The Stock Market Rallied. Now What?

Summary

Ask The Compound: "The Stock Market Rallied. Now What?"

Date: April 30, 2025 | Hosts: Ben Carlson & Duncan Hill

Brief Overview

In this episode, Ben Carlson and Duncan Hill tackle timely questions from listeners about investing amidst current market volatility. They break down what the recent stock market rally means after a bout of turbulence, demystify the US dollar’s impact on investment portfolios, compare bonds versus high yield savings accounts, give strategic advice for managing debt during potential job loss, and share ideas for teaching personal finance to high schoolers. Their tone is conversational, relatable, and packed with practical wisdom.

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Key Discussion Points and Insights

1. The Impact of the US Dollar on Portfolios

(Starts ~03:00)

• The strength or weakness of the US dollar primarily matters for travelers, international investments, and companies with global operations.
• Over the long haul, the dollar’s moves can seem dramatic, but from 1970 to today, it’s “basically gone nowhere” (Ben, 03:57).
• Key reasons for dollar moves: interest rate differentials, inflation, foreign investment flows, and trust in the US system.
• Investing takeaway:
  • Strong dollar tends to benefit US stocks relative to international stocks; weak dollar favors international (or non-US) holdings.
  • “Strong dollar: US outperforms. Weak dollar: international outperforms. Not bad, right?” (Ben, 06:37)
  • Emerging markets and gold also do better when the dollar is weak.
• US stocks are uniquely resilient in a strong dollar environment; most other asset classes benefit from dollar weakness.
• Political rhetoric around the dollar is inconsistent - parties “change their tune depending on the day, depending on what the dollar is doing.” (Ben, 08:04)
• International bonds introduce unwanted currency risk for US investors.

“It is kind of funny… unless you travel to another country… it might seem like the movements of the dollar, why should this matter to me?” – Ben (03:33)

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2. Navigating Market Volatility: "Now What After a Rally?"

(10:16)

• Listener describes emotional whiplash after a recent bout of volatility: market falls, then surges, but recession still feels “inevitable.”
• Ben illustrates how the direction of returns distorts investor psychology (“If you go from down 20% to down 10%, it’s a big relief. If you go from 0% to down 10%, the sky is falling,” 11:19).
• Warren Buffett and 'Mr. Market':
  • Markets are “impossible to predict in the short run” and often emotional/manic.
  • The Intelligent Investor by Benjamin Graham: Just read Chapter 8 (investment fluctuations and Mr. Market) and 20 (margin of safety).
• Rather than react to the news, use rallies as a “godsend” to reassess your risk.
  • If recent turbulence made you want to sell, now is a better time to cut risk than after a bigger loss.
  • Adjusting allocation (e.g., from 90/10 to 70/30) is more productive than “all in or out.”
  • Risk tolerance and time horizon are key: “If you have to spend the money in the next 5–7 years, your risk profile should be different…” (Ben, 14:09)
• Taxes and inertia also affect portfolio changes—don’t let potential capital gains taxes completely dictate actions.
• Tax loss harvesting can mitigate pain during downturns (Duncan: "That seems like a cheat code," 15:34).

“Markets are constantly reinforcing the fact that they are impossible to predict in the short run.” – Ben (11:53)
“I don’t think the market cares about your opinions. That’s kind of where I’ve landed on this.” – Ben (14:31)

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3. Bonds vs. High Yield Savings Accounts

(16:12)

• With short-term rates above long-term rates, many wonder: “Why own bonds when high yield savings accounts pay as much or more?”
• Historically, longer bonds yield more to compensate for term risk; today’s inverted yield curve is an anomaly due to inflation and Fed policy.
• Key difference:
  • Money accounts (cash/money market/high yield savings) don’t lose value when rates rise, but also don’t surge in value if rates fall.
  • Bonds can lose value when rates rise (as in 2022–23), but gain value when rates fall (offering a buffer in recessions).
• High yield savings: great for short-term needs, liquidity.
• Bonds: valuable for portfolio protection against stock downturns, and will, in normal environments, yield more than cash.
• Tax consideration: Treasury bonds are state/local tax-exempt, unlike bank account interest (Duncan, 19:36).
• Having both in a portfolio is prudent; expect yields to normalize, favoring bonds over time.

“Bonds are a great hedge against stock market volatility, deflation, and recessions, because again you get that bump when yields fall…” – Ben (18:08)

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4. Should I Pay Down Debt or Build Cash If Facing Job Loss?

(20:36)

• Listener’s employer is shutting down their division; they have some emergency cash, investments, and substantial credit card debt at high interest.
• Ben’s advice: Prioritize liquidity, not debt-repayment right now.
  • Don’t pay down debts at the expense of emergency funds.
  • Explore consolidating high-rate debt with a zero percent balance transfer credit card before losing the job; search for the lowest balance transfer fees (~3% is reasonable).
  • Creditors may negotiate for lower rates or easier terms if you ask after job loss.
  • Tap IRA/401k only as last resort.
  • File for unemployment ASAP; consider spouse’s financial support.
  • Focus on extending your financial runway—job searches can take months.
• Use “buy now, pay later” for necessary purchases to preserve cash for essentials (Duncan & Michael in chat, 25:02).
• Wedding advice: Go for cash gifts instead of registry items if you need immediate financial flexibility.

