Investment Strategies: The podcast discusses strategies for significantly increasing net worth over a short period, emphasizing the importance of savings and realistic investment returns.
Market Interconnectivity: The conversation highlights the increasing interconnectedness of financial systems, suggesting that while this can lead to more significant downturns, it also means more people are invested in the market's success.
AI and Economic Impact: There is a debate on whether AI can sustain economic growth and prevent recessions, with skepticism about its ability to replace consumer spending as a primary economic driver.
Personal Finance vs. Investing: The hosts discuss the importance of separating personal finance decisions from investment strategies, particularly when it comes to managing debt and investments.
Hedging Strategies: The podcast advises caution with complex hedging strategies and suggests that sometimes the simplest approach, like holding more cash, can be the most effective.
Long-term Holding Concerns: For long-term investors worried about short-term volatility, the advice is to focus on the reasons for holding stocks and to set predetermined rules for when to sell or rebalance.
Recession Preparedness: The importance of having a crash plan is emphasized, focusing on personal finance readiness rather than attempting to time the market.
Public Investing Platform: The podcast is sponsored by Public, an investing platform offering multi-asset portfolios and AI-driven insights, highlighting its unique features like a 1% match on IRA rollovers.
Transcript
I'm Ben Carlson and this is Ask the Compound, the show where you ask and we answer. Let's say you have a number in mind where you want to be financially, maybe the next four to five years, but that number is substantially higher than your current net worth, maybe 3 to five times higher. Is that even possible to reach that goal? What saving and investment strategies could make this dream a reality? We're going to answer those questions and more on today's show. Stick around, please. Our [Music] email here is ask the compound show@gmail.com. Please send in all of your Porsche requests to Duncan. Um, we're going to have Barry on the show next week to talk about Duncan's $20,000 Porsche and see if that's actually reality. I think Duncan was more right than we gave him credit for initially. >> I said in the 20s, just for the record, I didn't say 20. 20s. So, >> I looked up I looked up some Porsches and I still can't I'm saying Porsche, not Porsches. Sorry, I'm never going to be that guy. >> I go back and forth. >> You can you can actually buy one. So, we'll we'll ask Barry next week. On today's show, we answer questions straight from our compound audience about how to hit your net worth goal in four to five years. Can AI prevent a recession in the 2020s, how to invest in markets that are more intertwined than ever, how to hedge your biggest winners in the stock market. We get all kinds of questions on that one. And then, should you pay off an auto loan if you have the money sitting in a brokerage account? Remember, if you're in the live chat, we appreciate you. Send us your questions. We'll hit them live on the show. Same on Twitter. All right. Today's show is sponsored by our friends at Public. Public is the investing platform for those who take it seriously. You can build a multi-asset portfolio right on public.com of stocks, bonds, options, crypto, and more. You can also access industryleading yields like the 4.1% APY you can earn in your cash. No fees or minimums. But what sets public apart? AI isn't just a feature. It's woven into the the entire experience from portfolio insights to earning caller recaps. Public gives you smarter contacts at every touch point. Plus, for a limited time, Public is like your employer. 1% match on all IRA rollover deposits, IRA transfers, and 401k rollovers. Fund your account in 5 minutes or less. Find out more at public.comc. That's public.comc. Paid for by public investing. Full disclosures in the podcast description. Great show. Lots of good questions. Let's do it. >> All right, let's dive right in. Up first today, we've got we've gone international, Ben. It's pretty cool because we we know we see all the emails. We know we have a pretty decent international audience, but but it's cool to kick off a show with a question from Belgium. So, here we go. Question from Andy. >> I'm 25 and live in Belgium. I net €2,000 a month in a factory job and save 500 to a,000 a month. My net worth is 67,000 and I'm debtree. My goal is to grow this into 200 to€400,000 in four to five years. That would allow me to relocate to Southeast Asia, ideally the Philippines, and start a business. This is a very specific dream. >> Uh if you were like me at 25, debtree with 67,000 net worth, what investing or allocation strategies would you prioritize to realistically reach 200 to 400,000 in four to five years? I did it. I didn't say pounds. >> All right. I I have to give Andy a heads up here. I I did a bunch of number crunching for him here and it's too hard for me to go find the euro button and input it in Excel. So, I just use dollar. So, I'm sorry if that makes me an ugly American. So be it. Uh I really like You're right. He has very specific goals in mind here. I really like that he has a golden form. He has a savings plan in mind. He's got a time horizon. He's got an end state in mind. Right. The Philippines. And I don't know what the draw of the Philippines is in terms of quality of life. I've never been there before. All I know is that they have those really cool rocks like the big rocks in the ocean that look like the floating rocks in Avatar, right? That always make for really cool movie highlights from the top like from the drone. >> You know more than me then. >> Okay. The cost of living in the Philippines is much lower than it is for Belgium. I asked I asked my research assistant um Chad GPT about this. Dan, throw up the uh chart here. Almost everything is much more expensive in Belgium than it is in the Philippines. I think the number I found it's it's 50% to twothirds cheaper living in the Philippines than it is in Belgium. So these comparisons always require some context, but it does appear that it's much cheaper to live there. So maybe that's the draw. I don't know if he's trying to do a a fire thing. Um but I like that he provided us all the details. So I'm going to run some numbers. So Dan, let's do a chart on here of my next one. So I ran some numbers here. This is over a fiveyear time frame and I looked at different monthly savings amounts, right? He said $500 to $1,000 a month or euros, I guess, but I'm using dollars. So, I I used 500, 750, $1,000 over a 5year time horizon. I said, "What what if he earned 8% 10% or 12%." Right? Just to see what would work here. Um, so you can see at the top end of the range, he's actually in within spitting distance of his 200k goal, right? If he earns 8 to 10% then and saves $1,000 a month thousand euro a month. Sorry I keep doing it. Um he's right there now to reach the high end that's going to make it much more difficult that 400k amount. So that's something saving something like 3500 to 4,000 a month or earning 30% annual returns for five years probably not going to happen. Um, so I could give all sorts of allocation and investment ideas, but you're probably not hitting the high end of your goal unless you really start making more money or hit on some sort of lottery ticket investment. Put all your money in Olely calls. So, >> hey, you would have done well recently. >> Yeah, >> my advice would be to get the top end of your range for saving because listen, you could take more risk in your portfolio, but like I said, you need like 30% annual returns for five years. good luck finding something that gives you that and taking more risk could, you know, mean that you you really don't reach your goal if something goes wrong. So, focus on the saving. That's the big thing. So, making more money, saving as much as you can. That's the goal here. Hit the top end of your savings range um over a short period of time. The savings matters way more than the compounding, right? If it if we're talking a 10 or 15 or 20 year time horizon, then yes, the compounding makes more sense. But >> and Andy mentioned in the uh original question, but he lives at home right now. That's part of how he's able to save. Um yeah, so that's an important >> Yeah, we're working in a factory job. So again, I love the fact that he's got this plan in mind. I'm living at home. I'm saving a majority of my income. So I I think if you want to hit the top end of your range, you have to earn more money and because I don't recommend just take, you know, taking flyers on a because then your whole dream could be gone. So, here's another consideration, though. What's holding you back from moving to the Philippines now? You have almost €70,000 saved. Why wait? Couldn't you make money there? Like, how much do you really need to start a business? Um, it's a lot cheaper to live. >> I'm guessing the pay there is significantly cheaper though, too, right? If the cost >> the cost it would have to be. Um, but the great thing about remote work these days, depending on the type of business, you can live anywhere essentially. Um, I don't know what kind of business it's planning to start because he works in a factory. Maybe it's something that's more physical and hands-on. Um, so I don't know if he's planning on that, but here's the thing. He's young. He lives at home. He has the ability to be adventurous. Like, you don't have to wait for some mythical number to make a move. At 25, nothing holding you back. If you want to take a risk, move to the Philippines. Figure it out sooner. Like, maybe when you hit 100K, then you go to the Philippines. Like, don't wait five years for your life to happen because I I I think you could always move home if things don't work out. Also, I'm going to assume if he's this devoted to this dream that he's done this, but I would definitely go spend some time in the Philippines before you before you up and try to move there, right? So, you could, you know, take take off a week or two and go to the Philippines, see what you think. >> Yeah. See how it is. >> I I think the way that I see it though is that there's some life events that you're just never going to be completely ready for when it comes to your finances. People always say that with I'll just have kids when my I'm ready financially. You're never going to be ready. Some things you just have to take a leap of faith and figure it out as you go. This might be one of those times. Do it when you're 25, not when you're 30. Like, do it now. Get lower your lower your expectation for your number. Unless