Investment Performance: The podcast discusses the performance of a self-managed brokerage account versus a financial advisor-managed portfolio, highlighting the importance of evaluating advisor performance.
S&P 500 Historical Returns: The hosts explore the historical returns of the S&P 500, noting that despite changes in its composition over time, long-term returns have remained consistent around 10-11% annually.
Private Investment Opportunities: A listener's question about investing in a marijuana company prompts a discussion on the risks of using borrowed funds for private investments and the importance of understanding the industry and management.
Car Investment Discussion: The podcast humorously debates the feasibility of purchasing a used Porsche for under $30k, emphasizing the importance of understanding depreciation and maintenance costs in car investments.
Portfolio Diversification: The hosts suggest various strategies for diversifying away from the MAG7, including investing in small caps, midcaps, and international stocks, as well as using direct indexing to customize exposure.
Financial Advisor Evaluation: A listener's question about the value of financial advice leads to a discussion on the importance of understanding what services an advisor provides and ensuring their fees are justified by their performance and advice.
Transcript
Welcome back. This is Ask the Compound, the show where you ask and we answer. I'm your host, Ben Carlson. Let's say you have a portfolio managed by a financial adviser, but you also have a brokerage account, named your Robin Hood account that you personally manage, and that brokerage account is outperforming your financial adviser managed portfolio. Should you flare your advisor? We answer that question and more on today's show. Please stick around. Our [Music] email here is ask the compound showgmail.com. On today's show, we're answering questions straight from you, our compound audience, about historical returns on the S&P 500. Can we trust them? Is it possible to buy a Porsche for $20,000 or less? That question came straight from a guy named Dun. >> I said in the 20s, just >> Hey, we're going to talk. We're going to litigate it today. How should you think about private investment opportunities in individual companies, maybe from your friends? How can you diversify beyond the MAG7, maybe to the S&P 493? And how should you judge the performance of your financial adviser? Remember, everyone in the live chat, hit us up. As always, we'll answer questions live on the spot. All right, today's show is brought to you by our friends at Rocket Money. With prices going up on just about everything lately, dealing with money can be stressful. Trying to manage subscriptions, track spending, cut costs can feel overwhelming. And luckily, Rocket Money can relieve some of that stress and help you feel confident in your financial decisions that you make. Rocket Money is a personal finance app that helps you find and cancel unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. If you've got a goal you'd like to save for, Rocket Money can even analyze your accounts and find the best time each month to put extra money aside. Get alerts if your bills increase in price. I get this all the time. Uh if it's unusual activity in your accounts, if you're close to going over budget, even when you're doing a good job, they'll give you a pat on the back, I guess. Uh, Rocket Money's 5 million members have saved a total of 500 million in cancelled subscriptions with members saving up to $740 a year when you use all the apps premium features. Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Check out rocketmoney.comc today. It's rocketmoney.comc or just download the RocketMoney app on your phone. All right, let's do it, Duncan. >> So, before we dive in, I just want to mention we're we're climbing the Apple podcasting charts, Ben. So, it's uh and on on YouTube, we're we're trending up. Uh >> it's uh it's looking up for ATC. I think we hit like number 59. >> I never follow any of this stuff, but I'm glad >> we hit number 59 on the business charts, which is a bigger deal than the subcategory of investing, which we've always done pretty well on on business. I think we were we were in the 50s last week. So, >> credit to the audience for asking good questions. >> Thanks so much. Thanks, everyone. >> All right, let's do it. >> Up first say, we got a question from Dave. Long-term S&P return figures are often cited going back to 1926. While nearly a century of data sounds impressive, investors couldn't actually buy the S&P back then. The index itself wasn't introduced until the 1950s, and it wasn't until the mid 1970s with Bogle's index fund that investors could purchase it as a single investment. Do the 50-year return figures since Bogle's uh time track closely with those long-term projections back to 1926 or does the modern era show notable differences? >> Okay, Dave is very up on his market history and this is a total Ben question because I love stock market history so much. So the standard statistics company, they did not merge with pores publishing until 1940. So it's just called standard statistics. Hard hard to say. um they originally began tracking in the 20s 233 stocks but it was way too hard to maintain hourly or daily prices. So the S&P 90 was created and it's kind of funny all the otherund and change stocks they looked at their prices on a weekly or quarterly basis. That's how often they were updated and these other the S&P >> you would probably like that today wouldn't you? You would like just quarterly prices. >> Yes, it would be great. Right. So 1926 they launched the S&P 90. It was 50 industrial stocks, 20 railroads, and 20 utilities. That's it. Right? In 1957, the S&P 500 was created. That was 425 utilities or industrials, 60 utilities, 15 railroads, all New York Stock Exchange listed, covered 90% of the US market value. Okay. I think today it's like 80 or so. Um, then in 1976, the year that the first index fund from Vanguard came out, uh, they revised it and they added financials. So, you did not have financial stocks until the mid70s and because a lot of them I guess were over the counter traded. Duncan, you probably would have been trading them at a bucket shop back in the day. >> Oh, definitely. Instead of old >> reading reading that uh Jesse Livermore book. Yeah, it makes it sound kind of fun other than him getting kicked out of all the places. >> Actually does sound kind of Yeah, I mean it sounds like you're going to a casino essentially. >> Uh so Vanguard Lounes is the first retail index fund in 1976. And it's funny, Bogle in one of his books said that they only really bought 280 stocks because it was too cost prohibitive to buy all 500. So they they got the ones that covered the biggest chunk of the portfolio. It probably covered 95% of it. It was close enough. And then it wasn't until 1988 that they that they got out of this fixed 440 4020 model and it was industrials, utilities, financials, and transports and then they like became more adapted to the economy. So you're right, the the way that the market has shifted over time and now it's 35% tech, but realistically we're talk probably talking 45 or 50% tech based on how the companies are categorized. So it's changed a lot over the years. So there's the history lesson. Now let's look at the actual numbers. So I have good data from DFA. They have this returns 2.0 research database that goes all the way back to 1926. So from 1926 to 1956. Hang on, take that off. No chart on yet. Wait till we wait till we get through them all. Um, jump the gun there, guys. From 1926 to 1956, the S&P compounded at an annual rate of 10.1%. Which is not bad considering that in the Great Depression, the stock market fell 85%. So, I think if we went from like the mid30s, it would be more like 12%. But still, that's what it was, 10%, basically the long-term average. Then, if we went from 1957 when the S&P started through July of this year, we're looking at 10.6% annual returns. So, that's pretty close, right? A little better. Take the Great Depression off there. probably even it's probably pretty even closer. Now, the IPO for the Vanguard S&P 500 index fund was August 31st, 1976. So, if we start from the beginning of September going through July of this year, S&P is up 11.8%. All right. Now, chart on. So, again, we're looking at 10.1% from the mid20s to the mid-50s, 10.6% since the S&P started, 11.8% since the Vanguard S&P 500 index fund. So, it's kind of funny that the first index fund, the returns have been great since then, even better than history has showed. Now, you could say, well, that's because the 80s, low interest rates or high rates going to low rates, whatever it is. I'd say that all of these periods cover a pretty wide range of market and economic environments. And I think, yeah, I I think can you trust the long-term data? I I think so. This looks pretty good to me. Obviously, a lot of it is some has been recreated, and he's right. You couldn't actually buy this stuff until the mid70s. Even when you could, there was an 8% sales load on that very first Vanguard index fund. They got rid of it a few years later, I think. But it it's way easier now than it ever was. >> That means you pay 8% upfront on the transaction. >> Yeah. >> 8%. So, yeah, it was a lot