U.S. Debt Is Near $40T. Should Investors Be Worried?

Summary

Ask The Compound – Episode Summary

Episode Title: U.S. Debt Is Near $40T. Should Investors Be Worried?
Date: May 6, 2026
Hosts: Ben Carlson & Duncan Hill
Guest: Barry Ritholtz

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Overview

This episode tackles one of the most pressing financial concerns in the U.S.—the surging national debt, now approaching $40 trillion. Ben, Duncan, and guest Barry Ritholtz dig into whether investors should be alarmed, what could actually trigger a true debt crisis, and how perceptions around government deficits have shifted (or not) over decades. Beyond macroeconomic anxieties, the trio also address personal finance topics: navigating wealth comparisons, investing a $100,000 windfall, managing concentrated stock positions, and strategies for participating in company stock plans.

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Key Discussion Points & Insights

1. The U.S. National Debt – Should We Be Worried?

[02:23 - 11:30]

• Historical context: Worries over the U.S. deficit have persisted since the 1970s, but with little impact on financial stability.
  • Barry: “The boy who cried wolf sort of loses a little credibility after, I don’t know, a half century of being wrong.” [02:51]
• Asset vs. Liability: Government debt is owed to individuals, funds, pension plans; it's an asset on someone else’s balance sheet.
  • Ben: “Those $31 trillion in liabilities for the government is $31 trillion in assets for someone else.” [03:24]
• Is there a crisis point?
  • Barry: “None of [the household debt analogies] are relevant to a sovereign nation with its own Treasury Department and printing press... Look at Japan, has been running 200, 300% [debt to GDP].” [04:54]
  • Ben: The real crisis would look like: “A failed government [Treasury] auction. That’s the kind of thing.” [05:52]
  • There’s no clear alternative to U.S. Treasuries—still the backbone of global finance.
• Growth vs. austerity: Cutting debt drastically would likely crush GDP growth; the relationship is tightly correlated.
  • Barry: “Do you want a 3% growth or a 0.5% GDP? Do you want to make that tradeoff? I sure as hell don’t.” [06:19]
• Modern Monetary Theory skepticism:
  • Barry: “That is kind of modern monetary theory and I am not an adherent to that, you know...” [08:39]

Tipping Point & Political Solutions

• Growth stalling is the real risk; as long as the economy expands, debt grows too but is manageable.
  • Ben: “As long as the pie continues to expand...that would be the thing. If we had a situation where the economy stops growing...that would be a problem.” [09:17]
• Policy fixes: raising or removing Social Security tax caps, or tying them to inflation, could strengthen fiscal position.
  • Barry: “There are a lot of ways we can reduce the total amount of debt...Make Social Security solvent...cost of living adjustment go up more aggressively...” [09:41]
• On healthcare savings: Widespread use of new GLP-1 obesity drugs could dramatically lower Medicare expenses.
  • Barry: “You reduce heart disease, blood pressure, diabetes...taxpayers are spending tens of billions of dollars a year for free...talk about ROI...” [11:05]

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2. Wealth, Money, & Happiness

[12:00 - 19:37]

• Never enough syndrome: People constantly move their financial goalposts and often measure themselves versus others.
  • Ben: “There is no such thing as enough for anyone. No one ever has enough...as a species, we are meant to move the goalposts.” [12:26]
• On wealth comparison (quoting John Bogle quoting Joseph Heller):
  • Ben: “Heller said, ‘I have something you will never have. Enough.’...but I also think there is no such thing as enough for anyone.” [12:19]
• Barry’s advice: Practice gratitude. Celebrate security, freedom from worry, experiences, and time bought with wealth—not just more stuff.
  • Barry: “Comparison is the thief of joy...Money buys you security, freedom from worry about money, experiences, and it buys you time.” [12:54, 14:27]
  • Barry: “Does money buy you happiness? Not really. It buys you freedom from lack of money.” [14:27]
• On guilt and relative wealth: People may feel guilty for their financial fortune, leading to their own kind of unhappiness.
  • Duncan: “I see just as many people that are miserable and unhappy because they see how good they have it compared to other people...they feel like, why me?” [18:08]
• Experiences over possessions: Cherished memories come from things like childhood rowboat trips, not expensive baubles.
  • Barry: “I used to have a rowboat when I was a kid...We had the best time.” [17:21]
• David Lee Roth quote:
  • Barry: “Money doesn’t buy you happiness, but it’ll buy you a yacht that’ll pull up right next to happiness.” [17:09]

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3. Investing a $100,000 Cash Windfall

[20:16 - 24:21]

• Time horizon trumps all: Planning to buy a house in 1-2 years? Don't take much risk.
  • Ben: “Anytime we get into like the down payment question and the time horizon is less than three to five years, like, I don’t think you can take a lot of risk with that money.” [21:19]
  • Barry: “My municipal bond portfolio is throwing off 3.6% tax free. So if you’re looking out a year and you're in any state that has reasonable...a muni portfolio is the short term solution.” [21:39]
• For longer horizons (3-5+ years): Broader portfolios like VTI or even a 60/40 split are feasible.
• Lump sum vs. dollar cost averaging: Lump sums statistically do better, but dollar cost averaging helps with nerves.
  • Barry: “Two out of three time periods...the lump sum generates a better return...The psychological reason people want a dollar cost average is they don’t want to go all in.” [22:56]