you have a really specific idea in mind that you need to hit this number for. Um, do it now, man. Don't wait. >> Yeah, >> that's that's my >> I wonder I wonder if the vacations is good in the Philippines. Belgium is probably one of those countries where they like get three months off a year for vacation, right? >> Oh, could be. >> Maybe. >> Yeah, those years never work. That's why they have haven't had economic growth since like 1750. >> All right, >> Andy can correct this. >> Okay, up next we got a question from Jack. >> I know this is blasphemous to the market gods, but here it goes. What if we just don't have a recession for the rest of the decade? What? This feels so toppy just reading. >> What What if AI powers us through boosting spending, driving productivity, and even helping absorb some slack in the labor market? What would that mean for market speculation, interest rates, and investing? And yes, I left the M dash there so you could see I used AI to help me clean up this question. So, >> oh, okay. Good usage of blasphemous. I think that was in the original question. >> Yeah, it was. >> Um, let's bring on our resident macro expert here, Kelly Cox, our chief investment strategist. >> Hey, Kelly Wealth. >> Hey, I do not appreciate the M dash slander, by the way. >> I'm just saying it's >> I used to be a journalist. I use it all the Yeah, but people people now assume if you use an M dash, people assume it's say I now because chat GP crushes my soul because I use >> there's got to be certain words. So you could you just have to prompt chat GBT to don't use it, right? So people can't tell. All right, Cali. Um let's do a chart first chart on here. Recessions don't happen nearly as often as they did in the past. So this is some chart matted exhibit A. You could see in the you know early late 19th early 20th century recessions happened quite often and they were a lot longer. and now they're fewer and far between, especially I'd say since like the 80s there. The the gaps between the recessions continues to keep growing. So, I don't think that this question is completely unreasonable that we could go through an extended period of time without having a recession. However, is it a little too cute to assume that AI can just keep powering everything even if we have these other areas that slow down? That seems to me like that is a that's threading a needle and a balancing act, I think. >> Yeah. So, when I saw this question, and by the way, Ben and I see these questions beforehand. No surprise there. My mind immediately went to the AI versus consumer spending balance. But Ben, actually, I love that your mind went to the timing and the frequency of recessions these days because you're right, recessions just don't happen as often or haven't happened as often in the past several decades or so than they did before that. A lot of that is due to social security that became a thing in the 1930s. Unemployment. Um we have these social safety nets that kind of uh almost cushion the economy and cushion consumers against uh you know the worst case scenario happening. But when it comes to AI versus consumer spending, I have a little bone to pick with everybody who thinks that AI can single-handedly hold up the economy because I think that ignores the numbers that were that are at stake right now. Consumer spending is 70% of the US economy. $16 trillion line item. When it comes to GDP, AI spending seems like it dominates the headlines, definitely dominates markets. But when it comes to GDP, the cold hard, what does it actually add to the economy? Right now, it's around like 1.4 trillion or so. So, I wonder if AI can really hold up the economy when it's peanuts compared to our financial decisions. And >> right, people still need to spend money to make those AI investments worth it. >> Right. Right. And if consumer spending pulls back, then can you depend on that AI spending? Do companies just, you know, keep spending like bonkers on a future technology when everything else is pulling back? I actually have numbers on this. So, John, could you pull up the AI versus consumer spending? Yes. The or the robots are pulling the economy along. Yeah. So, this I feel like this is why the conversation is happening right now. In the first two quarters of the year, yes, AI spending actually grew more than consumer spending. And I I think it was Neil Da who put this stat out. So shout out to him because it is a very good stat. But once it came out of course the narrative started flying about, you know, robots holding up the economy. Where would we be without AI? And I mean I think I think you have to remember that there are two factors here. Consumer spending isn't growing that much and AI spending is growing by a good bit. So what's more influ influential on the economy? It's consumer spending. You know, I really don't think you can have a healthy economy without a spendy consumer. And I mean, that goes back to the job market and how we make money. So, I I would just question the degrees of size here. >> How about this for a thesis? AI would have an easier time sending us into a mild recession than it would propping up the economy for much longer. Like, if if they realize that, oh no, we've overspent by like$500 billion here. we and Meta and Microsoft and Google all at the same time say all right we're we're cutting back and Nvidia sees a misses some expectations that to me seems like a trickle into the economy could easily happen especially with a slowing labor market already here as a that seems like a more likely scenario than AI just prepping up the propping up the economy forever. Well, the connector there, it's interesting you say that the connector there is expectations which are baked into the stock market. And I know we're going to get to this a little bit later, but the wealth effect is absolutely a thing. People see their stock prices or their portfolios move higher. They feel better about the economy. You can see echoes like that in a bunch of different data sets. So, you know, I'd have to wonder the same thing. Is is a selloff or a stock market selloff, especially concentrated in tech, more of a self-fulfilling prophecy? You know, maybe because maybe that chills maybe that chills confidence enough for consumers to maybe pull back on spending. >> So Dave in the chat has a good question. He said, "Even if you knew a recession is coming, how would that impact your retirement decisions and asset allocation?" And it's a good question because the timing of the stock market and a recession almost never line up. Like the stock market is forward-looking, but the stock market is actually not very good at like predicting recessions, right? and like falling in advance of a recession. And a lot of times we'll already have been in a technical recession before um the stock market even falls because we don't really know that we're in it for for later. Um and I think you could also say because the stock market is moving so much faster these days, the stock market could price in a recession way quicker and come out of it faster than it did in the past. And so I think especially trying to time the stock market would be really difficult. I mean, the easiest one would if you had that headline in advance would be, well, I'm going to take some duration risk in my fixed income or something like that under the assumption rates are going to fall, but other than that, trying to time the market based on the timing of the recession is not an easy thing to do. >> Yeah. So, I pulled some data around this, Ben, and you actually see the stock market top out before we enter a recession. And it's really funky, right? because the the definition of a recession is named by this um board called the National Bureau of Economic Research and they tend to say that was a recession about a year after it ends. So it's this funky thing where we're relying on a board of nerds to you know tell us when the economy is not okay based on some certain quantitative measures. But if you line up past NBER defined recessions relative to the stock market, then usually the market does top out or it does start falling before that recession starts. But I mean, I would even dial down what you said a little bit, Ben, because you hit on it right. But take a step back and just make sure that you're prepared for whatever comes next. I mean, I I threw a chart in the document. Um, John, you want to throw it up? Recessions and sell-offs. Yeah. So, a recession historically has been one of the worst things that can happen to a stock portfolio. I mean, it's been it's been the cause of some of the most vicious sell-offs we've seen or the product of some of the most vicious sell-offs we've seen. So, it's I mean, I know this is really tough, but I think I think it's important to make a crash plan before it happens. Um, a little like if stock prices fall 20%. How does this affect my life? How does this affect my portfolio? what steps can I take to either capitalize or defend myself from what's going on here? Um, and it's easier said than done, but it's putting those specifics on paper and really holding yourself to them when it happens. Knowing that a recession is this allencompassing thing that affects your friends, your family, your favorite pizza place down the street, um, it just really reres havoc on your emotions. >> Yeah, I think you your preparation is more on a personal finance side of things than it is on your portfolio for most people. that that's that's easier and smarter to do than it is trying to hedge something and and not know the timing. All right, let's do another question. >> Okay, up next we got a question from Jeremy. I'm trying to wrap my head around how interconnected our financial systems have become. I can max out my JP Morgan Chase credit card to fund a Coinbase wallet, buy speculative assets like Trumpcoin or Fartcoin with a $1 billion market cap. Sorry, Michael. That's an animal spirits reference for those of you new here and uh use those to qualify for a federal housing loan per FHFA's decision allowing Fanny and Freddy to consider crypto and mortgage assessments. Add to that the trillions and 401k assets now eligible for alts like crypto and private equity per President Trump's recent executive order. Are these speculative systems getting too intertwined? Is this the new normal for markets or are we riding into the wild west of finance? Co sparked some crazy trends, but this feels next level. How should a retail investor play this crazy financial landscape? >> You know, this is a really good question. It's really like well written and thought out. And I think this is maybe one of the legacies of the great financial crisis, which is when a lot of people had this aha moment of like, oh my gosh, this stuff is