harder to invest back then. And that's why so many people were mostly buy and hold investors back in the day. They'd buy dividend stocks and sit on them forever because it was so expensive to trade. Which shows you sometimes the barriers to entry actually a good thing, not a bad thing. Now you can just flip your portfolio over in a day and it doesn't matter. >> I don't know. I'll take my free trading. >> All right. It's like an open bar at a at a wedding. Like you have to drink more. It's it's impossible not to. It's free, right? Just like you have to trade more in your Robin Hood account. All right. See you next one. >> All right. Up next, we have the one that everyone is uh everyone's here for and everyone keeps talking about. Is it possible to buy a used Porsche for $20,000? Just for the record again, I said in the 20s, not for 20, but >> okay, if you missed it, a couple weeks ago, we had a question from a guy who wanted to buy a Porsche, but he's worried that the personal finance community was going to revoke his Millionaire Next Door card, right? So, he I said he should rent one first, and you said, "Listen, you can get a used one for 20Kish." And everyone in the chat just demolished you, right? that the rest of the show was people in the chat demolishing you, saying, "Duncan, there's no way Duncan doesn't know what he's talking about." I'll be honest, I thought you were crazy, too. But we heard from our resident car expert, so let's bring him on. Mr. Barry Rhold's coming to us live from the Bloomberg studios. >> Hey, Barry. You're uh you're muted >> for a change. Hey guys, how's it going? >> All right, so Barry, you have a Porsche maybe, too. So, you're the perfect person to ask for this. Um, you started sending us some some used stuff cuz you're on all you're on all these car. If anyone needs a car, go to Barry. Um, was Dunkin' Nuts, can you get a used Porsche for 20Kish? >> You you you could get a used Porsche for 10K, but keep in mind the most expensive car you'll ever buy is a cheap Aston Martin because of the repairs and maintenance. Um, and first of all, what are we talking about when we say Porsche? I think most people think of the classic 911. little harder to get for 20 grand in good operating condition. Um, there are tons of Panameas, the the four-door sports car that that have been out for about 15 years that you could find for 15, 20, 25. If we look at the Cayman and the Boxster, which is the smaller car, but almost the exact same engine, um, and really a mid engine, not a rear engine car. There are lots of those for 15, 20, 25. You have to go down the rabbit hole a little bit and educate yourself about what's risky in those cars. For example, the first generation Boxster had notorious problems. Um like uh and and the the 911s from like 1998 to05 uh had this bearing issue that was an expensive repair. >> So wait, so you're going to be doing a lot of work on this obviously. >> Well, I if you just go out and say, "Ooh, that's shiny. Let me get that. But if you do your homework, you like every generation car has its own tweaks. So like a 2010 Boxster as anam random example. Um you got to watch oil. Sometimes there's a a leak. There's a a a um seal in the back that sometimes leak. You don't want to lose all your oil. Uh there's some electrical gremlins, but you get a well sorted out one. You always do a certified um a pre-purchase inspection from a certified mechanic who will say, "Here's what's good about this. Here's what's problematic, and here's what's what's a possible issue down the road." So, at least you can say, "All right, I have $5,000 worth of repairs over the next 10 years. I'm going to build that into my budget." >> Duncan really just wants one on cement cinder blocks in his front yard so he can wear a Porsche hat and a jacket just to tell people he has one. I really like the 1980s turbos and targets. Those are >> so So my what I like to do and we are all about um understanding depreciation. I like to find old ratty cars that have been abused, buy them for 60 70 cents on the dollar and then end up with a car that's worth more than >> Barry's a Ben Graham guy when it comes to >> Sure. Value investor. Yeah. >> So So my Cabrio is a 1988. The previous owner had raced it. It had the fivepoint harness and just all this. So, it took me about two years to pull all that crap out. I restored it back to stock. It's probably worth 25 grand more than I paid for it. If you could buy a car, drive it for five or 10 years, and then sell it for what you paid for, that's a giant win, >> right? You you showed us a few that were people have bought these in the past, and they actually appreciated if it's the right car. So there's a aberration because of the shortage of cars in the 2020s because of the pandemic. So there's an artificial, hey, I paid 100red and it's worth a hundred five years later. But under normal circumstances, most of the depreciation takes place like the big chunk takes place in the first, you know, 3 to 5 years. I love buying cars right off lease. They're three years old. The previous owner knows they're going to get whacked if they bring a car back. that's all beat up. So, they tend to take really good care of it. Um, look, there there some of the cars and coffees guys I hang out with, they go to the dealer. Ooh, that's pretty. How much is that? And they write a big giant check. I mean, if you have that sort of scratch and you don't care about depreciation, knock yourself out, >> right? So, our our millionaire next door guy, he could he doesn't have to spend a ton of money on this if he wants to make it a hobby or something to do. Now, I I we got extreme polarization of answers when we this guy said, "Listen, I want to buy a Porsche, but I feel like I'm a fraud." And I said, "Buy it. Who cares what people think?" And then I was picking up my daughter from soccer practice this week and one of the dads picked up his son in a Porsche and I thought, "Okay, if you have little kids, you can't do it." >> That actually is too egregious. >> That actually isn't true. There's a YouTube channel from a guy who who's a deep Porsche dive. He buys the GT3 Touring, which is the race engine, but sort of toned down, no big wing. It It's not as look at me as some of these other cars. And it doesn't have a back seat. And there's a company that will custom install back seats >> on the roof. >> No, in the back of the 911. You know, the funny thing is my 88 is probably the same size as your 2010 Boxster. The 911 just keeps getting bigger and big. All cars are getting bigger. 911 also. So, you you have these cars. Let Let me give everybody who's interested in doing this a couple of resources right now. So, first, anytime I'm thinking about a car, the first place I go to, by the way, unsolicited, unpaid endorsements, >> Porsche should be sponsoring this episode for you. Giving them a lot of good >> autotempus.com is a website. It's a giant relational database. and you say, "I want to see I want to see these cars at um this price and at this um uh this model, this make uh I want it with a stick. I want a convertible." Like you give it all the qualific I want it in blue and it'll find every car that's for sale with those qualifications from everywhere. So that's a great resource um if you get educated. It's not the sort of thing you could just do willy-nilly. You could go to Bring a Trailer. You could go to Cars and Bids. You could go to Pecar, which actually is an auction site that specializes in Porsche. I've purchased cars from each of those places over the past 10 years. I've sold cars at each of those places over the past few years. So, educate yourself. Figure out what you really wanted. The first nice car I bought, all I knew is that I wanted a stick shift, a convertible, and a butt ton of horsepower. And that's how I ended up with an M6 that I found in Indianapolis. Did a pre-purchase inspection, flew out with my wife to Indianapolis, test drove it, signed the papers, and roadtpped home, stopping at Falling Waters in Pennsylvania on the way. Like uh there are there are some really interesting things. Just be aware this is a crazy rabbit hole that you could go down and spend endless time on. So >> see, I would just get the first one I saw. If this was me, I wouldn't spend all that time. >> I think there's something else to to note here, which is there's a difference in people who are looking for a collectible car and people who are looking for a car to drive, right? Like I don't know. I've I've never driven a Porsche, but I'm sure a Boxster is just as fun as a 911 to drive around probably, right? >> So, the the Cayman is the um enclosed version, the coupe version, and there is this subgroup of uh enthusiasts that insists that the Cayman is a better car than the 911. It it not just because it's cheaper. It's mid-enine, not rear engine. It's lighter. It's smaller. It's more tossable. It's like the 1980s era Porsches that, you know, so many people fell in love with. So, that's one thing to be aware of. Um, you can't just buy you can't buy the first mutual fund. You can't buy the first stock. You can't buy the first car if you're buying a used car. Um, and all my none of my cars are garage queens. They all get driven. I take them out on a regular basis. I I don't want to just have this expensive beautiful responsibility