“Building cash is way more important than paying down debt. Worst case scenario, you call up your credit card providers and say, listen, I lost my job. Sometimes they’ll be willing to negotiate with you…” – Ben (22:44)

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5. What Should I Teach High Schoolers About Personal Finance?

(25:57)

• Retired listener, soon-to-be volunteer finance instructor, seeks advice on curriculum.
• Key topics Ben & Duncan suggest:
  • Credit Cards as examples of negative compounding; show costs of minimum payments.
  • Importance of credit scores and how good debt habits benefit you over decades.
  • Budgeting: Not as pain, but as prioritizing spending on what matters most and cutting the rest.
  • Walk through account types: checking, savings, high yield savings, Roth IRA, 401k (and matches), building a financial "hierarchy."
  • When to use credit vs. debit cards (credit is safer for fraud, builds score if used responsibly).
  • Behavioral finance—how human psychology impacts financial decisions; kids love stories/examples.
  • Automate good habits: automated savings, bill-pay, etc.
  • Discuss money’s role in happiness and evidence-based spending choices (“Happy Money” book recommended by Ben).
  • Talk through habits they already observe at home.
  • Ben also likes the “double a penny a day”/chessboard rice parable for teaching compounding.

“Credit cards are a great way to teach personal finance and compounding— in this case, the negative effects of compounding.” – Ben (26:47)
“Many of these kids have probably never had a frank discussion about money. I didn’t when I was their age.” – Ben (29:27)
“You can also just make them watch the show every week.” – Duncan (31:07)

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Notable Quotes & Memorable Moments

• On market psychology:
  “It’s funny how that anchoring can … if you go from being down 20% to down 10%, it’s a big relief. But if you just go from down 0% to down 10%, now you’re going, oh my gosh, the sky is falling.” – Ben (11:19)

• On time horizons and risk:
  “Do you have to spend the money in the next five to seven years? Then your risk profile should be different than someone who’s got two to three decades.” – Ben (14:09)

• Ben on market “prediction”:
  “Warren Buffett called Mr. Market a manic depressive… The stock market changes its mind all the time because people are the ones running the stock market.” – Ben (13:10)

• On teaching kids about money:
  “Teaching personal finance has just a massive impact on your life in so many ways. … I don’t care— if you get through to a few people, that’s good enough for me.” – Ben (26:35)

• On practical actions when facing a layoff:
  “You want to build cash—not pay down debt. Worst case scenario, you call up your credit card providers...” (22:44)

• Pop culture crossover:
  The hosts briefly discuss Quentin Tarantino’s “Cinema Speculation” and Ben’s preference as a kid for movies over watching the news, per his mom (32:00).

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Timestamps for Major Segments

• Dollar Strength & Portfolio Impact: 03:00 – 10:08
• Post-rally Market Emotions & “Now What?”: 10:16 – 16:12
• Bonds vs. High Yield Savings: 16:12 – 20:26
• Debt vs. Cash Before Job Loss: 20:36 – 25:57
• Teaching High Schoolers Personal Finance: 25:57 – 31:43

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Summary

This episode offers actionable, timely financial advice for investors facing a wild market, economic uncertainty, and major life transitions. Ben and Duncan demystify jargon, balance data with behavioral insights, and reinforce the enduring value of diversification, risk management, liquidity, and financial literacy. Their conversational exchanges, transparency about their own learning curves, and practical examples make this episode especially valuable for both finance newcomers and market veterans.

Transcript

[A]

Welcome back to another live Ask the Compound. I am your host, Ben Carlson. First the stock market crashed, then it recovered. What if you sold two weeks ago? What if you wanted to sell but you didn't? What if we go into recession? Now what? That's what everyone's asking. We answer that question and much more on the show today. Duncan, cue the music. Let's do this. Email here is ask the compound showmail.com send us your questions about markets, taxes, spending, college, savings, asset location, middle aged men's fashion. This is a great time of year in Michigan because it's bomber jacket season. Okay. It's only like two weeks in September before it gets too cold to wear them and then like two weeks in April, May, ish. Before it gets too warm. So this is a sweet spot. Taking advantage, Duncan, you a bomber jacket guy?

[B]

Love a bomber jacket.

