034R - What s Your Risk Tolerance

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0 - 37 Jonathan Mendonsa for those of you that are joining us for the first time my name is Jonathan. I am a pharmacist out of Richmond Virginia. My co-host Brad is a CPA and together we host that Choose FI radio podcast. It's twice a week show on Mondays and Fridays. Monday will feature a new topic or idea. And Friday gives us a chance to go more in depth with each individual topic and actually bring feedback from our community in so it's a crowdsource show where your voice the voice of the FI community is heard around the world. OK guys welcome back. Congratulations you made it to Friday. Your weekend is eminently here with me today and have my partner Brad here with me in the studio. How are you doing buddy.
37 - 38 Brad Barrett I'm doing pretty well Jonathan.
38 - 51 Jonathan Mendonsa Now wait a second. I happen to know for a fact that that is totally untrue. You have been feeling like garbage all weekend but I appreciate you humoring us and coming on the show today. I know you've been battling a fever and kind of the whole nine yards for the last couple days right.
51 - 73 Brad Barrett Yeah it's been a weird week in my house my my kids got this horrible like fever for a bunch of days. And Laura I thought we both escaped that but unfortunately I succumbed. And yeah I just haven't been feeling well the last couple of days. So if I sound a little different or talk a little less the normal on this podcast I apologize but you'll get to be regaled by Jonathan for for more of the time.
73 - 76 Jonathan Mendonsa Yes this give me the Jonathan show today. No problem at all.
76 - 78 Brad Barrett Works for me.
78 - 162 Jonathan Mendonsa OK. So if we're not going to talk about you let's talk about me first. I get so. My wife my son and I went for a run slash walk down at pony pasture which is a combination of walking paths and trails and road that go right along the James River. It's also a fantastic place to go tubing in the summer. Those you that are familiar with the Richmond area may have been there. Very very cool place. And on our way back from this run we actually noticed this woman that had apparently broken her ankle and she was being helped back to the parking lot which was still like three quarters of a mile away by I guess a fellow and I guess her daughter and frankly they were struggling so I offered to pitch in and help. And I realized you know it's one of those no good deed goes unpunished type things. I realized like 30 minutes into this that we had only made it like two football fields and we had like a quarter to a half mile left disaster. But I looked back and my son is in this great coed jogger stroller and frankly out of self-preservation. I asked my wife if she would hold our son and we then offered to use the Grieco as a medical stretcher which worked absolutely perfectly. And we breezed through the last 15 minutes or so. It was funny because it reminded me of those old trusted everywhere commercials that used to see for batteries like Duracell. Trusted by emergency response teams everywhere. But yeah Grieco just want to give you guys a shout out. You made a you made a very sturdy product and it saved my butt the other day. Part-Time podcaster part time superhero. Yours truly. Jonathan choose F-I.
medical
162 - 163 Brad Barrett Very impressive. Very impressive.
163 - 234 Jonathan Mendonsa Thank you. So I know that this past Monday we released the second part in our series with JL Collins the stock series and it was focusing on this idea of a 1929 situation and what if a crash is coming. Now I want to go ahead and say this. We are not these particularly pessimistic people in fact I think we're very optimistic people about the future and what it holds and what it means to embrace this FI FIlosophy for your financial future as well as every other aspect of your life. It's a superpower right. But it's such a valuable conversation to have because learning from history can help us with our mental game as we go into an unknown future. And that's what this conversation did. It allowed us to explore with the author JL Collins the simple path to wealth explore what happens when the market goes through a 50 percent crash. Do you go into your bunker pull your money out and buy ammo and gasoline. Or is there another approach to this. So it was a very valuable conversation and personally even though I had spent a lot of time reading the simple path to wealth and also the stock series on JL Collins website it helped me really solidify those concepts in my mind so I thoroughly enjoyed the episode. What about you Brad.
stocks
234 - 341 Brad Barrett Yeah no I totally agree. I think the mental aspect of this just like we talk about almost all the time here the mental aspect is really the largest determining factor for success. So you have to know that there are going to be crashes there are going to be downturns are going to be bear markets but in the next 10 or 20 years. But I can almost certainly tell you in the next 40 or 50 years over your investing lifetime these things are going to happen. They are as close to a certainty as possible. So if you can't deal with that right now if you can't steel yourself for those downturns then you're going to have a really difficult time because right Jim. said essentially the worst thing that you could do is sell at the bottom it's too late at that point and you've screwed yourself. You need to you need to really stay the course so I think even just looking in my investing lifetime as a quote unquote adult since I graduated college they're more or less I basically just miss the tech bubble crash around 2000 2001. But that happened and then the Great Recession of 2007 2008 and I mean that's just in my the short 15 or 16 year investing lifetime. That's two fairly calamitous things. But yet because my savings rate is so significant because I've been living this lifestyle my net worth has skyrocketed. So I mean not that kind of brings me to that illustration the Jim talked about the the 40 years from 1975 to 2015 and his time machine and he painted this picture of all these horrific things that happened over those 40 years. But even still stocks earned just under 12 percent per year and that is truly remarkable thing. So I know Jonathan I talked about a bunch of things there I'm sure you want to unpack a little bit but I'll throw it over to you.
college, networth, savings, stocks
341 - 408 Jonathan Mendonsa Yeah I think it's going to be really cool for us to take a few minutes in this particular episode and get a chance to maybe throw some actual numbers in there as to what that might actually look like and explore the psychology for a few different cases. Little bit more specifically than maybe we did in that exact interview the place I want to start is for the person that's in their 20s or 30s that's seen the stock market right now and saying Well I've finally made my first $10000 and I have enough to invest in VTSAX. I can buy that that VTSAX fund and I want to get this ball rolling. But then like but the market so high. What if it goes down. It took me so long to earn this. This represents a year of my life and I'm putting it in the market. What if the market tanks and I think that if you listen to that episode it came across that that is a real fear and it's an understandable fear. But if you truly heard what we were trying to get across in the episode you would hear that that frankly if you're a 20 year old that is literally the best thing that could ever happen to you. Now let's pause on that for a second and then we can dive into that and explore that a little further.
indexfunds
408 - 410 Brad Barrett Bomb bomb bomb.