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4. Selling a Concentrated Stock Position (Intel Gifting Case Study)

[25:17 - 29:39]

• Situation: Listener inherited 5,000 Intel shares now worth $500K+ (at a huge gain), dominating their net worth.
• What should they do?
  • Ben: “This is found money...Rip the band aid off. Don’t think twice. Get out of this.” [26:34]
  • Barry: “Ask yourself two questions...If you don’t sell anything and it collapses back...how do you feel? If you do sell everything and it goes up another 500%, how do you feel? Whichever one...is the worst outcome...That’s your answer.” [26:34]
• Grand Rapids hedge: Sell half now, let the rest ride—a classic compromise.
  • Ben: “The Grand Rapids hedge would be sell half now.” [27:20]
• On tax-awareness and alternatives: Direct indexing and portfolio construction can mitigate capital gains impacts.
  • Barry: “We use Canvas, which is another tool for reducing capital gains. It’s direct indexing of equities...There are so many ways to manage around that.” [27:28]
• Option (call) selling skepticism:
  • Barry: “I hate the call selling process for two reasons...if it collapses...calls will not offset that...if it runs up, it gets called away, taxes anyway...To me, that’s a lose-lose.” [29:19]
  • Barry: “Old option traders never die. They just expire worthless.” [29:53]

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5. How Much Company Stock is Too Much?

[30:32 - 35:08]

• Employee Stock Purchase Plan (ESPP): Getting a 15% discount is hard to pass up, but risk concentration is real.
  • Ben: “The rule typically is...you always take the free money...the question is what percent of your portfolio are comfortable with because your livelihood is already tied up at the company.” [30:53]
• What’s the safe max?
  • Barry: “10% only in the most extreme examples… Odds are that this company is going to have its moment and then the cycle changes...Those people are sitting on huge losses in stocks and the potential to have their job disrupted.” [31:55, 33:07]
  • 5% is a more reasonable threshold unless you have extreme confidence in your firm’s prospects.
• Liquidity & exit plans: Always know your worst-case scenario and how you’ll get out before committing too deeply.
  • Barry: “Before you kick the door down and bust into the room, you need to know where the exits are...What happens if the company misses a quarter?...Make that plan. Read the card on the seat back of the plane when you’re on the ground...” [34:01]

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Memorable Quotes

• “The boy who cried wolf sort of loses a little credibility after, I don't know, a half century of being wrong.”
  — Barry Ritholtz, [02:51]
• “None of that is relevant to a sovereign nation with its own Treasury Department and printing press... Look at Japan...”
  — Barry Ritholtz, [04:54]
• “Do you want a 3% growth or a 0.5% GDP? Do you want to make that tradeoff? I sure as hell don’t.”
  — Barry Ritholtz, [06:19]
• “Comparison is the thief of joy. There's always someone that's going to have a bigger boat, a nicer house, a faster car.”
  — Barry Ritholtz, [12:54]
• “If you have enough capital to purchase...security, freedom from worry, experiences, and time...that's enough.”
  — Barry Ritholtz, [14:27]
• “Money doesn't buy you happiness, but it'll buy you a yacht that'll pull up right next to happiness.”
  — Barry Ritholtz, [17:09]
• “Ask yourself two questions...If you don’t sell anything and it collapses...how do you feel? If you do sell everything and it goes up another 500%, how do you feel?”
  — Barry Ritholtz, [26:34]
• “Old option traders never die. They just expire worthless.”
  — Barry Ritholtz, [29:53]
• “Before you kick the door down and bust into the room, you need to know where the exits are...Make that plan.”
  — Barry Ritholtz, [34:01]

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Important Timestamps

• [02:23] – Main debt question, history, and context
• [04:54] – Why sovereign debt ≠ household debt
• [06:19] – Growth vs. austerity tradeoff
• [09:17] – Growth stalling as true debt crisis trigger
• [12:00] – Money and happiness: it’s psychological, not numerical
• [21:19] – Inheriting $100k: time horizon dictates investment choices
• [26:34] – Dealing with a concentrated winner stock position (Intel)
• [30:53] – Risks and thresholds for employee stock purchase plans
• [34:01] – The necessity of knowing your exit before investing deeply in company stock

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Tone and Style

The conversation is candid, humorous, and pragmatic—blending decades of experience with personal anecdotes and a healthy dose of skepticism toward easy answers. The hosts encourage thoughtfulness, self-awareness, and long-term thinking, all delivered in their trademark conversational style and banter.

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For further questions or to participate in the show, reach out at askthecompoundshowmail.com, and check out Barry’s new paperback!

Transcript

[A]

Welcome. This is Ask the Compound, the show where you ask and we answer. Publicly held government debt in the United States is now more than $31 trillion. That's the same exact size as the US economy, meaning debt to GDP ratio 100% for the first time since World War II. What are the ramifications? Is this going to turn into a crisis? What's the biggest risk from debt levels this high? Does it matter? We're going to answer these questions and more on the show today. Let's do it. Our ask the compoundshowmail.com or flannel only show today. On today's show, we're answering questions straight from our viewers and listeners about the level of government debt in this country. How to find money happiness, how to invest $100,000 sitting in cash right now, how to sell concentrated stock positions, and then how much is too much in company stock. Welcome to everyone in the live chat. As always, send us your questions. We'll take them live on the air. Or if you're on Twitter, send it there, too. We'll get it later. What's up?

