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The Stacking Benjamins Show
Our Advice For Beginning Investors and Recent Graduates (SB1679)
01:26:25
Are target date funds the right move… or a one-size-fits-none mistake?
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- [00:00]
Joe Salsihai
This message is brought to you by Navy Federal Credit Union. May is Military Appreciation Month and we're celebrating the military community that goes above and beyond every day along with Navy Federal Credit Union. For over 90 years, Navy Federal's mission has been to support and uplift all active duty veterans and members of military families and this May is no different. It's a special time to recognize the profound contributions they make. Learn more@navy federal.org Navy Federal Credit Union Our members are the mission Navy Federal is insured by NCUA Small Business Owners State Farms there with small business insurance to fit your specific needs. Whether you're starting a new venture or growing an existing one, State Farm helps you choose the right coverage to protect what matters most. Working with a local State Farm agent helps you understand your coverage options, offering local support to help you achieve your goals. Focused on turning your passion into a thriving business. Knowing your insurance can change as your business grows. Stay Farm here to help you succeed with your business like a good neighbor, State Farm is there hey Stackers. If this is your first time listening to Stacking Benjamin's Welcome. A very special welcome to you. Welcome to the family, as mom likes to say. Which is just such a great piece that you decided to start off with because on today's show we're going to talk about target Day funds. Oh gee. My partner and I have talked extensively about why we dislike Target day funds, but there's few, very few episodes where we deep dive into that. We're going to do it today. And second, advice for people just starting out. Morningstar's Christine Benz, the director of Personal finance at Morningstar, joins us. She is an amazing woman and just we're super happy that we are friends with her and that she's been on the show giving her indispensable advice so many times. Christine is going to really help brand new people to the investing world today. We also for people graduating, this is a great episode because we are going to share our favorite books and our favorite advice for people that have just graduated. And then also, this is a Greatest Hits episode. It's funny, this was a time when people were really, really worried. This episode originally came out on June 3, 2020 at a time when we'd been loc away for the last three months and the market was weird and people were being laid off. Companies were telling people not to go back to work. And I'd love for you to listen to this, especially now because of the fact that so many people are worried right now about tariffs and about the economy and the news really, really digging into that. Right. For increased ad dollars. Partially and partially because you should be worried. And it's okay to be worried. But what I love about today's episode is this was another time when we were very, very worried. And I want you to think back as you listen to all of that worry that we had and think about how that worked out. And then go to today. And hopefully this will give you a broader view. It won't make you worry less, I think, but it will give you a broader view about how to handle your money now. So I chose this specifically for that reason. It is your letters. I chopped out a couple little pieces that didn't weather so well. There was a piece in this original episode that was about stimulus checks and them not coming. Didn't think we needed that, so I dumped that. And the rest of this is just really, really aged very, very well. Also, you know, all along I've been telling people that this idea of emptying offices not that great for you. I got some pushback on that. It turns out that studies over time have still shown that the collaborative efforts of working from the office pay off. And also the idea that company CEOs, we're not going to really stand for it. Look at what's happening there. So just going to pat myself on the back a little bit. I'm not right a ton of the time, but I thought from the beginning I was right on this one. Even Doug fought me on this one. And it turns out that for right or wrong, a lot of people headed back to the office. I also thought that this headline was frustrating at the time. If you're going to work remotely, these companies shouldn't be allowed to claw that money back. We shouldn't let them as workers claw that money back. That should be, if you're going to let me work from anywhere, why can't I move to a lower cost of living area? Really drove me crazy. When corporate America goes, nope, that's my money, not yours. Okay. Companies get to have it both ways and we don't. And they own the company. Right. OG is going to point that out today. But regardless, just a couple things before we hit play on this amazing Greatest Hits Episode number one, Boston Area Stackers. I am coming to Boston on May 20th. I'll be there. My daughter Autumn will be there. We're going to have some fun in Boston. This is actually in the suburb of Malden. We'll be at Idle Hands Craft Brewing. The Fun starts at 6:30 on the 20th. I hope to see you there? Stacking Benjamins.com meetup tells us that you're coming so we can make sure we have the right amount space and it's going to be a great time. Second, if you're not in Boston, no matter where you're at, a lot of these retirement calculators frustrate the hell out of us for two reasons. Number one, some aren't robust. And number two, we make some critical mistakes if we're trying to build our own retirement calculations using these tools. Well, guess what? We got a guy that built one and he's agreed to do a YouTube live with us. And that is going to be this coming Thursday. Not tomorrow, but May 15th. Steve Chen from the company called Bolden B O L D I N joins us. He makes these retirement calculators. He and his big team of CFPs really dive in. It is the most robust calculator that I've seen that isn't made specifically for professionals. It's made for our average stacker out there. Steve is going to help OG and I talk about why most retirement calculators suck and how to make these, these retirement calculators your best friend. That will be at 8pm Eastern, 5pm Pacific on the 15th. To sign up for that YouTube live event, go to stackingbenjamins.com Bold25. That's B O L D I N 2025. Hope to see you there on Thursday. We're going to have a lot of fun. Been a long time since We've done a YouTube live and I think it's about time because we've had lots of questions how retirement calculators work and why you can't get them to work as well as you want. And what are some of the things, the pitfalls that so many people, so many people stumble into when they're trying to put together their plan. All right, let's get the party started. But before that, we have a couple sponsors that make sure that we can present today's show without you having to pay a dime. So we're going to hear from a couple of them and then we're rolling on this episode back from the pandemic from June 2020. Let's go. This message is brought to you by Navy Federal Credit Union. May is Military Appreciation Month, and we're celebrating the military community that goes above and beyond every day with Navy Federal Credit Union. Navy Federal was created for the military community. It is dedicated to ensuring that its members feel celebrated and honored every single day. For over 90 years, Navy Federal's mission has been to support and uplift the military community and this May is no different. It's not just a credit union, it's also a partner dedicated to helping its members achieve their financial goals. All active duty veterans and members of the military families are eligible to join. Navy Federal is excited to celebrate Military Appreciation Month as a special time to recognize our troops and the profound contributions that they make. Learn more@navy federal.org Celebrate Navy Federal Credit Union Our members are the mission Navy Federals Ensured by NCUA Small Business Owners State Farms there with small business insurance to fit your specific needs. Whether you're starting a new venture or growing an existing one, State Farm helps you choose the right coverage to protect what matters most. Working with a local State Farm agent helps you understand your coverage options. Offering local support to help you achieve your goals. Focused on turning your passion into a thriving business. Knowing your insurance can change as your business grows. Stay Farm here to help you succeed with your business. Like a good neighbor, State Farm is there.
- [09:03]
OG
I mean, you're living in your mother's basement writing a blog on finance. Really, you should stay off the computer, son, and get a job. Seriously.
- [09:16]
Doug
Live from Joe's Mom's basement, it's the Stacking Benjamin Show. I'm Joe's mom's neighbor Doug, and today is national Leave the office early day yet. Here's neighbor Doug again, opening the show. When you're as irreplaceable as me, you can't afford to take a breather. On today's show, not only am I here for you, but the guys are going to answer your questions with a little help from Morningstar's Director of Personal Finance, Christine Benz. Plus, where the heck is your stimulus money? Did you accidentally throw it in the trash? Unfortunately, chances are pretty good you did. We'll cover that mess during our headline segment. Then we'll also toss out the Haven lifeline. And of course, I'll briefly humor you with some of my work related trivia. And now, two guys who really need to start picking up a little more slack around here. It's Joe and O J J J.
- [10:28]
Joe Salsihai
And here, just in the nick of time to pick up the slack, I am Joe Salsi. Hi Average Joe Money on Twitter. Welcome to Wednesday everybody. Let me be the first one to welcome you. We have the coffee hot. We have the microphones hot. And across the table from me is the man with the cold hard outlook on life, the one and only OG.
- [10:47]
OG
Somebody said something about going home early.
- [10:50]
Joe Salsihai
Just, just want to clarify that. Just want to float that if we could just float that maybe a little.
- [10:55]
OG
Bit, I'm going to put in a solid like 50 minutes today.
- [10:59]
Joe Salsihai
What if we could take all of our stuff from the show and put it instead in like a newsletter? Wouldn't that be cool?
- [11:06]
OG
Hmm, I don't know. Reading sometimes it's hard.
- [11:11]
Joe Salsihai
Not sure that would go over stacking benjamin.com forward/stacker is the way that you can augment this incredible audio experience with some fantastic writing from yours truly.
