What’s the Worst Asset Class for the Next 5 Years?
Summary
Private Markets: Extended holding periods, limited redemptions, and a closed IPO window suggest pressured valuations and potentially weak returns ahead for PE/VC.
US Housing: Affordability is stretched with high price-to-income ratios; the base case discussed is stagnation or slightly negative real returns rather than a crash.
Market Dynamics: Political and behavioral frictions (reluctant sellers, locked-in low-rate owners) and wide rent-vs-buy gaps, especially in expensive cities, constrain housing turnover.
Risk/Return Contrast: While both areas face headwinds, the conversation leans toward private assets underperforming housing over the next few years due to markdown risks and lack of exits.
Buy Borrow Die: Strategy outlined for wealthy investors to borrow against portfolios, defer taxes, and leverage step-up in basis, with key risks including margin calls and borrowing costs.
Planning Insight: A guaranteed 7.25% plan sounds compelling but warrants deep diligence on solvency and counterparty risk before reallocating significant retirement assets.
AI Education: Personal AI tutors may transform learning, but the college experience (networking, social development) likely retains value; don’t extrapolate online classes to the end of college.
Tickers: No specific public-company tickers were endorsed or pitched during the discussion.
Transcript
This seems like a lot of fun, but with this kind of life, you'd depreciate. So why not put your money to work? >> Put my money to work. >> That's right, Mr. Finchley. You can own a share of American business. There are over,200 companies listed on the New York Stock Exchange. Companies which employ more than 11 million people produce half of all the goods made in America. >> Welcome back to Ask the Compound, the show where you ask and we answer. Ton of money poured into private investments in the past decade. The early 2020s witnessed perhaps the greatest housing boom we've seen in history. So which asset class will have worst returns going forward? Private markets or residential real estate? Nick Mulli is here to help us answer that question and more. Let's do it. Email here is ask the compound show@gmail.com if you're in the live chat or on Twitter. Firesoft questions. We'll do them live. Duncan, how we feeling? Jet lag still >> feeling good. No, no. I'm I'm back. I'm missing the warm Miami weather. I'm freezing here in Connecticut. >> Well, you couldn't enjoy it the last night cuz you were like down for the count. Yeah, me and Travis both got wiped out. I don't know. It was I don't know. Heat exhaustion or something. >> My forehead's been peeling for 5 days. On today's show, we're answering questions from our compound audience about housing versus private investments. How to how does buy, borrow, die work in practice? Would you take a guaranteed 7.25% return for the next 30 years? Uh when you should prioritize your brokerage account over your 401k, and then do parents still need to save in a 529 plan in an AI world. But first, today's show is sponsored by Public, the investing platform for those who take it seriously. On Public, you can build multi-asset portfolios of stocks, bonds, options, crypto, and more. And now, generated assets, which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year-over-year, you can literally type any prompt and put AI to work. screens thousands of stocks, builds you a one-of-a-kind index, and lets you back test it against the S&P 500. Then you can click, then you can invest in a few clicks, generated assets like ETFs with infinite possibilities, completely customizable, and based on your thesis, not someone else's. Go to public.com/ATC. Earn an uncapped 1% bonus when you transfer in your portfolio. It's public.com/ATC, paid for by public investing. Full disclosure in the podcast description. All right, we got good questions today. Let's do it. >> Yeah, it's it's uh stacked. I should also say, you know, great job to you and Bill while I was out, you know, just no one even missed me. Y'all just kept kept trucking along and Bill had a bunch of funny quips thrown in there. >> That's the one thing to catch you with political stuff. You know, >> he gives me quizzes. Uh he makes me work a little harder. >> Yeah. Yeah, it was good. I enjoyed it. >> All right. Up first today, we got a a screenshot of a Nick Majuli tweet, which if you don't follow him, you should follow him because it's very entertaining. He is, I think, one of the highest quality uh trolls on on Twitter. >> You love Nick on Twitter because he's always poking the bear. >> He's not afraid of He's not afraid of anyone on Twitter. It's very entertaining. Uh so he said, "I'm trying to decide which asset class will have worse returns over the next 5 years. Private assets or US residential real estate? Private assets are liquid and investors are getting impatient, while home prices have outrun incomes and no one is buying. Both look bleak." All right, I someone in the comment said, "Hey, I want to see Ben and Nick debate this one." So, let's bring him on from of Dollars and Data's fame. Hey, Nick. Nick Mulie. >> Thanks for having me on, guys. >> Nick, you wouldn't be farming for uh for people to come at you on Twitter, would you? You would never do that. >> No, I just You have to You have to come up with some sort of contrarian takes. Like, it's just too like, "Oh, hey, just keep buying." Like, I've said that a million times. Everyone's heard me talk about that. It's boring. you want to try and say like let's look at some things that are maybe on the edge and let's kind of explore these ideas and I learn a lot from it. I'll put something out there and I'll get some push back and I'm like actually that's a really good counter argument. I didn't think about that before. >> I agree. Sometimes you have to you have to you have to take a take you have to make a take. So this is a very pro provocative question. Um I I want to let you go first and then I have some data and stuff. So I want I want I want to see you make the case. Make it for both of them or or either of them and and I want to hear where you fall on this because I agree. Um, it does seem like these these assets are are kind of heading for trouble. But what is what where do you fall on this? >> I have to lean more against private assets, right? We're already starting to see kind of some of this unravel. I know Dan Rasmusen who's the person has talked about this for a long time with privates. He was saying this back in I think 2019 2020 precoid and he was talking about this stuff and now I think the chickens are coming home to roost. We're starting to see you know they're limiting redemptions. You know, we hear all these things like more things are being marked to market like down, you know, 40 cents on the dollar, all those types of crazy stuff. I think US housing also has its problems like incomes and and prices haven't kept up. And so, you know, rates have everyone's like, "Oh, rates are going to come down." You know, date the rate, it's going to come down. Don't worry, rates haven't come down, right? So, there's a lot of things that we'd expected to happen that haven't happened. But I think there's a lot more entrenched political factors keeping us home prices higher. And so even though I don't think either are going to have great returns going forward, I think, you know, privates are probably going to have more negative returns and maybe, you know, US home returns will just be like flat to maybe slightly negative on real terms um over the next handful of years. >> Yeah, because housing doesn't fall that often, right? It's it's pretty I I'll make a case here on the private side. So throw up my chart. This is from the Financial Times. This shows all the money that is held for private equity. Obviously, there's more money in private equity, so this makes sense. But it just shows the value of PE assets held for more than seven years is just growing and growing. It's it's over a trillion dollars now. And so there are no the IPO window is seemingly closed. There are no exits in this space. So investors are waiting to get their money back. And you could make the case that whatever the marks are, they're probably lower than they seem because they have there haven't been any exits to mark them to. So they're their private valuations are probably a little too high. John, show the next one. This one Michael and I talked about on Animal Spirits this week. Uh Rex Salbury shows the the IRS for these VC funds that got marked up way higher and this show us by vintage year right going back to 2017 and they just keep coming down and there are of course no IPOs in venture capital eer. So so these numbers are probably way higher than they should be. So I I kind of agree with you that the private assets probably have to come down. Um, I still think I would probably bet on the private markets because I there's just not that because it's like it's kind of like public equity with a little bit of leverage on it for most of them, right? So, if public equity does okay, they probably will do okay. Um, I got some housing charts for you, too. Uh, throw my first one up here. This just shows Okay, so this is your income to to So, this is median income to median home price. And it's funny because I had Claude make this for me. Nick, you're a big AI user, too. Um they have the healthy dotted line at 2.6% and you can see going back to 1985 it's never been healthy which is kind of funny. Um it's actually it has come in a in a little in a few years because like housing price returns have stabilized. So it's actually the incomes have been going up a little bit more than housing prices. John X1 which shows the housing price returns in the 2020s. Obviously, we had the huge boom in the first couple of years, and you can see every year, housing prices have come down where last year, for the first time in a while, housing prices actually lost out to inflation. So, I I kind of agree with you that housing prices probably the best bet would be not a housing price crash, but a stagnation where they don't go anywhere and you have to wait for incomes to catch up. Now, here's the here's the one like question I have. So, John, throw my demographic chart up here. Um, the John Burns one. There we go. So John Burns has this thing that shows the largest population group in the US turns 33 to 37 this year. Um so I don't know