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ChooseFI | Financial Independence Podcast
State of the Stock Market 2025 Q&A with Brian Feroldi | Ep 570
01:03:47
Brian Feroldi discusses the current state of the stock market, providing insights on market valuations, personal investment strategies, and the impact of artificial intelligence on stock analysis. The conversation highlights the importance of...
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- [00:00]
A
Hello and welcome to Choose a five. Today on the show we have Brian Feroldi. And this is a State of the stock market 2025 Q&A. So this episode has a little bit of everything from our favorite investor, Brian Feroldi. We spend the first half hour plus talking about the state of the stock market, what he sees, how he's making changes in his own life, both with his actual portfolio and how he's researching companies with the use of AI, which I found really fascinating. And and then we ask for your questions via my newsletter, via Facebook and via the community@choose a vi.com and Brian goes through a whole number of questions. I think you're really going to enjoy this episode. I found it extremely timely, extremely topical and extremely relevant to my own life. And I know you will as well. And with that, welcome to Choose Fi. Brian, welcome back to Choose a vai. Always good to see you my friend.
- [01:00]
B
Thank you for having me, Brad. Always great to be here.
- [01:02]
A
Yeah. So the last time you were on we did episode 531. We called it the 2025 State of the Stock Market. And that might have been more appropriate for this episode. Since this is coming out, we're recording this on October 10th, coming out in early November and we can actually talk about the state of the stock market throughout 2025. So give us the lay of the land. Where are we now?
- [01:23]
B
Well, it's been another great year for stock market investors. And as of the time of this recording, The S&P 500 is up just over 15% on a year to date basis. And that would mark, if that holds throughout the end of the year, that would mark the third year in a row of double digit gains for the S&P 500. And if you look back at the last 10 years, they've been fabulous for long term S&P 500 investors. There's been only two down years. And contrasting that with this would be the seventh double digit gain in eight gains gain years overall. So it's been a very enjoyable ride for anyone that's bought and hold the S&P 500.
- [02:04]
A
That is unbelievable. I guess the obvious question is, is this sustainable? Where are we in reference to history? Like is this something that keeps you up at night or are you thrilled about this?
- [02:15]
B
Yeah, as a general statement, the better the stock market has done in the recent past, the worse it's going to do in the future. And the inverse is also true. The stock market can't go up at a double digit rate forever because the reason that the Stocks have done so well over the last 10 years is in part due to earnings growth, but a lot of that is just due to valuation expansion. When valuations are expanding, investors earn a higher return from the markets than the historic average. And the inverse is also true. When valuations are contracting, investors earn a lower return than the market average. We saw that phenomenon happen in basically 2000 to 2010, when that was largely a quote, unquote lost decade for investors in the US Stock market simply because valuations were compressing across the board. And if you look at really any macro level valuation metric for The S&P 500, right now we are at historically high levels. If you look at the trailing price to earnings ratio of the S&P 500, as of October, this number was near 30, which there's only been a couple of times in recent history, 2021 and 2000, that the number was this high. And both of those proved to be pretty poor times to put new money to work in the stock market. Another valuation metric that I track, which I think is better than the trailing S&P 500 P E ratio, is the forward price to earnings ratio. So this is looking ahead and using next year's earnings estimates. This helps to kind of smooth out a little bit of the craziness that can happen with the PE ratio. And looking at this number, we see that as of the end of September, The S&P 500 is trading at about 23 times next year's earnings estimates. And that is essentially a 25 year high. In fact, the only time in the last 30 years that this has been higher than that was at the peak of the 1999.com bubble prices. So when you look at the valuation markers of the S&P 500, we are definitely on, on the very high side.
- [04:18]
A
Okay, so you said in there, it's not a great time paraphrasing you. Not a great time to put new money to work. I'm curious how and, and of course, let's be clear, none of this is financial advice to anyone listening. This is me and Brian having a conversation amongst friends. But Brian, we would have this conversation on, on a cell call, right? Like, Brian, what are you doing? Are you putting new money to work in the market? Are you sticking with your thesis? What are you doing with existing money? Are you making any changes? Like you're the guy I lean on for this. What are you doing?
- [04:46]
B
Yep. So let's talk about what. I'll tell you what I am me specifically doing, but what I'm doing is Highly situational to my personal life. And let's just say what I would be doing if I wasn't in my, in my personal situation. So if you read any book or study market history at all, the best thing for investors to do is just. Nick Giulia said this in his book title, just keep buying, right? Continually plow money into tax advantaged funds and just buy the total Stock market index fund or the S&P 500 index fund, right? That is tried and true advice. And the good thing about that strategy is you never have to worry about or think about valuations. You're buying at the market peaks, you're buying at the market bottoms. And over the long term you should be very, you should have very solid returns. If history is any guide, which history typically is. So that that's what I would be doing. If I was just starting my fi journey or in the middle of my fi journey, that's exactly what I would be focused on. Me personally, I am financially independent, so I'm on the capital protection side of the financial journey and that's where my personal mindset is. So right now I have a cash position in my portfolio that's about 30%. So 30% of my personal investable assets are held in cash, which for me is an all time high. I've never had more cash than that because I don't see reasons to put lots of new money to work in the market given the historically high valuations. Now on the flip side of that, that means 70% of my personal net worth is still invested in the S&P 500 and invested in stocks. So I'm still betting majority of my personal net worth on the market, continuing to deliver high returns and solid returns moving forward. But I am more defensively positioned than I've ever been.
- [06:31]
A
Interesting. So people are always curious about process. How did you get to the 30%? Did you actually sell or is this over? Have you been doing this accumulating cash over a period of years where any new money that you would have saved, let's say, you know, of course you have a savings rate. Is that just getting parked in cash or is it a combination of both?
- [06:51]
B
It's a combination of both, but it's more to the selling of overpriced or overvalued stocks. So again, the majority of my personal net worth is invested in individual stocks and I can look at the valuations of those individual stocks and make decisions on valuation or whether I should buy or whether I should sell much more granularly than I can with the market in general, like right now, even today with markets at all time highs, I can make pretty strong arguments that some stocks that I hold are dramatically undervalued and other stocks that I hold are dramatically overvalued. So as a general statement I, I've been trimming the stocks that I feel are dramatically overvalued and I've been using that to just simply build up my cash position. So it's not just from my natural cash that I put into my brokerage account for investment purposes. It's a combination of selling and doing that. So the reason I have such a high cash position is because I have been actively selling off my stock positions somewhat over the last two years.
- [07:45]
A
Last two years. Okay. And where do you park your cash generally?
- [07:48]
B
So I use a brokerage called Interactive Brokers. And the nice thing about that broker is it pays a very competitive interest rate on just cash held. I think the last I looked it was like 3.6% or something. Along those lines I have been channeling my inner Frank Vasquez and thought about putting that money into bonds. The only pushback that I have against putting money into bonds is then you're playing the interest rate game, right? If interest rates go down, that's certainly good for, for your bond prices. But if interest rates go up, that is not good for any bonds or bond funds that you hold. So given that I like to re, I will be redeploying that capital into equities at valuations that I see are much more attractive. I personally just keep it in cash, which I view as future optionality for making investments.