that sits in the garage and uh you know I have buddies who are Ferrari collectors and the joke is Porsche guys buy cars, Ferrari guys buy odometers because every mile they put on the car devalues what it's worth because they're relatively rare and relatively collectible. The the other thing people um Porsche guys know, they're kind of bulletproof. They're really, you know, German engineering is incredibly robust. They're built to race, so they could tolerate a lot of abuse from people. Just feed them oil and water and get them regular. >> Talk Duncan into it. Listen, I'm a Honda Core guy. Get off the car talk. Let's get to another one. >> Okay. Well, before we jump off of this, I do just want to I brought evidence. Uh Ken uh Ken, a viewer of the show, wrote in. Uh Dan, you can hit us with the the visual. Uh he said, "I purchased a convertible 2010 Porsche Boxster for $26,000 at uh with 51,000 mi in March. Best decision I've ever made on a car. In addition to the absolute driving exhilaration, it also provides a new community of enthusiasts, Porsche Club of America, etc., as well as opportunity to learn automaintenance and repair. Plus, it's an excuse to buy new tools. So, thanks, Ken. >> That's not bad. Nice work, Ken. >> Yeah. >> All right. >> Listen to Sunday nights. >> Last word on cars. If if you don't want to go down the rabbit hole, but you want a cute little convertible to run through the gears and toss about, my first recommendation is always find a 10-year-old Mazda Miata with 40, 50,000 miles. They go 100, 150,000 miles regularly. you can find a a really nice one for 20 grand um without maintenance issues and relatively low miles. >> Once my midlife crisis hits, I'm going to get one. >> We'll hook you. >> By the way, Duncan was proven right on this question. Way to go, Duncan. >> Thanks. Appreciate it. >> All right. >> Okay. Up next, we had a question from Andy. I don't I'm kind of sad to move off of cars. Uh okay. >> Gary could have gone another hour. >> Yeah. My wife and I have had a few opportunities over the years to invest in private companies, but we've never pulled the trigger. Recently, I came across opportunity to invest in a marijuana company looking to fund its expansion in new states. Frankly, I don't even know where to start in evaluating it. I work in corporate FPNA, I don't know what that is, have my CPA and can review their financials and pitch deck, but beyond making sure the math checks out, I'm not sure I even know what I don't know. The investment would be about 10% of our current investable assets, but we'd fund it through our HELOC. Uh, if it went to zero, it would sting, but it wouldn't change our life. I'm stuck between scared money, don't make money, and am I just gambling. Thoughts? >> I've got so many questions. I didn't know you could use a helock for anything outside of your house. >> You can, it's just not taxdeductible. >> You can't deduct the interest. Um, it's funny how many pot investment opportunities I've heard from people from friends and must be because this is just a budgeting industry, but um, I would say the CPA mind it's impossible to perform like actual due diligence on this probably. Um, I think you're betting on the person who's running this and I would expect this investment to be a call option that you will will likely expire worthless. That'd be my way of thinking about this. Barry, how do we've both invested in some startups over the years like how do you think about putting money in this space? So there's the the comment you're investing in the person not the idea because the idea is going to pivot three or four times before they find what works is good advice. There were two real issues that this questioner raises. First, hey, if you're borrowing money from your heliloc to invest, you don't have money to be investing. That that's like, hey, you should that's a that's a mismatch. That's a debt to asset. Like it's one thing if you say, "Hey, I got a few hundred,000 or a few million dollars lying around and I'm getting 4% of my money market and I really like this idea, but I don't have any experience in it. What do you think that?" So, so first borrowing a heliloc to put in a private full-blown non-starter. Like it's just so it's going to cost you six 7%. And if it goes to hell, you're still paying it off for 10 years. Just nothing good about that. But >> yeah, it's like a constant reminder of a bad investor, >> right? The the other factor is just simply >> All right. So, you could read their books. What makes you think that you have any special insight into startups, into marijuana business, into this sort of management >> of all things weed? Like, it's so it's so heavily wrapped up in regulatory stuff. >> There's four or five people talking about investing in like weed fields and it's I don't know. political move could could change things completely, right? I mean, >> but but no doubt about that. But the big thing is that there was this gold rush 5 years ago as more and more states started legalizing weed and none of these profits have manifested. And lots of these companies now, whether they're startups or they're refinancing, they need cash because turned out that this isn't nearly as lucrative of a business as people originally thought. So, not my favorite space. Never borrow money to to make an investment like that. And wait, you have zero experience investing in privates. We haven't even got to the question, do you want to tie up your money for 5 years, seven years, 10 years, or forever? The illquidity issue with privates is another factor. That's a big mismatch for a lot of people. Um, and we're now seeing all the Ivy League and and big foundations and endowments that need liquidity, that need capital because of the recent policy changes. They're having a hard time getting it. And one way to get it is to take your privates and sell them for 80 cents on the dollar. >> Just assume this is this is kind of like gambling. You go to the casino, expect to lose all your money. >> Yeah. 10% sounds like a lot. Is that because of the minimum investment you think that they would be considering 10% of their of their investable assets? >> That's that's the other thing. It's a pretty that's a decent sized amount as far as I'm concerned, >> right? You know, if you're advising a an endowment that wants to put money into privates, you would never say take 10% of your wealth and put it into this one thing. You would say, "Oh, how much do you want to have of alternatives? Great. Let's find you five good pieces at 2% each." Not >> this isn't even a fund. This is a single opportunity. that they're borrowing money for it. This is just wrong on 10 different levels. >> All right, do another one. >> Okay, so maybe buy a Porsche instead. Bring it back to cars. Okay, >> better investment, maybe. >> Up next, we have a question that came in from uh Twitter or X. How do we buy the S&P 493? I own some of the MAG7 individually and more in my S&P 500 fund. I'm way overweight in the MAG7 and it's hard to diversify away without selling and taking a tax hit. >> You know, Bloomberg had a story this week that there's more ETFs in stocks, which makes sense uh because of course, but there actually is a an actual S&P 493. So, I found this from Defiance ETFs called the XMAG. But the thing is the answer. So, there is one that's just the 493 if you want to completely X those ones. But this is a really easy answer because you could buy almost anything. Just anything outside of a market cap weight, outside of an S&P 500 ETF or a NASDAQ 100 or a total stock market. So it's small caps, midcaps, equal weight, value, high quality, dividend, international, whatever. Any basically anything outside of a market cap weighted US index fund. That's how you diversify. It's pretty there's a ton. There's a million different options these days. Pick one. I'm I'm going to throw you two um other suggestions for this person. First, if you're using direct indexing, you could take the S&P 500 and say, "I work at Amazon. I have all this Amazon exposure." Or, "I I work in semiconductors. I don't want more chip exposure." And you could tune out the sectors that you're already overexposed to. So, that's one approach. >> Individual companies. Yeah, that's a cool customization piece of it. And then Meb Faber over at Cambria has created one of these ETF uh exchange funds working with West Gray that you could put up to 25% of capital into an ETF and without paying taxes get a diversified portfolio back. So it can't be more than 25% of any single stock. But so let's say you have I'm making up round numbers. You have a quarter million dollars in Nvidia and $750,000 in other assorted stuff. You could give that to mess and and the symbol is TAX. You could give that. This is like a 1031 exchange. This comes from a real estate tax section which used to allow you to sell one piece of real estate. >> You to defer taxes. >> That's right. You're not avoiding them. You're just uh diversifying and and deferring them until you ultimately sell. That's another option worth worth exploring. Also, >> there's a lot of different taxable structures now that make that didn't exist in the past. You're right. >> That technology and software have allowed us to do things that would have taken eight guys in green visors working in the basement a month