[B]

You just, you said hey to the chat and never said hey to me.

[A]

Oh, I recognize your flannel shirt. That's good enough.

[B]

Yeah, that works.

[A]

All right. I see Cliff in the chat said he's going on a cruise next week. Good for you, Cliff.

[B]

Yeah.

[A]

Wow. Spend some of your money. Enjoy it. Beautiful. All right. Today's show is sponsored by public. Go to public.com because it feels like there are two types of investing platforms right now. You've got the legacy brokerages that look like they were designed in 1996. 7. Then you've got the new wave, the ones that look 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 the 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 into 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. Go to public.comatc and earn an uncapped 1% match when you transfer in your portfolio. That's public.comatc Public 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 disclosures [e-mail] disclosures. All right, the AI agents are coming for us.

[B]

Yeah, let's do it. Seems like it.

[A]

All right.

[B]

We love public, though, so great question, City.

[A]

Let's do it.

[B]

All right, up first, we got a question from jl. Have you ever written about the national debt? That's the thing that gives me pause. It's pushing $40 trillion, and it just seems like it has to end badly. Of course, I was saying this back when it was a charming little $10 trillion and things have done nothing but get better since.

[A]

All right, let's bring some helping on this one. Everyone's favorite macro commentary, Mr. Barry Ritholtz.

[B]

Hey, Barry.

[C]

Hey, guys.

[A]

Barry, how long have you been writing

[C]

about government debt for, I don't know, 30 years? It feels like I, I could tell you that I first started hearing warnings about all of the terrible things that deficits are going to do in the late 1970s. So 50 years we've been hearing warnings of debt. And I. Let's just say the boy who cried wolf sort of loses a little credibility after, I don't know, a half century of being wrong.

[A]

Not wrong, just early. Okay, so this is from the Wall Street. Wall Street Journal. So I think, I think the total number is 40 trillion. Some of that is probably, like, owned by the Fed or we own it to ourselves or something. But this is from the Wall street journal. As of March 31, publicly held debt was 31.3 trillion. That's the same as the GDP. Throw the chart on here, guys. This shows debt to GDP. First time it's been at 100% since World War II. So this has people worried, obviously. Chart off, please. Now, the thing that I like to remind people is that those, that $31 in liabilities for the government is $31 trillion in assets for someone else. Pension plans, insurance companies, individual households, mutual funds, ETFs. So it's not like that debt is just this, this, this line item that exists out there. They have to pay that. It's also an asset for someone else. Okay, so you sent us a piece that you wrote back in 2021 about the deficit. And at that time, national debt was like 15 trillion, 20 trillion or something. So it's grown a lot since then. And I think the thing that people worry so much is that the growth has been happening so fast and that the interest expense is so much of the government budget now. And it's like, yes, all those worries in the past we've had before, they worried about it in the 70s, they worried about the 80s and 90s and every decade since. I remember in Warren Buffett's snowball book, that biography of his, he talked about how his father was worried about the deficit in like the 1930s. So this is something that's always been a worry. The question is for your boy who cried wolf, people. Barry, like what would be, what would be an actual tipping point that would send it, that would turn this from just something people like to spout off about to an actual event that royals the financial markets.

[C]

So before we get to the tipping point, we have to understand the framework. And people think of national debt like they do their household budget. And you know, if you're spending more than you're earning, uh oh, it's going to be a problem. I'm going to accrue credit card debt, it's going to be capitalized, look at my mortgage, look at this. None of that is relevant to a sovereign nation with its own Treasury Department and printing press and a standing army. So you get paid in dollars, the IRS collects its share in dollars. And as long as we don't turn into Venezuela or Argentina or the Weimar Republic, which everybody loves to trot out, or Zimbabwe. Okay, those are three terrible examples. Out of 300 countries. Look at Japan has been running 200, 300%.

[A]

Yeah, there's, there was. Their debt to GDP is way higher than ours. Right? Buying their own debt. I guess the thing is it would have to be a strike on, on Treasuries. Listen, we're not going to buy Treasuries anymore. We're going to buy something else. And that would send rates higher, right? You have a failed government auction or something. That's the kind of thing. My question is, what is the alternative? What is the alternative to Treasuries? It's the one of the biggest financial markets in the world. And I don't know what the alternative would be.

