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- [00:00]
A
Welcome. This is Ask the Compound, the show where you ask the questions, we provide the answers. I'm your host Ben Carlson. The stock market has boomed in the 2000s. We're up nearly 14% per year. Is it time to rein in your expectations? What kind of returns do you expect going forward? I will answer these questions and more. Stick around. Our email here is askthecompoundowmail.com we love all your questions, especially from the live YouTube and Twitter streams. Hit us up. We'll pull those questions live on the spot. On today's show. What is a day in the life like at work for Ben Carlson? I don't know why someone wants to know this, but we'll answer. What does the Jack Bogle expect return for me look like these days? How to talk to your doomer friends about the markets. What's the best hedge against a falling US dollar? Is it possible to save too much money? Especially this group? I feel like a lot of people who ask questions on this show probably could use some advice there. And what's the max allocation you could go to in a single security? Duncan, what's your allocation to Oatly? Probably 50%.
- [01:03]
B
No, like 14. 15.
- [01:05]
A
Okay. All right. That's in the range. Today's show is sponsored by Rocket Money. Rocket Money is a personal finance app that helps you find and cancel unwanted subscriptions, monitors your spending and helps you lower your bills so you can grow your savings. On today's show, we're talking about expected returns in the stock market. Like the past is nice, but all people care about is the future. I think it's the same thing with your finances. One of the coolest features of Rocket Money is they let you know about your upcoming recurring charges over the next 10 days. So I checked out mine today. SEP IRA contribution. Coming up, utility bills, streaming services. I have a lot of those. Charitable giving, some sports stuff for the kids. It's just nice for planning purposes. So you see all your subscriptions in one place. You know exactly where your money's going. And for the ones you don't want anymore, Rocket Money can help you cancel them. Get alerts of your increase in bills. There's unusual spending activity. You're close to going over budget. All those things. Rocket Money will ping you. Cancel those unwanted subscriptions and reach your financial goals faster with Rocket Money. Download the Rocket Money app. Enter my show name. Ask the compound in the survey so they know that I sent you. Don't wait. Download that Rocket Money app today. Tell them you heard it from my show. All right, quick announcement.
- [02:09]
B
That's a lie. I can help you one day on this, you know.
- [02:13]
A
What do you mean?
- [02:14]
B
You don't have to read all of it. It's a lot. Oh, you know.
- [02:17]
A
No, Duncan, I come prepared. I read many books. Quick announcement. Before we get to the show, we have new merch at I don't shop.com. we have some sweet compound towels. Whose dog is that? Did someone, like, push their own dog in there for that shot? It should have been my dog.
- [02:36]
B
Wait, you don't recognize the illusion there?
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A
What's the illusion?
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B
Playing off the Coppertone logo.
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A
Ah, okay, that makes sense. Yeah. Yeah, that's sunscreen. Smells good.
- [02:46]
B
We made it. Compound.
- [02:48]
A
I love the markets and turmoil. T shirts, good animal spirits. One. Um, the compound hoodie makes me feel like I'm young again sometimes when I wear it, so tons of good stuff there. Check it out, Duncan. New hats coming, hopefully.
- [03:01]
B
Yeah, I think we're out of stock right now, but. But, yeah, more of these. And the T Kap one should be in stock soon, so we're working. And for those of you in the past that ordered merch and you weren't that pleased with it, we used to use one of those, like, direct to consumer places that just printed on. Or print on demand. That's what it's called. And they're only ever so good because, you know, they're just printing one at a time. We're now using a company that does merch for, like, bands and touring artists. And so we're using a really high quality place doing nice screen prints. So the benefit is that we have really high quality, beautiful looking stuff. Now the bad thing is that we just do, like, orders at a time, and so you might sometimes see things out of stock.
- [03:43]
A
It's like, on demand, right?
- [03:44]
B
Yeah, on now it's not on demand, but yeah.
- [03:47]
A
All right, all right, bring it. First question.
- [03:49]
B
All right, up first, we got one from Jay. What's the typical workday for Ben look like? How much time do you spend on podcasting, blogging, versus what the day job is at real? Does it impact family time, or are you able to manage it all within your normal workday?
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A
I don't know. I'm like, throwing keyboards, breaking screens, placing trades. No, this feels like a trap, actually, because. Is this like the Elon Musk thing at Doge where, like, every Friday you have to do five things you did that week?
- [04:18]
B
Well, Callie made the joke. Viva. Sounds like our president, Jay, you know, reaching out, asking you what you.