really all tied together in a way that we never really thought before. Everything is becoming more financialized. And he's right. The 2020s has taken this probably to another level. Let's show Chart Kid Math's recent uh chart we've been talking about. >> Before we do that, Ben, do you need to disclose your FARCoin or Trumpcoin holdings before we discuss this or >> I hold those in a trust for the kids? Uh >> okay. >> No. Uh no, not not a holder there. Uh so this chart could Matt made this just showing that the wealth effect meaning like the impact of the stock market on your net worth is has been rising and it's it's more interconnected with households. Um, and I know some people look at this as being a bad thing. I almost think of it, Cali, as like a nuclear war thing where like it's almost like a mutually assured destruction idea. Yes, the financial system and financial assets are more important than ever, but everyone is also kind of rowing in the same direction. So like that, yeah, the downturns are going to be more painful because more people are involved. But by nature of these systems and assets being more important, they're they're people pay more attention to them and they're more important to the government and we almost can't allow we have to throw them a lifeline in some ways. And I think my take is that the fact that everything's more interconnected is actually a good thing even though like it it could lead to quicker and swifter downturns >> and that the government is more comfortable stepping in or they've set that precedent where they have to step in and provide a safety net. >> Yeah, I know to some people that sounds like no free markets, leave them alone. But I I think the stock market is so important now to everyone's retirement and and most so many people's net worth that um the fact that it's all interconnected means everyone is kind of on the same team here. >> Yeah, I like the way that you put it. By the way, for my free markets people, remember again, Social Security and unemployment benefits are safety nets as well. They're not that much different than what we're talking about here. >> And those things didn't exist in the Great Depression and they were they were they came because of that. And that's why Yeah. That's why the Great Depression happened. Yeah. I mean, this is the wealth effect again, right? It's um you know, seeing everything happening around you, especially in your portfolio, and then making decisions off the back of that. Yeah. They make downturns hurt a little hurt more, but you do that at the expense or that happens at the expense of, you know, consumers and the average investor being more educated about markets than ever. You know, there's a reason why we got this question. Um, it's because we're, you know, people understand markets more than ever before. And I think there are a lot of positives to that. Of course, I don't want a crash to happen. And I don't want it to be painful. It probably will because that's just the play of markets. But >> yeah, he's right. The next the next financial crisis, whatever causes it, is probably going to be very painful, right? The the actual if it's debt growing or excesses in some part of the economy, when that downturn hits, it's going to be painful for way more people than it was in the past. But again, my whole thinking here is just that the bull markets always, you know, take over the bare markets. The bare markets are painful, but the bull markets more than make up for them. And that's kind of my line of thinking here. >> Yeah. Easier easier put down on a spreadsheet than actually lived through. But yeah. Yeah. Uh I mean, absolutely. When I read this question, my first thought was, "Oh my god, please do not make crypto purchases on a credit card." But I know that's not the point here. Um, I think I think that's the right thesis and yeah, I think the global financial crisis really framed that up for people. It put the possibility of this this like internal destruction or this internal like system destruction possibility in our heads. >> Yeah. >> Would you say in general that people are more willing to hold a stock trading at, you know, 2530p during a downturn instead of 400p? >> You giving us an oie? >> No, no, no. uh valuation update. >> No, no, no. I'm I'm just I'm wondering like because right now you hear all these stories about people piling into these stocks that are by any, you know, metric super super uh frothy, I guess, as you say. And yeah, like aren't people just going to dive out of those as soon as the market corrects? >> That would certainly seems possible. I I it it is it is hard to sort of separate the fact that a lot of stuff that's happening right now with speculation feels very frothy and bubbly in terms of what happened in the past versus how much of that is just to Kelly's point people are just more willing and accepting of risk these days and the retail investors so much more involved and it's hard to separate those things and understand what what is here to stay versus what is just a flavor of the moment and I don't have a good answer for it to be honest. Yeah, it's really hard to compare moments of like speculation and froth across history because you just have so many changing conditions. This time is different. Yes, I'm saying it. But uh gosh, what was I going to say? Oh, yeah. But technically, like yes, if you look back at corrections, especially corrections and sell-offs around economic weakness, then yeah, you see the higher valued stocks get hit a little bit harder. So, >> and it is the point that I've been the point that I've been making lately is that you had that recession chart earlier. Um the COVID recession while seemingly painful and the unemployment rate went to 15% or whatever, so much money was thrown at it so quickly, it did it felt like a recession for like 3 weeks, right? It wasn't a real economic downturn that had lasting impact, right? The labor market came back very quickly. The stock market came back right away. You know, it's been more than 15 years since we experienced an actual economic contraction, right? And so it's hard to say how many of these new habits are going to be here until we go through another one of those. And so that's that's the hard part is like, you know, how are people actually going to react? >> It's been so long, we don't really know. >> I mean, you can look at the past and human nature and all these things and >> get a pretty good sense. >> Um, but I think it's going to that's going to be really interesting when we have an actual recession. Like how bad do people freak out? >> Yeah. And how quickly do the natural safety nets come back in to save us because COVID happened and there was a lot of money thrown at the problem, but then we had inflation right after that and there were I feel like there's a lot of scars that are going to linger there for a while. >> Yeah, Duncan's going to head Duncan's biggest portfolio hedge is a 911 Porsche. >> For the record, I just looked it up in the public app and uh Oley's P is -2.62. So, it's likely not 400. >> Negative. Yeah. I don't know how a negative PE is possible, but >> I mean, >> wait, >> negative nowhere to go. But that's that sounds cheap to me. >> Yeah. Very not I don't I guess they're not profitable, right? >> Yeah. >> Yeah. That what could go wrong. All right, next question. >> All right, up next we have a question from Joe. I'm a retail investor with five core equity positions. Stocks I've held for up to a decade and plan to hold long term. I've been fortunate to see large gains in some like Microsoft, which I bought in 2013. Not bad. Yeah, I'm looking for ways to protect my gains without selling calls or buying puts on the individual names. With the market's big run up and low volatility, I'm starting to get concerned, especially with September coming, a Fed meeting ahead, and traders returning. I'm still bullish long-term, but I feel like I need some insurance against a spike in volatility or a sharp correction in the next couple of months. What are your thoughts on buying puts in the indices like spy, V, or QQQ? What about calls on the VIX? I think we've gotten some form of this question at least once a week for the past three or four months. >> Yeah, >> it's and it's the same stocks, right? I own Nvidia or I own Tesla or I own Microsoft or one of these big tech stocks and I've owned them for a while and it made a ton of money and I know I should probably take some off the table and I should probably diversify, but boy, what if it keeps going up and I can't? It's so hard to understand. Um, I should probably sell, but I really don't want to. And again, so this this is a total bull market question, right? Like I have all these gains and yeah, I know something could go wrong, but I I don't want to sell. What what if it keeps going up? So, um I think a lot of the solutions here I I think they're I'm all about finding ways to be more efficient as an investor, but I also like to don't I don't like to add degrees of difficulty to things. And sometimes the easiest thing you can do is just sell a little and rebalance and maybe hold more cash instead of like trying to come up with this this beautiful hedge that is going to work perfectly. I think the easiest to the easiest way to you know dampen the volatility of your portfolio is just to hold more fixed income or cash. And if that means you have to sell some shares then you have to come to terms with that. I think >> yeah Ben we think pretty pretty similarly in this area. I will say though, I read this question and sometimes when I get questions, I I take like a nerd approach and I I think through numbers, I think through historical precedent, stuff like that. I read this question and I got the vibe of a best friend who just needs to sit you down at the table and, you know, have a honesty conversation with you. I my first question to myself uh to the writer would be, why are you holding these in the first place? You say in the question, you're a long-term holder. So, what do short-term pullbacks mean to you if you are a long-term holder? I'm assuming you're holding these stocks because you think that they're you think that the companies are good, that they're quality, you know, that you think that they can run for a really long time on their ideas. So, if a pullback happens, number one, would you want to buy more? I know that would be emotionally painful. I'm talking off of a spreadsheet instead of how it'll feel in real life, but you know, why why do you feel the need to hedge in the first place? And if you are hedging, why jump to options as your first choice? You know, are there price targets in mind that you want to aim for? Like, do you want to sell I'm sorry, I forgot the stocks already. Do