[A]

All right. It's timeless, right? On today's show, we tackle questions about the impact of the dollar on your portfolio. The stock market is crashing, then it's recovering. Now what the difference between bonds and high yield savings accounts? Paying down debt versus building up cash reserv reserves if you are entering a job loss situation. And what to teach young people about personal finance, any personal finance class. Today's show is sponsored by our friends at Public. On today's show, we'll be talking about high yield savings account. Public has that with a 4.1% yield. We'll also be talking about bonds. Public has a bond account where you can buy individual bonds to lock in some pretty juicy yields at the moment. Plus, they have this really nice platform with a clean, intuitive and modern design. Easy to use, easy, easy to understand. NerdWallet gave them five stars for ease of use and investment selection, which is great. Fund your account in five minutes or less. You can also transfer your rule your IRA over there and get a match with them if you put enough money in. Find out [e-mail] ATC paid for by Public Investing. Full disclosures in the podcast Description.

[B]

For the F1 fans out there, they just started a partnership with Aston Martin F1. So literally there's going to be a Public logo on the car moving forward. Pretty cool.

[A]

Oh, okay. That's. You're gonna. That's who you're gonna be paying attention to then, huh? You're rooting for.

[B]

I'll be very. I'll be paying a lot of attention. Maybe they can take us to a race. We'll do an ask the compound from a race.

[A]

All right. Before we get into any questions today, I was on the road this week giving a speech to a group of about 300 financial advisors in Columbus, Ohio. Nice group of people. And a few people after the show came up and after the presentation came up and talked to me and one guy said, hey, I was a former police officer, I wanted to get into finance. So I decided to get my cfp and now I'm a financial advisor. And I've been listening to Ask the Compound lately. I love the show and I have a favorite portion of the show. I said, oh, what's that? He said, my favorite part of the show is Duncan. And I said, really? Why is that? And he said, because Duncan asks the layman questions that maybe other people would be too nervous to ask. And he said that's a great way to bring it around to the regular person. So I guess he's an oatly fan.

[B]

That's so good to hear. I appreciate that. And speaking of which. Oh, we reported earnings today.

[A]

Okay. Nothing paying attention after hours. All right.

[B]

Nothing much to remark on. Okay. Up first, say we got a question from David. I'm always hearing about the strength or weakness of the US dollar. Can you provide some basic background of what all of this means? What is the weakness against other currencies specifically or all currencies in a basket? How does this affect my portfolio, which is primarily invested in US stocks and bonds? What are the main benefits and drawbacks of a strong versus weak dollar? This is a good one because I got to be honest, I hear this all the time too, and I don't really quite understand the intricate.

[A]

Yeah, it's a good question because it's kind of funny to think unless you travel to another country and actually exchange US dollars for another currency, it might seem like the movements of the dollar. Why should this matter to me? What's the point? And also, no one really goes to the window anymore to exchange, Right? You pay on your credit card and it automatically converts it for you. So people don'. Pay that much attention. So let's first of all look at the long term movements of the dollar. John, give me a chart on here. This is the US dollar index DXY going back to 1970. So this shows the dollar going back to 1970s against a basket of foreign currencies. Okay, so you can see on here there have been plenty of different regimes. Strong dollar, weak dollar, sideways dollar. But it is kind of interesting if you look at it, the starting point in 1970 ish. Till today, the dollar has basically gone nowhere. So it's gone up, it's Gone down, but more or less it hasn't moved over the very, very decade. Period. Chart off. So the strength or weakness of the dollar can be for a lot of reasons. Interest rate differentials, right? Maybe we have higher rates here. So countries want to invest capital in our bonds. Inflation, economic growth flows from foreign investors who want to invest here. That's like basic supply demand stuff, right? There's a lot of other variables that matter, like the currency markets are. It's a lot of stuff. Trust and faith in the system are the unquantifiable ones that people are trying to figure out right now. So the way to think about it in terms of investing is that a strong dollar tends to lead to weaker sales overseas and a weaker dollar tends to lead to stronger sales overseas. So when the dollar is weak, you can expect, or you should expect international stocks to outperform. Because when you, unless you're hedging out your currency, when you buy international stocks in a different country, you're buying it in the local currency. So when it's translated back to a dollar, right? When the dollar is weak, that's going to be a tailwind for international investors. Vice versa, when the dollar is strong, that's going to be a headwind for international stocks, right? From the perspective of a US if you're a foreign investor, it's the opposite. Foreign investors who have invested in US Stocks in recent years have been done amazing because they got great performance in US Stocks and they got a strong dollar, which increased them on a currency basis. And this, this is one of the reasons that I think international diversification is helpful over the long term, because you get diversification of currencies as well. So let's look at the numbers. Okay, John, chart on here. Head chart, kid. Matt helped me build this one today. So this is, I looked at and I kind of eyeballed the chart. These aren't exactly. So this is strong dollar versus weak dollar periods. And you can see this is from the perspective of a US Investor. When the dollar has been strong, you can see in the early 1980s, in the 1990s, and then since 2010, when the dollar is strong, US stocks have outperformed. But when the dollar is weak in the late 80s to early 90s, in the 2000s, first decade of the century, then you've seen European stocks outperform. Clear pattern here, right? Strong dollar US Outperforms weak dollar, international outperforms. Not bad, right? Chart off. Now, one could say, well, 40% of sales in the S&P 500 now come from Overseas, Maybe this relationship doesn't matter as much as it used to. That could be true. I also think a lot of these corporations have departments that hedge out currency risk. So it might not matter as much as you think on that level. But the point is these relationships aren't set in stone. But it does make sense if you're investing in international stocks that a falling dollar is going to help you in some way. So that's one way to think about it. I do need to update to the data, but I did this on other at asset classes too. So John, throw up my next little table here. I did this for Fortune a few years ago. This is pre pandemic, but the numbers are probably hold pretty good today. So I looked at annual returns, average returns when the dollar is up or when the dollar is down. And you can see when the dollar is up or down, the S and P doesn't impact it all that much. But foreign stocks have done phenomenal when the dollar is down and just really bad when the dollar is up. Same thing with the emerging markets. And emerging markets are even more so with the currency. If I broke out that last table to emerging markets, they do way better when the dollar is down and way worse than the dollar is up. Gold is the same thing. A lot of people are trying to figure out why gold is doing so well this year. Maybe part of it is because the dollar is down. So I'll have to update this data at some point, but it kind of all makes sense. So it's interesting that US stocks are really the only big asset class that tend to benefit from a strong dollar. And it seems like everything else almost benefits from a weak dollar. So the rest of the world is against us.