- [11:24]
OG
Follow along Picture book.
- [11:27]
Joe Salsihai
You've heard the podcast, now get the Paint by Numbers version.
- [11:31]
OG
The companion guide to the podcast stacking.
- [11:35]
Joe Salsihai
Benjamins.Com forward/stacker is the place to keep up with all the stuff going on in the basement. But either way, mark your calendars today. Mark your calendar off for the next hour because we are taking your letters. But first we have some headlines. So let's get started, man hello darlings.
- [11:53]
OG
And now it's time for your favorite part of the show, our Stacking Benjamin's Headlines.
- [11:58]
Joe Salsihai
Our first headline comes to us from Reuters. This is written by Katie Paul with Remote Work Plan Facebook dashes hopes of paycheck arbitrage. You see this news last week with Facebook's adoption of permanent remote work on Thursday, Chief executive Mark Zuckerberg has untethered one of Silicon Valley's biggest companies from the place that incubated it. Twitter did this as well. And Square Jack Dorsey told people, og don't come back to work ever. Well, he didn't say ever, but he said for the time being, you don't have to come back to work. You can work from wherever you want. All of a sudden, people had dreams of working from wherever. And then Zuckerberg did the same thing just to catch people up. But next paragraph. But he also dashed a Silicon Valley dream. The tech workers would be able to take their generous salaries with them as they flee the Bay Area's crushing housing cost, dirty sidewalks and crowded roadways. This person doesn't write for the Chamber of Commerce.
- [12:57]
OG
Apparently that's how you really feel about San Francisco.
- [13:01]
Joe Salsihai
Wow. As lockdowns dragged into their third month, message boards popular with well paid tech workers have lit up with fantasies of working long term from tropical beaches and spacious houses and affordable small towns in the Midwest. Does this mean I could apply for a job in Silicon Valley and work remotely from, say, the Caribbean? Asking for a friend, wrote one user on Blind an app designed to let workers swap information anonymously. Afraid not, Zuckerberg said, addressing employees in a publicly broadcast live stream on his Facebook page. The company One of Silicon Valley's biggest employers is giving U. S. Staffers who are approved to work remotely until January 1, 2021, to update the company on where they plan to base themselves, at which point their salaries will be adjusted to reflect the local cost of living.
- [13:48]
OG
Can't I continue to base myself in San Francisco and just happen to be living in Barbados or something in your.
- [13:57]
Joe Salsihai
At your second home? Employees who attempt to wiggle around these compensation adjustments will be subject to, quote, severe ramifications. So disciplinary action. You will be fine. Zuckerberg comes over to your house and. Or you got to go over to his house and wash dishes that night. That's probably what's going to happen.
- [14:17]
OG
Considering that Facebook knows everything about everything. Like, have you noticed that when you Google something magically that shows up on your Facebook feed as an ad somewhere, immediately, I'm pretty sure that he would be like, so, oh gee, says he's living down the street here in San Francisco. Your search history says that you're in.
- [14:36]
Joe Salsihai
St. Thomas and that you love Ginsu knives.
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OG
It's exactly what I search for.
- [14:46]
Joe Salsihai
What do you think about this, about changing the pay structure based on where you live? It seems to me that the pay is the pay is the pay. It's. It's the work.
- [14:54]
OG
OG well, the problem is, is that you've created this guideline already. You've said that this job is worth this amount of money. You know, it's going to be tough for people to accept the lower pay even if they do move, because that's the benefit of moving, is that you get the higher pay and the lower cost of living if you do. But by the same token, that's also factored into attracting talent to that area. So you have to pay a higher salary in San Francisco because of the fact that there's higher cost of living and higher housing costs and that sort of thing. So if you don't have that, then your footprint in your organization also starts to shrink. And to be fair, I mean, as an employer also, I wouldn't want to be paying California employment taxes and California unemployment taxes and all the other taxes are going to be an employer. If my employee lives in Nevada, I would want to pay the rates that are commensurate with whatever state they happen to be in. Probably New York and California are probably some of the highest for employers because they're the highest for individuals. So, you know, if all my employees decide to go move to Wyoming or Texas, where there's not any state income taxes, there might be a lower cost for me as the employer also. So shouldn't I benefit from that? If you accurately represented where you are and then if you get laid off, who are you going to call? You're not going to call the California Department of Unemployment. You're going to call the Wyoming unemployment office. So I need to have paid Wyoming to be able to take care of that. So it's not terribly exciting if you're one of these people that wanted to arbitrage it. But I think factually, from a business standpoint, it's how it's got to happen.
- [16:34]
Joe Salsihai
There are two things it says in here that tech workers are worried about. It says they fret. I love that word, fret. About how the shift remote work could exert downward pressure on salaries across the board. They worry about that, rightfully so. Second, though, they also warned that being far from headquarters could steepen the climb up the corporate ladder. I also agree with that. I think what is that closeness makes the heart grow fonder. Mom says.
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OG
I think it's the opposite of that.
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Joe Salsihai
I keep telling Bob she's got that wrong.
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OG
Yeah, like Mom, I don't want to be really close. No, no, you should go.
- [17:15]
Joe Salsihai
But seriously, if you see somebody every day and they do good job versus a person that you never see, you have no idea what their work ethic is. They could be working their butt off. But besides the results, you're not seeing them in action. I think it might be a little more difficult for the average human being to go, hey, I think OG deserves more money.
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OG
If I only had a nickel for every time I heard that, I might have a nickel. But it's true. If you don't have proximity to the leadership, you've got to figure out a different way to do it.
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Joe Salsihai
So I think definitely if you decide to move and work remotely, you have to have a PR plan. The bigger the company is too, or the more responsibilities your boss has, the more you have to have a plan about how you're going to be your own PR executive as well. I mean, to some degree, you're going to have to toot your horn. You're going to have to. There's no way, no way around it.
- [18:08]
OG
Make sure that you head back into the office from time to time.
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Joe Salsihai
Yeah, yeah. Be seen. Absolutely. I think that's going to be lesson number one is the world of work changes. You're going to need to think about how is the corporate ladder changing and also just the world of how you work. How's that changing? That's a whole nother topic. But then second, get that white envelope from a company you've never heard of.
- [18:33]
OG
Could be the government, probably money.
- [18:45]
Joe Salsihai
All right, today we have invited you to be our guest. So congratulations. Many of you have asked us questions. Man, did we get some great ones. Between questions written to us directly, questions that have come from our basement Facebook group. And of course, we'll have the Haven lifeline here in just a little bit. But let's kick it off OG with this one that I found very interesting. Tim asked us what episode he could listen to. He heard recently that we may have problems with target date funds, and he wanted us to just point him to an episode where we talk about that. And I thought, how about this one? Because we haven't a, we haven't talked about it in a long time. And B, according to our numbering, Tim, we're on episode 902. And there was a while that we didn't count episodes, that we, we used to have shorter episodes on Friday, and we didn't count those episodes as true episodes. And we also haven't counted rewind episodes where we, the fintern is here every eight weeks for a week, going back to some of our favorite old episodes. So we may be around episode 1200, and I have no idea. We, we, we've talked about target.
- [20:06]
OG
Someone else should count that and get a free T shirt.
- [20:08]
Joe Salsihai
We've somebody go back and counter episodes for us. Tell us what, tell us what episode we're on of this show. Sounds like grandpa just going, you know, kid, go count the episodes. But let's talk about target date funds, because while there are some good target date funds, there are many, many, many poor target date funds. But before we even get into that, so let's talk about the concept of a target date fund OG and what it does. Because also, not all target date funds do the same thing, and that creates some confusion.
- [20:42]
OG
The idea behind a target date fund is that you pick your retirement or somewhere out there about your retirement. So you're 40 years old, you're going to retire in 20 years, so you pick the 2040 fund. Within that fund is a collection of other investment funds managed by the same company. And as you get closer and closer toward your retirement date, the idea is, is that it becomes more and more conservative, and that's handled for you automatically. So you don't actually have to do that on your own. It's you're 50 now, you're 10 years from retirement now you're investing your money a little more conservatively so that at age 40, your money represents some conservative estimate by this organization, whomever's running it, Vanguard or T. Rowe Price or Fidelity or whomever, whatever they determine is the right allocation for a then 60 year old. So you can think about it like it's getting more conservative year over year and you don't have to do anything. It's a collection of a whole bunch of different stuff, one single line item. So it's kind of easy to deal with. And that's kind of the structure of it. I see people diversify these by saying, I've got a 2030, a 2040 and a 2050 fund.