410 - 537 Jonathan Mendonsa It's perfect. All right let's let's take that piecemeal. You have $10000 you're 20 years old you invest it right now while the stock market is at or near an all time high. And then tomorrow it tanks and your $10000 your blood sweat and tears your ten thousand dollars is cut down it's lost 90 percent of its value. You have 10 percent of it left. So you have a thousand dollars in that VTSAX fund. The reason you have to learn to look at this a little bit differently is because that did not go to zero. It got cut by 90 percent. Now here's what you have to do. You have to realize that you still own the exact same number of shares that you did before forget the value of the account. You don't care about the initial value because you're not retiring. Now you're retiring potentially 10 20 30 years from now. But what it means is that VTSAX or any individual broad based index fund has gone on sale by 90 percent. And you have either the short term window or maybe potentially a 10 year or 20 year window that you are going to get a purchase that at these depressed prices soon now when you put your next thousand dollars over the next year into the account assuming that it just putters right around the bottom there every additional thousand dollars that you're putting into this year that you're investing is purchasing the equivalent of what you were getting for $10000 the year before. Now follow me on this. That's why JL said the best thing that can happen to you as a young investor is for you to have a market crash if you have to choose between you putting your $10000 in and it going up and continuing to go up 2 to 3 percent every single year for the next 20 or 30 years. If you could instead pick between that beign one scenario and the other scenario being where you put $10000 in and the next day it crashes and it drops by 90 percent and then it putters along the bottom for an extended period of time while you're continuing to add new money in that's the scenario that you want to pick. Now either of those could happen it doesn't really matter. But for you to be able to mentally comprehend that and get excited about that possibility gives you so much power and so much more courage than if you're just blindly looking at a numbers thinking yourself the stock market's so high. I can't imagine it going higher.
indexfunds, stocks
537 - 612 Brad Barrett Yeah. I mean there's no way to time the market which is why that last thought kind of implies it's so high. I can't imagine it going higher. You have no idea. Just like Jim mentioned the episode of the stock market is at an all time high but this might be the lowest that it ever goes. Right we have no idea. It could go on 10 more years going up and then have a crash but still not reached today's point. We literally have no idea and that's that's an important point. And also I think to take a step back on what Jonathan saying because what he said was so crucial is that when you're buying the VTSAX you're buying a tiny little piece of every publicly traded corporation in America. And in his example when you spent $10000 to buy X number of shares of VTSAX and in turn all those American companies you were fine paying it. But then if it dropped 90 percent then $1000 buys that exact same amount of all three thousand plus of those U.S. companies. And that is a remarkable thing. So like what Jim kind of alluded to in the episode was that as long as you believe in the resilience of America and the American companies now obviously if something absolutely truly catastrophic happened that America or the world would never recover from. Well I think we have bigger issues than what's happening to the VTSAX.
indexfunds, stocks
612 - 625 Jonathan Mendonsa If it happens. I hope it's a zombie apocalypse. I don't know there's like some part of me if I can pick how it happens. After all the time I've spent watching walking dead please let it be the zombie apocalypse. Do we get to pick.
625 - 632 Brad Barrett Yeah man. No but seriously right. Like that's what what's the level of stuff we're talking about here.
632 - 748 Jonathan Mendonsa The thing that I wanted to focus on just a hair more was this idea of a black swan event. So there are plenty of people that have drawn up the doomsday scenario and it's reasonable to have that conversation. Talk about the what ifs. The problem is you spend all of your time all of your focus planning on how to prevent this incredibly rare but theoretically possible scenario then. Jim's point is you are leaving so much money on the table. So follow me on this. You're saying I believe in my heart of hearts that there is at least a point 1 percent chance that over the next 10 or 20 years that we are truly going to see Armageddon and that is what I believe. And as a result of that I don't believe that this scenario that you have laid out will work. So because I believe that there is this if that point 1 percent possibility chance happens I think the best place to go arm up on gasoline to go arm up on beans that won't go bad to build a bunker in my backyard and hedge up on gold and silver. You can do that but by placing all of your energy time and money into that if you're right. Great. I hope that it works out for you. But if you're wrong because you've bet on the point 1 percent anybody else that bet on the ninety nine point ninety nine percent chance which one of those you know one person's give me wrong and one person is going to be right. And if you are right you're maybe marginally better. Because essentially if the whole world thinks you're screwed either way. But if you're wrong you have left probably hundreds of thousands if not millions of dollars on the table by planning your whole life around a black swan event which we started the conversation by saying is an incredibly small percentage chance that that could happen. Possible but theoretically I could go buy a lottery ticket and win $1 billion tomorrow. Two million 10 million. Also incredibly rare. I would rather put my time money and interest into a much more predictable outcome like the simple path to wealth.
748 - 775 Brad Barrett Yeah I think the kind of like betting aspect of it is is really an essential point here. Of course there are rare scenarios these black swans in just about every walk of life but you can't let yourself be consumed by them. That's a terrible way to go through life. That kind of bizarre scenario that you set up proper and there guns and oil and food and I can understand that I suppose from a slight theoretical perspective though not the silver and gold. I think that's we're talking zombie apocalypse that those kind of trinkets.
775 - 780 Jonathan Mendonsa Zombies don't like gold. It's a rare commodity you know.
780 - 788 Brad Barrett Yeah. I don't think they watch Fox.
788 - 789 Jonathan Mendonsa Zombies don't watch Fox.
789 - 911 Brad Barrett No. But I got nothing. Man this is funny. But anyway you just can't live your life like that. We're talking. You make the best decisions with the information at hand. I think that's that's kind of how you have to look at life. And I mean sometimes you make the best decision and bad things happen. You could play poker and you can play ten hands and have the best odds in each of those 10 hands and lose them all. That's theoretically possible and very conceivable if you play over a short enough period of time over 10 hands. But if you play it over a hundred thousand hands and you went in with the best mathematical odds every single time you're going to win pretty much on average with what the math tells you. So it's making the best decision with the information at hand. That's kind of how I look at life just generally. And the best information that I have is that buying a small piece of every U.S. publicly traded company at this rock bottom expense ratio like with VTSAX or similar funds at Schwab and fidelity and in fact we've seen Schwab has the lowest fees currently. But if you can do that if you can buy this piece and you can avoid expensive financial advisers if you can avoid the taxes for trading the commissions all this other nonsense that people throw money away with and just stay the course keep on pumping the money in. Right. Keeping that savings rate high. Every week every month every year and just dumping it into the market reliably then Jim said and like I've said before to quote loosely paraphrased John Bogle you're going to wake up in 40 years and when you open that statement you're going to need a cardiologist because you're going to have a freakin heart attack with how much money you. So that is in my estimation the absolute best way to go as far as putting the odds in our favor as Jonathan. Jonathan's joke kind of fell flat on.
indexfunds, savings
911 - 912 Jonathan Mendonsa Thank you did you at least get it.
912 - 913 Brad Barrett Of course man throw them out some more.
913 - 917 Jonathan Mendonsa And I just I can't get anything. Crickets. Total crickets sound.
917 - 923 Brad Barrett No I didn't think in fairness I didn't think Jim got the reference so I didn't want to I didn't want to harp on it.