[B]

So wait, has this been politicized? Is one party for a strong versus weak?

[A]

I think they kind of change their tune depending on the day, depending on what the dollar is doing. I think you could to back to the original point of the first chart showing the dollar moving a lot but then going nowhere. I don't know. I think you could make the case that either one is good or bad. It kind of depends on the why it's happening, right?

[B]

From a messaging standpoint, it feels weird to be like, yeah, a weak US dollar, right?

[A]

And yet the thing is, does it really matter? And that's harder to wrap your head around. And is it just cyclical as far as bonds go? I know some people who own international bonds for further diversification. The thing is, the typical advice is you don't want to own fixed income in another currency, because that currency could swamp all of your yield. And what's the point of investing in fixed income if you're spending money in dollars? So I know some people hold international bonds and then hedge the currency. There are funds that will do this for you. But a lot of people say that's not. You don't need to own international bonds because if the currency fluctuations go against you, that fixed income loses its benefits. So I don't have a problem with that if it's a different source of yield, as long as you understand the currency fluctuation part and maybe hedge it out. So, yeah, that's the story of the dollar. So just because the dollar is falling this year, I don't think you can necessarily say it's a good or bad thing. It could possibly be that the dollar has been really strong for a long time and that people were holding the dollar. It's finally going the other way.

[B]

Yeah. Thinking about currencies feels like inception to me. It's like I've been viewing things in x and y and you just added a z axis.

[A]

It is. It's a different currency because. Yeah, it's not something people pay attention to on a daily basis. You can look at the yields, you can look at the stock prices up or down, but currencies are a different alternative.

[B]

So, wait, which is best for going on a European vacation?

[A]

Well, you wanted to go on a European vacation in 2024 because the dollar was strong. That makes the euro weak. And so now the dollar going down and the euro going up, not as good price. Still pretty cheap, but not as cheap as it was last year.

[B]

Okay, good to know.

[A]

All right, I'm glad everyone in the chat is having fun talking about the NBA playoffs. We're talking markets here. All right, come on, people. All right, next question.

[B]

All right, up next, we got one from Jeff. I'm not going to lie. I was one of those people who got really bearish a couple of weeks ago. I was convinced we were heading for a crash. But now stocks have bounced back and recovered. A lot of losses from the tariff news. I didn't sell even though I really wanted to. It still feels like a recession is inevitable. So now what?

[A]

All right, we've been getting a lot of questions in this similar vein this month. Obviously. John, give me a chart. It feels like we've had a crazy year this month. Right. So after a brief uptick, there was a 12% loss followed by that big 10% up day on a single day. Then there was a 6% downturn followed by now it's like a 6 or 7% recovery. And at one point, the stock market was down 1% after being down more than 11% on the month. I think it's down a little bit more today. So this is all fluid, right? John, chart off. So the stock market is still from the highs, down around 10%. And it's funny to think about how the direction of change can impact your psyche as an investor. Because if you go from being down 20% to down 10%, it's a big relief. But if you're just go from down 0% to down 10%, now you're going, oh my gosh, the sky is falling. It's like owning a stock. If you own a stock that was up 200%, but now it's only up 100%, you feel awful. Compared to the person who had a stock that was up 50%, now it's up 100, even though you're in the same exact spot. Right. It's funny how that that anchoring can.

[B]

It's true.

[A]

I think my dip too.

[B]

And it comes back, you just, you feel like such a genius, you know?

[A]

Yeah. Until your stock does a reverse split, then you're, you can't buy as many shares and it's just, it's not as fun anymore.

[B]

Sure.