- [04:23]
A
Oh, Jay Tenney's Asking. Okay, no, I do get a lot of questions like this. So, like, how do you have so much time to produce content when you also have a day job? And part of it is that producing content is part of my day job. Right. It's part of what we do here. I never really expected that when I got into this industry, but it's how we communicate with clients and how we communicate with prospects and people we're going to hire in the future. And so I say, in a typical week, I do two to four podcasts. I write for my blog, I regularly talk to reporters about the markets. Content takes up a lot of my time. Michael and I fill a Google Doc each week for Animal Spirits with charts and data and news and that runs like 30 to 40 pages usually. I spend a decent amount of time prepping for this show each week. Right. That takes time. I have gotten way faster at writing, but all the research that goes into that takes time. But we still have to run the firm. And for me that includes things like talking to clients with advisors, talking to our advisors if they have questions, talking to money managers and fund firms and tech providers, being on investment committee meetings. We got an investment committee meeting this afternoon, creating presentations with our research team, thinking about things like our portfolio locations for clients and determining how to make them better. And I think one of the reasons that we're able to pull this off so people like me and Josh and Michael can produce so much content is that we have a ton of great people to work with. So, Duncan, you and the production team helping the backend, we just show up, we prepare for the show, we show up and then you guys take it from there, make it look and sound good.
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B
I didn't know this was going to turn into a compliment. I love that.
- [05:51]
A
Yeah, sure. For Ritholts wealth, we have dozens of client facing advisors that are handling the day to day business of managing people's finances and their financial plans and their families. And we have an operations team, we have a team of traders, we have client service people, we have a tax team, an insurance team, estate planning specialists, compliance, all that stuff. So all of our colleagues do their jobs so well that it allows us to keep producing content, which is our way of sales and marketing at the firm. Even though it doesn't feel like I'm in sales and marketing, as far as the family time goes, that's very important to me. I'm not going to miss out on stuff because my kids are still young. My oldest is 11, my twins are 8. I think it Helps that I work remotely in an office by myself. I have to travel once a month or so, which is not too bad. But I'm usually in an office space by myself where no one can bother me. So that makes my work life very efficient. Even if it sounds like a lonely existence to some people. As an introvert, I'm fine with it. Plus there's plenty of other ways to communicate with people. I see people. I communicate with people on the Internet all day. That's plenty.
- [06:50]
B
I'm with you. I get so much more done when I'm at home.
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A
Yeah, no one can pop in and bother you. You can ignore people if you want. It's great. And I don't think our jobs are 9 to 5 either. You, I know, are doing stuff at all different hours of the day. Sometimes that's aftermarket hours. So we're flexible. And I don't think we have people looking over our shoulders micromanaging us. And it's kind of like you get the work done when you get it done and we have something. You're probably more schedule oriented than I am, but I'm also a night owl, so the rest of my family goes to bed relatively early. I get a lot of writing done after everyone's in bed. I put a movie on or a TV show and I get some writing done, answer emails. I try to write something every day, even if it's bad and I don't use it. Also, my wife gets car sick, so when we're driving somewhere, she has to drive and I'll bring my 5G hotspot, my laptop and I'll do stuff in the car. Right. So I don't have a ton of hobbies outside of markets besides like working out and reading and TV and my kids. No golf or fantasy football softball leagues. I feel like the markets are kind of my fantasy football, so I don't really need it.
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B
Right. And you do all this without coffee? That's the most stunning part.
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A
That's true. I don't sleep a lot either. And so in some ways it sounds like I never turn it off, but that's definitely not true. I go to all my kids games and there are many of them when I can. Summers on a lake, we're out and about on the water and riding bikes and there's no screens in sight. So I would say I have a pretty decent balance between work and family life. With a caveat that no one has a perfect work life balance. I think it's impossible because sometimes I feel like I'm working too much. Sometimes I feel like I should be doing more work. Sometimes I feel like I should be relaxing more. So I think having that back and forth is pretty good. But I love the fact that we get to create content because it introduces for me creativity and learning, which I think just keeps things interesting.
- [08:39]
B
Yeah. It's also a direct connection to the audience who really have become friends over the years. So it's kind of like you're making stuff for your friends every week.
- [08:50]
A
Yes. And hearing all the feedback and stuff and we get again the great questions from people just spurs on more thought. Like, oh, I never thought of that. Why don't we look into this? Which is a cool part about doing this show. All right, let's do another one.
- [09:01]
B
Up next, we got a question from Owen. I was reading your post, 3% market returns for the next decade, and it got me thinking about something you wrote about a few years ago, the John Bogle expected return formula. I don't remember how you were able to get the numbers to calculate the formula, but I'd love to see an update about what the formula says today. I've never heard of this.