how you can do chart off. I'm curious your thoughts on how demographics impacts this because I just want to know how long young people can continue to wait and and push this off since that's like the next step for most people. Um, there are certainly fewer houses being bought and sold right now, but do you and I agree that a lot of people have just been on the sidelines waiting for mortgage rates to come in, but how long do you think this people can hold out for without just saying, "All right, fine. I don't care what I'm paying and buying." >> I think people will just decide to rent. I mean, they're like when you do like the equivalent like I'm looking I'll just use my place here in Jersey City. It's a little expensive. It's like 4650, but if you That's my all-in cost. That includes my two 2.2% property tax if I were to own. That includes my insurance, everything. When you run all that through and say, "Okay, let's say this is my all-in cost. What would my what would this place cost like to buy?" It would be like $650,000, which for an apartment, you're saying that's not that crazy, but there's no way that someone's going to sell an apartment for 650 in like an area that's very close to Manhattan, right? And so it's like someone would probably sell this apartment for a million bucks. I'm like, that's overpriced by like 30% in my opinion, right? And so that's what I'm there's this kind of tension going on. And I think what's going to happen is just out of pride, people are not going to just, you know, mark their houses to market, aka drop in by 10, 20, 30% to sell them. They're just going to say, "No, I'd rather just sit on it and I'm not going to sell." And I think that the ego of it of being the first person to take a 30% loss or something like that is too high and people would just rather not do that than um than sell. And so I don't see how that, you know, friction gets broken. And so, you know, even and with it regardless of the demographic factors, like you need sellers, like people need to sell, you know, and there's people trying to sell and no one's going to buy at those prices. I think people know it's crazy. >> Yeah. And especially I think that the gap between buying and renting in big cities, more expensive cities, is probably about as wide as it's been, right? That that to me is the one that makes the most sense. If you're in an area like where you guys live, that makes the most sense to me that renting is just you you run the numbers and it doesn't even it's not even the same ballpark. I think we're also going to see a trend of millennials who are priced out of, you know, buying a a primary home, buying a a vacation place that is in a much cheaper location, a mountain home or a beach place somewhere that is, you know, $400,000, a condo or something, right? Or or a mountain home for 350. >> Come to Michigan. >> And yeah, that's what I think I've seen I've seen people talking about this and uh and you know, I've looked at places before, too. And I think we're going to see that, which I think is going to be kind of weird for the economy. a bunch of people renting but ove they own a place that's just not their primary residence. Makes sense. I think we could see that. >> We've talked too about how that rental you you the difference you're saving, Nick, between renting and buying. Where does that difference go? To the stock market, right? >> It allows you to save more and invest more. >> Yeah, exactly. So, I think people are going to run these numbers. And of course, it's always local. Like in certain markets, it's like you should be buying. It's obvious, right? In other markets, you shouldn't be. And so, you have to run that. I have a, you know, rent versus buy calculator. There's, you can find these on the internet. I have one on my website. I think it's very useful for this. And you can just see like how close is this going to be over a 30-year time frame. Do you know right off the top of your head an example of a place where you should buy instead of rent? >> I'm guessing it's probably parts of Texas and Florida where like the prices are not as elevated relative to rents. That's my guess. I don't know exactly where, >> but yeah, probably mid places in the Midwest too, but yeah, definitely not the coast. I think that's that's where things are really bad. >> Duncan, do we need a we need a a poll in the chat about which is going to be the worst one. >> Okay. Okay, I'll ask. All right, let's do another one. >> Okay, up next we got a question from Tim. The guy on Talking Wealth with Ben last week mentioned a buy, borrow, die strategy. I need to know more. Uh, what does Ben think about this? What are the benefits and potential drawbacks? >> Um, so I've been talking about borrowing against your portfolio recently. So last week on Talking Wealth, yeah, we had Joseph Wang from Synthetic Fion on to talk about box spread loans against your portfolio. Um, if I'm being honest, this whole like buy, borrow, die thing is still relatively new to I think it's kind of relatively new in the finance terms, right? It's it's it's kind of a new thing. So, here's the gist of it. You buy your and this is for wealthy individuals typically. You buy a bunch of assets. You buy stocks and bonds and real estate, whatever. Then you borrow against them for your spending, right? You you don't sell your stock. You borrow against it to buy something else. Whether it's to start a business or to go on vacation, whatever it is, you're borrowing. So, you're not selling those assets. They can they can appreciate. And then the whole idea is for estate planning when that when those assets get passed on to the next generation, they get the step up basis, right? So they don't have to pay taxes and then now they can they can sell them free and clear of taxes or they can take these assets and and hold on to them. And so it's just a way to defer taxes basically forever. Nick, I'm curious your thoughts on this. In theory, it sounds awesome. There's obviously some holes to poke in it. What do you think? I think the biggest problem is most people can't use it because they probably don't have enough assets to do it. Like you need a lot of assets to do this. It's not for someone like oh I have a even a million dollars in a portfolio that's a you know a lot of money. That's not something you're going to be able to like really do a ton of borrowing with right. It's usually as the reason you hear about billionaires doing this because they have so much assets that like would want to sell these things. And really when you think about it, it's actually it's a great strategy because like if you can borrow at you know let's say 3% or something right and you can and you expect your portfolio to return over 3% that's where it makes sense. even 4% you can make arguments, right? But it's really depending on what you can borrow at and you know with rates a little bit higher now I think I'm guessing right now with some of these strategies you can get around a 4% maybe a 5% loan which would be decent but it really depends on what that borrowing hurdle is right and so as that as that hurdle gets lower the strategy gets more attractive and then you were completely correct on the stepped up basis that's I think that's one of those thing that's that that creates more wealth inequality than anything else out there right it's like your your grandparents bought something for a nickel you know hundred years ago and now they're their step when they die it gets passed on and you now it's worth you know half a million dollars in California and all those all that tax basis is gone and now they only have to pay the tax on from when they die to when they sell which whatever that change in value is. >> What is the argument for for allowing that? Do you guys have a good one? Like why why is that if if other than to just enrich already rich? >> Well, I guess I guess the point is like do you really want to like hand your heirs a bunch of taxes to pay? Um it's not their fault that they got so but then you say well just sell the assets. I I guess I made this point with Josh Josh a month ago or so. I said if you really want to tax the wealthy people then you make the borrowing against the portfolio a taxable event, right? Because that's that is what that's the thing is they're deferring taxes. And you're right, this isn't even like a top 10% strategy. This is maybe like a top 5% maybe a top 3% or 1% strategy. And of course the biggest risk is um is getting margin called. So if you borrowed too much. So I think you'd have to like cap it. You you you know you don't want to borrow more than 15 20 maybe 25% of your portfolio. And Cliff in the STR in the chat asks, you can't borrow against your IRA, right? Yes, this is taxable money only. So, you have to have a big taxable account. So, you're right. This is this is this is a very few number of people who can do this. But, it also does show you um we keep talking about we need to tax the rich more. Like the rich rich people have so many ways of skirting taxes that any strat any rule that the government comes up with to tax them more is probably just they're going to figure out a way around it. And um I know it doesn't seem fair, but this is well heavy. >> It seems like that would be hard to skirt, right? If they did away with the step up, that would be harder. >> Yeah. I mean, that's probably that's why it's such a it's such an entrenched thing. And and I hear the counter. It's like, hey, I worked my whole life to have this thing. Like why should the government It's like an estate tax basically, right? So it gets rid of that. I mean, the estate tax is so high that it basically doesn't exist for like 99% plus of households. So it's it's stepped up basis is is essentially getting rid of estate tax on everyone else, right? So that's another way of thinking about it. So but yeah, I mean there's debates to be had about that about how maybe there should be a the step up shouldn't be as large or maybe the tax rate should be lower if it's a stepped up asset. I don't know. But I think right now it just allows people who maybe don't have over 11 million or $22 million to pass on wealth taxree. So >> but that there's there's a lot of millennials and Gen Z people who this is their retirement plan if we're being honest, >> right? Oh, inherit my parents assets at a stepped up basis. The only problem is you're probably going to be like 60 years old when it