923 - 1011 Jonathan Mendonsa OK fair enough. You know I think when you were one of the things that comes along with this let's say you decide OK this is great. And I've decided to do the simple path wealth I've decided that I'm not going to bet my future on the point 1 percent zombie apocalypse. I think it's probably a smart choice. But Kevin on our Facebook group said JL Collins mentioned that there were certain conditions where it may warrant taking all of your chips off the table with the understanding that no one is predicting anything in his personal opinion though what would he consider those conditions. And I think when we explored that a little bit more with JL It came to the point that most likely it's unpredictable and you won't be able to see it. Now he mentioned in that particular episode that Joseph Kennedy knew it was time to take the cards off the table when he was starting to get stock tips from his shoeshine boys. I don't know exactly what that scenario would look like maybe if you are starting to see hyper inflation. I have a feeling that you really can't predict that sort of thing and it's probably not even worth it to try because when you're doing a broad based index funds you're not betting on one particular stock you're betting on the economy at large. So even if it does have a meltdown as long as there is still a basis ultimately you own those shares you own that piece of the economy. And I think for me personally I can't even imagine a scenario in which I would take my chips off the table because I would be assuming that I'm trying to time the market. So I kind of felt like we started with that and then we worked our way back and came to the point that you just can't time it.
indexfunds, stocks
1011 - 1024 Brad Barrett Yeah I think I would agree with you. Certainly and in my own life I would like to follow up with Jim. I think we should send that to him and hopefully maybe he can respond with voicemail. I think that would be very useful.
1024 - 1131 Jonathan Mendonsa Keep in mind that essentially what you are talking about is the eminent occurrence of a black swan event which some people probably feel is more pressing than others. I don't think there's a lot of point to spending too much time sitting on this in this particular conversation. I would imagine it would have to look like a war that happened on our own soil. It would have to look like something that completely devastated our infrastructure that we frankly couldn't recover from. It would have to be something that's infinitely worse than anything that we've seen. Up to this point and if you if you remember that conversation that that JL had going from 1975 all the way up through 2015 there was a lot of bad stuff. There were multiple wars that happened. There was a tech bubble crash so I think that there will probably be some sort of student loan bubble crash I think it's similar to the housing market. Yeah a lot of people that took out loans and don't have the jobs to pay them back. I think that that will be crushed. I don't think that's a black swan. I think that's an opportunity for people that recognize that there is nothing that has actually gone wrong with the infrastructure that was yet just another bad deal that people signed up for. That is not a black swan. So that's an opportunity and if you mentally prepare yourself for that when it does happen it probably will happen at some point. I don't have a timeline for that but if you're ready for that with this episode there's a play there that's not you taking your chips off the table. And I would not recommend that you do that especially if you're in broad based index funds. But if there were to be some sort of event that were to devastate the United States infrastructure and permanently damage our ability to be a dynamic economy in the future that has to be what that looked like and you can let your imagination run wild for a few minutes but I encourage you after you've done that exercise to come back to reality and control the things which you can control which is your savings rate. And with that in mind spend less than you earn invest the difference over time and preferably do it with broad based index funds.
Jonathan_Catchphrases, housing, indexfunds, savings
1131 - 1160 Brad Barrett Yeah and I think that's the perfect summary right. That is the essential aspect of how we think we all should live our lives. So it's savings rate it's keeping your expenses low and it's saving in broad based index funds. Sure we can spin these wild fantasies of horrible things and like you said earlier we're not negative people at all. And there's no way we could predict any of this stuff. But even still then what would your other option be if we wanted to really go down the rabbit hole which which we don't want to. I don't even know what my other option would be at that point.
indexfunds, savings
1160 - 1164 Jonathan Mendonsa Can we go find a prepper at some point just give them the floor for an hour.
1164 - 1165 Brad Barrett Yes I think that would be facinating.
1165 - 1172 Jonathan Mendonsa Let's do it. Let's set it up for 2018. I want to find the absolute best prepper and just let them have the floor for an hour and let's see what happens.
1172 - 1293 Brad Barrett Yeah that's not a that's not poking fun either. I mean people have different differences of opinion and I'm sure that person thinks as strongly as we do about the VTSAX and living below our means and so and I think that's another important point is that you know you mentioned before and we've been accused of a false dichotomy before. And I just want to make sure this is clear that you're not saying the only two options are zombie apocalypse or follow VTSAX and only VTSAX or Jim's opinion right like people of good faith can think there are different ways to invest right. Some people like to invest in bonds some people like to invest in international. And that is all legit I mean some people like to buy individual stocks. Right. So that's fine. I mean that's not what we advise. Because again I look at life kind of like a bet. So the best information that I have is that I cannot outperform the market with my limited intelligence and limited knowledge. So why even bother. When you look at the stats and you see X percent you know depending on the research study it's somewhere in 90 plus percent of people perform better when they just buy a broad based low cost index fund than trying to get miraculously lucky and outperforming themselves are even luckier in finding some finance advisor that can do better. Right. So I'm not going to bother with that because simplicity is important to me. So I'm going to focus on what my best bet is and for me and again you can disagree with us. But for me my best bet is VTSAX and low cost index funds so that's the crucial aspect that I focus on and that is what I can control I can control putting my money in low fee and index friends I can control my expenses and therefore my savings rate. And I think that those couple little things that I can control are going to set up a pretty successful life. So that's how I view my investing life.