- [09:22]
A
So that 3% return, when that was, Goldman said there's a possibility we're going to get 3% returns over the next decade or whatever. And the John Bogle expect return formula, I think I've updated these numbers a handful of times, but I came across it on his book, Don't Count on it, which, yeah, he's actually a really good author. His stuff was good. So Bogle looked back at the history of stock market performance going all the way back to 1900, and he broke down the returns into various components and he said it boils down to three things. Dividend yield, earnings growth, and then the speculative return. So Daniel threw a chart on here. This is from the book. So again, he broke it down by decade and he looked at again the dividend yield, the earnings growth, and then the speculative return is just the implied change in valuations. If it's over or above whatever dividends and earnings growth did, then that means valuations went up. If it's below there, it means valuations went down. And he breaks down over the very long term. You can see earnings growth and dividend yield were close to 9%. So that speculative change really wasn't all that much over the very long term. That's 110 years of data. Now, Bogle also said in the book, okay, so this is what happened in the past. Why don't we take the current dividend Yield, apply a, you know, a prospective earnings growth, and then maybe figure out what the valuation change will be and I can get respected returns. So let's look at that next one. Daniel, the this is also from the book. He looked at the past 100 years, 25 years, and then what's the next 10 years? And he said, well, dividend yields currently 2%. Let's assume 6% earnings growth, which is right around average since it's been higher than it was in the past. And then he actually thought, well, valuations are too high. We're going to see a downtrend in that. So he said, it'll get us to 7% per year. Now, this book was published in 2011, okay, and now I'm like Tony Soprano here. Jack Bogle is a saint in this house, right? He's done more to help anyone on the planet of investing than anyone in history. Right? You can't touch him. But not always right about everything. The actual return for the next 10 years after the publication of this book was over 16% per year. So where did his assumptions go wrong? Daniel, chart on for the next one. I broke this down. I took Bogle's data, I put it into this table, then I updated it for the 2010s and the 2020s. And you can see in the 2010s, earnings growth was. His dividend yield was right, the starting dividend yield, it's hard to change that much. Earnings growth was way higher than he assumed. And then also you had the PE change was a little higher than he assumed. So it's kind of funny. The 2010s, you had 13.6% annual returns, the same thing we're getting in the 2020s as we've gotten the 2010s, which is kind of crazy. So he was wrong on the earnings growth. He was writing the dividend yield, obviously, that's an easy one. And then valuations have continued to trend higher as people have been okay, accepting more risk. So let's do a quick recap here. John Bogle, a saint, right? Book is worth a read. Valuations have been rising, but so have fundamentals. Predicting future returns is very hard. So if we're trying to predict future returns, I can take the starting dividend yield again today. It's probably closer, like 1.6, 1.7%. I can slap on an earnings growth, let's say it's even higher than average, like it's been. So let's say it's 8 or 9%. So that gives you, you know, we're talking 8 or 9% returns if we get those earnings growth. The hard part is valuations you cannot forecast because valuations are essentially, how do investors feel about the stock market? Because there were some times when earnings growth did really well, like in the 70s, but valuations got crushed because of inflation and all these other things. And so if you're trying to predict returns, that's what you're. That's the key missing piece is how are investors going to feel about the market? I don't know. Because I don't know how investors are going to feel about the market tomorrow, let alone in 10 years from now.
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B
Yeah. Imagine people forecasting the PE of Nvidia before AI, right?
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A
Yes. That's the thing. Things change so much and there was so many people. Bogle wasn't alone in predicting we're going to have below average returns coming out of the 2010s. A lot of people said that and all of them are wrong. No one predicted that we would have high double digit returns like that. No one.
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B
So are you a Bogle head though? Would you call yourself?
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A
Of course. Of course I am. Yes. I ride and die with Vanguard. Of course. Let's do another one.
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B
All right, up next, we got one from Anthony. Ben has been writing and talking a lot lately about the increased risk appetite for young investors. My friend is the complete opposite of this mindset. He was making the case that the US Economy is headed for a calamity similar to Japan's lost decades, pointing to the vertical rise in equities and government debt as evidence. I'm not sure if this is just his personality or the result of bad advice, but how do you get someone out of that mindset?
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A
All right, I think everyone has a friend like this. Just like. You know, it's funny, we were talking about Wes Anderson movies before we got on here. Someone in the chat actually says that they had a power outage, went to see a Wes Anderson movie. So every friend has a. Everyone has a friend who really likes Wes Anderson movies and they're wrong. It's okay.
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B
Okay.
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A
I'm kidding.
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B
We're gonna fight.
- [14:13]
A
All right, so this is a question that has both macro and psychological variables. So let's bring on someone who thinks through both of these factors. Hey, Kelly Cox.
- [14:22]
C
Hey, guys.
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A
Kelly, Strategist. Oh, she's got her. It is Fed Day.
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C
Fed Day. I promise I don't wear the same shirt every day. It's just, you guys have me on Fed Day. That's it.
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A
Kelly celebrates Fed Day more than I Celebrate my birthday.
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C
I think it might be true.
- [14:37]
A
Yeah. So, Kelly, I want to get some of your to the macro stuff here in a minute, but you wrote a piece for your newsletter this week that seems relevant to me called My Money Story. I think everyone should go read it on your, your newsletter. But it was heartfelt and I think it was very important. But I think the thinking here is that these, these ways that people view markets are often shaped by their experiences. Now, I don't know if this person got bad advice or they're, you know, I don't know why they got down this, this sort of doomer mindset, but why don't you give everyone an idea of like, where you're coming from in this one? Because I think it's really important in shaping views like this.