- [08:33]
A
Yeah, I like that, I like that. And yeah, of course there are high yield savings accounts. One thing that I know a lot, again not financial advice, but a lot of people do in the community is to just park it in their Vanguard settlement account. It's usually, I'm not sure if nowadays if you have to make an election for this, but most of the time it gets put in the Vanguard Federal Money Market fund which is VM FXX and I think at last check that was over 4%. I think it was, I'm looking at it now is 4.05. Is there a 7 day yield? So that's a nice competitive way. That's just essentially a brain dead way to do this. You just park it. You know, you send your money to Vanguard, you just don't. Investing is a two step. And Brian, this is one of those funny things that we realized over the years is sometimes people don't realize that right like they think they're quote, unquote, investing their money by sending it to their brokerage, whether it's Vanguard or Fidelity or Schwab or Interactive Brokers or Robinhood, whoever the heck it is. But sending the money there is not good enough. You have to then purchase a security or a bond in most cases. Right. So in this case, if somebody did want to park their money at Vanguard, the nice thing is it is just a one step in that regard. So just another option. But I'm also curious. So you've been talking about paring down your equities over the last two years. How do you think? Because a lot of people get hot and bothered about taxes. How do you think about taxes when it comes to you've made a decision. Okay, maybe some of these particular equities that I own are overvalued. How did the tax implications factor in?
- [09:56]
B
Yeah, as a general statement, I don't let taxes dictate what I do or do not do. But I always think about the ramifications of what happens to when I'm selling. So. So when I have traditionally tried to sell off some stocks that I just wanna trim because they're up too much, first off, that's a very, very high quality problem to have. But I'm willing to take the tax hit on that if I feel like the valuation is just overstretched and I'm looking to reduce the risk of my portfolio. And I have offset those gains with, by selling off losing investments that I've had to kind of minimize the drag that I have. But there's no doubt that selling most of my assets are held in a regular taxable account. So these are not tax advantage accounts that I'm holding these individual stocks in. So I do have an elevated tax bill to pay. But an elevated tax bill just means that I made money on the investment. My tax bill went up a little bit.
- [10:49]
A
Yeah. And the beautiful part about the federal income tax code is investors get benefits showered on them, right? So we get preferential rates for long term cap gains that are for most of us, it's 15% on, just on the gain. Right. So that's the difference between the selling price and the basis, which is very important. So it's not, hey, I sold it for a hundred grand, I have to pay 15,000 in taxes. It's, I sold it for a hundred grand less what I bought it for, et cetera. And then that amount, what's the remainder? The gain is multiplied by 15%. But like we've discussed also many people in the FI community are paying 0% on long term cap scans, which is pretty, pretty darn good. So I wanted to pivot a little bit because I know you wanted to talk about, about your process and AI, but before we got there I wanted to take a stab at what most people call the Magnificent Seven. I've now heard the Magnificent Ten. Just this very morning on the Scott Galloway podcast. I heard the Magnificent Ten as if this was a thing. How do you look at the market? I think this is, this is what scares a lot of people who, we don't study the markets like you do. Most of us are buying total stock market index funds or S&P 500 funds. But we do see concentration and anytime like we, we looked at those charts a couple of minutes ago and you look at 1999 and 2000 and you see the dot com bust. And whenever there's a period of this kind of fervor, it seems like there are potentially, and I'm not saying this is the case here, but there are potentially bubble type scenarios. There's a lot of investment going on in AI. There just is. And I don't know how to think through this, Brian. I see seven or 10 companies that are just blowing up in terms of returns and size market cap and I don't know how to think through it. Help me, please help me.
- [12:39]
B
As a general statement, I would go back to the. If, if you're not confused, that just means you're not paying attention, right? I mean, because it gets even more nefarious to that. One of the biggest winners over the last three years related to AI has been Nvidia. Nvidia is now the largest market cap company in the world. Last I looked, I think the market, the valuation was over $4 trillion. This is for a company that most people, if you ask them what do they do, they would not be able to answer that question. But if you look at the fundamentals of Nvidia, they're sensational. The company is ridiculously profitable. Its revenue growth has been absolutely outstanding. And all of the Mag 7 or Mag 10 that are spending hundreds of billions of dollars on AI, a good chunk of that capital is pouring right into Nvidia because they need Nvidia's chips to power their servers. And these companies are all intertwined with each other, where they've partnered with each other, where they've made investments into each other. And in some cases when one company announces that it's making an investment in another, both companies stocks go up. So there's no Doubt that right now, investors at large, anything with the word AI in it generates a fervor in them and causes their stocks to go up. The bad news is that the markets right now are extremely concentrated. I don't have the figure off the top of my head but I believe it's somewhere around 30 or 35% of the S&P 500 of the all is concentrated in those 10, in those magnificent 10 companies. I mean they've just become so huge and so big that if you're investing in VTI or, or S&P 500, a sizable portion of what you're investing is going in to those magnificent 10 companies. And of course we do risk that the valuations of those companies are mirroring what happened in the dot com frenzy of the late 90s. Now the good news is if you look back at the late 90s and looked at the companies that received all of the attention, you'd be hard pressed to argue that they were not in bubble territory. Their valuations were so stretched because beyond what the fundamentals of the companies were. I don't think you can make that same argument today because many of the companies that are in the Magnificent 10, Google, Amazon, Apple, Microsoft, Meta, Nvidia, these companies fundamentals, you could make an argument, do justify the valuations that they've seen with Nvidia in particular because it's making so much profit from selling these chips that the market valuation today is, is not insane. In fact the last I saw Nvidia's valuation was lower than Walmart's valuation. It's just that Nvidia's profits have grown so dramatically that the valuation is high. Now the nefarious thing that we don't know or the one level deep thing that we don't know is that there's two types of bubbles. There's a valuation bubble, we had that in the late 90s. But there's also an earnings bubble. When these companies earnings power, the actual profits they're producing are, are real but they are inflated because of bubble spending on a rush to get in there. That is a much, much harder bubble to detect because if you look at the traditional valuation metrics of the companies, they all look like they're trading at normal ranges. But if their earnings power is currently inflated because of a hyperspend that is temporary in nature, then these companies might be extremely overvalued because, because they're earning, they're way over earning what they should be. So that's the risk that actually has me more concerned. It's that we can't tell from just looking at their valuation that they're too expensive, but their earnings, their actual profits that they're putting up are not sustainable.