to put together and now it's just push a button. Oh, you want the S&P 500? Well, you could go equal weight. You could go X. You could go, let me reduce my um my tech exposure or you could do this tax exchange. Many many options exist, >> right? Yeah. That that and that that kind of stuff is probably a talk to an adviser kind of thing, too, if you're if you're going down that rabbit hole, not just a new ETF. All right, we got one more. >> Okay, last but not least, I currently use a nationally ranked fiduciary financial advisor to manage one of my retirement accounts. I independently manage my Thrift Savings Plan. I'm on active duty. My wife's Roth IRA and Roth solo 401k and a shared brokerage account. I'm a long position buy and hold believer in American capitalism ETF guy. No individual stocks here. Here's the rub. The account that's managed by my advisers firm is the poorest performing of the bunch. I've received some good advice from them in the five plus years I've been with them, but I constantly think about how they come in last every year. They are of the highest cost and poorest performing. Is there advice over time worth tens if not hundreds of thousands of dollars in earnings potential by the time I retire? >> All right, you buried the best part of this question. He said, >> "Yeah, yeah, sorry." >> This is from Herby Hancock and he says he's using a pseudonym because he's pretty sure his adviser listens to the show. >> Okay, I wonder how many advisers are going to watch this. >> Sorry if you're watching this adviser. >> Um, so this actually isn't that out of the ordinary these past five to seven years or so. I I think there's a lot of clients who who buy tech stocks and they in their fund portfolio or whatever in their sidec car and they have outperformed their adviser. So, um Barry, I always like the story that you give about the guy who came to us and said he's going to put equal amounts into four adviserss, right? What was it? And then whoever is the best after a year, right? >> Yeah. Right. And I'm like, you're just incentivizing them to swing for the fences. You you've created a terrible game theory that hey, if I just do risk adjusted returns, I'm going to lose. So let the odds are one in five, I'm going to win anyway. I might as well swing for the fences. >> Yeah. If that happens, you send them to me. >> Yeah. >> So So I love this question for a couple of reasons. So first, savvy investor managing a lot of the portfolio himself raises the question, why is he using an advisor? My assumption is he's in the military, so he needs someone to watch his money when he's deployed overseas or whatever is going on or heaven forbid something happens to them to help the wife and kids, you know, pass that. So, so the first question is, do you want an adviser who you're just going to pay on the by the hour and not worry about the performance? The second question is and and we've seen this a lot of times. People have come to advisors and they'll say, "Listen, I'm against global warming. I don't want any oil stocks." And then oil stocks go on a hot run. Hey, why is my portfolio sucking? Well, well, you pulled out the best performing sector. Or I'm very riskaverse and I want a 6040 portfolio. I don't want a lot of craziness because when they opened the account, everything was going crazy. And so they tune down their risk and all their other accounts are are kind of risky. >> Yeah, that does happen a lot where the adviser needs to remind them this is what you told me to do. And it could be that whatever you're investing in, maybe the adviser knows it and they're trying to offset that and hedge it in a way, but I I would pull my meme here. I would sit down and talk with them and have a have a discussion like what what do you do here? Like what what am I paying you for? I would I would just put it out there and say, "Okay, walk me through why does why is my performance always better than yours? Are you trying to offset something? Are you more diversified?" It could just be that they have all their money in US stocks and this this person has and the adviser has bonds and cash and REITs and small caps and they have more diversification. So, it could be as simple as that. But, I would think I would ask the adviser like just explain it to me. Why is this happening? Um, what else are you doing for me? And if they can't provide any any good answers and they're not providing you really good financial planning, then maybe you don't need to use them. That I would ask them like what are the what are you providing me for your services? What are what am I paying you for? That's that's a legitimate question any advisor should be able to answer. >> Also ask them why am I in this portfolio? What else do you offer? You know, every now and then we'll take over a portfolio from somebody and it's kind of funny to say you're in this incredibly conservative riskaverse portfolio. You should be in an 8020 or 7030 or something like that. Why did you choose this? And the answer is almost always I I don't remember the conversation that led to this um at my old advisor. That's why I came to you guys. So find out if this is the appropriate portfolio for where you are today. Find out what else they offer and consider whether you want to work with, you know, a um an hourly portfolio, an hourly adviser who's not going to be managing uh your money. It looks like this person is doing trust work and tax work and estate work. That's a different conversation than somebody who's here's a plan. Now I'm going to >> Yeah. Maybe maybe it's also to your point, maybe it's a risk tolerance kind of thing too and they're not taking enough risk and maybe that's what you want. Um but yeah, I I it's you have to have a conversation with them. Don't it's they should be able to be transparent and honest and tell you what's going on. So I would have that conversation. >> The the challenge with risk tolerance is how much recency bias creeps in. When the market's making all-time highs, people say, "Hey, I I'm very uh risk tolerant. I'm very aggressive. Let's go." Were you saying this in April that you'd wanted to be take more risk or >> 2022? Yeah, that that I agree that some people think they could take more risk. Their perception of risk changes, not necessarily their appetite for it, >> right? And you know, if you have the same conversation late 2022, listen, I'm not looking to shoot the lights out. The market is down, bonds are down, I want to be conservative. >> I'm good. Toss are 5%. I'm good. >> F Yeah, I'm getting 5% of my money market. I don't need to take So, you know that all that stuff should be really clearly written out. It's why advisors are supposed to keep running notes. We use Salesforce. There's a dozen different technologies for that where, hey, when you set up this account in 2022, you said, I can't tolerate loss. I don't want volatility. Put me in something very conservative. Well, conservative means that when the market comes out of this, it's going to underperform the stocks that were getting and the funds that were getting shellacked in in a down year like 2022. Would it be fair for the adviser to say, you know, we're looking at 10 and 20 years, not the last three years? >> Yeah. Well, that's >> or is that a copout? >> There's some element to it. It it has to fit the client's goals. And if you're 25 or 55, they're going to be two different portfolios. So, there needs to be a good fit. And yeah, a year or two is too short to judge, but after five years, hey, why am I in this portfolio and it sounds like we haven't talked about he said not only was this the worst performing portfolio, but it was the highest fee portfolio and the recent Morning Star report, which echoed their 2011 report, which echoed a dozen separate academic researchers, are if you know nothing about a portfolio, IO and can only learn one thing, make that fees and that'll give you good insight as to how it's going to perform. Higher feed portfolios have a tendency to underperform. >> All right, we didn't get him a Porsche, but um it is Duncan's birthday today and >> Oh, happy birthday, Duncan. >> Yes, the Compound Media team prepared a few pictures for Duncan. So, Daniel is going to put some pictures up here that they created. >> Um there's Duncan on his Beatles tour when he went on his London trip >> earlier this year. >> That's pretty cool. Oh. Duncan's a big F1 fan. Um, he's very serious in a >> Oh, I get it. Alpha. >> Yeah. >> Uh, this is Duncan in his Oly world, I guess. >> And that's my dog. That's Wall-E. I'm uh >> That is your dog. Okay. >> Horseback on Wall-E. >> That's unbelievable. That's pretty good. So, that's from the uh the Compound Media team. Happy birthday to Duncan. We'll get him a Porsche hat. Maybe. >> Very good. I'll take it. >> But we're so I just want to make sure you don't say Porsche. You say Porsche. Uh, who knows? >> I I match honestly I match whoever I'm talking to. Usually if it's someone who says Porsche, I'll say Porsche, but otherwise it's like a pinkies up thing. >> If you're in Germany, it's Porsche. It just sounds so affected in the United States. >> I agree. All right. Ask the compound showgmail.com. Hit us with your emails and questions as always and we'll see you next time. >> See you everyone. [Music] [Music]
How Can I Buy a Porsche For Under $30k?