- [15:14]
C
Yeah. And we can talk about the macro stuff, too. The last decade in Japan, the government deficit, I could talk that all day. But I mean, not knowing more than what you said about your friend Anthony, it does feel like this is a question of risk tolerance. And there is so much research out there that shows that your risk tolerance is set even before you know of Japan's lost decade or what the government deficit actually means to you. I mean, in your childhood. And that's what I wrote about in my newsletter. I mean, I had, I don't want to say rough childhood because my childhood was full of love, but I have a lot of early memories of money that probably didn't set up my risk tolerance in the right way. My parents didn't have much to come by, so a lot of the amounts that they would throw by me, we can't afford $20. We can't afford $50. That gets ingrained in your brain pretty quickly. And I'm not sure what age you are, Anthony. I'm not sure what your friend's age is, but there's a lot of research out there showing that millennials actually have a risk averse nature to themselves too. I actually pulled some, I'd say preliminary research. It's not as in depth as these academic papers, but I pulled some research from Fed data on cash as a percent of financial assets for millennials versus their Gen X counterparts. Daniel, if you want to throw up that chart. Yes, that one. And this is a little hard to calculate because we're not working with a lot of data. And you have to remember these generations are really big. But basically what I did is I took the median Millennial and the median Gen X, and I use these household allocation data sets that you can get from the Fed, basically, like what are you holding? What is your neighbor holding? What is the American population holding? And how does it change? And you can see consistently through the 20s for the median Gen X and the median millennial that millennials cash holdings were actually significant higher than Gen X's cash allocations. Which kind of has to do with the financial crisis. Because when the median millennial was born in 1988, when the median millennial was 20, that means that it was 2008. That means you were the thick of the financial crisis. But it shows that the Great Recession instilled some kind of risk averseness in us. And that's not easy to give away. Those are your formative years. So without getting too psychological, too heady, I have to wonder if there is something deeper here and it's not something that you can answer with numbers or stats or talking your friend through how these things work.
- [17:47]
A
Yeah, it's a psychological thing. And that chart is really interesting because obviously this is, goes without saying, but the median Gen X person is older than the median millennial person. It's, it's, it's hard to believe at those ages that people were in millennials are holding that much cash. But you're right, it's. Reading your piece, it made me realize again how scary things were after the financial crisis. And if you didn't live through that, it's hard to explain it to people. So yeah, so I think you hit on the psychological stuff more than the macro. You know, you know, percentage of debt to gdp, whatever, all these things like that we could talk about for an endless amount of time. It's not going to help that person. It's going to be more about understanding the risk. And it's like, okay, let's say you do think these things. You have to invest in something. You can't just bury your money in the backyard. So what are you going to do with these? You know, if that's really how you feel and you think this is going to happen, how are you going to protect yourself or whatever you're going to do? Is it hold more cash or hold more bonds or buy gold or something? I don't know. But obviously, yeah, there's some, I think there's something else going on here, which is why I wanted to talk about your piece.
- [18:46]
C
Yeah, and I think the irony is, is I think the irony, and this is speaking on behalf of myself, but I found comfort, I still find comfort. Going back to the numbers. Right. A lot of advisors, if you sit down with them their first Question is, you know, what are your goals? Like what, what are you trying to do here? Are you trying to retire? That's a pretty common goal. Are you trying to buy a beach house in the future? And how much money does it take to get there? And from there, if you establish your goals, establish your why, you can back into the numbers, and then it becomes a little less heady and a little more logistical. And that can help you kind of adjust your risk tolerance to what you need, because you may not need as much as you think.
- [19:24]
A
Right. Base it more on your circumstances than the market circumstances. Right. I think that makes sense too.
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C
Correct. Yeah. So, yeah. I don't know. The thing I'll say too, about the lost decade and the government deficit, I mean, one thing that's kept me comfort this year is the fact that America has the most innovative companies with the fattest profit margins. That's an undisputable fact. And I don't think that walks back anytime soon. I mean, going back to that Vogel chart, Ben, I mean, earnings growth in the 2010s and the 2020s were so strong because of tech companies. That's what it was. So I think there's always an argument on both sides. And when there's always an argument on both sides, you have to take a step back and understand where the argument fits you.
- [20:10]
A
Which is the next question. Kind of is in a similar vein, but it's a little different.
- [20:13]
B
Well, I was also just going to ask, Ben, I know you've talked a lot about this, but do you think that what happened in Japan, I mean, knock on wood, obviously, but could that even really happen to the same degree today? As fast as markets move, you're always talking about the market just being fundamentally different, moving so much faster, and it just seems like it wouldn't go on for as long today. It would be resolved one way or the other. It would be resolved quicker.