[A]

All right. My biggest takeaway here is that markets are constantly reinforcing the fact that they are impossible to predict in the short run. Right. Warren Buffett called Mr. Market a manic depressive. So that's based on the Benjamin Graham book Intelligent Investor. This is one of the very first investing books I ever read. Now the meme now is showing someone throwing it away because value investing doesn't work or whatever. Here's a life hack for you. I read all 500 something pages of this book when I was like 23, and I got to admit most of it didn't make sense to me. And probably because he was talking about railroad stocks, because he wrote this back in the 1930s. The life hack is read chapter 20 about margin of safety, giving yourself a margin of safety in chapter eight about investment fluctuations in Mr. Market. Right. That's the big thing from this book, the big takeaway. And his whole thing about Mr. Market, the analogy is just that sometimes he's depressed, sometimes he's happy. You don't know. Sometimes it's random and hard to predict. I think, listen, the stock market is pretty hard to beat and it's forward looking at all that, but it's not all knowing. And I think that's the problem. Some people get in like they see something that happens over a day or a week or even a month and think, oh, the stock market must know something. It's not always true. The stock market changes its mind all the time because people are the ones running the stock market. So I think the whole. Now what? I think now is a great time to reassess your risk exposure. If you're one of these people who's been thinking for weeks, I need to sell. I'm reaching my pain point. If you wanted to sell, guess what? It's way better to do it down 10% than down 20%. And again, reassessing. Maybe I have too much equity risk and I should go from 9010 to 70, 30 or something like that, or 60, 40 to 50, 50. I don't like people going all in and out. I think that extreme is just very hard to do if you're not totally rules based. So I think this rally could be a godsend for you. It depends how you've been thinking. Some people thought, no, I'm buying a. Stocks are down 20%. Right. This is a great opportunity. Other people are saying, no, obviously I've taken too much risk. I need to pull it back a little bit. I didn't rebalance. I need to do that.

[B]

I can't imagine having a long investment horizon and not buying in a time of turmoil like that.

[A]

It's true. I've been buying.

[B]

Maybe I've seen Michael's chart too many times of reasons to sell. And just the market.

[A]

That's a great point. Is that your time horizon is a big piece of it. Right. Do you have to spend the money in the next five to seven years? Then you're. Your risk profile should be different than someone who's got two to three decades. And I think a lot of people keep saying, well, listen, it seems like for sure we're going into a recession. It would make sense to me the stocks would be lower in a recession scenario. But the timing and magnitude of these moves is so impossible to predict. And I think I have my opinions, Everyone does. But I don't think the market cares about your opinions. That's kind of where I've landed on this.

[B]

It's a good take. By the way, I read that book back in like 2017 or 18 when I was getting into finance and I went and bought a bunch of closed end funds because he talks so much about those.

[A]

Yeah, from a long time ago too. All right. Giancarlo asks, how much does reassessing Your risk just have inertia issues, plus capital gain issues, hopefully. I agree. That's probably part of it. People are sitting on huge gains. And especially if you're in any type of balanced portfolio, your bonds obviously haven't kept up. And I think a lot of people probably are thinking like, oh, if I sell now and I'm in a taxable account, then I'm going to have to pay taxes. And we talk about this with Bill Sweet all the time. Do you want to let taxes wag the tail? That's the taxes, wag the portfolio. That's the dog. Right. And I think you have to think, what would I rather do? Sell and pay some gains or eat some losses? Right. If you have some gains, that means you won.

[B]

Well, on the other end of that, I mean, tax loss harvesting feels like a cheat code in a taxable brokerage account or something. You know, in an environment like this, the market just went down that much. Say you sold and bought something comparable, now you're up a lot and you have a tax loss. That's seems like a cheat code to me.

[A]

I know you want.

[B]

You're not into like trading and trying to do stuff.

[A]

No, but no tax loss harvesting makes sense. It also means you're losing money, so there's that. But yeah, you're making a bad situation a little better, aren't you?

[B]

Right. As long as you're buying something else and not just going to cash. Right.

[A]

Yeah. All right, next question.

[B]

All right, up next, we got one from Brian. I'm curious about the difference between owning bonds versus keeping cash in a high yield savings account. I've heard you guys talk about balancing your portfolio with stocks and bonds, but with yields being relatively similar, is there any benefit to owning actual bonds?