you want to sell your Nvidia at >> That's a that's a great point, the time horizon thing, because buying a buying a stock at any time is is really easy, right? If it's down, I'm buying it because I'm looking for value. If it's up, I'm buying because of momentum and it's going to keep going up. But I've never really heard of anyone with a good sell discipline, right? There's no like good Warren Buffet books out there about when to sell a stock. No one has a great process for selling a stock because it's hard to put a time horizon or a cap on it. And we've seen stocks that have have just continued to rise throughout the years and make people look foolish for jumping off. So to your point, um this is almost the kind of thing you have to predetermine like at a certain percentage of your portfolio or a certain level this stock hits, I'm going to trim back. And if you don't have those preset rules, then you're really just guessing. You don't have a plan, right? And that's that's to your point, are you going to that's why having an asset allocation is so important, I think, for financial decisions because it's so much easier to lean into the pain when things do fall. Well, here's my preset allocation. I'm going to get back to it. Or I have a certain threshold for these stocks. If one of these stocks is 10% or more of my portfolio, I'm trimming it back. If all of these stocks collectively are 50% of my portfolio and bringing it back down to 40, whatever it is, if you don't have those preset rules in in advance, you're just guessing and you're you're hedging in hopes that you time a correction, which good luck with that. >> Yeah, it's all about setting targets. The target can be a price on a stock. It can be a technical level if you're so inclined to that. It can be asset allocation, a percent of your portfolio. But set set the numbers before you need to and let the numbers dictate what you need to do. I mean, I don't hate I don't hate options as a hedge for certain investors. I think it could be smart if you have price targets in mind. Um, VIX calls are hard. Uh, please don't please understand what you're doing when you're trading VIX options. The VIX is a is a 30-day gauge of S&P options prices. So you're not exactly you kind of are, but you're not exactly um hedging against a market downturn because you're really hedging the second derivative of that. So uh leave leave VIX options to the professionals. But um you know, think about think about the reasons why you're asking this question first. What what makes me nervous about all these hedging strategies is I've seen so many of these ETFs that are supposed to help you hedge and they all look awful over every period of time that I can I can look at them and so I'm just like these people know way more about it than me. How am I going to how am I going to do a better job of hedging >> hedging the market than these professionals hedging it's like it's like paying an insurance premium. You're right. Over the long term, um, by definition, they're going to be terrible investments, but it's just the these one times when volatility spikes or a downturn happens. >> Um, but then >> I I owned one of them during the uh I bought one of them at the beginning of, you know, the last like crazy correction, and it it still it dropped, just not as much. I was just like, what? Why am I owning this thing that's supposed to hedge, you know, downturns if it's still going to drop? Like I'll just take my chances with >> I Yeah. I still think cash is the is the easiest hedge for most people and it it causes the least amount of brain damage. >> Yeah. >> Yeah. >> Because you know exactly what's going to do. >> Yep. Yeah. You can hold it. >> I think the the thing that I hear a lot though from people uh that have owned Tesla or Palanteer these names is like yeah they would have sold many times along the way right and now it's just ballooned to these massive positions. So the mindset is kind of like it's worked this far like why would I stop trusting it now? which you know I mean I can understand but it's also yeah it trees don't grow to a sky as they as they say I guess. >> Yeah. No I I get the I get the line of thinking too for sure. It's you've got 15 years of >> of evidence here. All right. So one more. >> Okay. Up next we got a question from Zach. I've just taken on a $66,000 auto loan. Over the life of the loan we'll pay $8,000 in interest for a total cost of $74,000. We're able to pay the loan in full today from a brokerage account that has $118,000 in V and QQQM. I had to look that one up. Uh running a simple investment return calculation. >> Wait, what is that? The equal weighted one. >> It's so it's it's the Q's but like um market cap. Uh something something is different with the market cap. I can't I can't remember exactly what it said. >> I think it's equal weighted. I don't think it's equal, but yeah, it said something like modified market cap, whatever that means. Uh, running a simple investment return calculation, leaving the $118,000 invested would return a total investment of $173,381 over 5 years at a conservative 8% return with no additional investments. Paying off the loan and leaving $52,000 and investing the monthly payment of uh $1,245 back into the market with the same assumptions would yield $163,951. The math seems clear to carry the loan and stay invested. But how do you weigh the mental tax of carrying a large loan? Extra context, we have roughly $325,000 invested in 401ks and other brokerage accounts. >> All right, Zach to me here seems like a spreadsheet warrior. And if you're a spreadsheet warrior and you're staring at a $1,200 monthly car payment, you're probably going, "Oh my gosh, what are we doing here? This is tough." And obviously, they've ran all the numbers. And my thinking is sometimes there has to be a separation of church and state between investing and personal finance decisions. Sometimes those things come together. Sometimes I think you want to keep them separate. I I tend to lean on the Charlie Munger piece here that the first rule of compounding is never interrupted unnecessarily and and constantly pulling from your investments to pay these kind of things off. I I think it's I don't know. I I think it's it's a little it's almost a little too much for me. I think sometimes you have to just be okay if I can, you know, uh handle the debt burden on this loan and make the monthly payments and it's going to be fine. and I'm going to leave my investments alone. I don't think you want to do this for every personal finance decision. It's kind of how I look at it. >> Yeah. My my first and most important motto in my life and you know I'm sure many people have this mantra is sanity over everything. If it's bothering you, if it's something that sticks in your brain is just rentree in your brain, then pay it off. But mathematically that probably wouldn't be the right answer. And hello spreadsheet warrior, you've probably already run these numbers, but it looks like your auto loan interest rate is in the high fours if you run an amortization on it. And high fours. >> Oh, so you like backed into that based on the interest that So that's actually not terrible. >> That's not No, that's not a bad rate at all, especially given where interest rates are right now. I mean, that's you can get that on some longer bonds. So, you know, I think from a purely mathematical perspective that like yes, get that rate on your stock market investments, get that rate on a fixed income investment. Think of it like a seessaw, what you're paying out versus what you're bringing in. But if this if this loan is just sitting in the back of your brain and it's making you miserable, then pay it off. >> Yes. And I think I think this would be an easier decision to just say pay it off if it was a much longer term loan. But car loans are not that, you know, as long as you take out like a >> I mean personal finance 101 kind of in general, you want as much money today that you can possibly have invested as possible >> time and value of money, right? Yeah. >> So I mean >> Yeah. Yeah. >> But yeah, I guess >> a chart on this. >> Yeah. Okay. >> Well, it's Nick's chart, Nick Mulli's chart, but uh chart on Yeah. So Nick Maji actually ran the number numbers on this a while ago. Several years ago. I built a separate model on this years ago, confirmed it, but um yeah, lump sum investing put like keeping all your money in the market at once almost consistently outperforms dollar cost averaging. But again, from a human perspective, it's not as easy to like leave a bunch of money in the market and take on all that risk. Uh besides like drip dribbling in a little bit at a time. >> Yeah. So that that money in the brokerage right now, that's your lump sum. >> Yeah. Exactly. >> Yeah. I I think that's just also just paying off the loan and leaving it alone instead of then dollar cost averaging back into the market and and I think it's just easier, right? >> Getting rid of the mental tax. Uh Jeffrey in the chat says, "Ben is definitely getting a Porsche." Uh never going to happen. >> I can't wait. >> Not a not like a convertible guy. I'll get like a a Jeep Wrangler would be my only >> uh car dream thing. I don't I'm not >> We'll remember this quip for when you're driving around in a Porsche. >> Duncan, I didn't know you were a carer. Oh, yeah. >> Oh, wow. Learned something new about you. >> Yeah. >> Whenever Barry comes on the show, Duncan can't wait to talk about cars. You just he lights up talking about because he's an F1 guy. >> I I send Barry uh photos of of cool cars that I see around. So, yeah, we have >> everyone everyone last week thought that the the guy that's a Formula E car. Yeah. >> Everyone Yeah. Someone said, "I'm getting a Honda Accord." That's true. That's my dream car once I get rid of these kids. Go to college. >> Great car. >> Uh >> but yeah. Uh, so Kelly, tell everyone where they can find your newsletter. >> Yeah, well, thanks for having me on first of all. This is always a blast. You can find my newsletter. It's called Optimistic Cali. It's the name that you see right there. Optimistically.com. You can find me on Twitter, Instagram, Blue Sky, all those places. LinkedIn. >> Perfect. Yeah. >> Um, subscribe to the compound because we are getting very close to 200,000. Hey, where's my koala? Come on. I just said it. >> He said subscribe, Dan. >> There it is. >> All right. Email us. Ask the compound show@gmail.com. Thanks to everyone in the live chat as always. Thanks to Kelly Duncan, everyone on the production team. >> Almost 2600 people watching live today between uh Twitter and YouTube. >> All right, thanks everyone. See you next time. >> Nice. >> See you everyone. [Music] [Music] [Music]
How Can I Triple My Net Worth in 5 Years?