indexfunds, savings
1293 - 1602 Jonathan Mendonsa And I know that there are people that do more creative things that do more complex things that maybe take a more advanced approach. And like you said because in many cases in the FI community it's still based on an extremely high savings rate. They're going to be fine. But this idea of simplicity is so powerful if you only have one bet and you either are going to hit it or you're not going to hit it. I would rather take the sure thing and that's the simple path to wealth. Now if you have a high enough income and you want to spend the time doing it I don't have a problem with someone saying you know what I'm going to take the simple path to wealth for for 70 percent of my path or 80 or 90 percent of my patent that I'm going to have a small pie over here that I'm going to explore some more creative things where I burn out and it fails. It's not going to prevent me from hitting my number but maybe there's a higher return. A lot of people make choices to do things that are not the simplest approach and that's completely fine. But if you have one bet and it's all or nothing you want to give yourself the best chance for hitting your FI number. It's got to be the simple path of wealth for the retail investor. This is the best path that you could hope for. Now you can tweak it at the margins. There's room for intellectual differences at the margins of which broad based index fund use you hear that. Buffett himself says the S&P 500 and Jim says VTSAX, you hear people say that maybe you should have a little bit more international or maybe you should place some extra weight in mid-cap or small cap but in general these broad based index funds more or less come as close to guaranteeing you an outcome as you could hope for. So with that in mind I want to move to this next thing which is this idea of rebalancing. So Nancy had this feedback and she said I greatly admire JL Collins and I enjoyed the podcast but I do feel that he missed the mark somewhat in the discussion about asset allocation and the role bonds play. His discussion about asset allocation mainly focused on people panicking. Could they tolerate volatility i.e. not sell when the market is down people being too nervous about a high stock allocation and the wealth preservation stage money is not going into a portfolio it's only coming out and it could be coming out when the market has tanked thereby locking in losses. Even if you don't panic and sell no money is going into the portfolio to balance this out. And it could be years until the market recovers with withdrawals that you're with withdrawals that you're living on coming out all that time Bonds play a critical role and dampening the volatility which I will say Jim did specifically mention in reducing potential losses being locked in. It's not only how comfortable you are with volatility it's whether you can afford it. It sounded like Jonathan asked him specifically about that point several different ways. But I don't think JL ever really made this point or explain how this works. Don't take more risks than you can afford especially in the wealth preservation stage and don't take more risks than you need to. If you have enough why take a lot of risk. But I just want to reiterate that I enjoyed the podcast overall. Nancy I think you hit on a lot of points that I was feeling as well and frankly I listened to the episode probably five or six times just while I was editing it while I was trimming it up and getting it ready for publication. And after listening to it multiple times I completely agree with you that at first I feel like Jim didn't nail it directly which is why I was asking it multiple times. But after I listened to it for my third or fourth time I did feel like I got the answer I was looking for but I got it from three different places so I'm going to try to tie those together for you today and hopefully I will get Jim's stamp of approval on this. We'll see but also talk to Brad about and just see whether or not my own thoughts make sense. So JL split this up into a couple of different thoughts and I think for us to illustrate this point we need to first start with what he actually said which is Bonds smooth the ride. That's basically where he starts from. But I think in order for us to explore this any further we need to actually talk about why Bond's smooth ride and it comes down to correllation bonds and stocks if they're not inversely correlated they are at least substantially different in how they react to market turns when stocks go down bonds. If they don't go up they at least stay stable. And so I think the only way to really communicate this idea is to talk about some numbers. So let's assume that you have moved from the wealth building stage or the wealth accumulation phase and now you are in the wealth preservation stage and you have a million dollars in your taxable and tax deferred accounts we're not going to really go into the differences between those two right now we'll just assume you're at the age where you can pull these out and they are split up in JLs preferred ratio for myself which is the 75 25. So if you have a million dollars in these vehicles that means that you would have 750 and your equities are VTSAX in JL's case and then you would have 25 percent or $250000 in bonds. Now let's assume that the market crashes so goes down 50 percent bonds are relatively stable. Let's assume that they are 100 percent stable that they don't go up now they might sometimes bonds will actually go up. But but let's just assume for this conversation that they stay 100 percent stable so the market crashes 50 percent and your bonds their value remains at 250000. But your stocks are incredibly volatile so they are going to ride that crash down to the bottom and if they go down by 50 percent year 750000 has been cut down to three hundred and seventy five thousand. So now you no longer have a 75 25 ratio your allocation of bonds has actually gone up and it now represents 40 percent of your wealth.
myfinumber, savings, stocks, tax
1602 - 1736 Brad Barrett Yeah. Just slow it down for a minute or so. So we had 750000 in equities we had 250000 in bonds right. The 750 got cut in half down to 375. And you still have in Jonathan's hypothetical 250000 bonds. OK. So now you actually have six hundred twenty five thousand. Total right 375 Plus the 250 and you are 250000 in bonds out of 625 is 40 percent. So if your allocation went from 25 percent up to 40 in that scenario. So I think the important part of why this smooth ride is just a really is fairly obvious right is if you had 100 percent equity in your $1 million originally would have dropped down to 500000 but instead it your total net worth dropped to 625. OK. So by having 25 percent in bonds in Jonathan's hypothetical you actually have $125000 higher net worth than you otherwise would have. Now that sounds great. And that kind of gets to Nancy's point of why take a lot of risk. Right. If you have enough. Why take a lot of risk. But I think as Jim referenced in the podcast equities will have a significantly higher return over a long period of time. There will be more volatility because you will see more of these huge downs huge ups but over time equities will return higher which is why Jim recommends 100 percent for many people for decades potentially and that's why I am 100 percent in equities because I'm OK with the volatility. The short term volatility even if that short term might be a couple of years. But I want a higher overall long term return. So that's why to me it is worth some risk because I want a higher return. Otherwise the argument would just be everything in-bonds put everything in cash right like which is actually riskier which is kind of a side topic that we are going to talk about. Jonathan I want to come back to volatility and what's riskier over the long term. I know you want to jump back in.
networth
1736 - 1988 Jonathan Mendonsa Yeah I don't want to come back to that idea of rebalancing but just because where you get was so valuable I think we should talk about that. OK. Volatility is not just psychological It's also financial and it involves flexibility. That's the key here and that's why when we started this episode we talked about the idea of flexibility in reducing your lifestyle reducing your core expenses. Jim gave us the perfect analogy for the difference between the person that has the 60 or 70 thousand dollar lifestyle. But they can cut it down to 30 if they need to as opposed to the person that has a $40000 lifestyle that they need every single penny of that in order to maintain that lifestyle. And so those are the two different situations in which the person has more flexibility and because they have more flexibility they can tolerate more volatility. And if you have that flexibility that allows you to accept higher levels of risk because you are able to pivot with what the market does and make adjustments to your lifestyle. And that once you bring all those tools together that's going to be what's going to allow you to determine your asset allocation and your ratio of stocks to bonds. The more volatility you can tolerate the less conservative you need to be. I could talk about this much more. I hope that that's enough to communicate the point. But when you have this person or persons over the age of 60 maybe 70 80. Their ability to scale their lifestyle to reflect the returns of the market that is going to directly impact how much volatility they can accept and if they have no margin in their life they have nothing that they can adjust. That means that they cannot accept as much volatility which means that their asset allocation would have to be more conservative. 70 30 60 40 etc.. They cannot accept the volatility. They need more security. Bonds provide the stability and they're sacrificing returns and hopefully they already have enough there that that is going to provide what they need and they don't need to accept any more risk. But it is that ability to accept volatility that allows someone to accept more risk. And then as a result of that have a higher stock allocation. So let's talk let's go back to our initial example here and talk just for a second about what rebalancing would look like. And in many cases keep in mind that you're doing this rebalancing when possible inside of your tax deferred or tax advantaged vehicles. That way you aren't responsible for paying or having to worry about capital gains on this money. So with the example that we just spoke about we started with someone that had 75 25 so 75 and stocks 25 percent bonds the market crashed by 50 percent. The bonds remain relatively stable. And then when you do the math on what their new allocation is based on their present situation they are now down to a 40 percent in bonds and 60 percent in stocks now because they want to maintain a certain allocation in this case. JL decided on 75 25 based on his own current risk tolerance. And as you know he's into Geo arbitrage. He has a little income coming in the side he's perfectly willing to adjust his life to current circumstances. It makes sense to me that he can absorb a little bit more risk. He is going to do some rebalancing and he is going to do that inside of his tax advantage vehicle so what he's going to do is he's actually going to sell some of his bonds which are weighted at 40 percent. So he is going to sell 15 percent of his portfolio and he's going to take that from the component that was in his in his bonds and when he sells that he's going to take the proceeds from that and then purchase additional stocks which is because remember going back to this first part the stock market's on sale. It just crash 50 percent. He is able to now purchase more than he was before it crashed. And that is then allowing him to get his asset allocation back into line. And it is allowing him to then have more of a market for less. And so when the market does its thing and it goes back up he is able to enjoy that ride as well. So he has a play there and it works for him because he has some margin in his life that he can accept that volatility and ultimately end up getting farther ahead. OK. So that was all related directly to the episode that we did on Monday. I hope that between these two maybe you listen to me a couple times but hopefully that makes sense and one that we presented in a clear logical manner. I think to maybe round this out. I know you have a couple of practical examples that you're personally aware of that maybe you could share with us as well.
geoarbitrage, stocks, tax
1988 - 2020 Brad Barrett Yeah you bet. And this kind of all ties into Nancy's question I think it was a really intelligent question so I appreciate it. certainly I wanted to get back to the why take a lot of risk and I think maybe the reason why Jim couldn't answer the question as specifically as as the two of you. certainly wanted him to. Is that it depends on the facts on the ground right. I guess my parents are a perfect example. They much to my chagrin they had a financial advisor though I'm happy to say they moved everything to Vanguard recently and since my mom is a Choose FI listeners.