Summary
Transcript
Welcome back. This is Ask the Compound, the show where you ask and we answer. I'm your host, Ben Carlson. Let's say you have a portfolio managed by a financial adviser, but you also have a brokerage account, named your Robin Hood account that you personally manage, and that brokerage account is outperforming your financial adviser managed portfolio. Should you flare your advisor? We answer that question and more on today's show. Please stick around. Our [Music] email here is ask the compound showgmail.com. On today's show, we're answering questions straight from you, our compound audience, about historical returns on the S&P 500. Can we trust them? Is it possible to buy a Porsche for $20,000 or less? That question came straight from a guy named Dun. >> I said in the 20s, just >> Hey, we're going to talk. We're going to litigate it today. How should you think about private investment opportunities in individual companies, maybe from your friends? How can you diversify beyond the MAG7, maybe to the S&P 493? And how should you judge the performance of your financial adviser? Remember, everyone in the live chat, hit us up. As always, we'll answer questions live on the spot. All right, today's show is brought to you by our friends at Rocket Money. With prices going up on just about everything lately, dealing with money can be stressful. Trying to manage subscriptions, track spending, cut costs can feel overwhelming. And luckily, Rocket Money can relieve some of that stress and help you feel confident in your financial decisions that you make. Rocket Money is a personal finance app that helps you find and cancel unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. If you've got a goal you'd like to save for, Rocket Money can even analyze your accounts and find the best time each month to put extra money aside. Get alerts if your bills increase in price. I get this all the time. Uh if it's unusual activity in your accounts, if you're close to going over budget, even when you're doing a good job, they'll give you a pat on the back, I guess. Uh, Rocket Money's 5 million members have saved a total of 500 million in cancelled subscriptions with members saving up to $740 a year when you use all the apps premium features. Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Check out rocketmoney.comc today. It's rocketmoney.comc or just download the RocketMoney app on your phone. All right, let's do it, Duncan. >> So, before we dive in, I just want to mention we're we're climbing the Apple podcasting charts, Ben. So, it's uh and on on YouTube, we're we're trending up. Uh >> it's uh it's looking up for ATC. I think we hit like number 59. >> I never follow any of this stuff, but I'm glad >> we hit number 59 on the business charts, which is a bigger deal than the subcategory of investing, which we've always done pretty well on on business. I think we were we were in the 50s last week. So, >> credit to the audience for asking good questions. >> Thanks so much. Thanks, everyone. >> All right, let's do it. >> Up first say, we got a question from Dave. Long-term S&P return figures are often cited going back to 1926. While nearly a century of data sounds impressive, investors couldn't actually buy the S&P back then. The index itself wasn't introduced until the 1950s, and it wasn't until the mid 1970s with Bogle's index fund that investors could purchase it as a single investment. Do the 50-year return figures since Bogle's uh time track closely with those long-term projections back to 1926 or does the modern era show notable differences? >> Okay, Dave is very up on his market history and this is a total Ben question because I love stock market history so much. So the standard statistics company, they did not merge with pores publishing until 1940. So it's just called standard statistics. Hard hard to say. um they originally began tracking in the 20s 233 stocks but it was way too hard to maintain hourly or daily prices. So the S&P 90 was created and it's kind of funny all the otherund and change stocks they looked at their prices on a weekly or quarterly basis. That's how often they were updated and these other the S&P >> you would probably like that today wouldn't you? You would like just quarterly prices. >> Yes, it would be great. Right. So 1926 they launched the S&P 90. It was 50 industrial stocks, 20 railroads, and 20 utilities. That's it. Right? In 1957, the S&P 500 was created. That was 425 utilities or industrials, 60 utilities, 15 railroads, all New York Stock Exchange listed, covered 90% of the US market value. Okay. I think today it's like 80 or so. Um, then in 1976, the year that the first index fund from Vanguard came out, uh, they revised it and they added financials. So, you did not have financial stocks until the mid70s and because a lot of them I guess were over the counter traded. Duncan, you probably would have been trading them at a bucket shop back in the day. >> Oh, definitely. Instead of old >> reading reading that uh Jesse Livermore book. Yeah, it makes it sound kind of fun other than him getting kicked out of all the places. >> Actually does sound kind of Yeah, I mean it sounds like you're going to a casino essentially. >> Uh so Vanguard Lounes is the first retail index fund in 1976. And it's funny, Bogle in one of his books said that they only really bought 280 stocks because it was too cost prohibitive to buy all 500. So they they got the ones that covered the biggest chunk of the portfolio. It probably covered 95% of it. It was close enough. And then it wasn't until 1988 that they that they got out of this fixed 440 4020 model and it was industrials, utilities, financials, and transports and then they like became more adapted to the economy. So you're right, the the way that the market has shifted over time and now it's 35% tech, but realistically we're talk probably talking 45 or 50% tech based on how the companies are categorized. So it's changed a lot over the years. So there's the history lesson. Now let's look at the actual numbers. So I have good data from DFA. They have this returns 2.0 research database that goes all the way back to 1926. So from 1926 to 1956. Hang on, take that off. No chart on yet. Wait till we wait till we get through them all. Um, jump the gun there, guys. From 1926 to 1956, the S&P compounded at an annual rate of 10.1%. Which is not bad considering that in the Great Depression, the stock market fell 85%. So, I think if we went from like the mid30s, it would be more like 12%. But still, that's what it was, 10%, basically the long-term average. Then, if we went from 1957 when the S&P started through July of this year, we're looking at 10.6% annual returns. So, that's pretty close, right? A little better. Take the Great Depression off there. probably even it's probably pretty even closer. Now, the IPO for the Vanguard S&P 500 index fund was August 31st, 1976. So, if we start from the beginning of September going through July of this year, S&P is up 11.8%. All right. Now, chart on. So, again, we're looking at 10.1% from the mid20s to the mid-50s, 10.6% since the S&P started, 11.8% since the Vanguard S&P 500 index fund. So, it's kind of funny that the first index fund, the returns have been great since then, even better than history has showed. Now, you could say, well, that's because the 80s, low interest rates or high rates going to low rates, whatever it is. I'd say that all of these periods cover a pretty wide range of market and economic environments. And I think, yeah, I I think can you trust the long-term data? I I think so. This looks pretty good to me. Obviously, a lot of it is some has been recreated, and he's right. You couldn't actually buy this stuff until the mid70s. Even when you could, there was an 8% sales load on that very first Vanguard index fund. They got rid of it a few years later, I think. But it it's way easier now than it ever was. >> That means you pay 8% upfront on the transaction. >> Yeah. >> 8%. So, yeah, it was a lot harder to invest back then. And that's why so many people were mostly buy and hold investors back in the day. They'd buy dividend stocks and sit on them forever because it was so expensive to trade. Which shows you sometimes the barriers to entry actually a good thing, not a bad thing. Now you can just flip your portfolio over in a day and it doesn't matter. >> I don't know. I'll take my free trading. >> All right. It's like an open bar at a at a wedding. Like you have to drink more. It's it's impossible not to. It's free, right? Just like you have to trade more in your Robin Hood account. All right. See you next one. >> All right. Up next, we have the one that everyone is uh everyone's here for and everyone keeps talking about. Is it possible to buy a used Porsche for $20,000? Just for the record again, I said in the 20s, not for 20, but >> okay, if you missed it, a couple weeks ago, we had a question from a guy who wanted to buy a Porsche, but he's worried that the personal finance