- [16:13]
A
Okay. And based on what you said a couple minutes ago, where there's a lot of, a lot of self dealing sounds a little bit excessive, but many of these 10 companies are buying from each other to a large degree. Especially like you said, Nvidia. That's really interesting. Right. So if you have the other of these mag 10, I'm painting a scenario which I think is largely true, but, but of course I'm just saying this off the top of my head. So if they're basically, let's say even borrowing money to then spend on these Nvidia chips and it's all this big circular thing. If you're talking about this earnings bubble, like at the first sign of this thing popping, like oh hey, the hundreds of billions we're spending on AI, we're not getting the return we expected. This is not to say that AI isn't going to be transformative, isn't going to take everything over, but just at the first sign of that and you see a little bubble pop and oh, all of a sudden the hundred billion we were going to spend on ChatGPT or Nvidia or whatever, we decided to pare it back to 30 billion. And then you see the other companies make the same announcements like, because so much concentration is in these 10 companies, like that's what that puts the fear and the fear of this into me. Brian, does that ring true to you?
- [17:22]
B
Yeah, you're hitting the nose on the head. It's just that these companies are again, they're basically over earning or they're generating too much revenue and profit based on an artificial arms race, if you will, to kind of build out these data centers. Now this is going to be an ongoing expense. If we have to keep building data centers forever to keep supporting more and more and more AI, then you would argue, well no, their profits are not in a bubble, but if there comes a point where they've spent enough to do what they want to do, or they find ways to produce the AI with dramatically lower cost, then you could argue that companies, especially companies like Nvidia that are providing the infrastructure to do this, you could argue that they are over earning. The really hard part about that is the only way to tell that is with the benefit of hindsight to be like, oh yes, looking back, they, their earnings were overinflated. So the first type of bubble, the valuation bubble that's hard to spot, but it's at least doable because there's such a huge gap between what the company's earning and what the market valuation is. This second type of bubble, the earnings bubble, is way, way harder to spot, especially in real time.
- [18:29]
A
Yeah. And that ties back to what you said when we started looking at the state of stock market. Right? So we're looking at forward pen and regular P, right? And saying like, okay, we're at or near a fairly significant high, if not an all time high. But not three minutes ago you said when talking about these Mac 10 and certainly Nvidia, like the fundamentals are not out of line with reality. Right? So like for those of us who are total amateurs at this, like, man, that is hard to parse. Right? Because okay, yeah, both can be true, right? Like the fundamentals can be in line with reality based on earnings and the PE ratios can be at or near all time highs. If we expect that to continue. All right, that's not altogether impossible. Right? Like, it's really not. But like you're saying this earnings bubble, that's, that's the part that I, I just, I don't see a way for myself to get an answer to that. So that's a conundrum, Brian. Like talk me through that. So like, you know, again, we're on a phone call, like what I just said to you. All of these things can be true and I don't know how to, how to move forward from that.
- [19:31]
B
Yeah, well, so this is why the standard advice of dollar cost average into total stock market index funds is just so rock solid. It's because you don't have to think about or worry about anything that we're talking about. I mean, what we're talking about here is the nitty gritty nerdy detail of what actually generates the returns for investors. And not to throw another wrench in this pile, but I'm going to. If you look back at historic price to earnings ratios, well, that was based on accounting that has fundamentally changed over the last 20 years. One real simple example. Prior to the year 2000, stock options were not counted as an expense. And by not counting stock based compensation as an expense, you are increasing a company's earnings power. Since the year, I believe it's 2000, we have to count stock options or stock based compensation as an expense. If you have a new expense that wasn't counted, that by definition will lower your earnings and, and that by definition will increase the price to earnings ratio that you're paying. So it might There is a strong argument to make that historic price to earning ratio multiples are not an apples to apples comparison because the accounting has changed, the business models have changed, and the companies that exist today, these MAG7 are much more durable in their nature and their revenue sources than they would be historically. And I think that that's a pretty strong counter argument to any. You could also make the argument that all this spending on AI is going to permanently make companies more profitable because they're going to be using AI to become more efficient and they could be able to generate higher returns on capital as a result of all of this spending. That could also be a valid argument. This is exactly why I'm hedging with 70% of my capital market and 30% in cash. When I look at all that together, I do see both sides of it. But again, if that's too complex, this is way too complex or too in the weeds for most people to think about. Dollar cost average into total stock market index fund and you'll be fine over the long term.
- [21:24]
A
Yeah, and I think that's why that helps most of us sleep well at night. Because, I mean, Brian, all of this, we could paint any kind of picture. We're two reasonably intelligent guys who know a decent bit. Like we can paint any picture forward, backwards, positive, negative, and it could make sense based on a worldview, based on past performance, based on what we expect. But the simple fact of the matter is we do not know what the market is going to do a month from now, a year from now, two years from now. We have no clue. I believe over 30 to 50 years, I'm pretty sure the market's going to be up and to the right like it's always been. But I can't tell you what it's going to do over the next two years. You know a hell of a lot more than I do. You can't tell me what it's going to do over the next few years. And that's why buying the market, I think for most of us is the most sensible and the highest likelihood of success that we can come up with. And this is not to say don't invest in individual stocks. Obviously it's done exceedingly well for Brian and friends of ours like David Gardner and such. But for a lot of us who we get bogged down and frankly, like, for many people who are trying to time the market, even though they don't realize they're trying to time the market, they've got to get it right twice and maybe even three times. If you figure I've got to predict what's going to happen properly, which, who the heck knows, I have to sell and I have to then buy back in, the likelihood of you doing all three of those things, I mean, it's approaching zero. So that's why for me, it's a losing strategy for myself personally.
- [22:47]
B
And it's even more complicated than you next said, because you're not just predicting what you think is going to happen, you're predicting how the market at large is going to react to things that you think are going to happen. This is why timing the market in the short term is impossible. Having said that, I am a fan of what Warren Buffett says about when it comes to quote unquote, timing the market. He says, I don't try and time the market. I, I try and time the valuation of companies that I want to own and invest in. So I can't tell you what the market's valuation is going to be one year from now, two years from now, which will dictate what the price is. But I can tell you that Google at 15 times earnings really interests me. And Google is nowhere near that number right now. But if it did get to that valuation, that to me would be a great place to put capital. So I'm not trying to time the market, I'm to trying. I'm trying to time the valuations of the companies that I want to invest in.
- [23:40]
A
Yeah, I love that. And that's the perfect segue back to your process and how AI is updating that because you've talked multiple times in past episodes and we'll see if we can dig up, dig up the numbers for the show. Notes about your process when it comes to identifying and researching individual stocks. And now we all are so fortunate just in life that we have AI at our fingertips to do a lot of. No, of course AI hallucinates and yada yada yada at this point, but nevertheless, this is a remarkable tool to help us shortcut and learn things. And yeah, I'm curious how you're using it.
- [24:16]
B
Yep. So AI has definitely changed the game if you are an individual investor. When AI first came out personally, I kind of put that to the side and was like, I'm not going to use AI because you put, you put up the nail on the head. How can I trust it? I, I think we've all used AI and we've gotten back results and we're like scratching our head with like, how did it come up with that? No, that's not the thing that I was looking for and then you challenge it and it says, oh, you're totally right, I was wrong about, about this analysis. So it's like the idea of using that to then make financial and investing decisions scares a lot of people and rightfully so. Having said that, over the last couple of months, I've put a lot of time and effort into finding ways to use AI to improve my own personal investing process. And I do now use AI to actually make analysis and in investing decisions. I believe you're familiar with Notebook LLM, for example.