[C]

So if you look at the past half century of growth and deficits, there's a pretty tight correlation there. And who wants to say, okay, we're gonna, we're gonna be good accountants and good stewards and we will, the government will spend less, it'll tax more, and we'll have a balanced budget. But instead of having a two and a half, 3.5% GDP, you're going to have a 50 basis point or 95 basis point GDP. Do you want to make that trade off? I sure as hell don't. I like 3% growth. Under 1% means you're not seeing wage gains, you're not seeing asset class appreciation like you're playing Jenga with the entire US Economy. And it's not like deficits are off on their own. It if you say we're gonna, the government's gonna spend less, we're gonna get this down to a balanced budget. We had a balanced budget for 30 seconds in 1998. It didn't make any difference. So I am really not concerned about this, especially because all the things the deficit hawks have been warning about, none of them have happened over half a century. If I would have said to someone in 1980, hey, what am I gonna see the results of this, no one would have said 2029. They would have all said 1986. 1989, maybe 1995. All right, it's 30 years ago. You've been on a trading desk. Wrong and early are the exact same thing.

[A]

And I think we've learned this, this decade alone with all the spending we've done. Yes, there was inflation. No, that spending is not going to last forever. That was a one time rabbit and the snake kind of kind of deal. But the inflation came right back down. We didn't have this situation where interest rates went to 10% like some people worried about. Right. That, that's the thing that would concern, like you're going to know if something goes wrong. But again, if, if the treasury market breaks, the whole financial system is going to break because there is no alternative.

[B]

I think where a lot of people get tripped up with this though is it kind of sounds like you're saying that money, that the value of the dollar or money doesn't matter, you know what I mean? Which really starts to freak people out because they're like, well, what does anything mean then? If, if you're saying that no amount of deficit matters. Right. I think that's where a lot of people get hung up.

[C]

Well, that, that is kind of modern monetary theory and I am not an adherent to that, you know.

[A]

Okay. Someone in the chat was asking is Barry MMT guy?

[C]

No, I, I'm not. There is probably some number that breaks the system, but I have no idea what it is. And if the Japan example is anything to go by, well, 3x where we are today won't break it. Will 20x break it? Probably. Will 2 1/2, 3, 4, 5x break it? It doesn't appear to be, but somewhere between 3x and 25x goes south.

[A]

Yeah. So Cliff in the chat said, what happens if the economy does not continue to grow? That's the thing. As long as the pie continues to expand and the economy grows, the debt is going to grow as well. That would be the thing. If we had a situation where the economy stops growing for some reason, we stop innovating, there's no more progress and the debt has to keep growing, that would be a problem. But I think I still have more faith in humanity that things are going to continue to get better.

[C]

And the political issue is there are a lot of ways we can reduce the total amount of debt. Hey, you stop paying into FICA, into Social Security, what is it like 191,000 in salary? So everybody who's in the top 20% of income, they tap out early. You want to make Social Security solvent and reduce that debt. You don't even have to remove the cap. You could a, take it to 300, 400, 500, or B, you know, just, just tie it to inflation and have it cost of living adjustment go up more aggressively than it has.

[A]

We don't need taxes in this country. We only, they only go down.

[C]

Well then you have to, there's your choice. You have robots and you can't, it can't just be spending cuts and it can't just be tax increases. You really need to get a lot of the only silver lining in the deficit discussion. Remember five years ago people were saying, well here's where Medicare is bankrupt. No, I'm pretty confident at this point GLPs are going to make Medicare solvent because once Medicare starts selling those at $5 a month to the entire population, you reduce heart disease, blood pressure, diabetes, all these obesity related side effects that taxpayers are spending tens of billions of

[A]

dollars a year for free.

[C]

Right, Give it away for free. It's oh my God, talk about roi. It's in practically infinite.

[A]

I think we just tax all the companies 90% and that will solve all our problems. Well, next question.

[C]

How about, how about 20%? How about 15%? Like, like taxes used to be, corporate taxes used to be about half of the total revenue pie. Now it's tiny, it's nothing.

[A]

That's another one.

[B]

Okay, up next we got a question from Chad. Ben's piece about living paycheck to paycheck on half a million dollars got me thinking about the psychology of getting rich. It seems like there are more wealthy people than ever before, but so many are unhappy. I'll admit it's challenging for me when it comes to relative wealth comparisons. My wife and I are in a great spot financially. Not to brag, but I have friends who work in tech that are richer than we are. My existential question is, how do you ever get to a place where you're happy with what you have?

[A]

We had one of these last week. Remember the $5 million guy who had 5 million bucks but said, it's not making me any happier? So Barry, you've probably heard this one. This was in the John Bogle book that Kurt Vonnegut and Joseph Heller were at a hedge fund manager's party and he said, listen, this guy makes more in a single day than you made writing catch 22. And Heller said, I have something you will never have enough. I've heard that story a million times and I kind of think it's probably not true. I don't know. But I also think there is no such thing as enough for anyone. No one ever has enough. That that number does not exist as a species. We are meant to move the goalposts. And so I think it's more about finding ways to have money make you happier than finding like a number that's going. The number is never going to be the thing that makes you happy. There's never going to be a number. It doesn't exist.

[C]

So from a 30,000 foot view, you're not wrong. But when you get down to the granular level to the micro level, let's just click through a couple of bullet points that I think are really important. First, I don't know who said this, but I love this quote. Comparison is the thief of joy. And there's always someone that's going to have a bigger boat, a nicer house, a faster car. If you're comparing yourself to other people's possessions, you know, unless you're, I don't know who it is this week. Is it Bezos? Is it, Is it Musk? Someone is always going to be the one with the, you know, the biggest toy. You want to feel bad about yourself, go to Zillow and look at the houses that are for sale in the vacation property near where you live. And I'm just horrified to see these houses at 20, 30, 50, $100 million. It's like, oh my God, when I used to live in a studio walk up apartment on 17th street that cost me 400amonth to be in. Like a house is just such a big win. So that's number one comparison.