happens. So, you're have to wait. >> Exactly. >> Right. >> Jay in the Jay in the chat said, "You can borrow against your private credit investments." >> Hey, there we go. Doesn't go down. All right. We got another This This one is This next one is probably the most one of the more unique questions we've gotten. I know it's long, but worth it. >> This one's from uh from Ben. I have a one-time only retirement fork in the road and would love your take. I'm 43 and work in the public sector. For the last 13 years, I've been in a self-directed 401A, which I've never heard of, where I choose my own mutual funds. But my employer is now offering a brief window to irrevocably switched into a different plan that offers a guaranteed 7.25% annual return, no more, no less. The account currently has $320,000 in it with fixed annual contributions of roughly $17,000. At age 70 and a half, the guaranteed uh the guaranteed annual return plan would require that I close the account and roll over the full balance. I think my wife and I are in a unique position to let this ride. She's also 43 and works in the private sector with over $1.1 million amassed in her retirement accounts and a $31,000 annual 401k contribution rate, including employer match. I also have a separate deferred comp account with $60,000 that I contribute $7,000 to annually. Our strategy would be to retire in our early 60s and live off my wife's accounts and my deferred comp first, essentially quarantining this 401A so it can compound untouched at that 7.25% clip for the next 27 years in an era of market volat volatility is a guaranteed 7.25% for nearly three decades the ultimate free lunch or am I giving up too much upside abandoning my lowcost mutual funds? >> Okay, so this question may be completely double take. Um, a 401A is typically like government or nonprofit or something. Um, so I had to run this by one by Dan Larosa who runs up our corporate retirement division. Um, and he he was shocked. 7.25 guaranteed for almost 30 years is unheard of. I've never So, this has to be some sort of cash balance plan or pension. And my biggest question would be um what's the solveny of this plan? Like what's the funded status? Is it going to last 27 years um to ensure that this isn't some sort of Ponzi scheme? Like that'd be my biggest question is like what's the what's what's going on here? Are you working for a very small business that's making this promise or is it a big government agency? That'd be my biggest worry is like the funded status. Okay, so setting all that aside, Nick, you get a lock in 7.25% guaranteed right now for the next 30 years. Um, do you take it? >> I think yeah, you assuming I mean it's a crazy thing. And would you put all your money in that? No. I think that would be crazy cuz what happens if we have some sort of hyperinflation event like you're still getting 725% even when the the you know the currency is going to nothing. So I don't know on that front. Um I I agree with you. I think the biggest issue here is solveny and counterparty risk. Right? There's that old joke if if you owe the bank a million dollars you have a problem. If you owe the bank $100 million the bank has a problem, right? So I'm like how are people handing like I would just want to know how does this thing actually work? Like I get like let's say the the US stock market returns 10% a year and let's just assume this is all stock portfolio. So like you're giving on nominal terms you're giving up 3% a year like annualized like I could see how that makes sense but like sequence of return risk is everything. If we go into like the next great depression next year how is this thing going to be paying out 7.25% for the next decade? It has to break in some way right so like I I don't fully understand it. And so my take is like if I don't understand it, I don't, you know, if you don't know where the yield's coming from, don't invest in it. >> Yes. This it again, I've never heard a guarantee this high before. Um, but I think if this thing is is actually real, yeah, you're right that the leaving the opportunity cost says, well, if the equity markets return 9 or 10%. But I just think this could allow you because they are they said, look, we have assets outside of it, right? The wife obviously is doing really well. She's got a seven figure retirement plan. you could potentially take more risk outside of that plan because of this guarantee, right? Financial planning is way easier if you know that this guarantee like your spreadsheet can be mapped out for decades now, right? For that piece it if so I think as long as you trust the people I just man this sounds too good to be true. I >> I agree it's too it's really too good to be true. >> Yeah, I would I would actually argue the opposite. You got to take less risk cuz if this thing doesn't turn out to I mean what could happen let's say at some point they say hey we can't keep doing this and they stop the 7.25 25 at least you earn that through a period that's still something even if you get five years of 725 I think that's a good you take that right in a diversified portfolio like that's a pretty good return I would I would definitely take it and just explore it but I I would do more research before committing all into it but I like the I like the idea here >> don't do the Kevin Bacon Kira said and put all your money with maid off here right diversify a little bit Kevin Bacon had to do a lot of TV shows he didn't want to do because all of his money was with Birdie Maidoff before >> so it it sounds like a big a big uh takeaway here is make sure that it actually is 7.2 25 reading something or >> I would need some sort of asurances and I would I would really have to have a lawyer check out the paperwork. I would want a ton of assurances. >> Maybe an actual lawyer, not CHGBT. >> And I would I would need like an update once a year on like how was the funded status of this plan. I would need a lot of guarantees, but if if that's real, I mean, man, it almost sounds stupid to turn it down. That's an amazing high guarantee. Dave in the chat says, "A 401A plan is a money purchase pension plan that typically required EE and ER contributions used by government nonprofits." >> Yeah, that makes sense. >> Okay. Um Nick, thanks for your help as always. Uh everyone, sign up for Nick's newsletter at of Dollars and Data. Anything else? >> Buy books. >> What do you got? >> Yeah. Thank you guys. Appreciate everything. >> Thanks for having me on. >> See you. >> All right. >> Let's do another one. >> All right. Up next, we got one from Aaron. I'm taking advantage of your promise that questions from female. It's funny how many people have taken us up on this. Your promise that questions from female listeners will go uh toward the top of your list for consideration. My husband is 35. >> I'm a man of my word. >> Yeah. No, I mean, we we're we're serious. Uh my husband and I see the numbers creeping up. I think we're up to like 9 or 10% female audience now. Uh it used to be, you know, years ago it was like 4%. Um so, you know, we're we're growing. Uh my husband is 35 and I'm 37 and we live in a suburb of Columbus, Ohio with our infant and twin daughters. I'm in the process of scaling my business back up since having the babies in October. My husband has a W2 job and I'm a sole proprietor with no employees. My husband saves 9% in his 401k and has a great company match and I've maxed out contributions to my traditional IRA for the last couple of years. I'm toying with the idea of converting my traditional IRA into a solo 401k given the contribution limit is much higher. However, I'm also considering whether it could be more beneficial to keep my IRA as it is and instead invest more into our joint brokerage account. Is it smarter to increase retirement savings or is the brokerage account the better way to go? >> Okay, first off, kudos to Aaron for scaling up her business uh five months after having twins, right? >> Uh having two babies come out of your body almost doesn't seem possible. I don't know how women do it. My wife did this. Um, I have a very I have a kinship with parents who had twins. Um, it's like a club and and I've said this before, but my side note is >> twin club. >> Yes. Having twins has completely changed my mind about nature versus nurture because I see my two kids that grew up in the very same environment and are completely different people. And I think that you can really screw your kids up bad as a parent. Um, but I think you kind of are who you are in some ways based on your DNA. That's my uh deep thought for the day. Like you were born to wear hats, Duncan. You have a great head of hair, but you're born to wear hats. It's >> true. >> Um, so we've been getting we've been getting more and more of these questions about retirement accounts versus brokerage accounts. And it's interesting. It's mostly people in their 30s and 40s >> who are who have realized that, oh, actually the tax deferral is great. Like allowing your money to compound tax deferred is awesome, but I really would like more flexibility because I want to travel more. I want to retire early. Whatever it is. So I and I certainly had a similar realization. We focus almost exclusively on funding tax deferred retirement accounts in our 20s and 30s, most of our 30s and so I feel like I'm kind of in a I I've been playing catchup the last five years or so as well. Um, so Aaron wants to know if she should set up a solo 401k or focus more on the brokerage account. I then there's other details in the question that we cut short because it was a long one about uh retiring early and traveling and then daycare expenses. When their daycare for their twins is done, they're going to have way more disposable income to save and invest. Um, I think she said it's $2,500 a month for daycare, which is absolutely insane, but I know that's true. So, the contribution limit for a solo 401k is very high. $72,000 in 2026. It's just $24,500 for a regular 401k and then 7,500 for an IRA. So, there's no harm in setting up your solo 401k, converting that IRA into it. And let if your business really takes off and you want to stash a bunch of tax deferred money in there and get a tax break up front now, as long as you're not doing a Roth, I I see no problem with that. you could always just put in a lower amount and not get up to the contribution limit. It's the same thing. So, I think there's no harm in setting you setting it up. Um