- [25:07]
A
Yeah, I love Notebook LLM.
- [25:08]
B
One thing you can just do is take a annual report of a company, drag it into Notebook LLM and say make a 20 minute podcast about this company. I've done that a couple of times and it's remarkable, remarkable what comes back to you because it's just pulling information from, from the annual report, then it's speaking it to you in a conversational format. And it's amazing what you can learn about a company without having to actually read the document. So as long as I would say that this is a general rule, as long as you are giving AI clear directions on what information sources it's allowed to pull from and limiting everything else, that to me is a great way to actually use AI to do analysis. So for, for example, I only tell AI, the only sources you're allowed to use are SEC filings, company filings and earnings conference calls. That's it. Direct sources themselves. And if you limit AI to sources that you personally trust, the quality of the information that you get back skyrockets.
- [26:07]
A
Yeah, that's why at this point in time, yeah, the One you referenced, NotebookLM, that's a Google AI product. That's the one that I use the most at this point because. Because I'm able to upload particular sources and it essentially, at least as far as I know, it only looks at those sources. So it doesn't take any other. It's not like ChatGPT, where it has whatever has been fed into it, which is the vast majority of the knowledge of the world. But also it gets a lot of things wrong. Whereas NotebookLM, I use that sometimes to shortcut reading books where I'll upload a PDF and I'll just ask for. You can ask for anything, but I'll ask for a synopsis of every chapter and then I can read through that and anything I want to dive into more great, I can ask for. Like you said, it can turn. And this is not a, not an advertisement for Notebook LM but it's a phenomenal tool. It can turn any source or multiple sources. That's the other thing. If you're learning, we talked about this before we hit record. I've been learning a lot about type 1 diabetes this past year. And you can find clinical trials and just upload multiple of them and ask it to synthesize it for you. And it just looks at that data like, I can't parse that stuff, but it can and it can help me and then I can continue to ask questions. That's wonderful. Like I do it with YouTube videos all the time where I just asked for a synopsis and it's really great that it just looks at that piece of data. So I love that you're using that for your actual stock analyzing. And yeah, I think that's brilliant.
- [27:32]
B
Yeah, it's a great first step. I've used it to analyze legal documents, for example, and be like, okay, read through this and explain this to me. Like I'm five years old and I don't understand like what this is saying. Yeah. Anytime you're taking very complex long documents and you want to synthesize it down into bite sized chunks that make it easy to understand, that is absolutely true. If you're interested in learning about individual stocks, one idea. If you work for a publicly traded company or if you're just interested in a publicly traded company, take the company's annual report. You can find that online with just a quick Google search. Upload it in and just say, turn this into a notebook LLM, turn into a podcast and just listen and, and just see what you learn about the company, what the AI automatically feeds you up. I think you'll be very impressed with the information that that comes back to you and what you can learn about a company very quickly.
- [28:17]
A
Yeah. Another one that I just thought of that I'm going to do is all Warren Buffett's shareholder letters. They're all in PDFs that you can easily download. You could just upload them all to one project in NotebookLM and just have the entire wisdom of the last 50 years of Warren Buffett from his shareholders letters. So there's a lot to be said for that. That's going to be my next fun little project, Brian. So stay tuned.
- [28:40]
B
Another tip like that, you can kind of do that without having to upload the information. One thing that I've learned, and this is just generally good for AI in general, is at the start of the prompt, tell it to act like a role, act like a specific role. So if you want to analyze a company, you can literally say it act as Warren Buffett or analyze this company pretending to be Warren Buffett. If you can give it that simple instructions of right up front, what it will automatically do is all the information that's in chat TPD's vast database. It will only specifically reference the information that has related to Warren Buffett and Warren Buffett's thinking. So you can say act as a value investor, you could say act as a growth investor, you can say act as a venture capitalist and then analyze this and it will limit the information that it uses to make a decision to that style of thinking. So simply by giving it the AI a role that you want us to take on that, that can also dramatically increase the quality of information you get back.
- [29:31]
A
Great advice. Yeah, prompting is one of the things that a lot of us who are working with AI have to figure out right now. But hopefully eventually that will become less important. I think it'll become more intuitive. But yeah, right now it really is. The quality of the questions you're asking is what dictates the quality of the outcome. Thanks for listening to Choose a Vi and for all your support of our mission here. The absolute best way to support choose a 5 is when you sign up for your next rewards credit card to use our cards page at choose a5.com cards. I keep this page constantly updated so it should always be the top resource for you. Thanks for being part of our community and for your support. All right Brian, we threw open the doors to the chooservike community to ask a bunch of questions for you. We just gave a 30 minute state of the stock market which is awesome, but let's dive into some of these. Jen wrote in When I broke up with my assets under Management Advisor, I was left with about a hundred different single stocks on my brokerage account. The last two years I've been working on selling these and reinvesting them into VTI while trying to keep my taxes on gains as low as possible using tax loss harvesting. I'm to the point now where I still have a large chunk on single stocks with decent gains and I don't have any with losses to offset these gains. These Single stocks, about 31 of them left, now represent about 36% of the money invested in my brokerage account and and currently have capital gains of about $25,000. I'm currently in the 22% tax bracket. Do I keep selling the chunks of these stocks and if so, do I try to sell them when capital gains are as low as possible. I also heard people, many people in my situation, keeping their single stocks and just selling those first when they retire. While their taxable income is minimal, I hope to retire in seven years. Some of these single stocks seem solid and might be safe to keep for longer term, but I don't know enough how to determine that. Thanks.
- [31:17]
B
Yeah, this is a tricky situation. I would say not shame on the advisor, but that's really interesting situation to put your client in where you're buying a hundred different individual positions and then knowing the fact that they might be taking them over. And I don't know if Jen is very verse in analyzing individual companies. I mean, she's saying that she has 31 of them and she feels good about them. But where does that confidence in these companies come from? It totally depends on which 31 companies these are and, and the state of them. If they're companies like Amazon, Google, Microsoft, if they're big, solid companies, everyone knows, I think you can probably feel really good about them. If they're small companies that you know, but they may be on shaky financial ground or they don't have good prospects, that might be a different situation. So it seems like she's done a pretty good job of selling these down already. And the question here is, do I sell and take the tax hit or do I continue to hold and sell them later in life? When it comes to decisions like that, I like to think through what's the upside of taking an action? And what's the downside of taking an action? And then which downside can I live with? So situation one, you just sell everything, put it into VTI today. What's the upside of doing that? You dramatically simplify your current situation and you're not taking any individual stock risk. And again, depending on how well Jen knows these companies, that might be a smart thing to do. What's the downside to doing that? You take a tax hit, right, you're gonna be paying a penalty on the gains that you've had on these stocks. And again, it does take the sting away that you're paying with gains on them. Right? So you wouldn't wanna be hoping for losses. That means these companies have done well for you. So that's definitely the downside. What's the downside of doing nothing and holding onto them? Well, the downside is these 31 companies, maybe they're not great investments moving forward and you dramatically underperform the market. There's also the mental load on you to figuring out, what do I do with these companies? How can I tell if these companies are on track or not? Do you want to follow the earnings of 31 different companies? Do you know how to analyze the earnings situation of 31 different companies? So the downside is you're betting on your analysis skills on these 31 companies moving forward. Now, on the plus side of holding onto them or selling them kind of periodically is you're not taking the tax hit today, but then you're burdening your future to self with more decision making. So think through those situations and ask yourself, which downside can I accept? Can I accept the known downside of taking the tax hit today, or can I accept the known downside of having to make future decisions on all these companies moving forward in exchange for not taking the downside hit today?