[A]

Yeah, you're right. You have to compare yourself to your prior self. That's the thing that matters the most. Can I believe I'm at this place from where I thought I would be when I was 20 or something? No way I ever thought that's how you have to think. Not in terms of what other people are doing. You could play that game all day long. And you're right. The only outcome is misery.

[C]

And I'm gonna quote that great philosopher who wrote about this. His name is Ben Carlson. And he always says, you see the house, you see the car, but what don't you see? What's invisible? You don't see this debt. You don't see the Strat. You don't see the, the buyer's remorse. You don't see the fight with the spouse over this. You just say, oh, what a flashy, lovely car that was that went speeding by. But that's all you see. And it's just the tip of the iceberg. And I think that's, you know, if you stop and think about what money should buy you besides baubles and toys and ever bigger houses and boats. Money buys you security free, freedom from worry about money. It buys you experiences and it buys you time. And if you have enough capital to purchase those three things, maybe practice a little gratitude on the side, that's enough. I mean, yes, there's always someone with a nice. So we bought a very lovely beach house a few years ago. I felt like I was out over my skis. It was too expensive. Prices kept going. I could sell the house not even two years later for 30% more than I paid for it. And I'm watching the guy around the corner for me do a knockdown and put up this 10,000 square foot behemoth that it's just him and the wife. The kids are out of the house. I know they want to have family over. I don't want to pad around a giant empty house like that. So I think you have to recognize what money buys you. Does money buy you happiness? Not really. It buys you freedom from lack of money. Whoa.

[A]

But it doesn't. Convenience, Right, right.

[C]

Security, experience. And. And to me, the most important thing is time. Listen, as a kid, I mowed lawns. I shoveled walks. One of the nice thing about being an adult is I don't have to spend time mowing lawns or, you know, I will go out and do the first run of the, of, of the snow shoveling before the plow guys get here just so I could get to the car. But I'm not going to spend eight hours. I, you know, my long driveway. It's just the cost of owning a house that's up on a hill. Someone has to come plow your drive. I share a driveway with my neighbor and we split the cost of plowing, but still, it's a pain in the neck to do yourself. It's so nice not having to worry about that. Right.

[A]

But I think you just have to move the goalpost in another way. Is that, like, money will not make you happy. Happier, but not having money will make you miserable. Right.

[C]

So that's 100% true. Although. Although I do like the David Lee Roth quote from Van Halen. Money doesn't buy you happiness, but it'll buy you a yacht that'll pull up right next to happiness.

[A]

So.

[C]

So, you know, they're there. And I think the takeaway from that is not about the boat. It comes back. You and I have had this conversation about the experience, taking the kids out on the water. You don't need to spend a million dollars. You could spend five grand or ten grand on something. And it. I used to have a rowboat when I was a kid and me and my buddies would go to Cold Spring harbor and we would go fishing. It was the greatest time ever. I come home with calluses and blisters on my hands from rowing. And we had the best time.

[A]

Duncan can buy a Porsche for 20 grand. Right.

[B]

It's. I mean, it's true.

[C]

This month's Hagerty has. Has a story about how to buy a Boxster for 15 to 20 grand and love it.

[A]

Duncan's dream.

[B]

Nice.

[A]

There we go.

[B]

I was going to. I'm going to zag a little bit on the social media thing. I think I see just as many people that are miserable and unhappy because they see how good they have it compared to other people. And I really, I've seen a lot of this where people feel guilt. People feel like, you know, they have imposter syndrome or they feel like, why me? And so they get really loud and they get really. They. They kind of like, join. I think what they see is the zeitgeist of, you know, I don't like that.

[A]

I don't. I don't like when rich people pretend to be middle class. That's where, if you're rich, just own it. It's fine. I'm rich. I'm doing. I'm. I'm in a better place than I. Than most people are. And I should. You should be like you said, Barry. You should be grateful for that and maybe do something good with that money.

[B]

Yeah.

[C]

I'll tell you a really surprising realization I came to. I grew up pretty lower middle class, hardscrabble. We always ate. We never had. It was not like there Wasn't enough food, but we weren't remotely wealthy, and that upbringing really has led me to appreciate having a little bit of scratch. Like, I think if you're born into money and grow up with money, it doesn't mean anything if you make more or a lot more. But starting out kind of tight and working my way through college and grad school, always working, always watching cash, always feeling a little broke, suddenly, oh, there's some money. Life is short. Go have fun with it.

[A]

Yeah. No easy answers, unfortunately.

[B]

Yeah.

[A]

All right.

[B]

Foreshadowing for a waiter question this episode.

[A]

Yep.