I I guess you know I think the course of action too is like you're only in your mid-30s still like you can slowly but surely build that brokerage account up if you don't need the money soon, right? Like so slowly but surely if your business is doing better and you have more disposable income, put more and more of it in the brokerage account. If you get a your husband gets a raise, um instead of putting more in the 401k, put a little more in the brokerage account. slowly but surely build up. I don't think you have to do it all at once. It doesn't have to be an all or nothing. So, um, for me it's like any excess income now goes into the brokerage account instead of like topping off the retirement accounts because I wanted to have that more flexibility. Um, so, so I think that's the way to go about is slowly but surely doing it and giving yourself more flexibility. But it is interesting how many people are coming to this realization that oh yeah, text retirement accounts are great, but I'm stuck for a long time in those and I have no flexibility if we want to retire earlier. And what's what's the age everyone wants to retire at Duncan in their 50s? >> What is it? >> What's the age? 55. >> 55. Everyone says 55. Why? It's a round number. I don't know. >> It's nice. It's a nice number. >> Yeah. Well, good on you for doing your own business. And but yeah, open the solo 41k. There's It's not going to hurt anything. >> What What do we think Aaron is? Sle proprietor. Sounds so official. >> I don't know. It could be anything these days. >> Photographer, designer. cuz she's doing um she's showing people how to use AI. I don't know. >> Yeah. >> All right. >> One more question. >> Hey, up next we got one from Antonio. Should parents be concerned about the future of This is a heavy one. Should parents be concerned about the future of education and whether to invest in 529 plans versus a more flexible brokerage account? As knowledge is increasingly democratized by AI, I think the world will look vastly different in 5 years, let alone 18 when kids born today reach college age. I feel like it's hard to justify locking money away based on assumptions that may not hold in the AI era. >> I question. >> Yeah, I completely understand the sentiment here. Like it's certainly possible within I don't know how long, two, three years every kid in America is going to have their own personal AI tutor. And I think that would be amazing. Like all of my kids learn in different ways. Like they have everyone has their strengths and weaknesses and certain, you know, some more visuals, some more numbers based. Like if you had an AI that could understand those strengths and weaknesses and and create a learning plan that takes into takes them into account, that'd be amazing. That that sounds sign me up right now for my kids. I would love that. Um so like that does that will that make it so more kids are able to learn on their own and not need as much formal education? Yeah, I think so. Does that mean that you should start shorting colleges? I don't necessarily agree with that. Like remember when classes went online in the pandemic and a bunch of talking heads said, "That's it. college is done for. Once we realize this and you open the the veneers, sorry, it's done. >> And all of the kids hated it and actually made them yearn for the college experience even more, right? >> I think if anything, the more we move into a digital world and AI is obviously moving us that direction. There's just we're going to be interacting more with computers and screens and whatever. I think it's going to give the premium to real world experiences. Travel is going to be more important. Concerts, comedy shows, live sporting events, that stuff. hang out in real think about like the how happy people were to be in a big group of people last week in Miami with us. Right. >> Right. >> Yeah. I mean to me that's I'm I'm a little biased as as a former educator, but like it's a package deal. People are completely missing the point when they when they talk about college like it's just about the classes or just about the education. It's obviously about the networking. It's obviously about, you know, improving social skills. And you know, if you if you live off campus and just go to class and then go straight back home, you're really robbing yourself of the true college experience, right? Like it's it's a package deal. And and is it worth the money? That's a whole different, you know, argument. I think it has >> living on your own. >> But but yeah, >> being responsible for yourself, being around kids your other age. I still think back to my very first week of college, meeting new people, making new friends. If I could bottle up the feelings I had the first night I had this group of new friends and we're drinking beer in the dorm room and we're listening to um I think it was Nelly Country Grammar had just come out listening to music and then we go to our first house party. If I could bottle up the feeling I had I felt like I was walking on clouds that you know that just I'm on my own. I'm away from my parents. I have new friends. Um if I could bottle that feeling I'd be a trillionaire. I I don't think you can put a price on that. Now, some people would say, like you said, um do you really need to spend $50 or $60,000 a year to get that experience to be on your own? No. >> Okay. Maybe maybe that maybe that changes, but I >> that's also about the colleges you pick, right? I mean, yes, go to an instate school and and you're getting a much better deal. Yeah. >> I I don't necessarily feel I do feel that the college experience for young people may is going to be maybe more important than ever again in this AI world. And the best teachers will I think learn how to use it in their classrooms and still teach people teach kids the more important things of communicating and selling themselves and interacting with other people and how being more creative like that's where the best teachers are going to shine in the future not just the can you memorize this can you follow these steps in these directions because AI will be better at that obviously. >> Yeah. I think I think it's going to bring back liberal arts more, right? Where where more instead of kids being so focused on like just doing the bare, you know, minimum or getting things done so they can pass a test or they can get that they can go off to law school or whatever. I think more people are going to actually, you know, have a a favorite impressionist painter and maybe know how to like actually build things with their hands and and learn like a broad get a broad liberal arts education instead of being so hyperfocused and you know something just you know to to try to get into grad school to try to pass a certain test or you know that kind of thing I think would be good for humanity in general. >> The best advice has been like niche down, keep niching down and you're an expert on this one topic and now it could be like no diversify more and get more creative. um to get you can use AI, right? >> Yeah. Sean in the chat says, "Ben needs to update the A wealth of common sense Audible voice guy needs someone with more pep in their step." Listen, Sean, you're in luck because this week I was recording the audio book for Riskreward, which comes out in about u eight weeks now, seven weeks. Comes out in midMay. Um and let me tell you, I have uh I have some more respect for the people who read those books. That's not easy. >> My brain felt like absolute absolute mush by the end of the day. I'm in a studio all day reading my own words and >> and you you talk super fast. So I'm sure you were going to get a lot of direction about slowing down. >> I I told them I said, "Listen, just so you know, I'm a fast reader. I've always has been. I have been. I I know I am. So just if I'm doing going too fast, tell me to slow down." And uh they did many times. >> I bet. >> But it was kind of fun. You're right. I put more inflection. I tried to um make it like I was teaching instead of reading. So it was kind of fun. >> Nice. I'm looking forward to that. >> All right. Good to be back. We haven't done this in a while. just uh like the old setup and because we were we're live on and it was fun doing it live last week. >> Yeah. >> In Miami. A little hectic. We had four-wheelers driving by and planes overhead and helicopters. >> People almost walking in front of a camera, >> people walking by the camera. Yeah. But we did it. Now we're back to normal. >> If you have a question, >> Hold on. I got I got a bonus question. I saw Bill asked you questions, you know, bonus questions and stuff. So, I got a I got a bonus question for you. >> So, say you have a friend who's down like 40% in a software stock right now. Um, what are you doing? You holding it or or are you uh you selling it and just cutting your losses? What are you doing? >> Here's what I would ask that friend. When you bought this software stock, were you planning on making it a trade? Were you making it an investment? What's your time horizon? >> Yeah, I think they thought they thought they were going to be in it a long time and uh then it just started dropping like a stone. >> So, here's here's the this is the question I ask for all people when they're dealing with a loser. Would you be willing to put more money into it now? Would you lean into the pain? If you're not going to be willing to lean into the pain, why would you still hold it? If you're not going to buy more, I I used to say this to like the investment managers that we used to manage, like if you're not willing to rebalance into the pain and buy more, if you don't have the confidence to do that, like why do you have the confidence to wait for it to come back? I think the the whole idea of I'll just wait for it to break even then I'll sell is one of the biggest mistakes you can make as an investor. >> Buying more is the only reason they're not down 50% in it. So, Yeah, just curious. I was just curious what you think. >> Is the Is the thesis still the same? Has it changed at all? >> It's it's one of the disruptible uh disruptible ones because of AI or whatever. It's one I've talked to you about. >> All right. >> It's a finance related software stock. >> All right. Good luck is all I can say. Uh ask the compoundow@gmail.com is our email. Thanks everyone for the live chat as always. It was hopping as usual and we'll see you next time people. >> Thanks everyone.