- [33:51]
A
Yeah, and also on a very practical standpoint, I would say, and it's hard to parse, of course, a question when you don't have all the information. But Jen said something to the effect of, I currently have capital gains of about $25,000. Now, Brian, I'm not sure if this is unrealized gains of 25,000, which would mean that, okay, if you sold everything, you sold these 31, it would be $25,000 of gain. Let's assume it's all long term times 15%. We're talking 3,750, 3,750 in tax liability. Now, if you're someone who's that close to FI, you're seven years from FI, and we're talking under $4,000. To me, that's immaterial. I probably, especially if this is something that's keeping me up at night, I think for a $4,000 tax hit, and especially if I thought, like Brian said, what Brian said is the most important, but I'm talking brass tax here. If you don't know anything about these companies, you don't have any reason to believe they're going to outperform the market and they might underperform. I would just sell the darn things and just be done with them. Especially if we're talking 4,000. Now, this is different. If we're talking $25,000 of tax, which would suggest probably at 15%, that would suggest $167,000 in unrealized long term capital gains. Now, that means that the actual amount, the market value of that of those 31 stocks would be significantly higher. That's just the gain, the unrealized gain. Now you're talking a scenario, Brian, where you have a significant percentage of your net worth in these 31 stocks of dubious quality. Who the heck knows what these are? So then you get into a slightly different scenario where you're talking, this is highly, highly material. But then, okay, $25,000 of tax. I don't know, how would you think about it? This is actually much more important than I thought when I went into this random little sidebar. But I mean, if that is the scenario where who knows, this person, Jen, has $400,000 in market value in these 31 stocks that she didn't pick these darn things. This advisor did. She has $167,000 of unrealized cap gains. Like, how did she unwind this?
- [35:50]
B
Yep. And this is to me a downside of working with an advisor like this. That's under an asset, under management. If you're taking over the portfolio from them because you're unhappy or move to somebody somewhere else. Even if she was moving from one advisor to a different advisor, and this Advisor gave them 100 individual stocks that they would have to be going through all these same decisions themselves. And some advisors are good at analyzing individual stocks, some do not and just do etf. So yeah, assuming the situation is what you said, where the tax hit was less than $4,000, that to me I would write off in my mind as the cost of hiring the advisor in the first place. And simplicity perspective might make sense to take that hit today. And don't forget, if you then take that and deploy that into vti, your cost basis for your investment now goes in at whatever you just redeployed into vti. So your future capital gains based on today would based on a much higher stepped up basis than you would if you just held these stocks. So yeah, there's pluses and minuses to every decision with investing. It's always important to ask yourself, which downside can I live with? And that will answer your question.
- [36:54]
A
Yeah, brilliant. Love that. All right, next question came in from Tim. He said, hi, Brad, I love the show. I just turned 40. My back hurts. Anyway, I also told myself once I hit 40, I'll start adding bonds. Now that I'm here, I feel I'm still young enough to not need them. I'm already coast fi and hope to be fully fi by 50. Do I need bonds at this age? Brian, what do you think about that?
- [37:16]
B
Well, so what is the purpose of adding bonds to a portfolio? Historically, there are really two reasons to add bonds to your portfolio. Reason number one is it reduces the overall volatility of the portfolio because bond prices do not swing as volatile as stock prices do. And reason number two is to generate income, bonds pay a much higher coupon rate or a much higher interest rate than the dividends that you get from stocks. So those are the two things that you typically want when you invest in bonds. Reduce volatility and to generate income. So I don't think you have to force bonds into your portfolio just because you hit some number. It more depends on your personality. I know people that are in their 80s that their investing time horizon is 40 years, they have all the money they'll ever need and they're investing for their kids and their grandkids and they're happy to have 100% equities that fits their personality. I know other people that are in their 20s and the market scares the bejesus out of them and they just want everything in money market funds or bonds. And while that might not be optimal from a mathematical perspective, it fits their investing personality. So I would ask Tim, what, why are you seeking out bonds? What's the thing that you want from bonds? What is the reason that you're going to be putting money into bonds? If you want to reduce the volatility of your portfolio to increase the income, absolutely think about adding bonds. But if you don't want either, I would challenge the assumption that you absolutely need to have bonds in your portfolio.
- [38:44]
A
Yeah, agreed. I don't like any kind of arbitrary rules. I'm 46 at this point. I have $0 in bonds. Don't intend on putting any in anytime soon. But obviously, like Brian's alluding to you, you never know. Right. And I have to see what the facts on the ground are where I am in terms of risk tolerance and what I'm looking for. But yeah, I mean, to be clear, there's no requirement here. Many of these things are rules of thumb, so. All right, Brian, we have two quick ones that I think you are perfectly suited to answer. So Trevor said, what are some current sources or resources you'd recommend for someone looking to allocate a small percentage of their primarily index invested portfolio for individual stocks? Where do you hear about the new or growing companies that might be of interest to a budding stock picker for long term investment? And then Wilson asked a related question on Facebook and said, have you listened to recent interviews with Molly fool founder David Gardner? He's been on some popular podcast recently and it would be interesting to get Brian's take on his new book as they both see lots of value to individual stock picking, which is somewhat anathema to our five Philosophies. So Brian, two questions that are highly related sources of information and then of course David Gardner, who I know is a longtime friend of yours.