2020 - 2020 Jonathan Mendonsa Hey mom.
2020 - 2092 Brad Barrett Yes she did great. And yeah the this financial adviser and what do these people do. They didn't spend 10 hours going through every detail of my parent's life they gave them a little questionnaire and said how aggressive or conservative are you what's your age. You know all this other nonsense. And my parents said they're conservative because they don't know anything about the stock market. I still vividly remember this is so pathetic. This was like the cautionary tale in my household in like the 80s or 90s whenever it was my dad bought Verizon stock because some bozo at his office gave him a tip and the thing plummeted and they literally never bought stocks again. It was this one thing that's seared into my memory. It's just so funny how that works. But they're conservative with their money because they just didn't know any better. OK. And they're in their 60s. You know they have some money and a couple of IRAs whatever. And basically what this financial adviser did was put them into 100 percent bonds. OK. So I think the return was something like it was absurd. It was like point eight percent or something like that. And they were charging them a 1 percent advisory. So I mean they were guaranteed to lose by definition. So the brilliance of this adviser was guaranteeing my parents to lose money.
ira, stocks
2092 - 2095 Jonathan Mendonsa So it's not funny it's sad. I'm so sorry but I want.
2095 - 2096 Brad Barrett Millions of people who are.
2096 - 2100 Jonathan Mendonsa Isn't there Like a fiduciary responsibility or something like that.
2100 - 2107 Brad Barrett And you know I mean they said they were conservative they were in their 60s. You know I can vaguely understand where the guy is coming from.
2107 - 2124 Jonathan Mendonsa I think it's you know you could make more than that in your savings account which is the point one percent. I mean literally if you're if you're making point eight percent and you're charging them 1 percent fees under management they're losing point 2 percent like they could literally make more to a checking account.
savings
2124 - 2273 Brad Barrett Without that no question about it. So that's like the background. But when you actually go into their situation. My dad has a small pension and their expenses are pretty low. They live in a little condo and they just they live a fairly frugal life. And and this pension covers all of their expenses. So in all likelihood unless something catastrofic happens to their health or whatever they're probably not going to touch this money sitting in the IRA until they're required to require a minimum distribution. So you know that money essentially is going to sit there and grow for the rest of their lives. So you talk about volatility right like they actually have the risk tolerance of people much younger in that case because you know by definition if they kept it in this bond in these bonds with this advisory fee the money is going to go down or even if we just say just for sheer argument it's going to stay the same. OK. So just hypothetically let's say it's $100000 that 100000 is still going to be $100000. Twenty years from now. All right. But if they put it 100 percent in equities 100 percent and VTSAX I think there's a decent likelihood let's just say for argument's sake we always say 8 percent is the average annual return. We would hope for over a 20 plus year period. OK. So very general. But we're going to go with that. OK. So using the rule of 72 which helps you determine how quickly your money will double. OK. So you take 72 and divide that by your expected return. So in this case it's 8. So 72 divided by 8 is a nice round number nine. So you would anticipate the money to double every nine years. So in an 18 year period my parents money would double from the first nine years from 100000 to 200000 and then would double in the second nine years from 200 to 400000. So that's the the quote unquote risky method. Right because that's more volatile and there's a good chance that 100000 at some point will will dip or let's say it you know doubled to 200 it might go down in year 10 to 150. That's volatile but it's still at 150 whereas if they left it in their bonds it would still be 100. So which is truly riskier. So they would anticipate over an 18 to 20 year period that it's going to double twice to about 400000. So 400000 in the quote unquote risky method or one hundred thousand in the safe method. Now Jonathan which is riskier.
health, indexfunds, ira
2273 - 2275 Jonathan Mendonsa Yeah I mean it sounds risky to lose $300000.
2275 - 2388 Brad Barrett Yeah. And that is a no brainer. And I think this is a crucial point for everyone listening. Maybe go back and listen to this again or just really think about it which is riskier. And another example is you know I listen to Noah Kagan's podcast which is called Noah Kagan presents which is a really really solid podcast and Noah is a brilliant guy I've heard him a keynote speeches at fincon and you know in different podcasts and such. And I was struck by the fact that he said he keeps somewhere in the vicinity I think was 50 to 60 percent of his money in cash. OK. Because he is afraid of the volatility. But I would challenge him to listen to this and this is not to set up Noah. But it was just so striking that someone who was a young guy I think his early to mid thirties could fall prey to the same cognitive bias which is risk aversion. Essentially he's more worried about losing that money. So again his hypothetical he has 100 grand right. He would rather keep it in cash which will be 100 grand 40 years from now. But if he put it in stocks I can guarantee him that there will be volatility but I can also guarantee him that over a 40 year period. I mean that's going to double. Four plus times. Right. So in that case you're talking two million dollars potentially. Right so you could turn 100000 into and this is back in the envelope so don't don't hold me on the math here but using my parents that it was 400000 that would doubling again would be 800 doubling again would be 1.6 million dollars. So over 36 years you would anticipate Noah's one hundred thousand to go to 1.6 million if he took the again quote risky and I'm saying that is tongue in cheek as I can method of putting in equities and dealing with the volatility. Getting over it mentally and just dealing with the volatility. Or you could take the safe method and have 100 grand. Thirty six years from now. To me that is such a no brainer right.
fincon
2388 - 2417 Jonathan Mendonsa Yeah. You know normally I just title these episodes Friday round ups which is great but I may just retitled this episode. What's your risk tolerance. And because this conversation is one that you need to listen to you need to lock this down and understand that. Yeah yeah great point Brad all the way around. Just so many things they hit on here and this feedback from the community does allow us to fill out this picture in a way that allows more people that grasp the concept so Nancy we really appreciate you chipping in on this one.
2417 - 2435 Brad Barrett Yeah and just one last point about about Nancy's post. She talked about don't take more risks than you need to if you have enough. Why take a lot of risk. And I think this maybe gets to the entire concept of the 4 percent rule and maybe we can have bigger Ern talk about this on a future as the expert kind of call in.