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Joe Salsihai
Bam.
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OG
Right now, a 2040 and a 2050 and a 2060 fund are all exactly the same, pretty much. Okay.
- [22:09]
Joe Salsihai
It's like you've got CDs in three different banks and you think you're diversified.
- [22:13]
OG
And they're all at 2%.
- [22:14]
Joe Salsihai
Right?
- [22:15]
OG
But that's the problem with them is that a couple of things, number one, probably inefficient. So there are some companies out there, people write in and go, whoa, but what about Vanguard? I love Vanguard. Okay, fine, Vanguard, fine. Well, what about iShares? I love BlackRock. Okay, fine, BlackRock. But there's plenty of companies out there who aren't iShares or Vanguard who have target day funds. And likely they're in your retirement plan. That's where they go. They have to have what's called a qualified alternative. If you don't pick a fund to invest your 401k proceeds in, the company picks it for you. And so that they don't have to even try to think about it, they list off like, I'm going to have 10 target date funds and I'm just going to pick one closest to your 65th birthday for you. Traditionally, this is the place where funds go to die. So when an investment company has an investment that's not performing well or isn't attracting a lot of assets, usually what happens is they merge that fund with another fund. This is what one of the things that they'll do is they'll merge it into a Target Day fund. They'll say, well, this fund and that fund and that fund aren't really doing anything for us. We're not bringing on a lot of money. So let's put it all together and make it one fund. We'll say it's this whole new thing and that should generate more money. But it's, you know, it's one less thing that we have to take care of. So you've got costs on top of costs. Fund to fund. So that's issue number one. Issue number two is that it's generally the crappier of the stuff because if the guy could attract or the gal could attract good money on her own, she's not going to be stuffed. A Target Day fund, probably.
- [23:46]
Joe Salsihai
It, it, it kind of reminds me of in the book Kitchen Confidential by Tony Bourdain, just a brilliant book, by the way, that talks about his career as a chef. He would talk about how any fish that was too bad to eat where, where he couldn't serve it on a platter, they would turn it into a salad and serve it at the Sunday brunch. The Target Date fund for a lot of families is the Sunday brunch of investments.
- [24:16]
OG
Yeah. And that doesn't make it bad. It's just not awesome.
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Joe Salsihai
Right.
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OG
The thing that I hate most about it is this. It assumes that at age retirement you need to be fully conservative as defined by whomever. And we hear these rules of thumb, like, well, when you are 50, you should have 50% of your money in fixed income. Or when you're 60, you should have 60% of your money in fixed income or your age minus 10ish. What should be in fixed income or whatever. I so vehemently disagree with that for a whole host of reasons, namely which, if you're 60, you still have 40 years to live. And I get that you need money a year from now and two years from now and five years from now, but you also need money 30 years from now. And the only way that you can outpace inflation is if you have investments and stuff that outpace inflation. Fixed income simply doesn't do it. So if you're looking at your investment portfolio and you're 60 or you're 50 or you're 70 and the vast majority of your money is in fixed income, you will run out of money. It's just a simple fact. Because inflation is going to eat your lunch. And it doesn't seem like it because it's the death by a thousand paper cuts. But we all have these stories. And Joe, you have him more because you're a lot older than the rest of us.
- [25:31]
Joe Salsihai
But wait, whoa.
- [25:32]
OG
You know the. I remember when gas was. We can't use that one very much anymore because gas is really inexpensive right now. But milk's a good example. I go through 3 gallons of milk a week in my house, at least. I have three kids. It's $5 a gallon for milk. I remember taking a dollar from my dad's wallet and walking to the store to get a gallon of milk when I was a kid and now it's five, five times that. That's an example of inflation. And that's going to continue forever. I mean, you don't see it because it doesn't feel as bad. But when you buy a new car, what do you get? Now there's no 36 month car payments. People don't do that. People do 72 month car payments, 84 month car payments. Why? Because that keeps the payment in a reasonable number. Air quotes reasonable, five, six hundred dollars a month, but it makes you pay for it for seven years because you're buying a $70,000 car. If your money is invested in things that are not going to outpace inflation, you eventually lose that game. And I will even submit to the fact that you may not lose that game, but other people in your family will. And if you're sitting there at 70 years old with more money than you could possibly need and you've calculated it all out and you're like, hey, I'm good. Why wouldn't I be conservative at this point? Then I don't have to take any risk. I want to grab you by the shoulders and shake you around and go, are you kidding me? What a great opportunity. Because you don't need the money. That you can in fact be more aggressive and set up future generations or charitable organizations or whatever.
- [27:07]
Joe Salsihai
If we get a little technical about this, there are two types of target date funds. One type completely, and I know how much you love this phrase, lands the plane at that date.
- [27:18]
OG
The other type, I tend to accept it a little bit more as I've used the word glide slope in normal conversations lately.
- [27:25]
Joe Salsihai
Yeah, but you use it appropriately, not as an analogy. Yes, because nothing OG likes doing at a party more than going, so the glide slope of my, my. So I'm flying my plane. Did I tell you I fly my plane?
- [27:37]
OG
Yeah, that meme. How do you know that somebody does CrossFit or as a pilot, they tell you in five minutes or rides a peloton bike.
- [27:51]
Joe Salsihai
So I'm on my peloton. It's part of my CrossFit workout just before I fly my plane. But some completely in the play, meaning they get incredibly conservative on that date. But most of them even are through that date, meaning they're kind of in the middle of landing the play. But either way, OG they're both too damn conservative. So if somebody out there is thinking, well, wait a minute, I don't have that type. I've got one that just kind of land you're still. If that's the beginning of your retirement, you're saying for most retirements, you're still getting too conservative, too early with too much money.
- [28:28]
OG
Well, and think about the impact of that. All of your calculations are based on what, hey, I've got a stock portfolio. I'm going to get 10% a year. I'm going to get 8% a year. And you're figuring that out when you're at 40 years old. Okay, I got to max out my 401, max out two Roth IRAs. My spouse is going to max out his 401, and then I'm good if I get 8.5%. Well, here you are at 50 with an investment that is designed to only get you seven or six and a half or five or whatever the number is, think about the impact of how much additional money you need to save because of that. And, you know, and that just kind of compounds and goes beyond that, too. And when do you find that out? You find it out when you're three years from retirement going, dang, I thought I'd have more money by now. And then you look at your investment account and go, why is it only averaging 4.5% the last 10 years? That sucks. I need to do something different for these last few years. And instead of having a good plan for 20 years, you just jerking the wheel around with three years to go, trying to get that extra push. You get emotional, make stupid money decisions.
- [29:30]
Joe Salsihai
So this is why I want to talk about this more for Tim again, only because we haven't talked about this in some time. Oh, gee. One of the big things that you and I worry about is compound interest. And people think a lot about saving. They think a lot about asset allocation, putting their money in the right place. But part of what people think, I think too much about is, quote, security when I get to retirement. But security is having enough money. And when you start backing down that chance to get a higher rate of return too early, what you're missing out on is the biggest doubling of all. So as an example, you're 20 years old, you get an 8% rate of return on your money. There's this rule called the rule of 72, where you take the interest rate you think you're going to get you divided into 72. This, by the way, is fun to do with your retirement money all the time. I remember doing this over and over. Oh, my money's going to double. Here, here, here, look at how much money I've really saved. So if you've got $10,000. Let's say at. I don't remember what age did I just say?
- [30:34]
OG
You said 20.
- [30:35]
Joe Salsihai
Okay, 20 years old. Let's say you've managed to save 5,000 bucks by the time, which would be fantastic, right? 5,000 bucks by the time you're 20 and you get an 8% return over time, divide that into 72. That means it's going to take nine years for your money to double. You haven't saved $5,000 because by the time you're 29, that money's doubled to $20,000. And at 38 it doubles again to 40. At 37 it doubles again to 80.
- [31:06]
OG
47.
- [31:07]
Joe Salsihai
At 47. Thank you. Math on the microphone.
- [31:10]
OG
Good.
- [31:10]
Joe Salsihai
Using fingers be not good. At 56 it doubles again. We're at $80,000. And now in a target day fund by 56. If you've base that on 60, a lot of the time they are landing the plane. So that doubling might not even happen. Might not even have happened. That got you that double. But think about how big relatively. Then the next double is. Right. That takes you from. Tells my last number. 80.