community was going to revoke his Millionaire Next Door card, right? So, he I said he should rent one first, and you said, "Listen, you can get a used one for 20Kish." And everyone in the chat just demolished you, right? that the rest of the show was people in the chat demolishing you, saying, "Duncan, there's no way Duncan doesn't know what he's talking about." I'll be honest, I thought you were crazy, too. But we heard from our resident car expert, so let's bring him on. Mr. Barry Rhold's coming to us live from the Bloomberg studios. >> Hey, Barry. You're uh you're muted >> for a change. Hey guys, how's it going? >> All right, so Barry, you have a Porsche maybe, too. So, you're the perfect person to ask for this. Um, you started sending us some some used stuff cuz you're on all you're on all these car. If anyone needs a car, go to Barry. Um, was Dunkin' Nuts, can you get a used Porsche for 20Kish? >> You you you could get a used Porsche for 10K, but keep in mind the most expensive car you'll ever buy is a cheap Aston Martin because of the repairs and maintenance. Um, and first of all, what are we talking about when we say Porsche? I think most people think of the classic 911. little harder to get for 20 grand in good operating condition. Um, there are tons of Panameas, the the four-door sports car that that have been out for about 15 years that you could find for 15, 20, 25. If we look at the Cayman and the Boxster, which is the smaller car, but almost the exact same engine, um, and really a mid engine, not a rear engine car. There are lots of those for 15, 20, 25. You have to go down the rabbit hole a little bit and educate yourself about what's risky in those cars. For example, the first generation Boxster had notorious problems. Um like uh and and the the 911s from like 1998 to05 uh had this bearing issue that was an expensive repair. >> So wait, so you're going to be doing a lot of work on this obviously. >> Well, I if you just go out and say, "Ooh, that's shiny. Let me get that. But if you do your homework, you like every generation car has its own tweaks. So like a 2010 Boxster as anam random example. Um you got to watch oil. Sometimes there's a a leak. There's a a a um seal in the back that sometimes leak. You don't want to lose all your oil. Uh there's some electrical gremlins, but you get a well sorted out one. You always do a certified um a pre-purchase inspection from a certified mechanic who will say, "Here's what's good about this. Here's what's problematic, and here's what's what's a possible issue down the road." So, at least you can say, "All right, I have $5,000 worth of repairs over the next 10 years. I'm going to build that into my budget." >> Duncan really just wants one on cement cinder blocks in his front yard so he can wear a Porsche hat and a jacket just to tell people he has one. I really like the 1980s turbos and targets. Those are >> so So my what I like to do and we are all about um understanding depreciation. I like to find old ratty cars that have been abused, buy them for 60 70 cents on the dollar and then end up with a car that's worth more than >> Barry's a Ben Graham guy when it comes to >> Sure. Value investor. Yeah. >> So So my Cabrio is a 1988. The previous owner had raced it. It had the fivepoint harness and just all this. So, it took me about two years to pull all that crap out. I restored it back to stock. It's probably worth 25 grand more than I paid for it. If you could buy a car, drive it for five or 10 years, and then sell it for what you paid for, that's a giant win, >> right? You you showed us a few that were people have bought these in the past, and they actually appreciated if it's the right car. So there's a aberration because of the shortage of cars in the 2020s because of the pandemic. So there's an artificial, hey, I paid 100red and it's worth a hundred five years later. But under normal circumstances, most of the depreciation takes place like the big chunk takes place in the first, you know, 3 to 5 years. I love buying cars right off lease. They're three years old. The previous owner knows they're going to get whacked if they bring a car back. that's all beat up. So, they tend to take really good care of it. Um, look, there there some of the cars and coffees guys I hang out with, they go to the dealer. Ooh, that's pretty. How much is that? And they write a big giant check. I mean, if you have that sort of scratch and you don't care about depreciation, knock yourself out, >> right? So, our our millionaire next door guy, he could he doesn't have to spend a ton of money on this if he wants to make it a hobby or something to do. Now, I I we got extreme polarization of answers when we this guy said, "Listen, I want to buy a Porsche, but I feel like I'm a fraud." And I said, "Buy it. Who cares what people think?" And then I was picking up my daughter from soccer practice this week and one of the dads picked up his son in a Porsche and I thought, "Okay, if you have little kids, you can't do it." >> That actually is too egregious. >> That actually isn't true. There's a YouTube channel from a guy who who's a deep Porsche dive. He buys the GT3 Touring, which is the race engine, but sort of toned down, no big wing. It It's not as look at me as some of these other cars. And it doesn't have a back seat. And there's a company that will custom install back seats >> on the roof. >> No, in the back of the 911. You know, the funny thing is my 88 is probably the same size as your 2010 Boxster. The 911 just keeps getting bigger and big. All cars are getting bigger. 911 also. So, you you have these cars. Let Let me give everybody who's interested in doing this a couple of resources right now. So, first, anytime I'm thinking about a car, the first place I go to, by the way, unsolicited, unpaid endorsements, >> Porsche should be sponsoring this episode for you. Giving them a lot of good >> autotempus.com is a website. It's a giant relational database. and you say, "I want to see I want to see these cars at um this price and at this um uh this model, this make uh I want it with a stick. I want a convertible." Like you give it all the qualific I want it in blue and it'll find every car that's for sale with those qualifications from everywhere. So that's a great resource um if you get educated. It's not the sort of thing you could just do willy-nilly. You could go to Bring a Trailer. You could go to Cars and Bids. You could go to Pecar, which actually is an auction site that specializes in Porsche. I've purchased cars from each of those places over the past 10 years. I've sold cars at each of those places over the past few years. So, educate yourself. Figure out what you really wanted. The first nice car I bought, all I knew is that I wanted a stick shift, a convertible, and a butt ton of horsepower. And that's how I ended up with an M6 that I found in Indianapolis. Did a pre-purchase inspection, flew out with my wife to Indianapolis, test drove it, signed the papers, and roadtpped home, stopping at Falling Waters in Pennsylvania on the way. Like uh there are there are some really interesting things. Just be aware this is a crazy rabbit hole that you could go down and spend endless time on. So >> see, I would just get the first one I saw. If this was me, I wouldn't spend all that time. >> I think there's something else to to note here, which is there's a difference in people who are looking for a collectible car and people who are looking for a car to drive, right? Like I don't know. I've I've never driven a Porsche, but I'm sure a Boxster is just as fun as a 911 to drive around probably, right? >> So, the the Cayman is the um enclosed version, the coupe version, and there is this subgroup of uh enthusiasts that insists that the Cayman is a better car than the 911. It it not just because it's cheaper. It's mid-enine, not rear engine. It's lighter. It's smaller. It's more tossable. It's like the 1980s era Porsches that, you know, so many people fell in love with. So, that's one thing to be aware of. Um, you can't just buy you can't buy the first mutual fund. You can't buy the first stock. You can't buy the first car if you're buying a used car. Um, and all my none of my cars are garage queens. They all get driven. I take them out on a regular basis. I I don't want to just have this expensive beautiful responsibility that sits in the garage and uh you know I have buddies who are Ferrari collectors and the joke is Porsche guys buy cars, Ferrari guys buy odometers because every mile they put on the car devalues what it's worth because they're relatively rare and relatively collectible. The the other thing people um Porsche guys know, they're kind of bulletproof. They're really, you know, German engineering is incredibly robust. They're built to race, so they could tolerate a lot of abuse from people. Just feed them oil and water and get them regular. >> Talk Duncan into it. Listen, I'm a Honda Core guy. Get off the car talk. Let's get to another