What’s the Worst Asset Class for the Next 5 Years?
Summary
Transcript
This seems like a lot of fun, but with this kind of life, you'd depreciate. So why not put your money to work? >> Put my money to work. >> That's right, Mr. Finchley. You can own a share of American business. There are over,200 companies listed on the New York Stock Exchange. Companies which employ more than 11 million people produce half of all the goods made in America. >> Welcome back to Ask the Compound, the show where you ask and we answer. Ton of money poured into private investments in the past decade. The early 2020s witnessed perhaps the greatest housing boom we've seen in history. So which asset class will have worst returns going forward? Private markets or residential real estate? Nick Mulli is here to help us answer that question and more. Let's do it. Email here is ask the compound show@gmail.com if you're in the live chat or on Twitter. Firesoft questions. We'll do them live. Duncan, how we feeling? Jet lag still >> feeling good. No, no. I'm I'm back. I'm missing the warm Miami weather. I'm freezing here in Connecticut. >> Well, you couldn't enjoy it the last night cuz you were like down for the count. Yeah, me and Travis both got wiped out. I don't know. It was I don't know. Heat exhaustion or something. >> My forehead's been peeling for 5 days. On today's show, we're answering questions from our compound audience about housing versus private investments. How to how does buy, borrow, die work in practice? Would you take a guaranteed 7.25% return for the next 30 years? Uh when you should prioritize your brokerage account over your 401k, and then do parents still need to save in a 529 plan in an AI world. But first, today's show is sponsored by Public, the investing platform for those who take it seriously. On Public, you can build multi-asset portfolios of stocks, bonds, options, crypto, and more. And now, generated assets, which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year-over-year, you can literally type any prompt and put AI to work. screens thousands of stocks, builds you a one-of-a-kind index, and lets you back test it against the S&P 500. Then you can click, then you can invest in a few clicks, generated assets like ETFs with infinite possibilities, completely customizable, and based on your thesis, not someone else's. Go to public.com/ATC. Earn an uncapped 1% bonus when you transfer in your portfolio. It's public.com/ATC, paid for by public investing. Full disclosure in the podcast description. All right, we got good questions today. Let's do it. >> Yeah, it's it's uh stacked. I should also say, you know, great job to you and Bill while I was out, you know, just no one even missed me. Y'all just kept kept trucking along and Bill had a bunch of funny quips thrown in there. >> That's the one thing to catch you with political stuff. You know, >> he gives me quizzes. Uh he makes me work a little harder. >> Yeah. Yeah, it was good. I enjoyed it. >> All right. Up first today, we got a a screenshot of a Nick Majuli tweet, which if you don't follow him, you should follow him because it's very entertaining. He is, I think, one of the highest quality uh trolls on on Twitter. >> You love Nick on Twitter because he's always poking the bear. >> He's not afraid of He's not afraid of anyone on Twitter. It's very entertaining. Uh so he said, "I'm trying to decide which asset class will have worse returns over the next 5 years. Private assets or US residential real estate? Private assets are liquid and investors are getting impatient, while home prices have outrun incomes and no one is buying. Both look bleak." All right, I someone in the comment said, "Hey, I want to see Ben and Nick debate this one." So, let's bring him on from of Dollars and Data's fame. Hey, Nick. Nick Mulie. >> Thanks for having me on, guys. >> Nick, you wouldn't be farming for uh for people to come at you on Twitter, would you? You would never do that. >> No, I just You have to You have to come up with some sort of contrarian takes. Like, it's just too like, "Oh, hey, just keep buying." Like, I've said that a million times. Everyone's heard me talk about that. It's boring. you want to try and say like let's look at some things that are maybe on the edge and let's kind of explore these ideas and I learn a lot from it. I'll put something out there and I'll get some push back and I'm like actually that's a really good counter argument. I didn't think about that before. >> I agree. Sometimes you have to you have to you have to take a take you have to make a take. So this is a very pro provocative question. Um I I want to let you go first and then I have some data and stuff. So I want I want I want to see you make the case. Make it for both of them or or either of them and and I want to hear where you fall on this because I agree. Um, it does seem like these these assets are are kind of heading for trouble. But what is what where do you fall on this? >> I have to lean more against private assets, right? We're already starting to see kind of some of this unravel. I know Dan Rasmusen who's the person has talked about this for a long time with privates. He was saying this back in I think 2019 2020 precoid and he was talking about this stuff and now I think the chickens are coming home to roost. We're starting to see you know they're limiting redemptions. You know, we hear all these things like more things are being marked to market like down, you know, 40 cents on the dollar, all those types of crazy stuff. I think US housing also has its problems like incomes and and prices haven't kept up. And so, you know, rates have everyone's like, "Oh, rates are going to come down." You know, date the rate, it's going to come down. Don't worry, rates haven't come down, right? So, there's a lot of things that we'd expected to happen that haven't happened. But I think there's a lot more entrenched political factors keeping us home prices higher. And so even though I don't think either are going to have great returns going forward, I think, you know, privates are probably going to have more negative returns and maybe, you know, US home returns will just be like flat to maybe slightly negative on real terms um over the next handful of years. >> Yeah, because housing doesn't fall that often, right? It's it's pretty I I'll make a case here on the private side. So throw up my chart. This is from the Financial Times. This shows all the money that is held for private equity. Obviously, there's more money in private equity, so this makes sense. But it just shows the value of PE assets held for more than seven years is just growing and growing. It's it's over a trillion dollars now. And so there are no the IPO window is seemingly closed. There are no exits in this space. So investors are waiting to get their money back. And you could make the case that whatever the marks are, they're probably lower than they seem because they have there haven't been any exits to mark them to. So they're their private valuations are probably a little too high. John, show the next one. This one Michael and I talked about on Animal Spirits this week. Uh Rex Salbury shows the the IRS for these VC funds that got marked up way higher and this show us by vintage year right going back to 2017 and they just keep coming down and there are of course no IPOs in venture capital eer. So so these numbers are probably way higher than they should be. So I I kind of agree with you that the private assets probably have to come down. Um, I still think I would probably bet on the private markets because I there's just not that because it's like it's kind of like public equity with a little bit of leverage on it for most of them, right? So, if public equity does okay, they probably will do okay. Um, I got some housing charts for you, too. Uh, throw my first one up here. This just shows Okay, so this is your income to to So, this is median income to median home price. And it's funny because I had Claude make this for me. Nick, you're a big AI user, too. Um they have the healthy dotted line at 2.6% and you can see going back to 1985 it's never been healthy which is kind of funny. Um it's actually it has come in a in a little in a few years because like housing price returns have stabilized. So it's actually the incomes have been going up a little bit more than housing prices. John X1 which shows the housing price returns in the 2020s. Obviously, we had the huge boom in the first couple of years, and you can see every year, housing prices have come down where last year, for the first time in a while, housing prices actually lost out to inflation. So, I I kind of agree with you that housing prices probably the best bet would be not a housing price crash, but a stagnation where they don't go anywhere and you have to wait for incomes to catch up. Now, here's the here's the one like question I have. So, John, throw my demographic chart up here. Um, the John Burns one. There we go. So John Burns has this thing that shows the largest population group in the US turns 33 to 37 this year. Um so I don't know how you can do chart off. I'm curious your thoughts on how demographics impacts this because I just want to know how long young people can continue to wait and and push this off since that's like the next step for most people. Um, there are certainly fewer houses being bought and sold right now, but do you and I agree that a lot of people have just been on the sidelines waiting for mortgage rates to come in, but how long do you think this people can hold out for without just saying, "All right, fine. I don't care what I'm paying and buying." >> I think people will just decide to rent. I mean, they're like when you do like the equivalent like I'm looking I'll just use my place here in Jersey City. It's a little expensive. It's like 4650, but if you That's my all-in cost. That includes my two 2.2% property tax if I were to own. That includes my insurance, everything. When you run all that through and say, "Okay, let's say this is my all-in cost. What would my what would this place cost like to buy?" It