- [31:37]
OG
80. Yep.
- [31:38]
Joe Salsihai
Which takes you from 80 to 160,000. I mean, you turn $5,000 into a six figure number, but you blew it.
- [31:48]
OG
10,000 into a six figure number.
- [31:51]
Joe Salsihai
You turned 24 cents into $6 million. Just because I can't do math. No, but you turned, you turned $10,000 into six figure thing.
- [32:04]
OG
Yeah, by 65. Except if you would have had at 56. If that starts getting more conservative, that last double doesn't happen at 65, it happens at 75. Right. Because you go from an 8% return down to a 4% rate of return, all of a sudden it doesn't take nine years to double. Takes 18 or whatever number is. So it's, it's really impactful.
- [32:25]
Joe Salsihai
I have one more issue with this, and it's the same issue that I have with people that tell you to put all your money in one fund. There is this thing a lot of financial planners use and a lot of people who aren't financial planners use called the Efficient frontier. The Efficient Frontier looks back over all the different asset classes and says historically, if you have this mix of investments, depending on your tax rate and depending on the return you need, there has been a most efficient way that you've got there. And even though that changes a little bit over time, doesn't change all that much. So you can get pretty analytical on your own with your own goal. And it's not that Hard to find. And I don't understand when people tell me they're like, well, Joe, a target date fun. People get directionally the right way and that's okay. And I say, yes, person. I just made up for this discussion. That is directionally okay. But when it's just one step further, why do we stop there? It's like we, hey, we decide there's going to be a new world, so we all get on the Mayflower, we get all excited, but then we stand there on the deck and go, yeah, it's right there. Like nobody ever gets off the damn boat. Why, why don't we, why don't we just go one more step from a target date fund and diversify our own money based on our own goal? It isn't that target date funds, oh gee, aren't directionally okay. They are directionally okay. But when the next step is so damn easy and we decide that we're stopping there for some arbitrary reason because we can't spend another half an hour looking this stuff up. Doesn't make sense to me.
- [34:00]
OG
And there, ladies and gentlemen, is the answer to Tim's question. What episode?
- [34:05]
Joe Salsihai
This one right now. Tim, our second question. Oh, boy, we're on question two. At this rate, we're going to get through two.
- [34:13]
OG
I know. Well, maybe we should do a little rapid fire. I said so.
- [34:18]
Joe Salsihai
Well. And actually this one, we're not going to go rapid fire, unfortunately, because Jonathan wrote this one in our Facebook group. And if you want to hang out there with us, head to stackinbenjamins.com forward/basement, and that will take you right to the Facebook page. Gertrude, mom's friend, who is the room mother over there, will ask you a few questions at the door and then you can have fun with us there. But Jonathan said my good friend's daughter just graduated from college. What are some good books for young adults? Just about to start earning full time income once we can start going back into the office. I've seen you remember listening to an episode a while back which Joe interviewed an author of one such book? I did. But before we get into authors. You know what, og? Let's widen this topic a little bit. People graduating right now, what are the big things to know? And just in time, I think I hear the phone ringing. Hello, Mom's basement, this is Joe.
- [35:17]
Christine Benz
Hey, Joe, it's Christine Benz from Morningstar.
- [35:19]
Joe Salsihai
Hey, Christine, how are you?
- [35:21]
OG
I'm good.
- [35:22]
Christine Benz
I'm hanging in there. How about you?
- [35:24]
Joe Salsihai
Well, good, and it's great to talk to you. And it's funny you called right now because believe it or not, we just got a letter from a man named Jonathan whose daughter is graduating from college. And what timing, because you just wrote something about that, Christine.
- [35:39]
Christine Benz
I did. I wrote a piece offering advice, financial advice to new grads because they're graduating into such a weird time. And so I think there are some things to talk about that are specific to this environment, as well as some things that are more sort of evergreen pieces of financial advice.
- [35:57]
Joe Salsihai
Well, OG and I are going to weigh in on a specific question, which is what books do we recommend, but just in a broader context. What do you think the most important thing is for somebody graduating college that they need to know right now?
- [36:10]
Christine Benz
Just make sure that you aren't spending too much time comparing yourself to your peers, because it's a fraught time. There's a lot going on, obviously in the macro environment, but also it's a stressful time. And so the trap that people can fall into and they can stay in it for a long time throughout their lives is that they're just constantly benchmarking their financial success relative to other people. So you're looking at what sort of apartments your friends are renting or what kind of cars they're buying or whatever it might be, and you just get yourself on this treadmill that ultimately doesn't provide much happiness and add stress to your life. So whatever you can do to kind of get away from that comparison trap, the better for your long term mental health as well as your financial health.
- [37:05]
Joe Salsihai
It's funny, Christine, whenever I talk to financial planners, they always tell me the number one question they get is how am I doing versus everybody else you work with? And every and every financial planner I talk to says their number one answer is, who cares? It's you against your goals.
- [37:21]
Christine Benz
Exactly, exactly. And this is something that we work with investors on about. Why the best benchmark is how are you doing relative to your proximity to your goals, not how you're doing relative to your peers or your neighbors or or even how the market has performed at large. It's how close you are to reaching your goals and whether with each paycheck you can get a little closer to that.
- [37:47]
Joe Salsihai
Now I have that framework of it's me against my goals. What's the next thing I think about?
- [37:52]
Christine Benz
Well, I think a key thing to think about, no matter your life stage, is do you have some kind of a safety net in place in case something happens to your well laid plan? So, you know, we often talk about the importance of people having an Emergency funds, just some sort of reserve set aside to tide you through a problem like what we're going through where we have very high unemployment rates, for example. The idea is that you're setting aside some liquid reserves. The nice thing is when you're coming out of college, you're used to most of us making do on very little. You know, you may be used to eating ramen, you may be really loving shopping in the thrift shop for your clothes. So you probably have not engineered yourself into this really high standard of living. That's great. That's a terrific life stage to really begin building an emergency fund, building up those liquid reserves.
- [38:51]
Joe Salsihai
It's funny because during the, the boom years, remember that that ended like just a few months ago, right?
- [38:59]
Christine Benz
I do.
- [39:00]
Joe Salsihai
During the, you know, back in the day when we traveled Nate at restaurants. During those days though, I remember people fighting me all the time, Christine, on that safety net because it doesn't earn any real money. And yet look at now if people with a safety net, really, I think we all have a better appreciation for a safety net that we did just a few months ago.
- [39:18]
Christine Benz
Absolutely. And you know, the nice thing about the life stage of someone who's just come out of college is sometimes they really haven't laid their life plans yet. So they may be content living at home with their mom and dads. In fact, I have some peers who are mom and dads who say that they're really loving this time with their new grads, with their young, young adults. And so I think that that's a good thing about this life stage.
- [39:46]
Joe Salsihai
I'm going to link to your piece on our shownotes page@Stacky Benjamin.com and I just pulled it up. Your. Your next bullet point is to let return on investment light the way. That's a big one. But I want to focus on the next one. Get started on long term investing even if you're starting small. You and I both know, Christine, that people don't start early enough. And what's cool is if you're lazy like I am, if you start earlier, your money will do a lot of the heavy lifting so you don't have to.
- [40:13]
Christine Benz
Absolutely. And the thing I think people don't realize is that you can get started in investing with very small amounts. That advent of exchange traded funds, low cost index funds, is great for small investors. You can start an account with as little as $100 and if you add to it regularly, that can be so incredibly impactful even if you're not adding large amounts. So if you've got graduation gifts, for example, and you don't need the funds immediately, or you don't need all of them, what a great idea to open an account, potentially a Roth ira, if you have some earnings, some income and get that money working for you. So it's much more impactful than if you say, wait a few years until you feel like you're on better financial footing. If you can get those money, get the dollars working as soon as possible.
- [41:11]
Joe Salsihai
When I'm investing, especially in these long term investment spots, what do you think a good starting allocation would look like? Where should I maybe think about and not think about just in general without getting into specific funds?
- [41:24]
Christine Benz
Well, I think you want to let your goals light the way. So if you're investing for really long time horizons, so if you have a time horiz of like 10 years or something like that, I think a good core index tracking fund makes a ton of sense. You can buy a fund that owns all of the stocks in the world in a single shot. And so I think that diversification is the way to go if you have shorter term goals. So if you're thinking, well, I might want to buy a house within the next five years or something like that, in that case you'd want to be more conservative. You'd probably want to think about just maybe a short term bond fund or maybe some sort of a balanced fund because your goals are closer at hand.