one. >> Okay. Well, before we jump off of this, I do just want to I brought evidence. Uh Ken uh Ken, a viewer of the show, wrote in. Uh Dan, you can hit us with the the visual. Uh he said, "I purchased a convertible 2010 Porsche Boxster for $26,000 at uh with 51,000 mi in March. Best decision I've ever made on a car. In addition to the absolute driving exhilaration, it also provides a new community of enthusiasts, Porsche Club of America, etc., as well as opportunity to learn automaintenance and repair. Plus, it's an excuse to buy new tools. So, thanks, Ken. >> That's not bad. Nice work, Ken. >> Yeah. >> All right. >> Listen to Sunday nights. >> Last word on cars. If if you don't want to go down the rabbit hole, but you want a cute little convertible to run through the gears and toss about, my first recommendation is always find a 10-year-old Mazda Miata with 40, 50,000 miles. They go 100, 150,000 miles regularly. you can find a a really nice one for 20 grand um without maintenance issues and relatively low miles. >> Once my midlife crisis hits, I'm going to get one. >> We'll hook you. >> By the way, Duncan was proven right on this question. Way to go, Duncan. >> Thanks. Appreciate it. >> All right. >> Okay. Up next, we had a question from Andy. I don't I'm kind of sad to move off of cars. Uh okay. >> Gary could have gone another hour. >> Yeah. My wife and I have had a few opportunities over the years to invest in private companies, but we've never pulled the trigger. Recently, I came across opportunity to invest in a marijuana company looking to fund its expansion in new states. Frankly, I don't even know where to start in evaluating it. I work in corporate FPNA, I don't know what that is, have my CPA and can review their financials and pitch deck, but beyond making sure the math checks out, I'm not sure I even know what I don't know. The investment would be about 10% of our current investable assets, but we'd fund it through our HELOC. Uh, if it went to zero, it would sting, but it wouldn't change our life. I'm stuck between scared money, don't make money, and am I just gambling. Thoughts? >> I've got so many questions. I didn't know you could use a helock for anything outside of your house. >> You can, it's just not taxdeductible. >> You can't deduct the interest. Um, it's funny how many pot investment opportunities I've heard from people from friends and must be because this is just a budgeting industry, but um, I would say the CPA mind it's impossible to perform like actual due diligence on this probably. Um, I think you're betting on the person who's running this and I would expect this investment to be a call option that you will will likely expire worthless. That'd be my way of thinking about this. Barry, how do we've both invested in some startups over the years like how do you think about putting money in this space? So there's the the comment you're investing in the person not the idea because the idea is going to pivot three or four times before they find what works is good advice. There were two real issues that this questioner raises. First, hey, if you're borrowing money from your heliloc to invest, you don't have money to be investing. That that's like, hey, you should that's a that's a mismatch. That's a debt to asset. Like it's one thing if you say, "Hey, I got a few hundred,000 or a few million dollars lying around and I'm getting 4% of my money market and I really like this idea, but I don't have any experience in it. What do you think that?" So, so first borrowing a heliloc to put in a private full-blown non-starter. Like it's just so it's going to cost you six 7%. And if it goes to hell, you're still paying it off for 10 years. Just nothing good about that. But >> yeah, it's like a constant reminder of a bad investor, >> right? The the other factor is just simply >> All right. So, you could read their books. What makes you think that you have any special insight into startups, into marijuana business, into this sort of management >> of all things weed? Like, it's so it's so heavily wrapped up in regulatory stuff. >> There's four or five people talking about investing in like weed fields and it's I don't know. political move could could change things completely, right? I mean, >> but but no doubt about that. But the big thing is that there was this gold rush 5 years ago as more and more states started legalizing weed and none of these profits have manifested. And lots of these companies now, whether they're startups or they're refinancing, they need cash because turned out that this isn't nearly as lucrative of a business as people originally thought. So, not my favorite space. Never borrow money to to make an investment like that. And wait, you have zero experience investing in privates. We haven't even got to the question, do you want to tie up your money for 5 years, seven years, 10 years, or forever? The illquidity issue with privates is another factor. That's a big mismatch for a lot of people. Um, and we're now seeing all the Ivy League and and big foundations and endowments that need liquidity, that need capital because of the recent policy changes. They're having a hard time getting it. And one way to get it is to take your privates and sell them for 80 cents on the dollar. >> Just assume this is this is kind of like gambling. You go to the casino, expect to lose all your money. >> Yeah. 10% sounds like a lot. Is that because of the minimum investment you think that they would be considering 10% of their of their investable assets? >> That's that's the other thing. It's a pretty that's a decent sized amount as far as I'm concerned, >> right? You know, if you're advising a an endowment that wants to put money into privates, you would never say take 10% of your wealth and put it into this one thing. You would say, "Oh, how much do you want to have of alternatives? Great. Let's find you five good pieces at 2% each." Not >> this isn't even a fund. This is a single opportunity. that they're borrowing money for it. This is just wrong on 10 different levels. >> All right, do another one. >> Okay, so maybe buy a Porsche instead. Bring it back to cars. Okay, >> better investment, maybe. >> Up next, we have a question that came in from uh Twitter or X. How do we buy the S&P 493? I own some of the MAG7 individually and more in my S&P 500 fund. I'm way overweight in the MAG7 and it's hard to diversify away without selling and taking a tax hit. >> You know, Bloomberg had a story this week that there's more ETFs in stocks, which makes sense uh because of course, but there actually is a an actual S&P 493. So, I found this from Defiance ETFs called the XMAG. But the thing is the answer. So, there is one that's just the 493 if you want to completely X those ones. But this is a really easy answer because you could buy almost anything. Just anything outside of a market cap weight, outside of an S&P 500 ETF or a NASDAQ 100 or a total stock market. So it's small caps, midcaps, equal weight, value, high quality, dividend, international, whatever. Any basically anything outside of a market cap weighted US index fund. That's how you diversify. It's pretty there's a ton. There's a million different options these days. Pick one. I'm I'm going to throw you two um other suggestions for this person. First, if you're using direct indexing, you could take the S&P 500 and say, "I work at Amazon. I have all this Amazon exposure." Or, "I I work in semiconductors. I don't want more chip exposure." And you could tune out the sectors that you're already overexposed to. So, that's one approach. >> Individual companies. Yeah, that's a cool customization piece of it. And then Meb Faber over at Cambria has created one of these ETF uh exchange funds working with West Gray that you could put up to 25% of capital into an ETF and without paying taxes get a diversified portfolio back. So it can't be more than 25% of any single stock. But so let's say you have I'm making up round numbers. You have a quarter million dollars in Nvidia and $750,000 in other assorted stuff. You could give that to mess and and the symbol is TAX. You could give that. This is like a 1031 exchange. This comes from a real estate tax section which used to allow you to sell one piece of real estate. >> You to defer taxes. >> That's right. You're not avoiding them. You're just uh diversifying and and deferring them until you ultimately sell. That's another option worth worth exploring. Also, >> there's a lot of different taxable structures now that make that didn't exist in the past. You're right. >> That technology and software have allowed us to do things that would have taken eight guys in green visors working in the basement a month to put together and now it's just push a button. Oh, you want the S&P 500? Well, you could go equal weight. You could go X. You could go, let me reduce my um my tech exposure or you could do this tax exchange. Many many options exist, >> right? Yeah. That that and that that kind of stuff is probably a