- [20:36]
A
That's possible. And that there was obviously some other circumstances going on in Japan at the time that made it. I've done a lot of research and writing on that, but it's a totally. I don't know, Never say never. But that to me is probably the biggest financial asset bubble in history because it was not just their stock markets. It was a real, like their whole real estate market. Like the Imperial palace in Japan was worse. More, more than the entire real estate market in Canada. Like it was. And they, they, they just, the way that they thought about real estate, they almost felt like it. Like it's the land that matters. Not the building and it, their mindset there was so different than what we have today. That. Yes, it's just there's, there's real stuff going on here. It's hard to see that happening again.
- [21:15]
C
Yeah. And I think, I think people forget too that that lost decade in Japan was a point in time and that, you know, if you invest at the wrong point, if you're the unluckiest investor in the world, I think you call him Bob Ben, then yeah, there's probably a chance you didn't make money over a 10 year period. But if you invested in the middle of the last decade or your dollar cost average. Right, or you dollar cost average like we preach about all the time, that no, that wasn't a lost decade for you.
- [21:41]
A
Right? Good point. All right, let's do another one.
- [21:43]
B
All right, up next, we got one from Harrison. You often hear concerns about the US Dollar potentially losing its status as the world's reserve currency someday. If that happens, what kind of impact would it have on the stock market? And how should individual investors think about positioning their portfolios for something like this? Is it wise to consider hedging against a scenario like that?
- [22:03]
A
Good timing on this question because I just wrote about this on my blog earlier this week. Chart kid Matt made me a great chart. Go to the next chart. Daniel. This is here. Look at the rolling five. Because this is really when it's happened in the past five months, the dollar is down like 11%, which is close to one of the biggest falls that we've seen in the dollar. And it's interesting because if you're just spending in the US you can do a chart off the movements in the dollar don't really impact you that much. Right. If you're buying things at the store, you don't really notice these things. But you're investing, you definitely do. And I think there's a lot of different ways people could play this. Some people are like, well, it's going to lose the global reserve currency, but it's also just cyclical sometimes and the dollar goes down. And maybe this is just positioning and too many people were in the dollar. The trade war stuff happens and people realize, oh, cut, okay, we need to get out of here. And it's just this other side of the cycle. So Kelly, how do you think about hedging the dollar?
- [23:00]
C
Well, I thought this was an interesting question too. And Ben, you crushed it in your post. So definitely read Ben's post if you want to get really nerdy and dirty with the details. But I Think about it in a few different ways. Number one, I don't think the dollar loses its reserve status anytime soon. 88% of currency trades still happen in the dollar. That hasn't changed that much over the past few months. If anything, there's probably a little bit of erosion. And right now that's just a guess because it's called treasury tick data. It's treasury, it's like investment holder data that comes out of Treasury. That data isn't available for April yet, so nobody could tell you outside of maybe guesses or small sample sets what exactly is going on.
- [23:40]
A
Oh, if there was a downtick in April. Yeah, yeah.
- [23:42]
C
You couldn't see it. You can't see it in the official data yet. But I think based on context clues here and there, there might be like a little erosion. And I would worry a little bit about that. But even if there was a little erosion, I don't think the dollar loses that status anytime soon.
- [23:56]
A
Yeah, there's a big margin of safety there, right?
- [23:59]
C
There's a huge margin of safety. 88% of currency trades are in dollars. But you know, the dollar has had a rough year. Its worst year year to date, since 1985, I believe. I pulled this last night. So you can't look away from the dollar. It's had a terrible, terrible year. But I think about it, Ben, and I almost think about it in the context of US versus international stocks or the US versus the rest of the world, because when you see the dollar falling, the way you need to think about it is that capital is leaving the US for other countries, other regions. It's not just leaving, it's going somewhere. Money doesn't.
- [24:38]
A
One of the reasons the dollar has been so strong is because capital's been pouring in here for the past 10 or 12 years.
- [24:44]
C
Yeah. And I love that you brought up the positioning because the dollar did really well toward the end of last year. So I bet if you looked at the dollar on like a rolling 12 month basis or so, it's probably maybe a little down. But yeah, there's a matter of time frames here.
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A
So you have a good chart here that shows how stocks perform when the dollar is rising or falling. Let's do it, Daniel.
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C
Yeah. And this is where my mind went to. Yeah. Thanks, Daniel. Yeah. So if you go back to, I believe it was 1988, that's as far back as my data goes. But I looked at this on a monthly basis and I just said if the US Dollar fell on the month, what part of the world did better? Was it US Stocks or was it literally the rest of the world, emerging and developed stocks? And I mean, sure enough, when the US Dollar was down in a month, the rest of the world outperformed the US market 62% of the time. And, and the flip side was even more True. When the US dollar was up, US stocks outperformed the rest of the world 69% of the time. And that kind of goes back to that capital flow theory that we were talking about earlier. When you see the dollar coming down, try not to go down the rabbit hole of what this could mean for the reserve currency. Just think that money is moving from here to there. And if you get into the hedging question, well, you can own both here and there. So the best way to hedge it, if you believe money doesn't evaporate, is to own both.