2435 - 2439 Jonathan Mendonsa Wouldn't it be fun to have Ern and JL on the same call. Talking about the stuff.
2439 - 2444 Brad Barrett Oh yeah we should definitely we should do our FI roundtable. I want to do that originally.
2444 - 2450 Jonathan Mendonsa Yeah we're getting closer to making that a reality. I think there's actual real interest there that could be a very real possibility for maybe next year.
2450 - 2617 Brad Barrett Yeah I would love that. I would absolutely love that but basically to take Nancy's thought to the logical conclusion if you don't want to take any risk if you have enough right if you're at fi quote unquote then why not put everything in cash or everything in bonds. Well the 4 percent rule this safe withdrawal rate right it's predicated on a return. And that's why the money hopefully will last in perpetuity because otherwise if you have a million dollars and you have $40000 a year of expenses and the money that million dollars is just sitting in cash. Again you're not taking any risk right. The money is going to be there. It's not going to go down but you're pulling out $40000 every year. So that means you have 25 years and that money is exhausted. It is gone. So somebody retiring at 35. That money is gone by 60. Now that's not the ideal scenario. The hope here is that that money moves along returning 8 percent on average a year whatever whatever number you want to use. We use 8 percent and you're withdrawing your 4 percent every year. Right. The amount to cover your expenses. But in essence assuming sequence of return risk which we actually talk about with Ern coming up on Monday and so stay tuned with that. But barring any kind of crazy scenario that money your pot of a million dollars is actually not going down that that's the beautiful thing right if you're returning a percent and you're only pulling out 4 percent. Well your your to the good there. So that's why I would argue again this is like a really larger point and I don't have a doctorate in economics like Ern does. So take this for what it's worth but it's really important for us to separate mentally this concept of risk because I think there are multiple risks and I think it depends on really how you approach this problem mentally. So to me the bigger risk is losing that upside by not being in equities whereas someone who might be more of the loss aversion side might look at it as a risk that their money is going to be volatile and it's going to temporarily go down. So I understand both sides of it but to me the bigger risk is as I as I showed in those examples is sitting on your money in cash or in bonds and missing that huge upside over a 20 to 40 year period. So in essence you have as Joel from FI 180 said this perpetual money making machine right this magic money making machine that in this case potentially will never go away. Right like that's the hope is that you have this million dollar perpetual money making machine that spits off $40000 year checks. And if all goes well because you're not taking this loss aversion type concern of just sticking it in cash or under a mattress or wherever you want to put it. But you're investing for the long term in the market. There's a real good chance that that money making machine is going to last for ever and that is a really powerful concept.
2617 - 2680 Jonathan Mendonsa And if you want to join the conversation we encourage you to consider being a part of our private Facebook group where we have nearly 2000 members it's rapidly growing every single day and this conversation is getting expanded. It's getting explored down into the details people's actual unique scenarios are being evaluated. And great advice is being given by people that have been in the FI community for over a decade. Tons of knowledge here from bloggers. High level fires accountants just really magical stuff happening in this group that I'm so proud to be a part of. We would love to see you there so if you want to join us just go to choose FI dot com slash Facebook. Follow the instructions there. We'll send you an invite. We would love to s FIee you on the other side of that. So you if you're checking in with us for the first time because maybe you listen to the episode this week or you found us from another source. Thank you so much. The fire is really spreading it's amazing how these ideas have really captured the imagination not only of the FI community but of people who are discovering FI for the first time frankly because of this podcast it's very rewarding. Brad we were actually mentioned on Forbes.com last week did you realize that.
accountant, blogger
2680 - 2681 Brad Barrett No I didn't.
2681 - 2692 Jonathan Mendonsa Yeah they said that we were one of I guess it was three or four podcasts for every age that they would recommend that you listen to. And I wanted to read you their one paragraph synopsis of our show.
2692 - 2693 Brad Barrett Cool do tell.
2693 - 2720 Jonathan Mendonsa So Forbes says whether your goal is to build wealth invest more wisely or discover travel hacks. Now that the kids are off to college this series tips and shortcuts actually work. When you match a CPA with someone who has a love hate relationship with frugal living you get immensely enjoyable podcast with actionable tips backed by financial wisdom. Yes that's actually exactly what I am I have a love hate relationship with frugal living. I fight that battle every single day and it comes through on the podcast. I love that they captured that.
relationships, travelrewards
2720 - 2727 Brad Barrett Nice. That's certainly a good mention. Forbes is obviously a very reputable name so yeah we're getting the word out here.
2727 - 2870 Jonathan Mendonsa fire in the news we're in the news. We made it. I wanted to take just a second and catch you up on what the plan is for the contest with Alan Donegan. So we received over 60 submissions and we've collated them and what we're looking for now is several people in our community that would be interested in being a part of a panel of 10 person panel to go through these and pick our finalists. Ultimately we want to end up with six finalists that we can offer up to our Facebook group and they will vote on the final winner. But we would like to hopefully get a panel of people who are willing to dedicate a couple of hours of their time to go through these submissions and help us pick out the finalists. So if that is something that appeals to you it probably is a two to three hour commitment of your time. Just reach out to us. Shoot us an e-mail at feedback at ChooseFI dot com. We'd love to include you in that. And it really is going to be a lot of fun so we plan on taking the month of August to figure out who these finalists are going to be. And then at the end of August we will be presenting those to our Facebook group and they will ultimately be voting on those six finalists and producing the ultimate winner and then we'll take steps from there with Alan to really set this up and this is going to be an ongoing project for the duration the remainder of 2017 going into 2018. Turning their idea for a side hustle into a side hustle and a business and along the way we plan on bringing Alan in. Having him coach us through the process as well doing it as part of the show learning through the different things that you should be considering when you're starting a side hustle how to do it without going into debt how to scale it how to automate it how to get it visibility from social marketing online all the different things that you need to consider hopefully bring in some of our other experts to help us maybe with some of the tax considerations that you should be thinking about really building this holistic picture of what starting a side hustle actually looks like. So I hope that that excites you and that if you're interested in that you would reach out to us to participate in that process. We really could use some help from a few panelists So definitely let us know if that appeals to you. I think that while we're talking about side hustles I should take a second just to say that Lance on our Facebook group just posted that he pulled his FI trigger. He is now officially at FI. He is retiring from work and he is going to be pursuing just pure FI. With a side hustle on the side and I wanted to personally congratulate him since he posted that today. Congratulations. I wish that I had my whole soundboard set up so that you could do a phone call and say I choose FI because we are going to get that going. But in the meantime accept my verbal pat on the back. Congratulations Lance we are thrilled for you.
debt, hustle
2870 - 2875 Brad Barrett Yeah that's incredible lance congratulations to you and your family and that's wonderful.
families
2875 - 2896 Jonathan Mendonsa It's going to be a thing guys. It's going to be a thing. Brad So one of the things we talked about was this idea of personal development of always getting better of trying to stretch yourself in some small way. And while I don't think that we have put this out to our Facebook group yet I'm curious have you done anything personally that you wanted to share with us this week or are you just trying to survive.