- [39:54]
B
Yeah. So investors today are truly spoiled. It has never been easier to find stock picking ideas and stock picking ideas for free. There are so many sources out there. You can now go to stock screeners and screen for any attributes that you'd like. If you're screening for growth, if you're screening for value, that's one way to do it. There's Finviz I'll throw out is a free market screener that has every stock listed on the public markets and you can screen the whole market or metrics that you find. I'm a big fan of looking at the portfolios of big money managers that I respect. I'm a quality investor myself, so I like to invest in high quality growth companies. My favorite fund managers to track are Chuck Akri, A K R E is his last name, and then Terry Smith, S M I T H. Terry Smith of Fundsmith. Those are two stock pickers that match my personality and funds. So every quarter they're required by law to update their portfolio and share it with the world. And I dig through their portfolios every quarter and that's free to do when it comes to if you want. If you're a growth style investor. David Gardner has a podcast called Rule Breaker Investing and like every month he has stock samplers where he talks about companies that he owns or he picks and then he tracks their performance and his long term performance is outstanding, just outstanding. Dave, no investor has had more of an impact on my personal net worth than David Gardner. Without David Gardner I personally would not have outperformed the market. So he's someone whose opinion I hold in very, very high regard. And if you do want to pay money, David Gardner's company, the Motley fool has Motley Fool Stock Advisor and Motley Fool Rules Breaker. Those are paid services where they pick the stocks for you and they gave you all the thesis and stuff like that. So. So if you're willing to spend a couple hundred bucks on the advice, that can be a great way to go.
- [41:38]
A
Love it. All right, Matt sent in a voicemail, but I'm going to paraphrase a bunch of this and cut it a little bit down. So Matt said, I'm an avid proponent of low cost, broad based index funds. Huge fan of JL Khan Simple Path to Wealth. I have most of my wealth in things like VTI or voo. One of the things I appreciate most about Index funds. And what J.L. kahn has helped me understand is he calls this self cleansing property of these funds where a company might go as low as zero, in which case they would fall fall out of the fund. But of course there's no upside limit on how much a company can grow, which is why over time markets tend to grow. So I understand that intuitively. So the heart of his question is how we should think about the role of small cap index funds in a portfolio. He said, I'm intrigued by the idea that over short periods of time, small cap companies can sometimes outperform larger cap companies. And given just how concentrated the total market index is in a relatively small number of large companies. Brian, we talked about those mag 7 or 10. I'm intrigued by maybe investing in a small cap fund, but intuitively I have a harder time understanding the self cleansing nature of those. Because while you might have all the same downside risk if companies could go to zero or fall out of the bottom of small cap fund, it seems like there's also an upper limit to where if a company grew, they might actually grow out of that small cap index fund. So it's not the same sort of unlimited infinite upside potential as in AN S&P 500 or total stock market fund. So basically, how does Matt think through this? Is he thinking about this? Right. Have you ever thought about this, Brian?
- [43:06]
B
I think Matt is spot on with his analysis here. If you look back historically, there are been periods of time when small cap value in particular has been a outperformer of large cap value markets. You have to think of like market segments as like a fashion show. Sometimes certain styles of investing are in fashion, in favor and they do very well. Other times, other styles of investing are in favor and do very well. And typically one style is dominating. For the last 15 years, the style that has dominated is large cap US companies. That's been by far the best performing asset class or asset type of equities. And small cap value mid cap value international stocks have just lagged greatly lagged the returns of large cap value. Like Matt, I also question the general setup of small cap funds. Yes, there are some small cap funds that can do well over periods of time. But the market's returns are always driven, always driven by extreme outliers. Right. These one in a thousand companies that just go up so huge that they literally take the entire market with them. If you're investing in the S&P 500 or the total stock market, you're guaranteed to get all of those gains that are Driven by the minority of companies in your portfolio because those funds just own the stocks and and then hold them. If you have a small cap value fund that has very strict criteria for what's included and what's excluded, I think Matt's right that you might have some mega winners in there, but they might get kicked out of the fund if they grow to be too big and they might graduate to like a mid cap fund or then graduate into a large cap fund. Those are the companies that are going to derive the huge returns of the market and the portfolio. So the small cap funds by their very nature, by their self cleansing nature, they're cleansing on the upside so they're kicking out the best performers in them. To me that's not a recipe for long term success. So I would personally not invest in small cap funds and I would just go with total stock market funds and not have to think about that.
- [45:10]
A
Yep, I like them. I wholeheartedly agree Brian. Absolutely. So okay, let's move on. Greg sent in a question about expense ratios. Greg said, I know expense ratios are essentially how expensive a given fund is. For example, Voo with an expense ratio of 0.03% would mean 30 cents for every $1,000 invested. But my question has to do with how that expense is incurred. I've never heard this explained when and how is that money deducted from a given account? So Brian, Greg goes on to ask other questions. But yeah, the question is expenses and maybe we can even take this a step further and say I think this is what is sometimes insidious about financial advisors. And we talked earlier about assets under management and how when you're not actually cutting the check to pay for this advisor or for these fees, you don't see them so they're kind of magically being deducted in some way. I'm not asking you to give an insight into the business model of financial advisors, but it is an interesting parallel. Let's talk about these funds though. Do you have any sense of how the expenses come out of these funds?
- [46:17]
B
Well, I will give you some insights into business model because if you one of the best possible ways to extract money from a customer, the customer never sees the bill. You're automatically pulling it out and they're unaware that it's happening. I mean can you think of a better business model? Imagine if you went into Walmart and just pulled stuff off the shelves and walked out and you never saw bill. Like the money just automatically came out of your account. But, but it did it slowly over time. So you Couldn't even detect that it was happening. Of course you would think shopping at Walmart is free. That is essentially how the expenses are paid in funds. So the way that the expense ratio works, let's go with that example of 0.3%, which is just an unfathomably low figure. Right. It's just unbelievable on a $10,000 investment, that's $3 per year that you're paying. So let's go with that $10,000 investment. Well, what's going to happen is over the course of the year, you're going to be paying that $3, but that $3 payment is split up into a daily figure that you are paying. So it would be $3 divided by 365. And every day the fund would take that amount of money. So 1 365th of 0.3% and it will pull it out of the fund and that is the expense that you're paid. So. So for every day that you are holding a fund, that fee is being extracted from it. And these fees are so tiny on a daily basis that they go undetected. And to your point, they don't have to give you a bill saying, here's your daily bill for holding this fund. I mean, for us holding Vanguard funds, it would be like a fraction of a penny a day that you're paying or maybe a couple of cents per day that you're paying to if you had a, a large amount of money in these funds. But that's how they're paid. They're continuously, every single day pulling a tiny, tiny fraction out of your account. So small that it's basically undetectable.
- [48:10]
A
All right, Brian, let's move on. So Martina asked a question about stocks and inflation. She said, my guess is that over the mid to long term inflation is baked into stock growth and not something that needs to be offset or hedged against. Since stock prices essentially reflect the value of a company's assets and future revenues, and as inflation raises prices of companies goods, the revenue for the company will increase in line and therefore the stock price will increase as well. Is this understanding correct? Having had very low and stable inflation for the majority of my investing life, I'm not really sure how to think about big inflation spikes and whether I should be worried about it and proactively take countermeasures or not. Essentially, I'd like confirmation that even in a worst case scenario where we suddenly have 20% inflation and sidebar, we have no negative, no inkling that that is going to happen. Let's be entirely clear. But nevertheless, the point holds. As long as I'm holding for the medium to long term, I don't need to worry about my investments being eroded the way they would be in a savings account. So Martina has a couple of questions baked in there, but Brian, thoughts generally about inflation, stock valuation, et cetera.