[B]

Okay, up next, we got an anonymous question. So you know it's going to be good. My wife and I are in our early 30s and have been married for about a year. We're new to investing and feel behind, but we don't know how to begin allocating our $100,000 cash savings. The eventual goal is a house, but we miss the optimal buying window and are comfortable waiting another year or two while continuing to grow our savings. Should we invest all at once or dollar cost average? If so, how much? We never had enough financial literacy to know these things, and I wish we had. But we're here now and all of the real podcasts are helping keep up the great work. Thank you. We'll always leave a compliment in there.

[A]

Okay, great question. So this, this seems like it's a dollar cost averaging question, lump sum that we've gotten a million times before, but really this is like a time horizon question. So they are trying to figure out if they want to buy a house now. They say it could just, ah, we're going to put it off for a couple years. I think that that changes the risk profile here a lot. Right. In terms of what they can and can't do with the money. So this is not about dollar cost averaging. It's like, are you still thinking about using this for a down payment in a year or two? You probably can't take a whole lot of risk, right? What if you find a home in the meantime and you need the money and you put that money at risk and it goes down like, that's a. That's so you can still earn 3 to 5% in T bills. High yield savings account money market slash, intermediate term bonds. Right. Something in that 3 to 5% range. You're actually earning money on fixed income now where you don't have to take a ton of risk. So anytime we get into like the down payment question and the time horizon is less than three to five years, like, I don't think you can take a lot of risk with that money.

[C]

Three to five years, like a year or two. I, I totally agree.

[A]

Yeah, no, I'm saying three to five years. Yeah, you can take some more risk and me have maybe more diversified portfolio, but Right. One to two years. I don't want to get to a situation where oh gosh, we found our dream house but that 100 grand turned into 80 now, now what do I do?

[B]

I mean Micron was like 250, what, six months ago? Ben.

[A]

Right.

[C]

You know, so, so my canopy account is, I'm a New York state resident, so that's a high tax state. My municipal bond portfolio is throwing off 3.6% tax free. So if you're looking out a year and you're in any state that has reasonable, I mean it's mostly Federal is the 37% advantage. But even New York is 9% or California is 12% or whatever. A muni portfolio is the short term solution. But if you're three to five years VTI or Vanguard Total Market or something broad that isn't going to shoot the lights out. And the only way it really gets killed is if there's a market crash. And if there's that sort of market crash, well, good news, home prices are going to be cheaper if you're out buying, so there's a little bit of an offset with that. And if there's a market crash, you can assume rates are going to be

[A]

cheaper or you split the difference and you could do a 60, 40 portfolio of 50, 50 or something like that. And yeah, and if they talk about how they didn't have enough financial literacy, the psychology is probably the biggest thing here. If you're going to put money into the market, you probably want a dollar cost average and not put yourself at risk of one big lump sum and that going down.

[C]

So Nick did a piece, Nick Maggi in our office did a piece a couple of years ago that said are you better off lump sum investing or dollar cost averaging? And two out of three time periods, weeks, months, years, the lump sum generates a better return.

[A]

Yeah, most of the time the stock market goes up.

[C]

Right. Three out of four years, the stock market goes out two out of three times. A lump sum will outperform dollar cost averaging. The psychological reason people want a dollar cost average is they don't want to go all in. And then the market pulls back and it's like, oh look what happened. I finally put the money into work and now the market's down 15%. So it's ego and psychology, not math.

[A]

Right? Yes, as always. But yeah, I think long and hard about the time horizon. That's a big thing. All right, let's do it.

[B]

About the pain of seeing that 100 grand turn in like 80 grand right off the bat or something.

[A]

Exactly.

[C]

That's the Murphy psychology. Right?

[A]

That's what people think.

[C]

But by the way, if they weren't saving for a house, if they were saving for retirement. You mentioned time horizon. Someone who's early 30s today is probably going to live to 100. So you have.

[A]

At that point you might want to rip the band aid off. Right.

[C]

You have a 50 year time horizon. Just put the money to work and if you're unhappy for your 50 years from now, find me and I'll apologize.

[A]

Someone in the chat said just lump it in. Don't lose the password. Yeah, just don't. If the time horizon is that long.

[B]

Yeah, that is good advice. If you do want some, you probably should not look.

[A]

Yes, yes. All right, let's do another question that made Duncan really angry.

[B]

Okay. Not angry, but yeah. Okay, up next we got. I'm gonna keep this one anonymous even though their name is right here. My wife and I got married last year and my father gifted us 5,000 shares of intel on a very low cost basis in the single digits. We make good money and don't need to sell, but after the stock's recent run, it's become a significant portion of our net worth and we want to sell. Should we target selling a few hundred shares for every 10 to $25 rise or every month over a few years? Should we take capital gains into account because of the low cost basis? We know no one knows the future. And it could be the next Nvidia or could revert to the intel of recent years. Probably something in the middle. We just don't want to miss an opportunity to secure our future while we're still in our late 30s and before we have kids.

[A]

Okay, throw the chart up here. So intel, right now, this was as of yesterday. As of today, I think it's 111.

[C]

Yeah.

[A]

So 100 today we're talking 5,000 shares. That's over half a million dollars. And this is one of the craziest charts I've ever seen. So this stock was in a 70% drawdown.

[B]

How much of this is because the Trump administration took a position?

[A]

Well, it's also. What? That's part of it.

[C]

It's AI More than anything.