Summary
Transcript
I'm Ben Carlson and this is Ask the Compound, the show where you ask and we answer. Let's say you have a number in mind where you want to be financially, maybe the next four to five years, but that number is substantially higher than your current net worth, maybe 3 to five times higher. Is that even possible to reach that goal? What saving and investment strategies could make this dream a reality? We're going to answer those questions and more on today's show. Stick around, please. Our [Music] email here is ask the compound show@gmail.com. Please send in all of your Porsche requests to Duncan. Um, we're going to have Barry on the show next week to talk about Duncan's $20,000 Porsche and see if that's actually reality. I think Duncan was more right than we gave him credit for initially. >> I said in the 20s, just for the record, I didn't say 20. 20s. So, >> I looked up I looked up some Porsches and I still can't I'm saying Porsche, not Porsches. Sorry, I'm never going to be that guy. >> I go back and forth. >> You can you can actually buy one. So, we'll we'll ask Barry next week. On today's show, we answer questions straight from our compound audience about how to hit your net worth goal in four to five years. Can AI prevent a recession in the 2020s, how to invest in markets that are more intertwined than ever, how to hedge your biggest winners in the stock market. We get all kinds of questions on that one. And then, should you pay off an auto loan if you have the money sitting in a brokerage account? Remember, if you're in the live chat, we appreciate you. Send us your questions. We'll hit them live on the show. Same on Twitter. All right. Today's show is sponsored by our friends at Public. Public is the investing platform for those who take it seriously. You can build a multi-asset portfolio right on public.com of stocks, bonds, options, crypto, and more. You can also access industryleading yields like the 4.1% APY you can earn in your cash. No fees or minimums. But what sets public apart? AI isn't just a feature. It's woven into the the entire experience from portfolio insights to earning caller recaps. Public gives you smarter contacts at every touch point. Plus, for a limited time, Public is like your employer. 1% match on all IRA rollover deposits, IRA transfers, and 401k rollovers. Fund your account in 5 minutes or less. Find out more at public.comc. That's public.comc. Paid for by public investing. Full disclosures in the podcast description. Great show. Lots of good questions. Let's do it. >> All right, let's dive right in. Up first today, we've got we've gone international, Ben. It's pretty cool because we we know we see all the emails. We know we have a pretty decent international audience, but but it's cool to kick off a show with a question from Belgium. So, here we go. Question from Andy. >> I'm 25 and live in Belgium. I net €2,000 a month in a factory job and save 500 to a,000 a month. My net worth is 67,000 and I'm debtree. My goal is to grow this into 200 to€400,000 in four to five years. That would allow me to relocate to Southeast Asia, ideally the Philippines, and start a business. This is a very specific dream. >> Uh if you were like me at 25, debtree with 67,000 net worth, what investing or allocation strategies would you prioritize to realistically reach 200 to 400,000 in four to five years? I did it. I didn't say pounds. >> All right. I I have to give Andy a heads up here. I I did a bunch of number crunching for him here and it's too hard for me to go find the euro button and input it in Excel. So, I just use dollar. So, I'm sorry if that makes me an ugly American. So be it. Uh I really like You're right. He has very specific goals in mind here. I really like that he has a golden form. He has a savings plan in mind. He's got a time horizon. He's got an end state in mind. Right. The Philippines. And I don't know what the draw of the Philippines is in terms of quality of life. I've never been there before. All I know is that they have those really cool rocks like the big rocks in the ocean that look like the floating rocks in Avatar, right? That always make for really cool movie highlights from the top like from the drone. >> You know more than me then. >> Okay. The cost of living in the Philippines is much lower than it is for Belgium. I asked I asked my research assistant um Chad GPT about this. Dan, throw up the uh chart here. Almost everything is much more expensive in Belgium than it is in the Philippines. I think the number I found it's it's 50% to twothirds cheaper living in the Philippines than it is in Belgium. So these comparisons always require some context, but it does appear that it's much cheaper to live there. So maybe that's the draw. I don't know if he's trying to do a a fire thing. Um but I like that he provided us all the details. So I'm going to run some numbers. So Dan, let's do a chart on here of my next one. So I ran some numbers here. This is over a fiveyear time frame and I looked at different monthly savings amounts, right? He said $500 to $1,000 a month or euros, I guess, but I'm using dollars. So, I I used 500, 750, $1,000 over a 5year time horizon. I said, "What what if he earned 8% 10% or 12%." Right? Just to see what would work here. Um, so you can see at the top end of the range, he's actually in within spitting distance of his 200k goal, right? If he earns 8 to 10% then and saves $1,000 a month thousand euro a month. Sorry I keep doing it. Um he's right there now to reach the high end that's going to make it much more difficult that 400k amount. So that's something saving something like 3500 to 4,000 a month or earning 30% annual returns for five years probably not going to happen. Um, so I could give all sorts of allocation and investment ideas, but you're probably not hitting the high end of your goal unless you really start making more money or hit on some sort of lottery ticket investment. Put all your money in Olely calls. So, >> hey, you would have done well recently. >> Yeah, >> my advice would be to get the top end of your range for saving because listen, you could take more risk in your portfolio, but like I said, you need like 30% annual returns for five years. good luck finding something that gives you that and taking more risk could, you know, mean that you you really don't reach your goal if something goes wrong. So, focus on the saving. That's the big thing. So, making more money, saving as much as you can. That's the goal here. Hit the top end of your savings range um over a short period of time. The savings matters way more than the compounding, right? If it if we're talking a 10 or 15 or 20 year time horizon, then yes, the compounding makes more sense. But >> and Andy mentioned in the uh original question, but he lives at home right now. That's part of how he's able to save. Um yeah, so that's an important >> Yeah, we're working in a factory job. So again, I love the fact that he's got this plan in mind. I'm living at home. I'm saving a majority of my income. So I I think if you want to hit the top end of your range, you have to earn more money and because I don't recommend just take, you know, taking flyers on a because then your whole dream could be gone. So, here's another consideration, though. What's holding you back from moving to the Philippines now? You have almost €70,000 saved. Why wait? Couldn't you make money there? Like, how much do you really need to start a business? Um, it's a lot cheaper to live. >> I'm guessing the pay there is significantly cheaper though, too, right? If the cost >> the cost it would have to be. Um, but the great thing about remote work these days, depending on the type of business, you can live anywhere essentially. Um, I don't know what kind of business it's planning to start because he works in a factory. Maybe it's something that's more physical and hands-on. Um, so I don't know if he's planning on that, but here's the thing. He's young. He lives at home. He has the ability to be adventurous. Like, you don't have to wait for some mythical number to make a move. At 25, nothing holding you back. If you want to take a risk, move to the Philippines. Figure it out sooner. Like, maybe when you hit 100K, then you go to the Philippines. Like, don't wait five years for your life to happen because I I I think you could always move home if things don't work out. Also, I'm going to assume if he's this devoted to this dream that he's done this, but I would definitely go spend some time in the Philippines before you before you up and try to move there, right? So, you could, you know, take take off a week or two and go to the Philippines, see what you think. >> Yeah. See how it is. >> I I think the way that I see it though is that there's some life events that you're just never going to be completely ready for when it comes to your finances. People always say that with I'll just have kids when my I'm ready financially. You're never going to be ready. Some things you just have to take a leap of faith and figure it out as you go. This might be one of those times. Do it when you're 25, not when you're 30. Like, do it now. Get lower your lower your expectation for your number. Unless you have a really specific idea in mind that you need to hit this number for. Um, do it now, man. Don't wait. >> Yeah, >> that's that's my >> I wonder I wonder if the vacations is good in the Philippines. Belgium is probably one of those countries where they like get three months off a year for vacation, right? >> Oh, could be. >> Maybe. >> Yeah, those years never work. That's why they have haven't had economic growth since like 1750. >> All right, >> Andy can correct this. >> Okay, up next we got a question from Jack. >> I know this is blasphemous to the market gods, but here it goes. What if we just don't have a recession for the rest of the decade? What? This feels so toppy just reading. >> What What if AI powers us through boosting spending, driving productivity, and even helping absorb some slack in the labor market? What would that mean for market speculation, interest rates, and investing? And yes, I left the M dash there so you could see I used AI to help me clean up this question. So, >> oh, okay. Good usage of blasphemous. I think that was in the original question. >> Yeah, it was. >> Um, let's bring on our resident macro expert here, Kelly