[A]

All right, great question. And I feel like this question makes a lot of sense because I think some people haven't lived through a period where we're in a normal environment, if there is such a thing. Because short term rates have been higher than long term rates for a few years now. And it almost feels like this is free money. I'm getting higher yields in a high yield savings account or my money market than I am in the bond market. And I don't have to deal with interest rate volatility. Like, why wouldn't I just have all my money in a high yield savings account? So if there is such a thing as a normal environment, yields should be higher for longer term fixed income because you're taking more risk. You're compensated for that risk by earning higher yields. Short term yields got jacked up because of inflation. They haven't really normalized yet. If and when the Fed decides to cut, then it'll normalize a little bit and your High Yield Savings Account yields will come down. So short term yields can and probably should fall from here unless we get some big burst of inflation from the trade war. But the biggest difference between bonds and High Yield Savings Account are money markets or CDs. Any of those short term vehicles is just interest rate risk. So when yields rise, that is great for short term liquidity, like a High Yield Savings Account because you don't lose any money. Your yields adjust fairly quickly in a rising rate environment. Cash like accounts like this are great because you get higher yields and there's no price reaction. Bonds have inverse relationship to yields. Yields rise, bond prices fall. That's what we saw this decade, right? When yields went up, bonds got crushed. But the opposite is true in a falling rate environment. If we go into recession or simply a period of disinflation, bonds should do well as rates fall. That's a big kicker for you because you have this flight to safety and then the price action. But a High Yield Savings Account will only experience the falling yields. You don't get a burst in price in your High Yield Savings account, right when yields fall. So you get falling yields and you're not going to get a hedge there. So I think my way of thinking about it is there's. So if we normalize and high yield, let's say High Yield Savings Account yields go to 2.5% or something in a recession and bond yields are at 4, bond yield would probably fall too in that situation. But intermediate term 10, seven year bonds should be higher than High Yield Savings Accounts in a more normalized environment. You don't get that boost and now you're sitting on lower yields. So the way that I look at it is there's a place in portfolios for both bonds and High Yield Savings Account. High Yield Savings accounts are great for liquidity. It's really easy to move your money around. You don't have to make any sales. You just hit a button and it sends your money to your account, your bank account. So for short term savings spending needs, High Yield Savings Account is great. I have one, I use it all the time. I put my money, I have to pay for quarterly taxes in there. I put our vacation fund in there, all that stuff. Bonds are a great hedge against stock market volatility, deflation and recessions because again, you get that bump when yields fall and Bonds go up and bonds should eventually have higher yields in high yield savings Accounts. Remember, this is just not so. If you've been sitting out and parked in T bills and high yield savings account for a few years and you're earning higher yields and bonds going, who are these suckers sitting in bonds? Like that's not going to last forever. It shouldn't last forever.

[B]

Treasuries are also tax advantaged.

[A]

Right.

[B]

At the local and state level.

[A]

Right.

[B]

As opposed to your savings account is not.

[A]

Right. That's true. Yeah. You're paying interest on that yield. I wonder how many people actually care about taxes when it comes to fixed income. I know some people do.

[B]

I know this because I was asking ChatGPT a while back this very question and yeah, learn that. So I'm going to drop it all the time now.

[A]

Yeah. So I think that there's a place for both of them in terms of fixed income and cash management needs. But don't think that the yields are always going to be higher in high yield savings account. They shouldn't be. Even though sometimes they are.

[B]

Yeah. Do you remember when companies were doing like 0.5%? I mean, it wasn't long ago at all.

[A]

It's been a while. Yeah, it was close to zero and yeah, it was bad for a while there. It's only been the last few years that we've seen this.

[B]

Yeah.

[A]

All right.

[B]

Is it time to buy the triple levered long treasury etf?

[A]

If that existed, you would buy it.

[B]

It doesn't exist.

[A]

It probably does. Yeah, it does.

[B]

Okay, up next we got. My company has announced that they are changing their line of business and my division and therefore my job will cease to exist. On May 28th. They are offering $1,350 of severance and three months of job outplacement services. This year I've been prioritizing debt pay down and I've paid off 4 to $5,000 in credit card debt. I still owe more than $7,200 on a handful of accounts with rates ranging from 25 to 32%. I have $3,200 in emergency cash, $5,000 in an IRA, $6,000 in a brokerage account and $700 in a company 401k. With a month left at my job. Should I keep trying to pay down credit card debt or focus on building up my cash reserves? Also, I'm getting married in October. This is like a. This is a narrative. You know, I want to say sorry that you're losing your job, but also Congratulations, you're getting.

[A]

Yeah, there's a lot of life events going on here. So we've been getting more and more emails about layoffs in recent months. I don't know if this is a precursor of things to come, but I guess a labor market slowdown had to happen eventually. And he doesn't talk about in here the fact that he's going to have a hard time finding a new job. So I hope that part is not too hard for him. So here's why I fall on this. You want to build cashier. You do not want to be paying down debt and impacting your liquidity. In fact, I would be working on ways to consolidate that debt. So he said he's got all these different credit cards and he listed them out and we kind of combined them. But he said he's paying anywhere from 25% to 32% in credit cards, which is an astronomically high amount. And that's probably why he's thinking maybe I should pay these. Right. I think he should figure out a way to consolidate that debt. Now, why can. So I would be finding a zero percent rate credit card and they give you a zero percent rate for 12, 15, 18 months.

[B]

Try to balance transfer.

[A]

Find a low balance transfer fee. Give yourself some breathing room just so you're not paying those ridiculously high fees. Because that makes sense the thing to.