would be like $650,000, which for an apartment, you're saying that's not that crazy, but there's no way that someone's going to sell an apartment for 650 in like an area that's very close to Manhattan, right? And so it's like someone would probably sell this apartment for a million bucks. I'm like, that's overpriced by like 30% in my opinion, right? And so that's what I'm there's this kind of tension going on. And I think what's going to happen is just out of pride, people are not going to just, you know, mark their houses to market, aka drop in by 10, 20, 30% to sell them. They're just going to say, "No, I'd rather just sit on it and I'm not going to sell." And I think that the ego of it of being the first person to take a 30% loss or something like that is too high and people would just rather not do that than um than sell. And so I don't see how that, you know, friction gets broken. And so, you know, even and with it regardless of the demographic factors, like you need sellers, like people need to sell, you know, and there's people trying to sell and no one's going to buy at those prices. I think people know it's crazy. >> Yeah. And especially I think that the gap between buying and renting in big cities, more expensive cities, is probably about as wide as it's been, right? That that to me is the one that makes the most sense. If you're in an area like where you guys live, that makes the most sense to me that renting is just you you run the numbers and it doesn't even it's not even the same ballpark. I think we're also going to see a trend of millennials who are priced out of, you know, buying a a primary home, buying a a vacation place that is in a much cheaper location, a mountain home or a beach place somewhere that is, you know, $400,000, a condo or something, right? Or or a mountain home for 350. >> Come to Michigan. >> And yeah, that's what I think I've seen I've seen people talking about this and uh and you know, I've looked at places before, too. And I think we're going to see that, which I think is going to be kind of weird for the economy. a bunch of people renting but ove they own a place that's just not their primary residence. Makes sense. I think we could see that. >> We've talked too about how that rental you you the difference you're saving, Nick, between renting and buying. Where does that difference go? To the stock market, right? >> It allows you to save more and invest more. >> Yeah, exactly. So, I think people are going to run these numbers. And of course, it's always local. Like in certain markets, it's like you should be buying. It's obvious, right? In other markets, you shouldn't be. And so, you have to run that. I have a, you know, rent versus buy calculator. There's, you can find these on the internet. I have one on my website. I think it's very useful for this. And you can just see like how close is this going to be over a 30-year time frame. Do you know right off the top of your head an example of a place where you should buy instead of rent? >> I'm guessing it's probably parts of Texas and Florida where like the prices are not as elevated relative to rents. That's my guess. I don't know exactly where, >> but yeah, probably mid places in the Midwest too, but yeah, definitely not the coast. I think that's that's where things are really bad. >> Duncan, do we need a we need a a poll in the chat about which is going to be the worst one. >> Okay. Okay, I'll ask. All right, let's do another one. >> Okay, up next we got a question from Tim. The guy on Talking Wealth with Ben last week mentioned a buy, borrow, die strategy. I need to know more. Uh, what does Ben think about this? What are the benefits and potential drawbacks? >> Um, so I've been talking about borrowing against your portfolio recently. So last week on Talking Wealth, yeah, we had Joseph Wang from Synthetic Fion on to talk about box spread loans against your portfolio. Um, if I'm being honest, this whole like buy, borrow, die thing is still relatively new to I think it's kind of relatively new in the finance terms, right? It's it's it's kind of a new thing. So, here's the gist of it. You buy your and this is for wealthy individuals typically. You buy a bunch of assets. You buy stocks and bonds and real estate, whatever. Then you borrow against them for your spending, right? You you don't sell your stock. You borrow against it to buy something else. Whether it's to start a business or to go on vacation, whatever it is, you're borrowing. So, you're not selling those assets. They can they can appreciate. And then the whole idea is for estate planning when that when those assets get passed on to the next generation, they get the step up basis, right? So they don't have to pay taxes and then now they can they can sell them free and clear of taxes or they can take these assets and and hold on to them. And so it's just a way to defer taxes basically forever. Nick, I'm curious your thoughts on this. In theory, it sounds awesome. There's obviously some holes to poke in it. What do you think? I think the biggest problem is most people can't use it because they probably don't have enough assets to do it. Like you need a lot of assets to do this. It's not for someone like oh I have a even a million dollars in a portfolio that's a you know a lot of money. That's not something you're going to be able to like really do a ton of borrowing with right. It's usually as the reason you hear about billionaires doing this because they have so much assets that like would want to sell these things. And really when you think about it, it's actually it's a great strategy because like if you can borrow at you know let's say 3% or something right and you can and you expect your portfolio to return over 3% that's where it makes sense. even 4% you can make arguments, right? But it's really depending on what you can borrow at and you know with rates a little bit higher now I think I'm guessing right now with some of these strategies you can get around a 4% maybe a 5% loan which would be decent but it really depends on what that borrowing hurdle is right and so as that as that hurdle gets lower the strategy gets more attractive and then you were completely correct on the stepped up basis that's I think that's one of those thing that's that that creates more wealth inequality than anything else out there right it's like your your grandparents bought something for a nickel you know hundred years ago and now they're their step when they die it gets passed on and you now it's worth you know half a million dollars in California and all those all that tax basis is gone and now they only have to pay the tax on from when they die to when they sell which whatever that change in value is. >> What is the argument for for allowing that? Do you guys have a good one? Like why why is that if if other than to just enrich already rich? >> Well, I guess I guess the point is like do you really want to like hand your heirs a bunch of taxes to pay? Um it's not their fault that they got so but then you say well just sell the assets. I I guess I made this point with Josh Josh a month ago or so. I said if you really want to tax the wealthy people then you make the borrowing against the portfolio a taxable event, right? Because that's that is what that's the thing is they're deferring taxes. And you're right, this isn't even like a top 10% strategy. This is maybe like a top 5% maybe a top 3% or 1% strategy. And of course the biggest risk is um is getting margin called. So if you borrowed too much. So I think you'd have to like cap it. You you you know you don't want to borrow more than 15 20 maybe 25% of your portfolio. And Cliff in the STR in the chat asks, you can't borrow against your IRA, right? Yes, this is taxable money only. So, you have to have a big taxable account. So, you're right. This is this is this is a very few number of people who can do this. But, it also does show you um we keep talking about we need to tax the rich more. Like the rich rich people have so many ways of skirting taxes that any strat any rule that the government comes up with to tax them more is probably just they're going to figure out a way around it. And um I know it doesn't seem fair, but this is well heavy. >> It seems like that would be hard to skirt, right? If they did away with the step up, that would be harder. >> Yeah. I mean, that's probably that's why it's such a it's such an entrenched thing. And and I hear the counter. It's like, hey, I worked my whole life to have this thing. Like why should the government It's like an estate tax basically, right? So it gets rid of that. I mean, the estate tax is so high that it basically doesn't exist for like 99% plus of households. So it's it's stepped up basis is is essentially getting rid of estate tax on everyone else, right? So that's another way of thinking about it. So but yeah, I mean there's debates to be had about that about how maybe there should be a the step up shouldn't be as large or maybe the tax rate should be lower if it's a stepped up asset. I don't know. But I think right now it just allows people who maybe don't have over 11 million or $22 million to pass on wealth taxree. So >> but that there's there's a lot of millennials and Gen Z people who this is their retirement plan if we're being honest, >> right? Oh, inherit my parents assets at a stepped up basis. The only problem is you're probably going to be like 60 years old when it happens. So, you're have to wait. >> Exactly. >> Right. >> Jay in the Jay in the chat said, "You can borrow against your private credit investments." >> Hey, there we go. Doesn't go down. All right. We got another This This one is This next one is probably the most one of the more unique questions we've gotten. I know it's long, but worth it. >> This one's from uh from Ben. I have a one-time only retirement fork in the road and would love your take. I'm 43 and work in the public sector. For the last 13 years, I've been in a self-directed 401A, which I've never heard of, where I choose my own mutual funds. But my employer is now offering a brief window to irrevocably switched into a different plan that offers a guaranteed 7.25% annual return, no more, no less. The account currently has $320,000 in it with fixed annual contributions of roughly $17,000. At age 70 and a half, the guaranteed uh the guaranteed annual return plan would require that I close the account and roll over the full balance. I think my wife and I are in a unique position to let this ride. She's also 43 and works in the private sector with over $1.1 million amassed in her retirement accounts and a $31,000 annual 401k contribution rate, including employer match. I also have a separate deferred comp account with $60,000 that I contribute $7,000 to annually. Our strategy would be to retire in our early 60s and live off my wife's accounts and my deferred comp first, essentially quarantining this 401A so it can compound untouched at that 7.25% clip for the next 27 years in an era of market volat volatility is a guaranteed 7.25% for nearly three decades the ultimate free lunch or am I giving up too much upside abandoning my lowcost mutual funds? >> Okay, so this question may be completely double take. Um, a 401A is typically like government or nonprofit or something. Um, so I had to run this by one by Dan Larosa who runs up our corporate retirement division. Um, and he he was shocked. 