Cox, our chief investment strategist. >> Hey, Kelly Wealth. >> Hey, I do not appreciate the M dash slander, by the way. >> I'm just saying it's >> I used to be a journalist. I use it all the Yeah, but people people now assume if you use an M dash, people assume it's say I now because chat GP crushes my soul because I use >> there's got to be certain words. So you could you just have to prompt chat GBT to don't use it, right? So people can't tell. All right, Cali. Um let's do a chart first chart on here. Recessions don't happen nearly as often as they did in the past. So this is some chart matted exhibit A. You could see in the you know early late 19th early 20th century recessions happened quite often and they were a lot longer. and now they're fewer and far between, especially I'd say since like the 80s there. The the gaps between the recessions continues to keep growing. So, I don't think that this question is completely unreasonable that we could go through an extended period of time without having a recession. However, is it a little too cute to assume that AI can just keep powering everything even if we have these other areas that slow down? That seems to me like that is a that's threading a needle and a balancing act, I think. >> Yeah. So, when I saw this question, and by the way, Ben and I see these questions beforehand. No surprise there. My mind immediately went to the AI versus consumer spending balance. But Ben, actually, I love that your mind went to the timing and the frequency of recessions these days because you're right, recessions just don't happen as often or haven't happened as often in the past several decades or so than they did before that. A lot of that is due to social security that became a thing in the 1930s. Unemployment. Um we have these social safety nets that kind of uh almost cushion the economy and cushion consumers against uh you know the worst case scenario happening. But when it comes to AI versus consumer spending, I have a little bone to pick with everybody who thinks that AI can single-handedly hold up the economy because I think that ignores the numbers that were that are at stake right now. Consumer spending is 70% of the US economy. $16 trillion line item. When it comes to GDP, AI spending seems like it dominates the headlines, definitely dominates markets. But when it comes to GDP, the cold hard, what does it actually add to the economy? Right now, it's around like 1.4 trillion or so. So, I wonder if AI can really hold up the economy when it's peanuts compared to our financial decisions. And >> right, people still need to spend money to make those AI investments worth it. >> Right. Right. And if consumer spending pulls back, then can you depend on that AI spending? Do companies just, you know, keep spending like bonkers on a future technology when everything else is pulling back? I actually have numbers on this. So, John, could you pull up the AI versus consumer spending? Yes. The or the robots are pulling the economy along. Yeah. So, this I feel like this is why the conversation is happening right now. In the first two quarters of the year, yes, AI spending actually grew more than consumer spending. And I I think it was Neil Da who put this stat out. So shout out to him because it is a very good stat. But once it came out of course the narrative started flying about, you know, robots holding up the economy. Where would we be without AI? And I mean I think I think you have to remember that there are two factors here. Consumer spending isn't growing that much and AI spending is growing by a good bit. So what's more influ influential on the economy? It's consumer spending. You know, I really don't think you can have a healthy economy without a spendy consumer. And I mean, that goes back to the job market and how we make money. So, I I would just question the degrees of size here. >> How about this for a thesis? AI would have an easier time sending us into a mild recession than it would propping up the economy for much longer. Like, if if they realize that, oh no, we've overspent by like$500 billion here. we and Meta and Microsoft and Google all at the same time say all right we're we're cutting back and Nvidia sees a misses some expectations that to me seems like a trickle into the economy could easily happen especially with a slowing labor market already here as a that seems like a more likely scenario than AI just prepping up the propping up the economy forever. Well, the connector there, it's interesting you say that the connector there is expectations which are baked into the stock market. And I know we're going to get to this a little bit later, but the wealth effect is absolutely a thing. People see their stock prices or their portfolios move higher. They feel better about the economy. You can see echoes like that in a bunch of different data sets. So, you know, I'd have to wonder the same thing. Is is a selloff or a stock market selloff, especially concentrated in tech, more of a self-fulfilling prophecy? You know, maybe because maybe that chills maybe that chills confidence enough for consumers to maybe pull back on spending. >> So Dave in the chat has a good question. He said, "Even if you knew a recession is coming, how would that impact your retirement decisions and asset allocation?" And it's a good question because the timing of the stock market and a recession almost never line up. Like the stock market is forward-looking, but the stock market is actually not very good at like predicting recessions, right? and like falling in advance of a recession. And a lot of times we'll already have been in a technical recession before um the stock market even falls because we don't really know that we're in it for for later. Um and I think you could also say because the stock market is moving so much faster these days, the stock market could price in a recession way quicker and come out of it faster than it did in the past. And so I think especially trying to time the stock market would be really difficult. I mean, the easiest one would if you had that headline in advance would be, well, I'm going to take some duration risk in my fixed income or something like that under the assumption rates are going to fall, but other than that, trying to time the market based on the timing of the recession is not an easy thing to do. >> Yeah. So, I pulled some data around this, Ben, and you actually see the stock market top out before we enter a recession. And it's really funky, right? because the the definition of a recession is named by this um board called the National Bureau of Economic Research and they tend to say that was a recession about a year after it ends. So it's this funky thing where we're relying on a board of nerds to you know tell us when the economy is not okay based on some certain quantitative measures. But if you line up past NBER defined recessions relative to the stock market, then usually the market does top out or it does start falling before that recession starts. But I mean, I would even dial down what you said a little bit, Ben, because you hit on it right. But take a step back and just make sure that you're prepared for whatever comes next. I mean, I I threw a chart in the document. Um, John, you want to throw it up? Recessions and sell-offs. Yeah. So, a recession historically has been one of the worst things that can happen to a stock portfolio. I mean, it's been it's been the cause of some of the most vicious sell-offs we've seen or the product of some of the most vicious sell-offs we've seen. So, it's I mean, I know this is really tough, but I think I think it's important to make a crash plan before it happens. Um, a little like if stock prices fall 20%. How does this affect my life? How does this affect my portfolio? what steps can I take to either capitalize or defend myself from what's going on here? Um, and it's easier said than done, but it's putting those specifics on paper and really holding yourself to them when it happens. Knowing that a recession is this allencompassing thing that affects your friends, your family, your favorite pizza place down the street, um, it just really reres havoc on your emotions. >> Yeah, I think you your preparation is more on a personal finance side of things than it is on your portfolio for most people. that that's that's easier and smarter to do than it is trying to hedge something and and not know the timing. All right, let's do another question. >> Okay, up next we got a question from Jeremy. I'm trying to wrap my head around how interconnected our financial systems have become. I can max out my JP Morgan Chase credit card to fund a Coinbase wallet, buy speculative assets like Trumpcoin or Fartcoin with a $1 billion market cap. Sorry, Michael. That's an animal spirits reference for those of you new here and uh use those to qualify for a federal housing loan per FHFA's decision allowing Fanny and Freddy to consider crypto and mortgage assessments. Add to that the trillions and 401k assets now eligible for alts like crypto and private equity per President Trump's recent executive order. Are these speculative systems getting too intertwined? Is this the new normal for markets or are we riding into the wild west of finance? Co sparked some crazy trends, but this feels next level. How should a retail investor play this crazy financial landscape? >> You know, this is a really good question. It's really like well written and thought out. And I think this is maybe one of the legacies of the great financial crisis, which is when a lot of people had this aha moment of like, oh my gosh, this stuff is really all tied together in a way that we never really thought before. Everything is becoming more financialized. And he's right. The 2020s has taken this probably to another level. Let's show Chart Kid Math's recent uh chart we've been talking about. >> Before we do that, Ben, do you need to disclose your FARCoin or Trumpcoin holdings before we discuss this or >> I hold those in a trust for the kids? Uh >> okay. >> No. Uh no, not not a holder there. Uh so this chart could Matt made this just showing that the wealth effect meaning like the impact of the stock market on your net worth is has been rising and it's it's more interconnected with households. Um, and I know some people look at this as being a bad thing. I almost think of it, Cali, as like a nuclear