- [26:07]
A
Yeah, it's currency diversification. Daniel, throw the next chart. This is just performance. This year, Europe is up 22%. Developed stocks internationally, emerging markets are all crushing the United States. And some of that tailwind is from the dollar falling. So, yeah, this is one of the unsung things about international diversification. The benefits is that you diversify in the currency. Now, in the past 10 to 12, 15 years, that's worked against you. Now it's working for you. And I think you can say, like, if you're really that worried about the dollar, this is a pretty decent way to play it. You own international stocks that are in other currencies.
- [26:45]
C
Yeah, And I think the historical data backs that up pretty well. I mean, the other thing I'll say is that US Companies are extremely multinational, especially as you look bigger and bigger. I think the stat is 40% of S& P revenue comes from overseas customers, which is kind of bonkers like that. If I hadn't run the data, I would have guessed a little bit less than that. But, you know, you are, even if you're not explicitly invested in international stocks, you are invested internationally in a way. This is just a matter of getting a more pure exposure to other regions and being a little more intentional about it.
- [27:17]
A
Right.
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B
I'm, I'm far from an economist, but is it fair to say now that it's like a left, right thing, that. That the right wants a weak dollar and the left wants. Wants a stronger dollar? That's my perception of just like watching the news, or is it not that simple?
- [27:32]
C
Oh, my gosh. I don't know.
- [27:34]
A
I don't know if many people have a strong opinion on currencies, actually.
- [27:38]
B
Well, I just mean, yeah, our leaders, more or less.
- [27:42]
A
Yeah.
- [27:43]
C
I don't think they know what they want.
- [27:44]
A
No, I think so, too. I think it kind of changes depending on which way the wind is blowing. Yes. I don't know if people have a strong. Because again, there's. There's pros and cons for each a rising dollar and a falling dollar. So it's not like one thing is better or worse than the other, because there's also a lot of multinational firms in other countries.
- [28:03]
B
It just always feels weird to me to, like, root for a weak dollar, though. You know, when I hear people talking.
- [28:08]
A
About it, it does seem weird. But, like, if you look at it, if you look at the past, like, 50 or 60 years, the dollar has essentially gone up and down and up and down, but at the end of the day, it's gone almost nowhere. Right. Over the very long term. So there's all these different cycles within that, but it really hasn't gone anywhere. So it's not like the stock market, where it's always going up, even though it has setbacks along the way. It kind of, you know, evens out the wiggles. Even out after a while.
- [28:32]
B
Stronger dollar is good for European vacations, though, right? So we want a stronger dollar if we travel.
- [28:38]
A
Yes. That weaker dollar has hurt your European vacations this year.
- [28:40]
B
Okay.
- [28:41]
C
Yeah, yeah. And one thing about the weaker dollar, too. Obviously, we've all heard the comments about aiming for a weaker dollar from the administration, but I think people forget what you have to give up to get there. You have to give up a lot of US Investment and foreign investment has been a surprising Turbocharger for that 9%, 10% earnings growth we've seen since the 2010s. So it's not that easy. You don't just snap your fingers, devalue the dollar, then everything's fine.
- [29:09]
A
Yeah, it's give and take. All right, let's do another one.
- [29:12]
B
Up next, we got one from Twitter. Is it possible to have a savings rate that's too high, where you're so focused on planning for a comfortable future that you miss out on enjoying life now?
- [29:22]
A
All right, I've got a comic that I think explains this. Well. I've been using this one for years. And, Dan, I'll throw this up here. All right, the guy says, explain to me why enjoying life when I retire is more important than enjoying life now. Perfectly. Reason. I think that explains it pretty well. And working in wealth management, I think this is absolutely a problem for some people. Saving too much money. Is it a good problem to have. Definitely a lot of people would love to have that problem. But is it still a problem? Yes. I think some people place far too much emphasis on saving, being frugal, planning for the future than enjoying the present to their own detriment. And sometimes it's hard for them to turn around, flip that switch, and then go enjoy the money even after they've built it up. So I, I do think that you need to figure out some sort of balance and getting back to the, the work life balance that I talked about in the first question. I don't know that you can figure out like a perfect way to do this because every time you spend a lot of money, you're going to go to yourself, geez, compounded over 30 years. Can you imagine what this would be worth? And then every time you're saving money, you go, geez, I just saved enough money in my IRA this year to take the whole family on a trip to Hawaii or whatever it is. Right. Like, you can, you can play that game all you want. So I just think you have to be very intentional with your, the dollars you save and the dollars that you spend.