[B]

Look out for on those two. I've done a lot of these in the past. Look for the fee they're going to charge you to do the transfer. Usually I try to do 3%. That's about the lowest I ever see. But sometimes it says 5%. So pay attention to that fee they're going to charge.

[A]

Yeah, you can. There's credit card websites where you can kind of check these, but that's a good way to give yourself some breathing room. Do that now before you lose your job. So you like there's not a problem. I think building cash is way more important than paying down debt. Worst case scenario, you call up your credit card providers and say, listen, I lost my job. Sometimes they'll be willing to negotiate with you either a lower rate or a longer payout or something because they would rather get something than nothing. Because credit card companies know that eventually there's going to be defaults and people aren't going to be able to pay. So I think that's your last. I think tapping the IRA is obviously your other last resort. Like break in case of emergency. You want that emergency fund and then your brokerage account first and the IRA and the 401k, that's sort of untouchable until the end. The other thing is you probably want to apply for unemployment insurance as soon as possible, like right when you can. Right. So that you don't have to have a long waiting period for that. I don't know if that stuff is going to be taking longer if more and more people are filing in the months ahead. I guess I do have some questions here. So he said he's getting married. Can your future spouse help it out at all? Right. You're getting in this together, right? You're probably going to put your finances together. I would want to know how confident he is in finding a new job. Obviously, that's the. That's the big thing. That's the biggest thing you're worried about. Obviously. See, I'd worry more about making yourself employable than paying down debt. But I would push the debt thing off as much as I could and consolidate and not try to pay that down. I'd be hoarding cash because you don't know how long it's going to take to that process of finding a new job can take months and months and months, obviously.

[B]

Yeah. So would you say that right now might be a good time to actually go through with refinancing and trying to take out a loan to pay down that debt over a longer period, don't you think?

[A]

Yeah, consolidating it somehow with a 0% transfer or 1 of those. Yeah, balance transfer is the greatest option.

[B]

But yeah, balance transfer would be the best option overall. But yeah.

[A]

Yeah. So obviously tough situation. It sounds like he's got some time to plan things out and he's getting a little bit of severance. And so, yeah, the fact that he's planning it out and thinking and obviously the budgeting thing is a big piece here and figuring out like how long will what I have last me. That's what I'd want to know.

[B]

Also, Michael just made me think in the chat, just mentioned buy now, pay later. This is like the perfect example of when that could really come in handy. 0% interest, buy now, pay later. You have to buy, you know, furniture or something for your car or whatever and you're able to do buy now, pay later that would allow you to keep more cash right now.

[A]

Well, he's probably thinking about stuff he's got to buy for his wedding. Right, Right.

[B]

Yeah.

[A]

I think my gift registry for the wedding would be, can you do a pull forward?

[B]

Can you say, hey, I'll go ahead and take those wedding gifts Now I.

[A]

Would say we're canceling everything from Bed, Bath and Beyond. Guess what? I don't need the kitchen utensils. I don't need the loofahs. I need cash. Everyone give me cash for the wedding. So anyway, good luck. Hope you find a new job. But yeah, I'd be looking at different ways that you can manage that debt as opposed to paying it all off right now. That's my initial thought. All right, we got one more good one here.

[B]

Yep. Up next, we got one from Anthony. I'm 53 and retired. Not to brag, that is a pretty nice not to brag.

[A]

53, pretty good.

[B]

I live in a rural community that is lower on the economic spectrum. I coach volleyball at the local high school and I'm going to teach a personal finance literacy program in the fall. I'm not an educator, but I have my MBA in finance and econ and I'm an avid student of all things personal finance. I have a 30 minute slot for 10 weeks in the econ class as a guest speaker. I'd love to hear from you what basic lessons you think would be most valuable to this cohort.

[A]

That's a great retirement. To me, coaching volleyball at the high school, teaching personal finance classes, that's living the dream. 53 years old, good job. I love this idea because personal finance has just a massive impact on your life in so many ways. And I know, I've seen the stats that show like, well, if you teach kids personal finance in high school, it doesn't always get through. I don't care if you get through to a few people, that's good enough for me. I actually spoke to a high school like this a few years ago, kind of a low income area high school. And I was shocked at the level of knowledge that these kids had. They were asking me, when should I open an ira, a Roth ira, what's the best time to invest in the stock market? A lot of the, a lot of the kids. One of the kids asked me, how do I avoid going into credit card debt like my parents did? And I thought that was really like these kids were much smarter than I was back then. So some thoughts. Last question was all about credit card debt. I think credit cards are a great way to teach personal finance and compounding, Right. In this case, the negative effects of compounding. But you can show it the other way too, right? Here's what happens if you hold a credit card and pay your minimum off every month. Here's how bad that looks for you, right? And I Think that that's a good way to do the reverse and inverting it and showing how compounding can work in your behavior or to your benefit. The importance of credit scores, I think helps too, like decreasing your debt burden over time and showing how much borrowing can impact you. And that's a way to kind of show how car loans work and how mortgages work and these things. And so I think building a good credit score and showing the benefits that can give you over the decades is a nice way too. I think you can also work in some budgeting stuff there about paying off your credit card on a monthly basis, too, and how much money you lose if you don't pay it off or if you just pay the minimum. There's a stat this week that I think 11% of people just pay the minimum on their credit card balance, which is just. You're just setting yourself up for like complete financial failure in that case. Right. Just total compounding against you. I also think you don't want to talk about budgeting in a negative way. That's how people always view it. So I talk about it in a way that helps people prioritizing the spending that they on the stuff they want and then cutting back in the areas they don't care about as much. I like the idea too, of walking them through the various accounts that you should open a bank account and a checking account, a savings account, a high yield savings account, a Roth IRA, a 401k with a match, all that stuff. I would kind of walk them through the hierarchy of accounts. And here's what you need to do to get ahead in life. And here's when you need to open a credit card, all this stuff.