war thing where like it's almost like a mutually assured destruction idea. Yes, the financial system and financial assets are more important than ever, but everyone is also kind of rowing in the same direction. So like that, yeah, the downturns are going to be more painful because more people are involved. But by nature of these systems and assets being more important, they're they're people pay more attention to them and they're more important to the government and we almost can't allow we have to throw them a lifeline in some ways. And I think my take is that the fact that everything's more interconnected is actually a good thing even though like it it could lead to quicker and swifter downturns >> and that the government is more comfortable stepping in or they've set that precedent where they have to step in and provide a safety net. >> Yeah, I know to some people that sounds like no free markets, leave them alone. But I I think the stock market is so important now to everyone's retirement and and most so many people's net worth that um the fact that it's all interconnected means everyone is kind of on the same team here. >> Yeah, I like the way that you put it. By the way, for my free markets people, remember again, Social Security and unemployment benefits are safety nets as well. They're not that much different than what we're talking about here. >> And those things didn't exist in the Great Depression and they were they were they came because of that. And that's why Yeah. That's why the Great Depression happened. Yeah. I mean, this is the wealth effect again, right? It's um you know, seeing everything happening around you, especially in your portfolio, and then making decisions off the back of that. Yeah. They make downturns hurt a little hurt more, but you do that at the expense or that happens at the expense of, you know, consumers and the average investor being more educated about markets than ever. You know, there's a reason why we got this question. Um, it's because we're, you know, people understand markets more than ever before. And I think there are a lot of positives to that. Of course, I don't want a crash to happen. And I don't want it to be painful. It probably will because that's just the play of markets. But >> yeah, he's right. The next the next financial crisis, whatever causes it, is probably going to be very painful, right? The the actual if it's debt growing or excesses in some part of the economy, when that downturn hits, it's going to be painful for way more people than it was in the past. But again, my whole thinking here is just that the bull markets always, you know, take over the bare markets. The bare markets are painful, but the bull markets more than make up for them. And that's kind of my line of thinking here. >> Yeah. Easier easier put down on a spreadsheet than actually lived through. But yeah. Yeah. Uh I mean, absolutely. When I read this question, my first thought was, "Oh my god, please do not make crypto purchases on a credit card." But I know that's not the point here. Um, I think I think that's the right thesis and yeah, I think the global financial crisis really framed that up for people. It put the possibility of this this like internal destruction or this internal like system destruction possibility in our heads. >> Yeah. >> Would you say in general that people are more willing to hold a stock trading at, you know, 2530p during a downturn instead of 400p? >> You giving us an oie? >> No, no, no. uh valuation update. >> No, no, no. I'm I'm just I'm wondering like because right now you hear all these stories about people piling into these stocks that are by any, you know, metric super super uh frothy, I guess, as you say. And yeah, like aren't people just going to dive out of those as soon as the market corrects? >> That would certainly seems possible. I I it it is it is hard to sort of separate the fact that a lot of stuff that's happening right now with speculation feels very frothy and bubbly in terms of what happened in the past versus how much of that is just to Kelly's point people are just more willing and accepting of risk these days and the retail investors so much more involved and it's hard to separate those things and understand what what is here to stay versus what is just a flavor of the moment and I don't have a good answer for it to be honest. Yeah, it's really hard to compare moments of like speculation and froth across history because you just have so many changing conditions. This time is different. Yes, I'm saying it. But uh gosh, what was I going to say? Oh, yeah. But technically, like yes, if you look back at corrections, especially corrections and sell-offs around economic weakness, then yeah, you see the higher valued stocks get hit a little bit harder. So, >> and it is the point that I've been the point that I've been making lately is that you had that recession chart earlier. Um the COVID recession while seemingly painful and the unemployment rate went to 15% or whatever, so much money was thrown at it so quickly, it did it felt like a recession for like 3 weeks, right? It wasn't a real economic downturn that had lasting impact, right? The labor market came back very quickly. The stock market came back right away. You know, it's been more than 15 years since we experienced an actual economic contraction, right? And so it's hard to say how many of these new habits are going to be here until we go through another one of those. And so that's that's the hard part is like, you know, how are people actually going to react? >> It's been so long, we don't really know. >> I mean, you can look at the past and human nature and all these things and >> get a pretty good sense. >> Um, but I think it's going to that's going to be really interesting when we have an actual recession. Like how bad do people freak out? >> Yeah. And how quickly do the natural safety nets come back in to save us because COVID happened and there was a lot of money thrown at the problem, but then we had inflation right after that and there were I feel like there's a lot of scars that are going to linger there for a while. >> Yeah, Duncan's going to head Duncan's biggest portfolio hedge is a 911 Porsche. >> For the record, I just looked it up in the public app and uh Oley's P is -2.62. So, it's likely not 400. >> Negative. Yeah. I don't know how a negative PE is possible, but >> I mean, >> wait, >> negative nowhere to go. But that's that sounds cheap to me. >> Yeah. Very not I don't I guess they're not profitable, right? >> Yeah. >> Yeah. That what could go wrong. All right, next question. >> All right, up next we have a question from Joe. I'm a retail investor with five core equity positions. Stocks I've held for up to a decade and plan to hold long term. I've been fortunate to see large gains in some like Microsoft, which I bought in 2013. Not bad. Yeah, I'm looking for ways to protect my gains without selling calls or buying puts on the individual names. With the market's big run up and low volatility, I'm starting to get concerned, especially with September coming, a Fed meeting ahead, and traders returning. I'm still bullish long-term, but I feel like I need some insurance against a spike in volatility or a sharp correction in the next couple of months. What are your thoughts on buying puts in the indices like spy, V, or QQQ? What about calls on the VIX? I think we've gotten some form of this question at least once a week for the past three or four months. >> Yeah, >> it's and it's the same stocks, right? I own Nvidia or I own Tesla or I own Microsoft or one of these big tech stocks and I've owned them for a while and it made a ton of money and I know I should probably take some off the table and I should probably diversify, but boy, what if it keeps going up and I can't? It's so hard to understand. Um, I should probably sell, but I really don't want to. And again, so this this is a total bull market question, right? Like I have all these gains and yeah, I know something could go wrong, but I I don't want to sell. What what if it keeps going up? So, um I think a lot of the solutions here I I think they're I'm all about finding ways to be more efficient as an investor, but I also like to don't I don't like to add degrees of difficulty to things. And sometimes the easiest thing you can do is just sell a little and rebalance and maybe hold more cash instead of like trying to come up with this this beautiful hedge that is going to work perfectly. I think the easiest to the easiest way to you know dampen the volatility of your portfolio is just to hold more fixed income or cash. And if that means you have to sell some shares then you have to come to terms with that. I think >> yeah Ben we think pretty pretty similarly in this area. I will say though, I read this question and sometimes when I get questions, I I take like a nerd approach and I I think through numbers, I think through historical precedent, stuff like that. I read this question and I got the vibe of a best friend who just needs to sit you down at the table and, you know, have a honesty conversation with you. I my first question to myself uh to the writer would be, why are you holding these in the first place? You say in the question, you're a long-term holder. So, what do short-term pullbacks mean to you if you are a long-term holder? I'm assuming you're holding these stocks because you think that they're you think that the companies are good, that they're quality, you know, that you think that they can run for a really long time on their ideas. So, if a pullback happens, number one, would you want to buy more? I know that would be emotionally painful. I'm talking off of a spreadsheet instead of how it'll feel in real life, but you know, why why do you feel the need to hedge in the first place? And if you are hedging, why jump to options as your first choice? You know, are there price targets in mind that you want to aim for? Like, do you want to sell I'm sorry, I forgot the stocks already. Do you want to sell your Nvidia at >> That's a that's a great point, the time horizon thing, because buying a buying a stock at any time is is really easy, right? If it's down, I'm buying it because I'm looking for value. If it's up, I'm buying because of momentum and it's going to keep going up. But I've never really heard of anyone with a good sell