[B]

Yeah, it's AI but that happened right before this boom.

[A]

Right yeah, so that's part of it. But yes, it's up almost 500% since last August. Not even a year. It's up 500%. This year alone, it's up 200%. Just an insane run. Again, it was, it was in a 74% drawdown before this run. So trying to figure out what to do. Listen, this is found money. I know it would be painful to pay the taxes and miss out on some, on some further gains, but you've seen that this stock can fall a lot. I guess you have to ask yourself, like, what do you care about more? The taxes you're paying on it or the, the opportunity costs of if it keeps rising or the diversification? I just look at this as, this is money that we didn't have before. This is found money. And whatever you're paying taxes on it, you already won. You won the game by getting a more than half a million dollars for your wedding present. Rip the band aid off. Don't think twice. Get out of this.

[C]

The framework I always like to share with people about this is the regret minimization framework. You're not running a hedge fund. Your job isn't to generate alpha. It's not to outperform the market. Your job is to not be miserable with your decision in the future. So ask yourself two questions. And by the way, it's the same answer every time. If you don't sell anything and it collapses back to where it was last year, how do you feel? If you do sell everything and it goes up another 500%, how do you feel? Right. Whichever one of those is the worst outcome because they're both probably equal possibilities. This can drop 80% just as easily as it could go up 4%.

[A]

The Grand Rapids hedge would be sell half now.

[C]

Exactly.

[A]

Let the other half. Right.

[B]

That's what I would.

[A]

That's the hedge.

[C]

That's the same answer I come to every time we have one of these questions. If you really paralyzed. Well, I guess you could put a collar on it and you could sell a little bit every month and try and work your way out. And if the collar gets exercised suddenly you owe a ton of capital gains or. And by the way, they. We don't know about the rest of their portfolio, which makes a big difference. There are so many different ways to manage capital gains. I mentioned Canopy, which is a direct index for bonds. We use Canvas, which is another tool for reducing capital gains. It's direct indexing of equities. You can do long, short. There's so many ways to Manage around that. You can swap these shares into a 5, 529 exchange. I always get the numbers wrong. My brain doesn't work.

[A]

3,51.

[C]

351. Thank you. What is 529? I'm in my head.

[A]

College.

[C]

Oh, that's right. We were just talking about college.

[A]

Duncan's got like a. Duncan's got a little chart in the background that has all the numbers and.

[B]

Oh yeah, I got a cheat sheet.

[A]

Yeah, with the. The half. But selling some is saying, hey, I just sold intel after it went up 500 in nine months. I don't know if that you're going to regret that even if it keeps going up.

[B]

Well, because they're also. The question isn't like, should we stay in intel or go to cash. They can reinvest this money.

[A]

It can just be diversified immediately.

[B]

Yeah. So yeah, yeah, that would be hard to not sell at least some after this.

[A]

I mean, I got. I got. I got a ladle and a set of plates for my wedding. I didn't get 5,000 shares of Intel.

[C]

You know, you sell half, you pay 50 grand in capital gains tax. You roll 200,000 into a broad index and for the rest of your life that'll do just fine.

[A]

Or I'm going to give. I'm going to give all my kids a target date fund when they get married.

[B]

That's going to think of the premium generated from selling. Selling calls on this.

[C]

I hate the call selling process for two reasons. First, if it collapses back to where it was a year ago, the calls will not offset that true $100 drop. And second, if it runs up, it gets called away o taxes anyway. And you left a ton of money to me. That's a lose lose.

[B]

I always hate on me talking about

[C]

selling calls because they suck. Listen, I started on a trading desk. Old option traders never die.

[A]

It sounds like free money. That's the problem. It sounds like free money.

[C]

Old option traders never die. They just expire. Worthless. That's the problem with writing quotes.

[A]

That's pretty good. All right, we got one more question.

[B]

One other thing I was gonna say, do you think the dad has like, called him up and been like, hey, maybe give me.

[A]

Yeah, I wonder what. That's the question. Do you think? No. Do you think? Yeah. Yeah, right.

[C]

No, the dad's gonna call up and say, hey, I saw the guys on Ask the Compound talking about a situation where. Very similar to yours.

[A]

Yeah. What would have been worse though, if the dad gave him like a stock that crashed. What if the dad gave him Oatley shares three years ago and it was down 90%.

[B]

Why is it we catching strays here? Come on.

[A]

Sorry. All right, next question.

[B]

Okay, up next, we got one from Mark. I just started working for a publicly traded company that offers an employee stock purchase plan with a 15% discount up to $25,000 a year. I love the feeling of investing in my company, but I'm nervous about having too much exposure to a single company. What's the best way to approach this, given my situation?

[A]

All right, we got something similar before. The rule typically is, especially with a company matching a 401k, you always take the free money. So I would have a hard time turning down a 15% discount. The question is what percent of your portfolio are comfortable with because your livelihood is already tied up at the company. And then how long do you have to wait before you can sell your shares? Some places will lock you up a little bit. Some places will let you sell immediately. So you could get these shares at the 15% discount. Sell. Have to pay taxes, of course. But I think that's the question is like, what's your threshold? Is it 5% in the company? 10%.