- [49:14]
B
Yep. So this is why stocks are such a great asset to hold over the long term. What is inflation? By and large, it's pretty prices being raised. Who's raising the prices? Companies. It's businesses out there. They're being forced to raise their prices and pass them along to consumers because their internal costs are going this is why investing in stocks has been a great long term hedge against inflation, because businesses can raise their prices to keep up with inflation. Bonds can't do that. If you buy a bond and it has a 5% coupon rate or interest rate to you and then inflation is 5% over the duration of that bond, your effective return is zero on that bond. If you look back at the long term history of the S&P500, the nominal return that you would get on paper for The S&P 500 is somewhere around 10% per year on an annualized basis. But that's just the nominal return. The return that you care about as an investor is the real return. So the after tax return that you get, how much your purchasing power is is growing and the long term purchasing power increase by investing in the S&P 500 is closer to 6.5%. So that's the real return that you're getting. So if you want to hedge inflation over the long term, stocks have historically been a great place to do that. I will throw out the caveat that over the short term if inflation goes really high, oftentimes stock prices can be impacted severely because if analysts start baking in higher inflation and into the models that they're using to calculate the current value of stock prices, oftentimes that can result in lower stock prices. Today if the inflation rate is high because there's a lag between how quickly companies can absorb inflation and then pass those costs on to their customers over short periods of time, stocks aren't a great inflation hedge, but over long periods of time they are.
- [51:04]
A
Great answer. Let's keep moving here. So Laura wrote in and said I'm considering firing my financial advisor. Currently the fee is 1% assets under management. And Brian, we know how significant that can be when compounded over 30 to 50 years that can erode 30% of your of your net worth or thereabouts. So it's these are real amounts, even though 1% sounds like nothing. So Laura asks, do you recommend fee pay by the hour advisors? I'm also considering doing the research on my own. And of course we answered that earlier. You, you gave some wonderful resources on how Laura can research, but advisors who charge by the hour. Is this something you advise, Brian? And of course we're not giving advice to specific people, but is this something you would consider? Is this something for family and friends that you, you talk about? Are there any options that you would consider?
- [51:52]
B
Yep. So first let me do something maybe people aren't going to agree with and that's going to defend financial advisors for a second. If this financial advisor got you investing and you wouldn't have been invested without the financial advisor, the financial advisor did a good thing for you. If the financial advisor, when you're worried or panicked and you call them on the phone and they calm you down and tell you to stick to your plan, that financial advisor is doing their job and they should be paid a fee for what they're doing. If you're going to fire a financial advisor, what you're really asking is do I want to take on the burden of managing my own money for me, do you have the own internal drive to learn about how to invest, to study markets, to make sure you're doing things correctly? And most importantly, the next time a financial crisis happens and you see your stock prices plunge, do you have the wherewithal to not do the wrong thing at the wrong time? A financial advisor can be a buffer between you and making a bad decision. At the worst time, if the financial advisor does that, they have earned every penny of the paycheck that they have had. So the decision about should I fire them or should I manage it on my own is more about you and what you want to do with your money than it is just purely about math. Now if you do want to manage it on your own, but you still want a second opinion. I'm a huge fan of fee only financial advisors where you are paying for an hour of their time. Our mutual friend Jeremy Schneider, from a personal financial club on Instagram, he started a company called Nectarine and Nectarine has a network of advisors throughout the country and you can hire them and pay them on an hourly basis. That to me is the best selling scenario. So you are shelling out a couple hundred dollars oftentimes or even a couple thousand dollars for a financial plan or for one on one advice. But because on that plan they're not allowed to Sell you products, they're not allowed to charge you an assets under management. That to me is a financial advisor that I would personally prefer people take on as opposed to a purely assets under management 1.
- [53:45]
A
Yeah, I love it and I think where you started was very important. So we do not vilify entire industries, we do not vilify all financial advisors here. I think the biggest issue with that industry is the way the fees are set up. And as we've discussed assets under management, when you charge a percentage, often 1% or higher, that can erode a significant amount of your wealth. So just hard stop, end of story. That's a big deal. So I do not love the way the industry is set up. But like you said Brian, these people are giving you significant expertise and time and they deserve to be paid. So let's be entirely clear, like we're not trying to say like people should be giving advice for free etc. Etc. That's why what's so beautiful about these fee only hourly based financial advisors? And I think, I think that incentives are in line there and it just makes sense. So yeah, that website and we do not have any, any ties financially to any of these people that I'm going to mention. But yeah, hello, nectarine.com is the website I know. I've sent people to use them. They've had great results. The last time I checked it was something like it started from $175 an hour which frankly for financial advisors is very inexpensive. So that's a really great place to start. We had a friend named Aubrey Williams on the podcast here recently. As he says it's 100% fiduciary at all times, advice only, fee only hourly financial planning for the fi community basically. And, and his website is an interesting one. It's OpenPath Financial. So the words OpenPath Financial. Cody Garrett has recommended a couple of resources that he likes. Abundo wealth is one of them. And the Advice only network is a great place to find fee only financial planners. So those are really the four places that I would start. But of course you have to do your research, right? You're listening to this. You want to find an advisor, send an email, get on the phone with somebody and see if this is a fit. Just because these are good starting points doesn't mean they're going to be the answer for you. But Brian, at least those are four different spots people can go to.
- [55:50]
B
Yep. Heck of a lot better than just walking down to the person in your local town and being like and then not telling you anything. About the costs. I mean, my own personal friends, I've asked them, how do you manage your money? And they've all said, there's a guy that does this for me. Or there was a guy that came into our company and set this up. And I was like, how do they get paid? And blank stares. I don't know. How do they get paid? I don't know. They just, they just, I don't know if they get paid. And I was like, doesn't that seem strange? Doesn't that seem strange? I am perfectly okay with financial advisors getting paid. They deserve to get paid. But it's not okay when they don't explain how they're getting paid.
- [56:22]
A
Right. And that's why I use the word five minutes ago. Insidious. It is just, there's just something not right about the fact that they don't even tell you when the money's coming out. They don't tell you how the money's coming out. They don't tell you what you're paying. It's just some innocuous little, oh, it's just 1%, it's no big deal. That sounds like nothing. It is something, let's be entirely clear. So yeah, do not love the way that industry is set up, but there are a lot of good people in the industry and there are a lot of people who are trying to buck the trend of that AUM Fee. And I think that's, that's really admirable and laudable. All right, Brian, let's close it up with another question or two. So Larry wrote in, I'm on the verge of retirement and I'm wondering about selection of equities to during drawdown. During the accumulation phase, I've been focused on broad based stock funds. But now that I'm about to switch gears, I'm thinking it make more sense to move towards asset class specific funds. Is there any value in a transition like that? It seems like you may be able to shift money in a more effective way, I. E. If one asset class does particularly well, you could draw from that class and leave others alone. So Brian, of course with a question like this, we don't know exactly what Lara's intent was. There's a little slight confusion in there I suspect. But let's try to take a stab at this and go from there.