- [30:39]
C
Yeah, I agree. I, it's a good problem to have, obviously. Like, I don't think you can dispute that, but it's still a problem. And I, my mind just goes back to goals here. It's, you know, do you, this goal that you have in mind, are you reaching that goal? Are you crushing that goal? Can you back off of it a little bit? It's finding that perfect balance, right. What you're alluding to, you know, been. And I don't think anybody finds that balance, but I think eventually we find the guard rails where, you know, what's comfortable for yourself and you know, if you haven't taken a vacation in a year and you're the type of person who gets energy and loves getting out and exploring, then yeah, you should probably double check why you're doing that and if it fits your lifestyle.
- [31:19]
A
Right. And the hard part is like, no one ever knows if they're saving exactly enough for the future because there's a lot of unknowns about rates and inflation and what returns are going to be. In the stock market, as I mentioned earlier, we don't know what they're going to be, so it's hard to plan and people are living longer than ever and, and you worry about healthcare costs and all these things that get you all worked up and you, that that's how it happens. And so, yeah, I, I just, I think again, you have to be intentional. I think sometimes for people that are spreadsheet warriors, that means like actually budgeting for this stuff. Like. Right. Save for a vacation fund that you know is spent just for that stuff. Give yourself like guilt free spending areas where you're going to spend money regardless and you don't have to worry about it and sort of define those ahead of time rather than trying to figure out after the fact.
- [32:08]
C
Yeah.
- [32:09]
A
Like Duncan. Duncan's Duncan. Guilt free hat spending. Anytime he sees a hat he likes, he buys it.
- [32:14]
B
That's true.
- [32:15]
C
Yeah.
- [32:16]
A
Right.
- [32:17]
C
With Oatley spending.
- [32:18]
A
Callie with Fred Gear. Right, right.
- [32:23]
C
You really tapped a nerve with that one. Yeah.
- [32:25]
B
I think a lot of people do make this binary when it's not, which is what you've made clear. It's not. People think of it as, oh, would I rather be worried about money in my golden years or not? It's like, well, that's not. That's not really the only two options. Right.
- [32:38]
A
Yeah.
- [32:39]
B
You can balance it.
- [32:41]
C
Yeah, yeah, yeah. One other thing I want to say, I just want to like, pat our advisors on the back. We have a really cool tool that our advisors use with our clients. It's called spending, sorry, Income Lab. And it builds a financial plan around your ideal level of spending, which I think is just such a cool way to frame it. Of course, there are things you have to think about outside of that. You don't just show that in a vacuum. But I think a lot of people run across this and the art of spending money and finding that right balance sits in everybody's mind and there are ways to get around it. But yeah, you're not alone there.
- [33:13]
A
And you're right, the financial plans, they start with the spending and then they back into the plan. Right. As opposed to like, here's a plan and here's exactly how much you can spend. It's like, here's how much you spend or want to spend. Let's make a plan that works around that. And if it gets to the point where, listen, here's how much you spend in your financial plan, literally cannot handle this, then we need to have a tough conversation. Right. But that's a good way to think about it. Someone in the chat says that for me it's Hawaiian shirts for spend. That's true for you.
- [33:40]
B
It's. It's fashion, it's. It's cloth.
- [33:42]
A
True.
- [33:42]
B
Yeah.
- [33:44]
A
I'm not going to lie though. I still buy stuff on sale. Like almost everything I buy is on sale, so.
- [33:47]
B
Well, because you're a bogle head.
- [33:49]
A
Yes. All right, we got one more question.
- [33:51]
B
All right, last but not least, another one from Twitter from last week. I'm a young investor trying to construct my individual portfolio. I like the idea of betting a big chunk on one idea. Wingstop is my largest stock. I gotta admit, I didn't know that was publicly traded, but it could be anything. When you have conviction, what's the largest percentage of your portfolio you should allocate to one stock.
- [34:14]
A
All right, I have a Wingstop not far from my office, and that's about the extent of my knowledge on the company. So I looked it up. Daniel's with a chart on here. Duncan, you should have been all over this. This thing has smoked the S and P since it went public in, like, 2015ish. And this is a nearly $10 billion company. I never would have believed that in a million years. I hope our guy here from Twitter got in pretty early. Obviously, people like chicken wings.
- [34:38]
B
Wings are kind of out of my area of expertise.
- [34:41]
A
Oh, that's true.
- [34:42]
C
Can I just say, we are going through a chicken era. There is a Wall Street Journal article about this and Dave's Hot chicken and how it's. I think Dave's Hot Chicken is worth, like, $10 billion now, too. Chicken is very hot right now, Duncan.
- [34:54]
A
I guess that's true. What's the privately held. What's the privately held one down south that everyone. The chicken tenders place just in.
- [35:01]
C
Oh, Chick Fil.
- [35:03]
A
Yeah, Chick Fil. No. What's the other one? It's in Louisiana. Oh.
- [35:07]
C
Oh, shoot.
- [35:07]
A
Come on, Kelly. You're a Southern California.
- [35:09]
B
You're not talking about Bojangles.
- [35:10]
C
It'll come to me. There's one in Chapel Hill. No, it's not Bojangles.