discipline, right? There's no like good Warren Buffet books out there about when to sell a stock. No one has a great process for selling a stock because it's hard to put a time horizon or a cap on it. And we've seen stocks that have have just continued to rise throughout the years and make people look foolish for jumping off. So to your point, um this is almost the kind of thing you have to predetermine like at a certain percentage of your portfolio or a certain level this stock hits, I'm going to trim back. And if you don't have those preset rules, then you're really just guessing. You don't have a plan, right? And that's that's to your point, are you going to that's why having an asset allocation is so important, I think, for financial decisions because it's so much easier to lean into the pain when things do fall. Well, here's my preset allocation. I'm going to get back to it. Or I have a certain threshold for these stocks. If one of these stocks is 10% or more of my portfolio, I'm trimming it back. If all of these stocks collectively are 50% of my portfolio and bringing it back down to 40, whatever it is, if you don't have those preset rules in in advance, you're just guessing and you're you're hedging in hopes that you time a correction, which good luck with that. >> Yeah, it's all about setting targets. The target can be a price on a stock. It can be a technical level if you're so inclined to that. It can be asset allocation, a percent of your portfolio. But set set the numbers before you need to and let the numbers dictate what you need to do. I mean, I don't hate I don't hate options as a hedge for certain investors. I think it could be smart if you have price targets in mind. Um, VIX calls are hard. Uh, please don't please understand what you're doing when you're trading VIX options. The VIX is a is a 30-day gauge of S&P options prices. So you're not exactly you kind of are, but you're not exactly um hedging against a market downturn because you're really hedging the second derivative of that. So uh leave leave VIX options to the professionals. But um you know, think about think about the reasons why you're asking this question first. What what makes me nervous about all these hedging strategies is I've seen so many of these ETFs that are supposed to help you hedge and they all look awful over every period of time that I can I can look at them and so I'm just like these people know way more about it than me. How am I going to how am I going to do a better job of hedging >> hedging the market than these professionals hedging it's like it's like paying an insurance premium. You're right. Over the long term, um, by definition, they're going to be terrible investments, but it's just the these one times when volatility spikes or a downturn happens. >> Um, but then >> I I owned one of them during the uh I bought one of them at the beginning of, you know, the last like crazy correction, and it it still it dropped, just not as much. I was just like, what? Why am I owning this thing that's supposed to hedge, you know, downturns if it's still going to drop? Like I'll just take my chances with >> I Yeah. I still think cash is the is the easiest hedge for most people and it it causes the least amount of brain damage. >> Yeah. >> Yeah. >> Because you know exactly what's going to do. >> Yep. Yeah. You can hold it. >> I think the the thing that I hear a lot though from people uh that have owned Tesla or Palanteer these names is like yeah they would have sold many times along the way right and now it's just ballooned to these massive positions. So the mindset is kind of like it's worked this far like why would I stop trusting it now? which you know I mean I can understand but it's also yeah it trees don't grow to a sky as they as they say I guess. >> Yeah. No I I get the I get the line of thinking too for sure. It's you've got 15 years of >> of evidence here. All right. So one more. >> Okay. Up next we got a question from Zach. I've just taken on a $66,000 auto loan. Over the life of the loan we'll pay $8,000 in interest for a total cost of $74,000. We're able to pay the loan in full today from a brokerage account that has $118,000 in V and QQQM. I had to look that one up. Uh running a simple investment return calculation. >> Wait, what is that? The equal weighted one. >> It's so it's it's the Q's but like um market cap. Uh something something is different with the market cap. I can't I can't remember exactly what it said. >> I think it's equal weighted. I don't think it's equal, but yeah, it said something like modified market cap, whatever that means. Uh, running a simple investment return calculation, leaving the $118,000 invested would return a total investment of $173,381 over 5 years at a conservative 8% return with no additional investments. Paying off the loan and leaving $52,000 and investing the monthly payment of uh $1,245 back into the market with the same assumptions would yield $163,951. The math seems clear to carry the loan and stay invested. But how do you weigh the mental tax of carrying a large loan? Extra context, we have roughly $325,000 invested in 401ks and other brokerage accounts. >> All right, Zach to me here seems like a spreadsheet warrior. And if you're a spreadsheet warrior and you're staring at a $1,200 monthly car payment, you're probably going, "Oh my gosh, what are we doing here? This is tough." And obviously, they've ran all the numbers. And my thinking is sometimes there has to be a separation of church and state between investing and personal finance decisions. Sometimes those things come together. Sometimes I think you want to keep them separate. I I tend to lean on the Charlie Munger piece here that the first rule of compounding is never interrupted unnecessarily and and constantly pulling from your investments to pay these kind of things off. I I think it's I don't know. I I think it's it's a little it's almost a little too much for me. I think sometimes you have to just be okay if I can, you know, uh handle the debt burden on this loan and make the monthly payments and it's going to be fine. and I'm going to leave my investments alone. I don't think you want to do this for every personal finance decision. It's kind of how I look at it. >> Yeah. My my first and most important motto in my life and you know I'm sure many people have this mantra is sanity over everything. If it's bothering you, if it's something that sticks in your brain is just rentree in your brain, then pay it off. But mathematically that probably wouldn't be the right answer. And hello spreadsheet warrior, you've probably already run these numbers, but it looks like your auto loan interest rate is in the high fours if you run an amortization on it. And high fours. >> Oh, so you like backed into that based on the interest that So that's actually not terrible. >> That's not No, that's not a bad rate at all, especially given where interest rates are right now. I mean, that's you can get that on some longer bonds. So, you know, I think from a purely mathematical perspective that like yes, get that rate on your stock market investments, get that rate on a fixed income investment. Think of it like a seessaw, what you're paying out versus what you're bringing in. But if this if this loan is just sitting in the back of your brain and it's making you miserable, then pay it off. >> Yes. And I think I think this would be an easier decision to just say pay it off if it was a much longer term loan. But car loans are not that, you know, as long as you take out like a >> I mean personal finance 101 kind of in general, you want as much money today that you can possibly have invested as possible >> time and value of money, right? Yeah. >> So I mean >> Yeah. Yeah. >> But yeah, I guess >> a chart on this. >> Yeah. Okay. >> Well, it's Nick's chart, Nick Mulli's chart, but uh chart on Yeah. So Nick Maji actually ran the number numbers on this a while ago. Several years ago. I built a separate model on this years ago, confirmed it, but um yeah, lump sum investing put like keeping all your money in the market at once almost consistently outperforms dollar cost averaging. But again, from a human perspective, it's not as easy to like leave a bunch of money in the market and take on all that risk. Uh besides like drip dribbling in a little bit at a time. >> Yeah. So that that money in the brokerage right now, that's your lump sum. >> Yeah. Exactly. >> Yeah. I I think that's just also just paying off the loan and leaving it alone instead of then dollar cost averaging back into the market and and I think it's just easier, right? >> Getting rid of the mental tax. Uh Jeffrey in the chat says, "Ben is definitely getting a Porsche." Uh never going to happen. >> I can't wait. >> Not a not like a convertible guy. I'll get like a a Jeep Wrangler would be my only >> uh car dream thing. I don't I'm not >> We'll remember this quip for when you're driving around in a Porsche. >> Duncan, I didn't know you were a carer. Oh, yeah. >> Oh, wow. Learned something new about you. >> Yeah. >> Whenever Barry comes on the show, Duncan can't wait to talk about cars. You just he lights up talking about because he's an F1 guy. >> I I send Barry uh photos of of cool cars that I see around. So, yeah, we have >> everyone everyone last week thought that the the guy that's a Formula E car. Yeah. >> Everyone Yeah. Someone said, "I'm getting a Honda Accord." That's true. That's my dream car once I get rid of these kids. Go to college. >> Great car. >> Uh >> but yeah. Uh, so Kelly, tell everyone where they can find your newsletter. >> Yeah, well, thanks for having me on first of all. This is always a blast. You can find my newsletter. It's called Optimistic Cali. It's the name that you see right there. Optimistically.com. You can find me on Twitter, Instagram, Blue Sky, all those places. LinkedIn. >> Perfect. Yeah. >> Um, subscribe to the compound because we are getting very close to 200,000. Hey, where's my koala? Come on. I just said it. >> He said subscribe, Dan. >> There it is. >> All right. Email us. Ask the compound show@gmail.com. Thanks to everyone in the live chat as always. Thanks to Kelly Duncan, everyone on the production team. >> Almost 2600 people watching live today between uh Twitter and YouTube. >> All right, thanks everyone. See you next time. >> Nice. >> See you everyone. [Music] [Music] [Music]