2896 - 2997 Brad Barrett Yeah well it's been a it's been a bad week in the household there so mostly just trying to survive and get healthy. But but no. The one thing that I did this week is actually started reading more often now I had some extra hours so that probably wasn't wasn't the biggest stretch in the world but I've mentioned this book before on the podcast it's called poor Charlie's almanac and it's the wit and wisdom of Charles team mongerer and now he is the vice chairman of Berkshire Hathaway which I'm sure you guys now is commonly known as Warren Buffett's company. And this is just an absolutely brilliant book and it's this is like crazy like 20 plus pound 600 page book and I've had it for a while. I've been trying to read it. And I just keep putting it down. I mean frankly because of the size of it more than anything but I just said I'm going to take even five to ten pages a day and just really read even just five to ten pages a day and just internalize the message and just with the the goal of finally getting through this book it's been kind of like a big shame of mine that I haven't finished it. I mean I think this is going to help my psychological perspective. I know he talks about mental models. That's one of Charlie Munger's big things and it's it's kind of approaching the world with this basic background in a bunch of different disciplines and I think it's just a fascinating way to look at approaching problems and approaching different aspects that you're going to encounter in your life. So this is a highly recommended book. I'm not sure if your library is going to happen. And unfortunately it costs about 50 or 60 dollars an Amazon. So yeah it's probably just shipping alone it's it's kind of crazy but I highly recommend that book. Jonathan what about you.
health, library
2997 - 3265 Jonathan Mendonsa You know it's actually interesting. So it's amazing what you say on a podcast that like actually resonates with other people sometimes. And Jennifer said she just ate salad without dressing and it tasted better than she thought it would. And she says I may try that more often. I thought that was so interesting that I would come back to it only because there were 18 people that had additional thoughts to add to that and it became an actual strand of our group. And let me go back to the point that for me FI is Brad always says it's a super power but for me it's this holistic model of just being a little bit more intentional and a little bit better in every aspect of my life and health just goes right along with wealth. I mean just the hand-in-hand man and for me I'm always trying to look how to optimize my eating habits which will improve my overall health. And I'm trying to decrease resistance to that process. So if I don't eat all this garbage food then I don't have to go work it off and maybe I can just cut that out and then I need to work out less in order to maintain the same level of fitness. That's just kind of like a general low level thought in my mind. And let me tell you there's two things that I wanted to add onto this one. Lots of people had feedback on how to optimize just that no salad dressing the idea a little bit better in a few of those I was already doing so I thought I would round that out. And then second the financial aspect let me go ahead and address this Nathaniel said how much money did you save 10 cents or 12 cents. And then he said you need to take a hard look at yourself trying to be frugal by skipping dressing. Dressing is not effective. And while I can see how you would make that connection I want to go and add onto this that this was absolutely not about saving money. I could care less about the 10 or 12 cents that you're saving on that meal. this was more about your overall health and well-being. But for me one of the things I wanted to point out is that after you've been doing this for a while. One of the questions becomes is how can I reduce the amount of processed foods that are in my diet. And once you've worked through some of the heavy hitters like your ridiculous sodas that have 10 teaspoons of sugar in it per serving you start slowly working your way down the list and at some point salad dressing becomes an obvious target. Most commercially prepackaged salad dressings that you're going to find on your shelf the better they taste the more likely they are to contain massive amounts of sugar in it. So when you look at the ingredients on the back you have 45 ingredients some type of heavily processed oil followed directly by sugar. There are other ways to do this. First of all adding fruit a little bit fruit like blueberries or strawberries to a salad is one way to do it. Maybe mandarin oranges. That's one topping that you can put on a set of salad dressing or if you hadn't considered it. This is a place that I'm probably going to go more in the future just making it yourself. You can make a very simple salad dressing just by combining balsamic vinegar and olive oil. If you really want to step it up a notch take a little bit of like mustard Dijon mustard or Grey Poupon. If you really want to be fancy. And finally if you want to add something to it that will actually keep it a modified longer. You can add just a and then it's going to sound weird but just the tiniest bit of mayo to your salad dressing and mayo acts as a natural emulsifier which means the oil and vinegar which are not intended to be mixed will then stay stabilize for longer so maybe a little salt and pepper add those three things. You have a delicious salad dressing that is amazing for you and that you can use lightly on your salad that might be another play for you to consider. The other thing that I've been pondering over and over and over again and actually it's become a running joke with me and my wife is this idea of stimulus and response and I think in that episode that we had with Dominic he was talking about how in his head he always says 95/5 that's fine and that's really cool. I've actually just been saying stimulus response any time I go to do something especially if I feel like it's habitual and it's probably not for my better health. I've been asking myself what was my stimulus right now and then what is my natural response and do I want to analyze that. Or do I want to do something different. So for instance when Danny and I are spending some time on the couch maybe we're just about to watch TV. Like one of us will raise our hand and say stimulus and it's just become this inside joke that we go and we try do something else. And that's kind of cool man that you can. Once you identify these habits in your life that maybe are not contributing to you being the best version of yourself you can then just take a step back and say Is there another action that would result in a happier version. You know because you know exactly what state you're going to be in after spending an hour watching TV. That is a totally status quo thing to do. But what if it's the perfect day outside and you are about to watch TV. But instead you and your wife and your son took a walk around the block together. That is the sort of stimulus response pause that we're trying to put in our lives and we're just seeing how that outcome tweaks things lightly so let us know what your stimulus and response decision was this week. We're very interested and it's certainly something that's worth analyzing and seeing whether or not there's room to incorporate that into your own life.