- [42:11]
Joe Salsihai
Yeah. What do you think about during this uncertain time in the labor market with so many people unemployed, foregoing maybe getting a job and instead looking at more education? What are your feelings there?
- [42:24]
Christine Benz
Well, I think you want to balance it. The thing that you want to be careful about is really sticking your neck out and taking on a lot of debt in an uncertain environment. But I do think that sort of the young years right after college are a great time to invest in additional human capital. Doesn't mean that you sign on for several years of law school or you have to go to med school or anything like that. It just means that as you are getting your career up off the ground, that you are pursuing additional education. Maybe it's some training that your employer pays for, maybe it's some sort of certification that will add to your value. But I love the idea of making those investments in human capital before you have other complicated stuff going on in your life. So before you have children, maybe before you're married and you're spouse is expecting a certain amount of time from you, it's a really great idea to think about making Those investments of time and money in burnishing your human capital, so growing your ability to earn money over time.
- [43:33]
Joe Salsihai
Christine, where were you when I was 23?
- [43:36]
Christine Benz
Where was I when I was 23? I was living at home and yeah, having fun, which is important at that life stage, too.
- [43:45]
Joe Salsihai
Yeah. And I love your last point here. That really puts a cap on everything. If you don't mind, share with everyone how you finish out this piece because I think this is probably the best advice of all.
- [43:55]
Christine Benz
Yeah, well, it's so important to think about how you are allocating your time and this is something that's important to all of us at every life stage, just to stay mindful about whether you are allocating your time in line with your values and what you find important. I think this is a good time to maybe pick the brains of people you respect and love and ask them what allocations of their time are they really grateful they made. So maybe they had a friend who was not well and they spent the time visiting with them and learning from them. Just being mindful about how we spend our time is just as important as being mindful about how we spend our money. And it's something to consider throughout our lives, not just at the life stage when you've just emerged from college.
- [44:46]
Joe Salsihai
It's funny, the older I get, the more that that rings true. I think when I, when I was 23, I was thinking, Joy, I can worry about Joy later. I'm going to do the grind now. And yet I look back and think, man, man should have. I wonder, Christine, if there might be a place where I might get more of this goodness.
- [45:05]
Christine Benz
Well, yes, thank you. It's Morningstar.com is our website. It's mostly all free. All of my work there is free and all of the articles and videos and everything else are free. And we have lots of great research and data that's available so you can research investments and also find good personal finance advice.
- [45:23]
Joe Salsihai
Well, what a timely time for your call. Thank you so much for helping us and helping Jonathan with his with this question here.
- [45:30]
Christine Benz
Oh, well, thank you so much, Joe. It's been my pleasure.
- [45:34]
Joe Salsihai
Big thanks to Christine. Congratulations. What a weird year to graduate from college. High school. Anything? We were walking around Purdue University last week and all the graduates out there in their caps and gowns, taking pictures, having their own personal graduations. Just a strange year. That's something. Hopefully that this year's class will be able to say that no other class will be able to say. Fingers crossed that they had this unique, unique year of graduating but, but let's go on. From what Christine said, the broad based. What do they need to know? To back to Jonathan's original question. What are some books you like? Og, if you're giving a graduate a book, what do you like?
- [46:18]
OG
Like a really short one. It has. It's like a card that says congratulations and there's money inside books that I like.
- [46:28]
Joe Salsihai
Oh, boy. Why don't I go first while you think about it then? Brian Ursu.
- [46:34]
OG
Depends on the topic, I guess.
- [46:35]
Joe Salsihai
I mean, Brian Ursu is the person who, who Jonathan was referring to. Brian will link to his episode that he was on in the show notes. He actually is a financial advisor in northern Michigan, and his daughter said, dad, I want some books about. About what I need to know. So he gave her all of the typical books and she came back with, man, these feel like they're written for somebody who isn't just out of college. And he laughed and said, well, what if somebody wrote a book like that? So he wrote a book called now what that I really like, and we can link to that also. Second, a second book I like, not specifically about money, but just about what to think about life. A couple years ago, maybe 18 months ago, we interviewed Colleen Bordeaux. My interview with Colleen, frankly, surprised me. Not because it was good and not because the book was good, but because we get tons of pitches a week for people that want to be on this show. And when I was combing through them, her, her pitch was so good for some, for someone that I'd never heard of. And then I requested the book, and I thought when I requested her book that it wasn't going to be that great. And it blew me away. And it's called Am I Doing this Right? And it's this great wisdom for people just out of college. Oh, gee, pretty much about everything. So if you just want somebody who is wise beyond their years. I really like Colleen Bordeaux's Am I Doing this Right? My kids, when they graduated from college, they were attracted by two different books. My son loved our friend Scott Trench's book Set for Life talks about how to accumulate your first $10,000. And then in the middle, it talks about how to get to your first hundred thousand dollars. And then the end of it is how to get to a Million. And it's three steps. And my son still lives by that book. That is. That is has been his guide. My daughter was very attracted to Erin Lowry's book, who's also been on the show a few times, broke Millennial. That is much more a guide to living a frugal life with. With money. Realizing that what you earn and what you spend are two totally different things. And having just a good head on your shoulders about money. If there's anybody that has a great head on their shoulders about money, it's Aaron Lowry. Fantastic. So we'll link to all of their interviews, talking about their books if you want to dive into those. Those are a couple that I really like.
- [49:11]
OG
I agree with you on both of those books. I'll add to it a couple of little more philosophical ones. Richest man in Babylon I liked a lot.
- [49:19]
Joe Salsihai
Yeah, I like that book OG because it's just a story.
- [49:23]
OG
Well, that's kind of the trend for me. I really like storybooks. Not a big fan of books that are.
- [49:30]
Joe Salsihai
With lots of words.
- [49:32]
OG
Yeah, taking a pictures, that's helpful. Drawings tell the story. But anyways, I think David Box to Automatic Millionaire is pretty good. It's pretty simple to get through. The idea is, you know, just set yourself up for systematic type stuff and automate your way to it. I obviously disagree with the you can make yourself a millionaire by not drinking coffee. But I understand the premise behind it. Earlier we were talking about having to be your own PR person. There's a book that I read years ago called Brag by Peggy Klaus. It says how to blow your horn without. Or how to toot your horn without blowing it, which is, I think is a little turn of phrase there. But it's. Yeah, it's just like how to. How to weave your accomplishments into the story so that it doesn't sound like you're being boastful. I think people sometimes just don't. You know what I mean? It's just not very easy for you for people to. To talk about what they're good at or whatever.
- [50:36]
Joe Salsihai
Yeah, that's great. On that note, by the way, Keith Ferrazi, Never Eat Alone is a classic book that has come in great on that front. And we also had Susan Roanne on a couple of years ago talking about her book, which is now one of those classic books that people hand out, which is how to work a room. And whenever you go to any event, being able to effectively work the room is absolutely great advice. Great advice when it was written over a decade ago, maybe over 20 years ago now, and still great today. And I'll link to the episode where we had Susan on a couple other.
- [51:16]
OG
Ones pop in my head here on leadership. So West Point way of leadership I thought was pretty good. And then I'll tell you something that really helped me early was a subscription to Harvard Business Review, which sounds a little. A little intense, but just reading that stuff and just how other people were thinking about things and then kind of going down the rabbit hole of going like, I like how this guy is writing about this topic. Most of those people who write for that also have other books out or certainly lots of other articles. So it just provides a, you know, a more advanced conversation than maybe what you're used to in your dorm room. Let's say. I'm surprised it's a bad idea to be ahead of the curve.
- [51:59]
Joe Salsihai
No. And I'm. I'm surprised that you said that. But I really like that it is. For people that haven't priced our business review. What OG just said isn't cheap. It is.
- [52:10]
OG
It's probably 120 bucks a year or something.
- [52:12]
Joe Salsihai
Yeah. It's going to be an expensive magazine subscription. However, what Harvard Business Review does really well that I like about your recommendation is not only are they talking to the top thinkers in the world of work, but the discussions that they're having, every issue of that are so timely. Like, they are having the top conversations that are going on in the workplace as they're happening. So not only are you on top of current events, but you're also getting some pretty usually timeless thinking about how leaders are thinking about those events.
- [52:51]
OG
Yeah. Leadership strategy, whatever. And the only other thing that I would add for new college graduates is don't stop working out. So whatever you're doing right now, you got to do it until you're 100, because when you turn 40 and you try to start doing it again, everything hurts.