talk to an adviser kind of thing, too, if you're if you're going down that rabbit hole, not just a new ETF. All right, we got one more. >> Okay, last but not least, I currently use a nationally ranked fiduciary financial advisor to manage one of my retirement accounts. I independently manage my Thrift Savings Plan. I'm on active duty. My wife's Roth IRA and Roth solo 401k and a shared brokerage account. I'm a long position buy and hold believer in American capitalism ETF guy. No individual stocks here. Here's the rub. The account that's managed by my advisers firm is the poorest performing of the bunch. I've received some good advice from them in the five plus years I've been with them, but I constantly think about how they come in last every year. They are of the highest cost and poorest performing. Is there advice over time worth tens if not hundreds of thousands of dollars in earnings potential by the time I retire? >> All right, you buried the best part of this question. He said, >> "Yeah, yeah, sorry." >> This is from Herby Hancock and he says he's using a pseudonym because he's pretty sure his adviser listens to the show. >> Okay, I wonder how many advisers are going to watch this. >> Sorry if you're watching this adviser. >> Um, so this actually isn't that out of the ordinary these past five to seven years or so. I I think there's a lot of clients who who buy tech stocks and they in their fund portfolio or whatever in their sidec car and they have outperformed their adviser. So, um Barry, I always like the story that you give about the guy who came to us and said he's going to put equal amounts into four adviserss, right? What was it? And then whoever is the best after a year, right? >> Yeah. Right. And I'm like, you're just incentivizing them to swing for the fences. You you've created a terrible game theory that hey, if I just do risk adjusted returns, I'm going to lose. So let the odds are one in five, I'm going to win anyway. I might as well swing for the fences. >> Yeah. If that happens, you send them to me. >> Yeah. >> So So I love this question for a couple of reasons. So first, savvy investor managing a lot of the portfolio himself raises the question, why is he using an advisor? My assumption is he's in the military, so he needs someone to watch his money when he's deployed overseas or whatever is going on or heaven forbid something happens to them to help the wife and kids, you know, pass that. So, so the first question is, do you want an adviser who you're just going to pay on the by the hour and not worry about the performance? The second question is and and we've seen this a lot of times. People have come to advisors and they'll say, "Listen, I'm against global warming. I don't want any oil stocks." And then oil stocks go on a hot run. Hey, why is my portfolio sucking? Well, well, you pulled out the best performing sector. Or I'm very riskaverse and I want a 6040 portfolio. I don't want a lot of craziness because when they opened the account, everything was going crazy. And so they tune down their risk and all their other accounts are are kind of risky. >> Yeah, that does happen a lot where the adviser needs to remind them this is what you told me to do. And it could be that whatever you're investing in, maybe the adviser knows it and they're trying to offset that and hedge it in a way, but I I would pull my meme here. I would sit down and talk with them and have a have a discussion like what what do you do here? Like what what am I paying you for? I would I would just put it out there and say, "Okay, walk me through why does why is my performance always better than yours? Are you trying to offset something? Are you more diversified?" It could just be that they have all their money in US stocks and this this person has and the adviser has bonds and cash and REITs and small caps and they have more diversification. So, it could be as simple as that. But, I would think I would ask the adviser like just explain it to me. Why is this happening? Um, what else are you doing for me? And if they can't provide any any good answers and they're not providing you really good financial planning, then maybe you don't need to use them. That I would ask them like what are the what are you providing me for your services? What are what am I paying you for? That's that's a legitimate question any advisor should be able to answer. >> Also ask them why am I in this portfolio? What else do you offer? You know, every now and then we'll take over a portfolio from somebody and it's kind of funny to say you're in this incredibly conservative riskaverse portfolio. You should be in an 8020 or 7030 or something like that. Why did you choose this? And the answer is almost always I I don't remember the conversation that led to this um at my old advisor. That's why I came to you guys. So find out if this is the appropriate portfolio for where you are today. Find out what else they offer and consider whether you want to work with, you know, a um an hourly portfolio, an hourly adviser who's not going to be managing uh your money. It looks like this person is doing trust work and tax work and estate work. That's a different conversation than somebody who's here's a plan. Now I'm going to >> Yeah. Maybe maybe it's also to your point, maybe it's a risk tolerance kind of thing too and they're not taking enough risk and maybe that's what you want. Um but yeah, I I it's you have to have a conversation with them. Don't it's they should be able to be transparent and honest and tell you what's going on. So I would have that conversation. >> The the challenge with risk tolerance is how much recency bias creeps in. When the market's making all-time highs, people say, "Hey, I I'm very uh risk tolerant. I'm very aggressive. Let's go." Were you saying this in April that you'd wanted to be take more risk or >> 2022? Yeah, that that I agree that some people think they could take more risk. Their perception of risk changes, not necessarily their appetite for it, >> right? And you know, if you have the same conversation late 2022, listen, I'm not looking to shoot the lights out. The market is down, bonds are down, I want to be conservative. >> I'm good. Toss are 5%. I'm good. >> F Yeah, I'm getting 5% of my money market. I don't need to take So, you know that all that stuff should be really clearly written out. It's why advisors are supposed to keep running notes. We use Salesforce. There's a dozen different technologies for that where, hey, when you set up this account in 2022, you said, I can't tolerate loss. I don't want volatility. Put me in something very conservative. Well, conservative means that when the market comes out of this, it's going to underperform the stocks that were getting and the funds that were getting shellacked in in a down year like 2022. Would it be fair for the adviser to say, you know, we're looking at 10 and 20 years, not the last three years? >> Yeah. Well, that's >> or is that a copout? >> There's some element to it. It it has to fit the client's goals. And if you're 25 or 55, they're going to be two different portfolios. So, there needs to be a good fit. And yeah, a year or two is too short to judge, but after five years, hey, why am I in this portfolio and it sounds like we haven't talked about he said not only was this the worst performing portfolio, but it was the highest fee portfolio and the recent Morning Star report, which echoed their 2011 report, which echoed a dozen separate academic researchers, are if you know nothing about a portfolio, IO and can only learn one thing, make that fees and that'll give you good insight as to how it's going to perform. Higher feed portfolios have a tendency to underperform. >> All right, we didn't get him a Porsche, but um it is Duncan's birthday today and >> Oh, happy birthday, Duncan. >> Yes, the Compound Media team prepared a few pictures for Duncan. So, Daniel is going to put some pictures up here that they created. >> Um there's Duncan on his Beatles tour when he went on his London trip >> earlier this year. >> That's pretty cool. Oh. Duncan's a big F1 fan. Um, he's very serious in a >> Oh, I get it. Alpha. >> Yeah. >> Uh, this is Duncan in his Oly world, I guess. >> And that's my dog. That's Wall-E. I'm uh >> That is your dog. Okay. >> Horseback on Wall-E. >> That's unbelievable. That's pretty good. So, that's from the uh the Compound Media team. Happy birthday to Duncan. We'll get him a Porsche hat. Maybe. >> Very good. I'll take it. >> But we're so I just want to make sure you don't say Porsche. You say Porsche. Uh, who knows? >> I I match honestly I match whoever I'm talking to. Usually if it's someone who says Porsche, I'll say Porsche, but otherwise it's like a pinkies up thing. >> If you're in Germany, it's Porsche. It just sounds so affected in the United States. >> I agree. All right. Ask the compound showgmail.com. Hit us with your emails and questions as always and we'll see you next time. >> See you everyone. [Music] [Music]