7.25 guaranteed for almost 30 years is unheard of. I've never So, this has to be some sort of cash balance plan or pension. And my biggest question would be um what's the solveny of this plan? Like what's the funded status? Is it going to last 27 years um to ensure that this isn't some sort of Ponzi scheme? Like that'd be my biggest question is like what's the what's what's going on here? Are you working for a very small business that's making this promise or is it a big government agency? That'd be my biggest worry is like the funded status. Okay, so setting all that aside, Nick, you get a lock in 7.25% guaranteed right now for the next 30 years. Um, do you take it? >> I think yeah, you assuming I mean it's a crazy thing. And would you put all your money in that? No. I think that would be crazy cuz what happens if we have some sort of hyperinflation event like you're still getting 725% even when the the you know the currency is going to nothing. So I don't know on that front. Um I I agree with you. I think the biggest issue here is solveny and counterparty risk. Right? There's that old joke if if you owe the bank a million dollars you have a problem. If you owe the bank $100 million the bank has a problem, right? So I'm like how are people handing like I would just want to know how does this thing actually work? Like I get like let's say the the US stock market returns 10% a year and let's just assume this is all stock portfolio. So like you're giving on nominal terms you're giving up 3% a year like annualized like I could see how that makes sense but like sequence of return risk is everything. If we go into like the next great depression next year how is this thing going to be paying out 7.25% for the next decade? It has to break in some way right so like I I don't fully understand it. And so my take is like if I don't understand it, I don't, you know, if you don't know where the yield's coming from, don't invest in it. >> Yes. This it again, I've never heard a guarantee this high before. Um, but I think if this thing is is actually real, yeah, you're right that the leaving the opportunity cost says, well, if the equity markets return 9 or 10%. But I just think this could allow you because they are they said, look, we have assets outside of it, right? The wife obviously is doing really well. She's got a seven figure retirement plan. you could potentially take more risk outside of that plan because of this guarantee, right? Financial planning is way easier if you know that this guarantee like your spreadsheet can be mapped out for decades now, right? For that piece it if so I think as long as you trust the people I just man this sounds too good to be true. I >> I agree it's too it's really too good to be true. >> Yeah, I would I would actually argue the opposite. You got to take less risk cuz if this thing doesn't turn out to I mean what could happen let's say at some point they say hey we can't keep doing this and they stop the 7.25 25 at least you earn that through a period that's still something even if you get five years of 725 I think that's a good you take that right in a diversified portfolio like that's a pretty good return I would I would definitely take it and just explore it but I I would do more research before committing all into it but I like the I like the idea here >> don't do the Kevin Bacon Kira said and put all your money with maid off here right diversify a little bit Kevin Bacon had to do a lot of TV shows he didn't want to do because all of his money was with Birdie Maidoff before >> so it it sounds like a big a big uh takeaway here is make sure that it actually is 7.2 25 reading something or >> I would need some sort of asurances and I would I would really have to have a lawyer check out the paperwork. I would want a ton of assurances. >> Maybe an actual lawyer, not CHGBT. >> And I would I would need like an update once a year on like how was the funded status of this plan. I would need a lot of guarantees, but if if that's real, I mean, man, it almost sounds stupid to turn it down. That's an amazing high guarantee. Dave in the chat says, "A 401A plan is a money purchase pension plan that typically required EE and ER contributions used by government nonprofits." >> Yeah, that makes sense. >> Okay. Um Nick, thanks for your help as always. Uh everyone, sign up for Nick's newsletter at of Dollars and Data. Anything else? >> Buy books. >> What do you got? >> Yeah. Thank you guys. Appreciate everything. >> Thanks for having me on. >> See you. >> All right. >> Let's do another one. >> All right. Up next, we got one from Aaron. I'm taking advantage of your promise that questions from female. It's funny how many people have taken us up on this. Your promise that questions from female listeners will go uh toward the top of your list for consideration. My husband is 35. >> I'm a man of my word. >> Yeah. No, I mean, we we're we're serious. Uh my husband and I see the numbers creeping up. I think we're up to like 9 or 10% female audience now. Uh it used to be, you know, years ago it was like 4%. Um so, you know, we're we're growing. Uh my husband is 35 and I'm 37 and we live in a suburb of Columbus, Ohio with our infant and twin daughters. I'm in the process of scaling my business back up since having the babies in October. My husband has a W2 job and I'm a sole proprietor with no employees. My husband saves 9% in his 401k and has a great company match and I've maxed out contributions to my traditional IRA for the last couple of years. I'm toying with the idea of converting my traditional IRA into a solo 401k given the contribution limit is much higher. However, I'm also considering whether it could be more beneficial to keep my IRA as it is and instead invest more into our joint brokerage account. Is it smarter to increase retirement savings or is the brokerage account the better way to go? >> Okay, first off, kudos to Aaron for scaling up her business uh five months after having twins, right? >> Uh having two babies come out of your body almost doesn't seem possible. I don't know how women do it. My wife did this. Um, I have a very I have a kinship with parents who had twins. Um, it's like a club and and I've said this before, but my side note is >> twin club. >> Yes. Having twins has completely changed my mind about nature versus nurture because I see my two kids that grew up in the very same environment and are completely different people. And I think that you can really screw your kids up bad as a parent. Um, but I think you kind of are who you are in some ways based on your DNA. That's my uh deep thought for the day. Like you were born to wear hats, Duncan. You have a great head of hair, but you're born to wear hats. It's >> true. >> Um, so we've been getting we've been getting more and more of these questions about retirement accounts versus brokerage accounts. And it's interesting. It's mostly people in their 30s and 40s >> who are who have realized that, oh, actually the tax deferral is great. Like allowing your money to compound tax deferred is awesome, but I really would like more flexibility because I want to travel more. I want to retire early. Whatever it is. So I and I certainly had a similar realization. We focus almost exclusively on funding tax deferred retirement accounts in our 20s and 30s, most of our 30s and so I feel like I'm kind of in a I I've been playing catchup the last five years or so as well. Um, so Aaron wants to know if she should set up a solo 401k or focus more on the brokerage account. I then there's other details in the question that we cut short because it was a long one about uh retiring early and traveling and then daycare expenses. When their daycare for their twins is done, they're going to have way more disposable income to save and invest. Um, I think she said it's $2,500 a month for daycare, which is absolutely insane, but I know that's true. So, the contribution limit for a solo 401k is very high. $72,000 in 2026. It's just $24,500 for a regular 401k and then 7,500 for an IRA. So, there's no harm in setting up your solo 401k, converting that IRA into it. And let if your business really takes off and you want to stash a bunch of tax deferred money in there and get a tax break up front now, as long as you're not doing a Roth, I I see no problem with that. you could always just put in a lower amount and not get up to the contribution limit. It's the same thing. So, I think there's no harm in setting you setting it up. Um I I guess you know I think the course of action too is like you're only in your mid-30s still like you can slowly but surely build that brokerage account up if you don't need the money soon, right? Like so slowly but surely if your business is doing better and you have more disposable income, put more and more of it in the brokerage