- [57:33]
B
Yeah, there's lots of different ways to slice and dice equities with asset class funds. You can do it by size. So large cap, mid cap, small cap, you could do it by valuation. So growth funds or value funds. You could do it by different styles of assets. So you could do REITs versus commodities versus equities, or you can even do it by characteristics of the stocks themselves. For example, there are some funds out there that focus on dividends, dividend stocks, and these are funds that retirees in particular tend to gravitate towards. Because if you're a retiree, the prospect of getting a higher than average dividend yield than VTI can deliver, which I think VTI is around one, one and a half percent, somewhere like that, very, very low. And if you're the type of investor that does not want to sell your equities, you want to live off the income stream from your dividends, that, that might be too low of a number for you to be able to do so and not touch, touch your equity. So if she's asking, should I consider putting money into dividend focused funds to generate a higher return, that can be a viable strategy. There are some funds out there that pay 2%, 3%, 4%, even higher depending on the fund that you are looking at because they're only picking out companies that have a higher than average income. Just know, I know for a fact that you've done episodes on Choose a Phi about specifically dividends and dividend investing, which is almost, almost like a religion for some type of investors. Just know that there's no such thing as a free lunch if you're going to be going after dividend stocks. Typically there's a trade off that you're making and the trade off that you're making with dividend focused stocks is that you're getting lower than average growth over time. So you're trading the potential for capital gains for more income today. Now that can be a fine trade off if you're okay with that trade off and you just want to more income from your assets today and you're willing to underperform the market's long term results because you want more income today, that's perfectly fine. Just know that there's always a trade off with whatever you're doing.
- [59:26]
A
Yeah, that's very important. And yeah, as you discussed, I do not love any type of investing community that looks like a cult or religion. And yeah, it seems like the, as I call them, the capital D Capital I dividend investors, the, the people who are these dyed in the wool dividend investors. I just think that there's just something slightly off about that. So anytime people get too myopic about one particular thing, it just reeks of, it's difficult intellectually so. This is not to say that I think dividends are bad. That would be foolish. That is just a part of life when it comes to investing. But I don't think it's magical income. And I think for a lot of us, especially in the FI community, like if you're trying to set up a portfolio where you can live on the income as if this were magic income you're going to need because like Brian said, even a high dividend paying is going to be 2 or 3%. So then you're in a scenario where the 4% rule of thumb for withdrawal rate, like you're going to need way more than 25x your assets if you just want to live on this magical income. So it's setting up a lot of bad behavior potentially for people in the FI community that I think is silly because frankly, selling equities is part and parcel of being fi. It's part of the plan. It was your plan all along. And Brian, that this is what I've been kind of railing against with this. We've talked about the middle class trap, which was this kind of silly thing that came up this calendar year and it got down to people ultimately when it was parsed was like, people are going to have a hard time selling their equities. And I suspect that's probably true the first time. Right? Like, and I've kind of jokingly said this like, you're an adult, you do hard things. You've done hard things your entire life. You followed the path to five for 10, 15, 20 years. That in and of itself is hard. You're telling me when you're at the finish line that you're going to meekly capitulate and say, oh, fi doesn't work because I can't take five minutes of discomfort and log into my brokerage and click sell. I find that laughably stupid. And I, like, I simply won't put up with it. Like, it's ridiculous. It's, it's grasping defeat from the jaws of victory. So please, please don't do that. If you're listening to this, please don't do this. Please don't come up with, with these crazy mental gyrations that I need some mystical magical income stream and that's the only way I could be fi. That is really silly and short sighted. Again, that said, dividends are not bad. I don't have any issue with dividends. They're part and parcel of even owning index funds. They're great. But when you're talking about FI and Net Worth, Brian, like of course, everybody has their own strategy. So again, it's not to castigate people. But I think when it comes to, like you said, maximizing net worth probably over 30 to 50 years, I don't think either of us would advise that. Dividend paying stocks are going to be our best, our highest likelihood. And then you add on top of that, it's a forced taxable event which is never good. You lose flexibility. I always want flexibility. So anyway, that is a long way of saying dividends are great. Don't put your entire strategy around that and just frankly selling assets, it's not that bad. It's part of it. Brian's been doing that for a couple of years now. It's part of a strategy. It's part of a strategy. And I think that is the key here.
- [62:36]
B
Yep, well said, well said. But there's so many things that are when it comes to investing in our money in particular, we do have mental roadblocks and I think that you nailed it on the head, which is once you the first time, it may seem counterintuitive or scary to do so, but I think that people that are following a fi lifestyle, they are probably the most flexible people of any category ever. Right. So even if the worst case scenario did come to pass, if there was any community that would be willing to live through whatever comes their way, it's the fi community.
- [63:07]
A
Totally agreed. Yeah. The smartest, most interesting people that I've ever met just on mass and yeah. To assume that we can't do something because it's hard for three minutes just seems really silly to me. So anyway, Brian, you're the man. I really appreciate you coming on. I love when you share your expertise with us and just thanks for being a friend of our community.
- [63:27]
B
Thank you, Brad for having me. Always fun to be here.
- [63:29]
A
Yeah. So where can people find you? Where can people reach out?
- [63:32]
B
Yep. So find me on any social platform. YouTube, Instagram, Twitter, X LinkedIn. Pick a platform, type my name in if you're interested in my kind of content.
- [63:42]
A
Beautiful. Love it. All right, Brian, until next time. We'll certainly have you on soon. Thanks for being here and to you. Thank you for listening. Thanks for being part of the choose of vet community. And if you haven't yet, get involved in a local group, go to choose a vi.com local find your tribe, find them locally, find them in your community and go to a meetup, go to a case study and get involved. Thanks for being part of the community and until next time, thanks for listening to Choose. Thank you for listening to today's show and for being part of the choose of I community. If you haven't already, the best ways to get involved are first subscribe to the podcast. So you're listening to this on a podcast player. Just hit subscribe and then subscribe to my weekly newsletter. I actually sit down every Monday and write this by hand and I send it out Tuesday morning. So just head over to choosefi.com subscribe and it's really, really easy to get on the the newsletter list right there and I would greatly appreciate it. It's the best way to get in touch with me. You can actually just hit reply to any of those emails and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsourced personal finance show. And finally, if you're looking to join an in real life community, we have choose a FY local groups in 300 plus cities all around the world. So head to choose a vi.com local and you'll find a list of all of Those cities in 20 plus countries all across the world. And if you're just getting started with VI or you have a family member or friend who you think would be interested, two easy ways choose a Fi episode 100 is kind of our welcome to the Fi community and even though it's a couple years old at this point, it still stands up and it's a really great just starting point to get an understanding of what is financial independence. What are we doing here? Why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life and then choose If I created a Financial Independence 101 course that's entirely free, just head to choosefi.comfi101 and again, thanks for listening.