- [53:07]
Joe Salsihai
It's absolutely great advice. I thought I didn't have time to work out anymore after being a college athlete and immediately became this pudgy dude who didn't take care of himself. And still regret that today, because I try every day now not to be a pudgy dude who doesn't take care of himself. And I've been working that forever. Run all those marathons, and I still.
- [53:29]
OG
Man, still the pudgy dude.
- [53:31]
Joe Salsihai
Still the pudgy dude. Don't get out of shape. All right. Oh, gee. And I. It's time for us to grab a cup of coffee. Doug really wants to celebrate. Get out of work early. Early day, I think.
- [53:44]
OG
I thought we were getting done early.
- [53:45]
Joe Salsihai
I know. What's up with that?
- [53:47]
OG
Yep. And too long.
- [53:48]
Joe Salsihai
But Doug's got it from here. And we'll be right back with more of your letters here in just a minute.
- [53:57]
Doug
Hey there, trivia fans. You know I'm pretty much the James Brown of this podcast because I am definitely the hardest working man in trivia. Joe's mom's neighbor Doug. And even though the calendar says today is national leave the office early day, we all know that I am far too valuable to leave before delivering on to you and yours. The best part of today's show? Yeah, the trivia. While everybody's out at the neighborhood pool, what could possibly go wrong with that? I'm here making sure Americans and Americans abroad and people who want to be American. And I guess even those people who maybe never thought about being American for that matter, you know, and maybe even those who thought about it but maybe got distracted along the wait.
- [54:40]
Joe Salsihai
Whatever.
- [54:41]
Doug
You know what I'm trying to say. That's right. Time for me to head out to show Joe's mom's friend Gertrude what real cannonballs look like. But first, today's question is an important one because we all wonder how often people really leave the office early. How about this? How many hours does the average full time American work per week? I'll be back with you. Right answer. Faster than I'll be cannonballing into that pool.
- [55:13]
OG
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- [55:40]
Joe Salsihai
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- [55:57]
OG
I don't know if you knew this.
- [55:58]
Joe Salsihai
But anyone can get the same Same premium wireless for 15amonth Plan that I've been enjoying.
- [56:03]
OG
It's not just for celebrities. So do like I did and have.
- [56:06]
Joe Salsihai
One of your assistants assistants switch you to Mint Mobile today. I'm told it's super easy to do@mintmobile.com Switch upfront payment of 45 for 3 month plan equivalent to $15 per month Required intro rate first 3 months only, then full price plan options available, taxes and fees, extra fee, full terms@mintmobile.com.
- [56:29]
Doug
Hey trivia fans, Joe's mom's neighbor Doug here. I've just been thinking about today's Trivia question. How many hours does the average full time working American work per week? And I was just doing the math, and it appears no one works as hard as neighbor Doug. Yeah, but you knew that. I mean, Joe and Og, they take hours off to either like, go fly a plane or go to dinner, Disneyland, or play board games and talk about them non stop. Which means, if you've been paying attention, it's yours truly, who's really the only person keeping this show on the rails. Like all the times they don't finish their Netflix episodes. Who finishes for them? Me. Or what about that time they didn't finish that Mario Kart level? Yep, me. Score another one for me. And then there's the required two hour daily nap I gotta take just to stay fresh. And there's three hours of TV time so I can, you know, do research and stay up on current events. Come on, people. Seriously have no idea how I do all of that in a day. Which brings us back to today's trivia question, which was how many hours does the average full time working American work per week? And according to data from the recent survey, the average full time employed American works 47 hours per week. Four in ten workers reported logging in at least 50 hours a week. Yeah, sure, it sounds like a lot, but they still don't have a leg to stand on compared to my 70 hour work weeks. I really gotta wrap this up because my union says it's time for a nap.
- [58:06]
Joe Salsihai
Nice job there. You were close. You said 45, 47 hours a week.
- [58:12]
OG
It's too much. Work harder, work smarter, whatever. Same, same.
- [58:18]
Joe Salsihai
Yes, I know you think that's less.
- [58:20]
OG
Than 47 hours is what I mean.
- [58:22]
Joe Salsihai
You think that's too many hours. Unless they work for you, then it's not enough.
- [58:27]
OG
And everybody who works for me would tell you that I have never once asked them how many hours they work that week. I asked them if they got their stuff done.
- [58:33]
Joe Salsihai
You're not the Ebenezer Scrooge in this story. No.
- [58:36]
OG
Oh no, I'm that. But I don't. But I don't ask how many hours.
- [58:41]
Joe Salsihai
Hey, let's take a quick break here and answer the Haven lifeline. OG we're going to tackle some of life's most important questions. And today we're going to throw out the lifeline to our friend Tammy.
- [58:56]
Tammy
Hey, Joe and og. My name is Tammy. I'm from Portland, Oregon. I love your podcast. It totally cracks me up. I do have a question, but I'd like to give you a little background first. So I'm 56 years old, recently divorced. I work as a nurse at the VA Medical center and I'd like to retire when I reach my full pension age of 62. At that time I'll receive about 2000amonth in pension and then Social Security. I'll take that at a later time. I'll own my own home outright in about a year. It's worth about $550,000. I have 425,000 in my TSP account, 170,000 in various Vanguard accounts, and a 6 month emergency fee. I max out my TSP retirement at 19,500 per year plus I contribute the 6,500 in catch up funds every year. I live a little pretty frugal life. Besides, I do travel, but I travel frugally. So my question is, years ago when I started investing in tsp, I only invested in the G Fund. I did convert to the Link or the Lifestyle 2030, 2040 funds later on, but still have 160,000 sitting in the G Fund making little interest. Do you think I should take a chunk of that G Fund money and put it into the Lifestyle Fund in hopes of increasing future earnings? Thank you so much guys for taking my question. I look forward to hearing your recommendations or advice. Keep up the good work. Love your show.
- [60:55]
Joe Salsihai
Hey, thanks for that question, Tammy.
- [60:57]
OG
And asked and answered, your honor. Let's go through it again. This is exactly right though. This is what I was talking about. She has the G Fund, which for those who aren't familiar with tsp, there's five major places you can put your money. The C fund, which is the S&P 500. The S is a small company fund and I is international. G is government bonds and F is fixed. So she's got all her money in government bonds and then a whole bunch of money in 2030, which I don't even have to look up, I already know is pretty conservative. The Lifestyle fund is a target date fund by the government. So all of her money is super conservative and wants to retire at 62 and will likely live another 30 years. So that money will run out because of inflation, likely because of the fact that it hasn't grown. And now we're at this weird position. Right? Because she's 58 and she says, hey, I want to retire in four or five more years. Do I start getting more aggressive now that I'm right on the door? The time to do that was 20 years ago, when this $400,000 would be worth a million. For right now had been investing in stocks the entire time. So I don't know the answer to this. Based on what she said, it sounds like, you know, her pension will be a few thousand bucks. Social Security probably will be a few thousand bucks. With a TSP of half a million, that can easily be a few thousand bucks a year in terms of income. So without a house payment and 4, 5, $6,000 a month of income should provide a pretty nice lifestyle.
- [62:37]
Joe Salsihai
Yeah. And it's interesting. Oh gee. As you're talking, just to define it for people, what I think that you're going through right now is while Tammy was very specific and people think about all the time, the things that they have to draw from. The key question here that we don't know the answer to is while she says she's frugal, when is she going to need each dollar? Because if she's going to retire soon and needs a bunch of that $60,000, you certainly don't want to move it out of the G fund now. But if her goals are longer term, then move all of it out.
- [63:10]
OG
Yeah. This is just a great example of exactly how this story ends every time. And I swear, hand to God, I had no idea that this question was coming when I said this 25 minutes ago about the target date funds. But this is exactly how this story ends. You get to the point where you're a few years out and you go, I just don't think it's growing fast enough now. What? And it's too late at that point by being conservative or being in stupid target day funds. So here's what I would do. I would say that in all likelihood, assuming that your cash flow is. When you say frugal, you and I are talking about the same thing. Maybe $4,000 a month and your Social Security and pension will cover most of that. And then this money is going to be designed for when your lifestyle costs increase beyond what the increases of Social Security. And your pension will be probably flat. So there's probably not any increases with that. But eventually you're going to need to draw from this investment portfolio. But hopefully that's not for a period of time. And if that's over 10 years from now, I'd say this money needs to be invested in equities just like you would have if you had a 10, 20, 30 year time horizon, because you do have a 10, 20, 30 year Time Horizon and you have a cash reserve. So that's good too. And just be okay with the fact that it's going to go up and down A whole bunch more.