account. If you get a your husband gets a raise, um instead of putting more in the 401k, put a little more in the brokerage account. slowly but surely build up. I don't think you have to do it all at once. It doesn't have to be an all or nothing. So, um, for me it's like any excess income now goes into the brokerage account instead of like topping off the retirement accounts because I wanted to have that more flexibility. Um, so, so I think that's the way to go about is slowly but surely doing it and giving yourself more flexibility. But it is interesting how many people are coming to this realization that oh yeah, text retirement accounts are great, but I'm stuck for a long time in those and I have no flexibility if we want to retire earlier. And what's what's the age everyone wants to retire at Duncan in their 50s? >> What is it? >> What's the age? 55. >> 55. Everyone says 55. Why? It's a round number. I don't know. >> It's nice. It's a nice number. >> Yeah. Well, good on you for doing your own business. And but yeah, open the solo 41k. There's It's not going to hurt anything. >> What What do we think Aaron is? Sle proprietor. Sounds so official. >> I don't know. It could be anything these days. >> Photographer, designer. cuz she's doing um she's showing people how to use AI. I don't know. >> Yeah. >> All right. >> One more question. >> Hey, up next we got one from Antonio. Should parents be concerned about the future of This is a heavy one. Should parents be concerned about the future of education and whether to invest in 529 plans versus a more flexible brokerage account? As knowledge is increasingly democratized by AI, I think the world will look vastly different in 5 years, let alone 18 when kids born today reach college age. I feel like it's hard to justify locking money away based on assumptions that may not hold in the AI era. >> I question. >> Yeah, I completely understand the sentiment here. Like it's certainly possible within I don't know how long, two, three years every kid in America is going to have their own personal AI tutor. And I think that would be amazing. Like all of my kids learn in different ways. Like they have everyone has their strengths and weaknesses and certain, you know, some more visuals, some more numbers based. Like if you had an AI that could understand those strengths and weaknesses and and create a learning plan that takes into takes them into account, that'd be amazing. That that sounds sign me up right now for my kids. I would love that. Um so like that does that will that make it so more kids are able to learn on their own and not need as much formal education? Yeah, I think so. Does that mean that you should start shorting colleges? I don't necessarily agree with that. Like remember when classes went online in the pandemic and a bunch of talking heads said, "That's it. college is done for. Once we realize this and you open the the veneers, sorry, it's done. >> And all of the kids hated it and actually made them yearn for the college experience even more, right? >> I think if anything, the more we move into a digital world and AI is obviously moving us that direction. There's just we're going to be interacting more with computers and screens and whatever. I think it's going to give the premium to real world experiences. Travel is going to be more important. Concerts, comedy shows, live sporting events, that stuff. hang out in real think about like the how happy people were to be in a big group of people last week in Miami with us. Right. >> Right. >> Yeah. I mean to me that's I'm I'm a little biased as as a former educator, but like it's a package deal. People are completely missing the point when they when they talk about college like it's just about the classes or just about the education. It's obviously about the networking. It's obviously about, you know, improving social skills. And you know, if you if you live off campus and just go to class and then go straight back home, you're really robbing yourself of the true college experience, right? Like it's it's a package deal. And and is it worth the money? That's a whole different, you know, argument. I think it has >> living on your own. >> But but yeah, >> being responsible for yourself, being around kids your other age. I still think back to my very first week of college, meeting new people, making new friends. If I could bottle up the feelings I had the first night I had this group of new friends and we're drinking beer in the dorm room and we're listening to um I think it was Nelly Country Grammar had just come out listening to music and then we go to our first house party. If I could bottle up the feeling I had I felt like I was walking on clouds that you know that just I'm on my own. I'm away from my parents. I have new friends. Um if I could bottle that feeling I'd be a trillionaire. I I don't think you can put a price on that. Now, some people would say, like you said, um do you really need to spend $50 or $60,000 a year to get that experience to be on your own? No. >> Okay. Maybe maybe that maybe that changes, but I >> that's also about the colleges you pick, right? I mean, yes, go to an instate school and and you're getting a much better deal. Yeah. >> I I don't necessarily feel I do feel that the college experience for young people may is going to be maybe more important than ever again in this AI world. And the best teachers will I think learn how to use it in their classrooms and still teach people teach kids the more important things of communicating and selling themselves and interacting with other people and how being more creative like that's where the best teachers are going to shine in the future not just the can you memorize this can you follow these steps in these directions because AI will be better at that obviously. >> Yeah. I think I think it's going to bring back liberal arts more, right? Where where more instead of kids being so focused on like just doing the bare, you know, minimum or getting things done so they can pass a test or they can get that they can go off to law school or whatever. I think more people are going to actually, you know, have a a favorite impressionist painter and maybe know how to like actually build things with their hands and and learn like a broad get a broad liberal arts education instead of being so hyperfocused and you know something just you know to to try to get into grad school to try to pass a certain test or you know that kind of thing I think would be good for humanity in general. >> The best advice has been like niche down, keep niching down and you're an expert on this one topic and now it could be like no diversify more and get more creative. um to get you can use AI, right? >> Yeah. Sean in the chat says, "Ben needs to update the A wealth of common sense Audible voice guy needs someone with more pep in their step." Listen, Sean, you're in luck because this week I was recording the audio book for Riskreward, which comes out in about u eight weeks now, seven weeks. Comes out in midMay. Um and let me tell you, I have uh I have some more respect for the people who read those books. That's not easy. >> My brain felt like absolute absolute mush by the end of the day. I'm in a studio all day reading my own words and >> and you you talk super fast. So I'm sure you were going to get a lot of direction about slowing down. >> I I told them I said, "Listen, just so you know, I'm a fast reader. I've always has been. I have been. I I know I am. So just if I'm doing going too fast, tell me to slow down." And uh they did many times. >> I bet. >> But it was kind of fun. You're right. I put more inflection. I tried to um make it like I was teaching instead of reading. So it was kind of fun. >> Nice. I'm looking forward to that. >> All right. Good to be back. We haven't done this in a while. just uh like the old setup and because we were we're live on and it was fun doing it live last week. >> Yeah. >> In Miami. A little hectic. We had four-wheelers driving by and planes overhead and helicopters. >> People almost walking in front of a camera, >> people walking by the camera. Yeah. But we did it. Now we're back to normal. >> If you have a question, >> Hold on. I got I got a bonus question. I saw Bill asked you questions, you know, bonus questions and stuff. So, I got a I got a bonus question for you. >> So, say you have a friend who's down like 40% in a software stock right now. Um, what are you doing? You holding it or or are you uh you selling it and just cutting your losses? What are you doing? >> Here's what I would ask that friend. When you bought this software stock, were you planning on making it a trade? Were you making it an investment? What's your time horizon? >> Yeah, I think they thought they thought they were going to be in it a long time and uh then it just started dropping like a stone. >> So, here's here's the this is the question I ask for all people when they're dealing with a loser. Would you be willing to put more money into it now? Would you lean into the pain? If you're not going to be willing to lean into the pain, why would you still hold it? If you're not going to buy more, I I used to say this to like the investment managers that we used to manage, like if you're not willing to rebalance into the pain and buy more, if you don't have the confidence to do that, like why do you have the confidence to wait for it to come back? I think the the whole idea of I'll just wait for it to break even then I'll sell is one of the biggest mistakes you can make as an investor. >> Buying more is the only reason they're not down 50% in it. So, Yeah, just curious. I was just curious what you think. >> Is the Is the thesis still the same? Has it changed at all? >> It's it's one of the disruptible uh disruptible ones because of AI or whatever. It's one I've talked to you about. >> All right. >> It's a finance related software stock. >> All right. Good luck is all I can say. Uh ask the compoundow@gmail.com is our email. Thanks everyone for the live chat as always. It was hopping as usual and we'll see you next time people. >> Thanks everyone.