- [35:13]
A
Love Bojangles. So I don't really have a perfect answer here, because if you concentrate too much in a stock and the stock goes up, you'll wish you put more into it. And if you didn't put enough in Cane's. That's the one, Michael.
- [35:24]
C
And check raising canes.
- [35:25]
A
Raising cane.
- [35:26]
C
I just Googled it.
- [35:27]
A
That's a private held one. I think that's worth billions of dollars. And if you. If you put too much into a stock and it goes down, you're going to think, I wish I had less than this. So I would say 10 to 20% is probably my personal threshold for portfolio. Duncan, what did you say for Oatly? 14%.
- [35:42]
B
I looked. It's actually closer to 15%. Not to brag, because it's gone up.
- [35:47]
A
Okay, what did it get down. It probably was up higher before and came down and now back up again.
- [35:52]
B
Yeah.
- [35:53]
A
So that. That's kind of my range that I think I'd be comfortable with. I. I still think if you saw 20% of your portfolio fall 50%, that's very painful. So, Callie, do you have a number in mind that you think of?
- [36:09]
C
Well, in my personal portfolio, because I don't do a lot of single stock investing. It's probably like 2 to 3%, which I know lame, but I think 10 to 20 sounds about right. And the way that I would think about it is a little different too. I would think about it in actual money terms. Like, if you're investing in a single stock. If you put 50k in a single stock, that's like essentially 50k, you could lose. It's true with any investment, but with single stocks or companies, that's especially true because you don't have hedgers and diversifiers there. So if you're, I mean, the writer or the asker of the question, if you're wondering how much to put in Wingstop, I think it's better to think about it on a, like an absolute perspective. What word am I going to stature? Absolute perspective, other than. Rather than like a percent of your portfolio? Because that's what it is to you. It's absolute money. And I think from there you can probably guess, you know, what the right percentage is.
- [37:03]
B
Yeah. With one name, do you want to be like one violation or lawsuit away from the stock getting cut in half in one day? You know, like, that's the thing. I always.
- [37:12]
A
Yeah, well, that's the risk. So he did say. He said he's a young investor. He's trying to build it up. And so the old saying is you concentrate to get rich, diversify to stay rich. And so to your point on the dollar amount, Callie, if he's a young investor, he probably doesn't have a lot of money to invest yet. So whatever dollar amount that they're investing, it's probably not that much. So maybe that's the time you do it, and that's also the time you learn your risk tolerance. Because guess what? After earnings, one day, maybe it goes up 20% because wings, everyone's eating wings for Super Bowl. And then maybe in the summer, people don't want hot wings anymore.
- [37:44]
B
Yeah, I feel like I should clarify that when we're joking about my allocation stuff. A lot of people writing in would laugh at the size of my entire trading account. So we're not talking about, you know, like some incredible amount of money or anything. I'm not like, I'm not crazy.
- [37:57]
A
Everyone's got different. We've got a range there. But, but I think this is probably the time to learn your threshold for this kind of thing when you are young. Not when you have like a million dollar portfolio and you put 20% in and it's $200,000 and oh my gosh, it went to 100,000. So I think this is the time to learn if you want to do this and then you can understand your risk tolerance a little better in a threshold and go, okay, I'm tapping out. I can't handle this. Or like, okay, I'm okay with this. Let's let, let's see what, what happens here. It's funny though, I never would have people have been telling us this was tech stocks. I have all my portfolio in Tesla or Nvidia or Apple. Wingstop is a new one. So congrats to you if you've been in it for a while, I guess.
- [38:35]
C
Yeah. And I hope what Chipotle does thing doesn't happen to it. You know, chipotle in the 2000 and tens and I think about single stock risk and my mind immediately goes there.
- [38:44]
A
That's right. Someone chokes on a bone. That's why you have to go for boneless chicken wings.
- [38:47]
C
Someone gets knocking on wood for you.
- [38:49]
B
Someone gets burned with coffee. You know, for real. These things happen. You know, literally.
- [38:53]
A
This is, this is why I don't drink coffee.
- [38:57]
B
Sure. Okay.
- [38:58]
A
I never get burned.
- [38:59]
C
Yeah, we believe you. Yeah. Okay. Okay. Cope.
- [39:03]
A
All right. Thank you to Callie for coming and helping. Remember, subscribe to her newsletter optimisticalie. Itonshop.com. yeah, of course.
- [39:11]
B
We're also. We're close to a record, Ben. Like 2,500 people watching right now across Twitter and YouTube.
- [39:17]
A
Awesome. All right, check out itonshop.com for all of our new merch. Email us@the compoundshowmail.com thanks always to our live viewers. Thanks for everyone for asking questions today and creating friendships in the chart. Duncan's mom showed up again today. I'm not gonna. I'm gonna have to figure out how to get my mom on YouTube because I can't have Duncan Hill get her in the. Alright, thanks everyone. See you next time.
- [39:37]
B
See you everyone.
- [39:41]
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 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.