ask, the people who don't ask the question and just do it, they're the ones who take the risks. And like the people who, I mean there's a. There's always a risk of paralysis by analysis and doing too much. But the people who like thought through all the pros and the cons and said, I think I want to do this, what do you think? Like they're probably going to be okay, right? They so was in cash equivalents. So we're talking money markets, T bills, CDs, high yield savings accounts, that kind of stuff can have a place in your asset allocation, especially in retirement. So this whole idea does seem reasonable to you? I think a lot of people in 2022, in the bond bear market, when bonds got crushed, I think a lot of inflation rose and interest rates rose. I think a lot of people realize, like, oh, wait, cash actually can have a place in asset allocation and portfolio management because cash, the yields go up quickly and you don't have the interest rate risk. So a lot of people, especially in an inflationary environment, realize, oh, wow. So actually in the 70s, cash was the best performing investment. It outperformed bonds, it outperformed stocks. I think it's the only time that happened where in a decade basis it.

[B]

Upper from both of those and dumb question, I know, but when you say cash, you mean cash in. In like T bills or.

[A]

Yeah, okay. Yeah, like, yeah, money markets, T Bill CDs, apparently. Listen to me. At first I feel like I got.

[B]

Michael, I was reading the chat.

[A]

Sorry, I know, I'm kidding. So like the treasury money market fund, I think the only thing you have to be okay with is this strategy. Like if and when yields fall, if the Fed keeps cutting rates, these money market yields are going to go down. So are you still okay with the dry powder, with the buffer against volatility, with the steady eddy approach of these things not moving very much? If rates go from 4.25 to, I don't know, two and a half or two, like that's you have to be okay with in cash. Like that's the trade off that the yields could be a lot lower. And so I think you have to get. But yeah, having a cash piece again, especially in retirement, I think that what they outlined here, it makes a lot of sense and I think a lot of people want to have that buffer. Right? And some people. The way to. The way I always get people to think about this is how many years of spending do you want to have in cash to make you feel good to take risk elsewhere in your portfolio? Right. And that risk could be bonds, it could be some alternative asset, it could be real estate, it could be stocks, whatever it is. For some people it could be, listen, I want one year of reserves. For other people it's I want four years or five years, whatever the number is. I think having that can actually make you feel better because in retirement you're, you're. It feels like you're jumping off a cliff without a parachute, right? You have no more income coming in potentially besides Social Security, maybe a pension. You don't have as much savings to put in. If there's a bear market, the sequence of return risk could be, could get you. So I think that, yes, this is reasonable. And if you determine that amount, I think he said 8% of it is so let's say he's spending 4%. He's got two years worth of cash. Is two years worth of cash good enough for you to leave the rest of this portfolio alone and rebalance or whatever? Yeah, I think that makes sense. As long as you're okay with that risk.

[B]

One day we're going to do a show where you just explain all the different Bond ETFs to me because there's so many.

[A]

There are a million more options now. Yes, there's. There's floating rate debt and there's. Right. It's not just treasuries anymore. Right. There's a lot of different variations. Yeah, yeah. There's a lot that Jesse in the chat said the chat is much more important than whatever Ben is going on about.

[B]

It's true.

[A]

I mean, it's usually the people in the chat, they, they do like talking to each other.

[B]

We got almost 2100 people watching live right now, so.

[A]

All right, good audience, very cool. Appreciate everyone who coming in live on YouTube, on Twitter. Remember, if you have a question for us, our email here is askthecompoundshowmail.com youm can come in the live chat with us live every Wednesday, 1pm Eastern. I'm here whether I'm in Grand Rapids or New York or Las Vegas, wherever I need to go now because I have to go lose some more money. But hey, listen, I'm following a process. It's process over outcomes, right? All right, thanks everyone for watching. See you next time.

[B]

Have fun. See ya. Thanks for listening. Turning 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.