- [64:25]
Joe Salsihai
Yeah, right. Exactly. When you move the money out of that fund, you're going to see the C is going to get a little choppier. It's going to get choppier.
- [64:34]
OG
Oh, yeah, that's what C means. C stands for choppy. Choppy ride.
- [64:39]
Joe Salsihai
What does S stand for then?
- [64:41]
OG
Not smooth.
- [64:44]
Joe Salsihai
Way not smooth. With small companies. What's.
- [64:47]
OG
I mean, I hope this goes back up.
- [64:51]
Joe Salsihai
I thought you were going to say like International waters. Very choppy. Yeah, maybe I don't. Tammy, thanks for that question. And by the way, you know we're about to get a bunch of emails. I know. Ahead of time. OG people asking if their target date fund is okay.
- [65:07]
OG
No, they all suck. End of story.
- [65:10]
Joe Salsihai
But here's the thing. Remember, there's two different problems. There's the problem that they get too conservative too soon and there's the problem of fees. I will say, much like OG opened up the argument by saying, listen, the Vanguard fund's fine. The BlackRock one's fine. I believe the Fidelity one is fine.
- [65:27]
OG
On the cost side.
- [65:28]
Joe Salsihai
On the cost side. Also the TSP one on the cost side, absolutely fine. On the cost side. Still wouldn't use it. But on the cost side, you're good there. If you've got a question for the show, there's one thing that's different about Tammy's question, everybody else's that we're talking about today. Tammy called in with hers and because she called the Haven lifeline, guess what? We are sending her the greatest money show on Earth T shirt. Brad was just a stacker of the week in our basement and he said that that was his favorite design. I think it's my favorite design as well. Stacky benjamin.com forward/voicemail. If you'd like to have us answer your question as well. Let's get back to the mailbag though. Oh gee. We had this question from Peter about refinancing. You know, oh gee, rates are low and he asks this question. My current rate is about 3.8%. So 30 year mortgage. Would it make sense to go after a two and a half, 15 year if I can get it, yes.
- [66:32]
OG
Do we have to add more color commentary to that one?
- [66:36]
Joe Salsihai
Just go for it. I think I would because people are more interested not in the yes or no. I think they're interested in how you think about that.
- [66:44]
OG
Well, I think you have to think about this from the perspective of whether or not you want your house paid off. There is very real truth in the idea that you should borrow money at a very low rate and invest money at a very high rate and arbitrage the difference. But I can also tell you that not having a mortgage payment is also pretty awesome. So there's a balancing act in there and you have to decide where the balance is right for you. Because interest rates have gone down so much, it's become very attractive to do this 15 year program. And I don't see why people don't do that. Because you're giving up years and years and years of house payments and buckets full of interest. Even if you said, hey, I'm going to keep my loan the way it is, but I'm going to pay it off over a 15 year period. Just by having the 15 year mortgage at lower rate is going to save you tens of thousands of dollars. If you're going to do the whole, I'm going to borrow money for 30 years, refinance it, but I'm going to invest the difference. I salute you. But I can tell you how this ends. You don't actually end up using the money for your house. So if it's important for you to pay your house off early, you can't do it any other way than just having higher payment. I've never seen anyone in 22 years of doing this work take 200 grand out of their account to pay off their house. I've seen people take 20 grand out of an account to pay off their house. I always say that nobody makes their last house payment.
- [68:10]
Joe Salsihai
No. But I'll tell you what does happen. I mean, I mean to be fair here, because I've also seen this a lot og and I'll start off by saying you don't want to do this if you're not going to follow this to the T. Because there's a lot of math wizards out there that say that they can do this and then they end up doing nothing. I've met so many people, professors, so many people who are, who know all the answers but follow none of them. But one thing that I successfully did with clients and have done to some degree myself is take out the 30 instead of the 15. You only want to do that if the, if the rate difference between the 15 and the 30 are close and for different reasons, which beyond the scope of this question. Sometimes those rates are very close together, sometimes they're a lot different from each other. So if the rate is close, figure out what the 30 year is. Figure out what the, what the payment would be for the 15. Take the difference between the 30 and the 15 and invest that in an S&P 500 mutual fund. Just like Og said. That way over time, historically, by the time you reach 10, 12, 13 years, that money's grown much faster than the interest rate that you paid out on the mortgage. Historically, it used to be a little bit better before the tax law change because you could also keep a higher tax deduction. So that worked in your favor for most Americans. Now that's gone because the standard deduction now has become what most people use on their tax form. So you're not itemizing anymore. But still historically in most markets you've come out well ahead. To Og's point, I've never seen anybody use that money to pay off the mortgage. Been a great strategy, lots of extra money sitting there. Also, if you have problems, you're able to then not worry about your house as much because of the fact that you only are going to be responsible for that smaller 30 year payment than the 15 year payment that you have with the 15. But I have seen this. Even though people don't pay off the mortgage, they will have that pile of money make the mortgage payment because they've seen how it's grown faster. So they'll then hook that up and have that make the payment. Then they don't make the payment anymore, which frankly for a lot of people, that's what they're worried about. I will say though, I see a lot of people take this concept of invest the difference between the 15 year and the 30. Do all the math, OG. And then they never do it.
- [70:47]
OG
And then they never do it.
- [70:48]
Joe Salsihai
Yeah, yeah. They say they're going to do it and they don't do it. It's just like people that say, and I'm not advocating for permanent life insurance versus term life insurance, but when somebody tells you to buy term life insurance and invest the difference between a permanent policy and a term policy, I never see people invest the difference. Yeah, they don't do it. And by the way, that doesn't make permanent policies better. I'm just saying I hear that all the time, buy term and invest. The difference that I throw up in my mouth a little bit because it.
- [71:18]
OG
Just sounds great, you know, that's what people say and it sounds cool.
- [71:22]
Joe Salsihai
Doesn't happen.
- [71:23]
OG
Yeah, but I would do the 15 because it's hella good interest. And trust me, in 15 years from now you're going to be happy that you did a 15 year mortgage. You may not be happy over the next 15 years, but in 15 years from now you will be happy. Get that Crap paid off and then you have 15 years of not making a house payment.
- [71:42]
Joe Salsihai
Our next question comes from Mary and she actually gave us an email link to the Economist and a piece that she wanted us to talk about. And this is in the Leaders section of the mid May edition. May 14 edition Has COVID 19 killed globalization? It says the flow of people, trade and capital be slowed. The piece reads, even before the pandemic, globalization was in trouble. The open system of trade that's dominated the world economy for decades, been damaged by the financial crash and the Sino American trade war. Is it Sino or Sino? Now it's reeling from its third body blow in a dozen years as lockdowns have sealed borders and disrupted commerce. The number of passengers at heathrows dropped by 97% year on year. Mexican car exports fell by 90% in April, 21% of Trans Pacific container sailings and may have been canceled as economies reopen. Activity will recover, but don't expect a quick return to a carefree world of unfettered movement and free trade. Thanks for sending that in, Marian. She wanted us to discuss it. And I have some definite thoughts, Og.
- [72:49]
OG
I have none. So this will be all on you. My own, my. Well, that's not true. I have one thought, two thoughts now. I'm having lots of thoughts. Why bother yourself with this?
- [73:00]
Joe Salsihai
That's my first thought, which was my thought. If I was still a financial planner like you are, I would have clients bring this stuff to me and say, hey, this is what we need to worry about. And then I take that piece and I say, this is important stuff, but I'm going to set it over here. And let's talk about why you're not saving enough money because of these things. There's one that we can control, number one. We can control how much you save. We can.
- [73:28]
OG
Also, it doesn't mean that the market's going to crash because of the fact that the imports from Norway are going to slow. Based on the herd mentality of the transatlantic Greenland versus North, I have no freaking idea.
- [73:46]
Joe Salsihai
I love that chart. And I don't know if you have this chart, Og, but you and I have seen this on a lot of things.
- [73:52]
OG
I give up about things I don't.