[B]

On that note too, I would talk about when to use a credit card versus a debit card. Having dealt with some cybersecurity stuff this year, there's a huge reason that you use credit cards for most all of your purchases. Right. And not a debit card. It's much more secure. And the credit card company, it's their money, not yours. Whereas when you spend money on a debit card or, you know, if someone gets that card, it's directly out of your account, and it's up to you to try to get the bank to recoup those funds for you.

[A]

Yeah. And the good news is, as long as you pay that credit card off, that's you building your credit score too. Right. Proving that you can pay it off over time. Yes. I also think there's some behavioral finance stuff that you could work through here and talk about human nature, behavioral patterns, that sort of thing. I think that's a great way to get people interested in this stuff because that stuff to me is really, really interesting. And then I think you can build on that by teaching them the benefits of building solid financial habits and how you can use technology to automate good decisions. You can talk savings rates and debt repayment and retirement savings and all these ways that you can automate good behavior and good decisions. It's probably also worth having a discussion about some of the financial habits that they've already developed through family because that for most people, it's your personality and the stuff you see from your family. Right. Many of these kids have probably never had a frank discussion about money. I didn't when I was their age. I was thinking about it, but it was mostly, you know, we never. I never had a personal finance class growing up. I never thought about this. Never. I think there's probably also some room to discuss financial goals in the context of money versus happiness and walking them through some of the data on the things that truly move the needle. Book. Happy Money, I think is a good place to start on that one, which is really good. So I think there's a lot of. Those are the kind of things that jumped out to me. Anything I missed?

[B]

No, I think that's a good list.

[A]

I don't even know you get into the stock market that much. Maybe how companies earn money and build profits and pay dividends over time or something.

[B]

Well, I know the thing about, like, if you doubled a penny every day to teach compounding, that does really well with young people, I think. What was that one? It started with a grain of rice on a chessboard or something.

[A]

Yeah, there's a parable about it and a king and. Yeah, yeah, yeah, yeah. The compounding stuff I think is good, but that's kind of where I would start. Let us know what you come up with.

[B]

You can also just make them watch the show every week. You know, it's about 30 minutes.

[A]

That's true. Do a write up. Yeah, No, I hear from teachers all the time that they use some stuff, so that's pretty cool. Let us know what you decide to go with. Michael in the chat is really pushing for. For Pfizer. He really wants us to buy Pfizer. It's cheap, it's got a big dividend. All right, sure. Got it. All right. Oh, someone in the chat says happy money is very boring. Book. No, it's good. Millionaire Next Door. That's a good one. Millionaire Next Door is actually a pretty good personal finance book for a lot of these people. There's also an update.

[B]

You know what book that you recommended I'm actually reading right now.

[A]

What's that? Oh, that's a great book. Yeah, right?

[B]

I'm barely into it, but it's very good already, so.

[A]

So my favorite part of the book is that his parents at like six years old, let him go to the movie theater to see these totally inappropriate movies, right?

[B]

Oh, yeah. This is a podcast, too, so I should say the book I held up is Quentin Tarantino's Cinema Speculation book.

[A]

It's very good. And he's very harsh on a lot of these old directors, but he says, mom, why did you let me go to all these movies when it was totally inappropriate and rated? And she says, I would rather have you watch a movie than watch the news.

[B]

Yeah, I thought that was funny. Which is good.

[A]

Which is pretty good. All right, email us askthecompoundshowmail.com Next week, Michael Stidmore is coming on. We're talking all about private investments. We've got some questions lately about private credits and advisors jumping into private investments alternatives. So send in your questions about that and all the other stuff. As always, askthecompoundshowmail.com thanks to Duncan. Thanks to everyone in the live chat, thanks to everyone watching live on Twitter. See you next time.

[B]

And thanks to the guy that you met at the conference for the kind words. I appreciate it.

[A]

Yeah, that was a parable. Didn't really happen. No, I'm kidding. It was great. Nice guy.

[C]

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 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.