[B]

Just to be clear, this is a discount off the share price. They get it 15% cheaper than the current share price.

[A]

A lot of, A lot of publicly, big publicly traded companies allow this. And it's. I mean, it sounds like a great deal. It's a great way to incentivize employees to own their own company stock. Right. But a lot of people just get the shares and then sell them. You have the tax liability, but you also get that discount locked in. Barry, do you have a threshold on these kind of things where, like, I would never put more than 10% of your money into the individual stock?

[C]

10% only in the most extreme examples. You know, my frame of reference is not just people I know who worked at Yahoo and Intel and Cisco. So it took Intel 27 years to get back to breakeven from its dot com high. It took Cisco 25 years. But that's before we start talking about not just the Lehman brothers and the AIGs, the GFC disasters, but look at General Electric or IBM or Sears or Gee, any big retailer you could go through. I love showing the table of the changes in the Dow over decades. Most of these companies don't last 50 to 100 years. And if, if they're relatively young and they're getting this sort of discount, well, are you going to hold this for 20, 30, 40 years? The odds are that this company is going to have its moment and then the cycle changes and we're on to the next thing. If I would have told you a few years ago, by the way, software going to get its ass handed to it, you would laugh at me, right? It doesn't matter what the sector is right now.

[A]

Those people are sitting on huge losses in stocks and the potential to have their job disrupted.

[C]

That's right. So they could lose both ways. They could lose their income and they could lose their gains. So 5%. And unless you are confident, really, really confident that you are at the next fill in the blank. Apple, Nvidia, Microsoft, UnitedHealth. Go, go down Eli Lilly. Hey, if you're at Eli Lilly and you're confident that this has a good decade to go, all right, you could go 5 to 10%. Other than companies like that, and I'm not saying you should do that. You have to be super confident. I don't know if Eli Lilly is going to be a winner or a loser.

[A]

I'm maybe who in the people in those companies could often be overconfident too, like thinking they know more than the rest of us, you know, so that's the hard so. Yeah. So if you set a threshold, let's say it's 5% every time you get up there, you sell back down to five, right?

[C]

Or you could just, if you want to, just 5% of your annual investment dollars go into your company with this match and you let it run. But before, you know, again, I started on a desk. And the rule was always anytime you get into a situation, before you kick the door down and bust into the room, you need to know where the exits are. My head trader was a marine jungle combat instructor and I sat between him and a Navy seal. And they always used to tell me stories. Know what your entry is, know your exit is. Know what your plan B and plan C is. So, all right, now, everything feels good. The company is doing well, you're getting paid. What happens if the company misses a quarter? The CEO steps down, there's a scandal. What is your plan? To head for the exits when things get really ugly. Now, when you're objective and calm and rational, make that plan. Read the card on the seat back of the plane when you're on the ground and everything is chill. If you pick that up after an engine falls and a wing is on fire, probably too late.

[A]

All right, that's it for questions today. Remember, askthecompoundshowmail.com Barry has a new book out on paperback. Okay. Yeah, it was hardcover so you at. Hardcover is like the mutual fund. Paperback is like the etf, Right.

[C]

I. You know, I learned some crazy stuff about book publishing going through this. Do you know most of the rest of the world doesn't really do hardcovers? When the hardcover publishes in the Spanish transition, a German trans translation. Korea, Japan and one or two other countries, they come out in the same color as the paperback at the same time.

[A]

So interesting.

[C]

40% of the sales were hardcover. The next 40% are a combination about equal of ebook and audiobook. So like Kindle and auto.

[A]

I saw you said you did your own audiobook this time too, just like me. It was quite an experience.

[C]

I blew my mind that. First of all, I didn't know you're not supposed to have coffee with milk in it because it's. It makes those noises. You're in this. You did it right. So you're in this tiny booth. You move and your clothes make noise just like you're. They pick the mic.

[A]

You gotta be careful.

[C]

My stomach would growl, the mic would pick it up. And as a New Yorker, it is my natural tendency to speak fast like this, to talk like this and to speak to the back of the room. And like the director was take a beat, slide.

[B]

Slow down.

[A]

Yeah. You have to find a cadence. It's right. It's talk.

[C]

Talk it a little more. Remember, people are going to be. They can adjust it faster or slower, but you want to give them like a good medium point.

[A]

So I went through and redid the first three chapters of my book. I read the whole thing and I finally, the second day, I got into a really good pattern and they said, let's start again and do the first three because now you found it. It's perfect now.

[C]

I asked them to do that and they were like, no, we're good. Let's just keep going. Like by the third. Third session, I'm like, all right, I kind of got this. Let's start over. They're like, no, no, we've put.

[A]

All right, so your paperback is out today.

[C]

Out now? Yeah, yesterday actually. Yep, just came out yesterday.

[B]

John, throw that back up. That's a sharp looking cover, the black one.

[A]

Yeah, I like the COVID That does look good.

[C]

Yeah. It's the same colors as the paperback. We just swapped the blue for the black and the black for the blue.

[A]

Sweet. Check out Barry's book on paperback and tune in next week. We're gonna have a little giveaway for my book we'll be talking about.

[B]

I like that.

[A]

All right, thanks everyone. See you next week.

[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

[C]

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.