- [73:56]
Joe Salsihai
Just two items on the chart. No, it's. It's the chart of the stock market going up over time, long periods of time. Because the stock market, even though it's not the economy, is a reflection of company's ability to make money over time. Right? That's what it is. So if that's the case. The stock market always, by always I mean over long periods of time has to go up. Doesn't mean it's going to go up every day, but over long periods it has to go up. Otherwise there's no profit happening. Companies aren't making money, companies go out of business. We've got bigger things to worry about. If everybody goes out of business, well, then all we need isn't even gold. We just need a gun and a cave and some rations, hopefully enough water to keep us moving and that's what we need. What we need otherwise is to know that this type of thing that Marion sent to us, and this is what I like about this chart because it's a chart of the stock market going up and then all these points in time why you shouldn't invest right now, have you seen, you've seen that chart and I love it. It goes back to the 1920s and every stinking reason why you shouldn't invest. And it's like every, every three years there was another one. And by the way, and they weren't bad reasons, always great reasons why it doesn't make sense to invest at that time.
- [75:12]
OG
Yeah, I think that ultimately there are some really, really, really smart people out there. I don't think that you and I proclaim to be either of those people that are out there. But you know, does this stuff have an impact? Sure, maybe. I don't know. But the real question isn't what does it, how does it impact the global economy? It's how does it impact you? And I believe so strongly in the fact that people are going to continue to figure out a way to be profitable in whatever shape or form they need to be profitable in. The really smart people in this world are running the really big companies and their only job is to make money. That's what they're trying to figure out how to do. And if you think that that's the case, then then why wouldn't you invest? And you're right, it might not go down, might not go up today, but at the end of the day, that's the only thing you can control out of all of this.
- [76:06]
Joe Salsihai
So thanks for that question, Marion. I do think a little differently, don't you, OG? If it affects your income stream, if your income stream is based on globalization, that's what your company does, where your income's coming from. Well, then I think differently in terms of your portfolio. I agree with everything we just said. But if I'm working at the five and dime store downtown, that doesn't hasn't served its customers all that well. And Walmart just moved into my little town.
- [76:34]
OG
Yep.
- [76:35]
Joe Salsihai
Probably need to be thinking about that.
- [76:37]
OG
Yep.
- [76:38]
Joe Salsihai
So whole different discussion there. And that's just diversifying your income streams. Right. Always thinking about where's, where's that golden goose, my income stream coming from and how do I make sure that it, that it keeps going? So thanks to Mary, and by the way, thanks to everybody who's left us questions, that's going to do it for today. Hey, thanks to you for hanging out with us again today. On Friday, we're going to have some more fun, fantastic roundtable discussion about a recent blogger piece. That's what we do every Friday here on the show. And finally, most finally, if you feel like, you know what, it's time for the recovery and I want to be faster at the recovery and better at the recovery and make sure that all my ducks are in a row. Oh, gee. And his team are taking clients. So to see how they can interface with you and your current team, head to stacking benjamins.com forward/og for more. All right, that's going to do it for today, Doug. Finally letting Doug go. Take it from here, man. What should we have learned today?
- [77:36]
Doug
Yep, sure thing, Joe. I'll tell everybody what we should have learned today. First, take a lesson from our headline. If your child somehow makes it out of college with some money from their 529, then you have some options with that money. Second, take a lesson from Christine Benz from Morningstar looking to help a graduate. Help them think long term. Sure, there's lots of short term worries, but the quicker you build a foundation, the better off life will be for them. But the big takeaway away. According to Joe, not all of my reported 70 hours count as work. He says, get this, I work 24 minutes a week.
- [78:18]
OG
Ha.
- [78:18]
Doug
My naps add up to more than that, dude. Good one, Joe. Nice try. Looks like another labor dispute brewing here in the basement. The whole crew here at Stacking Benjamin's would like to send a special thanks to our two legends listeners for changing their names every time they send in a new letter. Those listeners are so smart and creative. Good questions, people. Thanks also to Christine Benz. You'll find the Morningstar blog and more on investing@morningstar.com this show is created by Joe Salsihai, produced by Taylor Stevens and engineered by the amazing Steven Steve Stewart online. Visit us on Twitter benjaminscast or on our Facebook page. I'm Joe's mom's neighbor, Doug, and I'm a Lot deeper than you realize. In fact, sometimes I just stand in front of my mirror and reflect. SB Podcasts may receive payment on the show from sponsors and guests in the form of books, giveaway items, discounts, or other remunerations. That's a big word. There's no way you'd take advice from these dorks. But like Joe's mom always says, don't take advice from people you don't know. This show is for entertainment purposes only, and before making any financial decisions, consult with a real financial advisor.
- [80:16]
OG
Foreign.
- [80:34]
Joe Salsihai
Welcome to the after show. This is the part of the show that doesn't exist. What happens here, guys, stays here. If you're here for more money, talk. Most of the time you can say goodbye and. But today we're going to talk a little bit of money, because money factored into a recent exchange that OG had.
- [80:52]
OG
My wife and I were at dinner, and we were sitting next to Tim McGraw on Faith Hill, and they invited us to join them for dinner. And my wife's like, hey, we should do this. And I said, no.
- [81:04]
Joe Salsihai
And they're just sitting right there. They're sitting right at the next table.
- [81:08]
OG
Like, hey, why don't you join us?
- [81:09]
Joe Salsihai
But is it also one of those things where you're sitting and you kind of look over casually and you realize, that's Faith Hill?
- [81:18]
OG
Yes.
- [81:21]
Joe Salsihai
Yeah.
- [81:21]
OG
They're like, hey, why don't you join us? And I'm like, no, it's okay. And my wife's like, yeah, we should do that. And I said, no. They really don't want us to, you know, because they're, like, filthy rich, and they just say that to be nice. I mean, like, really rich. I think they don't want, you know, strangers dining with them.
- [81:39]
Joe Salsihai
Right?
- [81:39]
OG
They're just being.
- [81:40]
Joe Salsihai
They're just polite.
- [81:42]
OG
They're being polite. Like, hey, why don't you join them? Like, no, it's okay. You guys have your dinner.
- [81:45]
Joe Salsihai
I said that to people before.
- [81:46]
OG
Still kind of sitting next to us.
- [81:48]
Joe Salsihai
You've said that to people before. You're like, hey, why don't we do. And the whole time you're thinking, I hope they say please.
- [81:52]
OG
Say no. Please say no. Right? So this goes on, we have dinner, and then the whole, like, next day, she's super peed off, right? Like, I can't believe we would have been friends with them. And it's. I mean, she's calling her friends. My stupid husband wouldn't let me have dinner with Tim McGraw. Faith Hill, they were totally our people. You know, this whole thing's going on. I'm like, sweetheart, listen to me. They do not want to be our friends, you know? And I said, you know what? They live down the street from us. So just walk down the street, knock on the door, bring them some brownies and be like, hey, remember us? We were at dinner. We would like to be friends and see what really happens.
- [82:33]
Joe Salsihai
Just in case. Yeah.
- [82:34]
OG
She kind of closes the door and like, oh, cool, we're full up on friends right now, right? Yeah.
- [82:39]
Joe Salsihai
But I'll still take the brownies. Like, if it were you coming to my house, I would say, no, gee, I don't want to be friends, but I will take the brownies. What kind of brownies are those? Chocolate chip brownies.
- [82:51]
OG
So I'm just getting. I mean, for days I'm just getting yelled at about this whole situation. And then I woke up and so I really didn't have dinner next to Tim McGraw and Fayetteville. It was a terrible, great dream. I don't know, it happened like in this 45 minute in the middle of the night, the stupid house alarm goes off because the power goes out. And so, like at 5:00 in the morning, until 6:45, I'm wide awake, you know, And I'm just sitting there going, I should probably get up, you know. Five more minutes, I'll get out of bed in five more minutes. Joe's ready to record. I should head down to the basement. He'll be super excited if I make coffee in advance. Be on time for the first time ever. And then I fell asleep. And when I woke up, I was just like, man, I'm such a jerk. And then I just remembered, no, that was a total dream. I did not have dinner with them and my wife has not peed off at me.
- [83:47]
Joe Salsihai
What I love about that is that you fell asleep not friends with Faith hill and Tim McGraw, and you woke up still not friends.
- [83:58]
OG
Still not friends with Faith Hill. I had an opportunity and you're pissed.
- [84:03]
Joe Salsihai
Now you're upset about it.
- [84:06]
OG
Well, I'm not upset about it. I'm upset that she's upset about it because I don't think they really wanted to be friends.
- [84:11]
Joe Salsihai
I'm sure that not even in your dream did they want to be friends.