fitness, health, savings
3265 - 3544 Brad Barrett Wow that's really powerful Jonathan that's cool that you've taken with what you essentially learn from Dominic's interview and put it into place in your life that quickly. I think that that is a huge change. I mean I know my my thing is slightly underwhelming here with reading this book but I hope people realize that it can be something small like when I when I set that challenge and I do plan to post this every single week in the Facebook group. So this is not just like a flash in the pan thing. I already have it in my to doist so it's it's a recurring thing that I'm going to post every week to ask what you put into place this week that just optimize your life a little bit. And it could be something as simple as reading a book that you've wanted to for a while. Not using salad dressing like. Like Jonathan said or doing something that actually impacts your life like having a focus on putting that space between stimulus and response. And I think Jonathan kind of touched on something important there with what Nathaniel said and about what you say 10 to 12 cents. And I think it's important to know that our goal here at use is not 100 percent financial and the information that we're trying to get across to you is not just limited to finances that would get pretty boring pretty quickly. In my opinion and if you guys have been listening closely which I know from the Facebook group many of you have been you know we're talking about a lot of life optimization tools tricks hacks whatever you want to call it ways to make your life less busy ways to make your life happier ways to optimize your health. This concept of fi allows you to focus on things that are outside of the norm of quote unquote regular people like the regular office worker who is just kind of trying to pay the bills and get through the week or month or year or whatever it is like we have the ability to focus on these kind of higher level things that will make a difference in our overall quality of life. So Nathaniel reflexively went to. What is that going to save you 10 cents. Whereas like I didn't get that impression from Jonathan at all like I thought it was it was pretty apparent that he was talking about health. And Jonathan is trying to get in better shape was a little bit away. And that's one tiny little hack that he got from his buddy who as he said is shredded like a low body fat percentage and maybe that will move the needle maybe it won't. But but it's one little thing right. And if Jonathan put together 20 or 50 of those little things I can guarantee you in a year he's going to be in a whole lot better shape. You might think that one thing of having salad without dressing is kind of laughable or you might say oh well you know maybe that will work. Maybe I'll try. Maybe that'll be one of my 52 things that I put in place. one a week this year. Right. Like that's what we're getting out here. So certainly while we'd love to have people in the community on Jim Collins big Ern mad Fientists we are definitely going to branch out and not just focus on the nuts and bolts of the numbers because it would get really pretty boring pretty quick. And I think many of you intuitively understand that. And also from hearing from people like the mad Fientist and Carl from 1500 days it's like as they're approaching fi they have talked about how the happiness metric and the life optimization that has become so much more important to them. So to think that that these conversations are outside of the FI community is really pretty laughable in my opinion and optimization of your entire life is the essence of FI in my opinion. Now of course there's some discussion as you Noah from money meta game put in our Facebook group this week about the concept of enough and I do fully appreciate that like I think continually striving for better and better at the risk of being obsessed with it let's say that is not a positive thing. I mean I am not personally I'm not one of those like Maximizer type people and I think the term is satisfizer where I'm very content without maximizing everything in my life. But that said if I can make small progress towards a big goal over 10 or 20 years. That to me is what fi is all about. So it's not this continual burning desire to just check off boxes or do whatever other kind of like type A personality things that people would do it's progress over time to have a better life. And listen I am far from perfect at this. As my wife I will tell you I fall down on a lot of it and it's just trying to be a little bit better. So I did want to take this couple of minutes sidebar to just talk about like the overall concept of what we believe choose FI is all about and to make you understand where we're going here and this will always be a financial independence podcast. But financial independence is not limited to the nuts and bolts of numbers.
health
3544 - 3570 Jonathan Mendonsa And let me just say that for you hard core five people out there if you are not satisfied by the nuts and bolts that we're giving you this week and next week. JL Collins part 2. Follow it up sequentially by big Ern talking about secrets of return risk. So if you're not satisfied by a JL Collins big Ern JL Collins sandwich then nothing will satisfy you so soak it up my friends. And for those of you that liked the cliffhanger. Thanks for the feedback guys. I try to tell you a little bit of a curve ball there.
3570 - 3595 Brad Barrett And yeah we weren't trying to be weird or jerks there anything I was just Jim is so kind with his time and we just talked and talked and talked for hours and we just couldn't make it one episode. So it was it was a logical thought to kind of split it up there in the second half. It's almost like an Ask Me Anything from our Facebook group and our community is so you know a huge thank you to Jim for his kindness and giving us his time and giving the community his time.
3595 - 3609 Jonathan Mendonsa Yes. A huge thank you to Jim for sharing his time with us. It was an absolute blast just to be a part of it. And Brad talking about that overall holistic picture. I know at least one person that totally agrees with you. So would you like me to start up by playing a voicemail.
3609 - 3610 Brad Barrett Sure sounds interesting.
3610 - 3619 Jonathan Mendonsa To our audience you should know that I am the official guardian of the voice mail so many times this is Brad's first time hearing it when it gets played on the show. So yeah enjoy Brad.
3619 - 3691 Scott - (voicemail contributor) Good morning gentlemen this is Scott calling in from Santiago Chile. I just want to thank you guys for an amazing episode. I was just talking to my girlfriend Kristin about it. She just flew to New York and listened to it as soon as she woke up and we were talking how your podcast is really helping people create that happiness and mindfulness in their working lives while they're on the path to fire this way when they reach financial independence or they decide to retire early. People are already enjoying their lives and living a very happy healthy and fruitful existence rather than waiting till retirement and hoping that a magic bullet will come across and somehow creating this happiness just because they don't have to go to their 9 to 5 hamster wheel sorry Jonathan. And I think really you're doing everyone such a service in trying to incorporate these themes into the idea of financial independence because obviously there are tons of sites out there who just focus on the numbers and the spreadsheets and don't really look at the happiness. And thank you for all the wonderful recommendations for books. I think about three different books going and hopefully we'll get Dominicks book shipped from New York. When Kristin returns. Have an awesome day and thanks again for what you guys do. Keep up the good work.
health
3691 - 3697 Jonathan Mendonsa That's awesome Scott. Thanks so much for the feedback. And that is Scott Barrett in Sandiego Chile.
3697 - 3765 Brad Barrett Who is my brother actually and that's very very cool. I actually did not realize that he left a voicemail so that was neat. I mean it's funny how I've kind of in fairness my brother is fantastic and he does kind of humor me. Listen to me over he has humored me and listen to me over the years but it seems like people even in my family like my mom and my brother are really taking a lot of the stuff to heart and taking action. And since he called then I'll mention something. He sent me a Facebook message where I guess he's doing like the daily items that will just kind of make his life better. Kind of similar to how how I'm doing about it. So like Jonathan you said drinking X-number amount of water per day or stretching and yoga and exercise Spanish practice mindfulness and reading and he's actually putting that on a calendar where he has this little calendar where it's all boxed off and when he does something that day he just puts a little checkmark in it and it's very obvious that he's accomplishing these goals and doing these daily items that are going to make his life better. So I'm just I'm really proud of him. And yeah I certainly appreciate the kind words.
families
3765 - 3867 Jonathan Mendonsa Well this this could be titled The Scott because I have a frugal win of the week that I'm going to feature that features Scott as well and one of the reasons I wanted to do it is because me and him are on so much of the same page right now we're actually doing a lot of the same stuff. He started reading the four hour body and by Tim Ferriss again and as a result of that he's trying to increase the amount of beans and lentils and legumes that that he's eating and I'm doing the same thing. I've been actually I purchased I pulled the trigger on the insta pot for that exact reason. One of the things I look at is how can I reduce resistance. And I know one of my ultimate goals is that I want to try this form of dieting called slow carb dieting. And part of that is I want to massively increase the amount of beans and legumes that I'm consuming over the next six months or so and forget that aside the fact that he's doing this as well we're kind of bouncing ideas off each other and he shared a couple recipes with me and one of the things I think people try to come up with is what what does a delicious healthy breakfast actually look like. And all of us at some point come to the end of our own ideas and the question is whether or not you're going to go back to the Pop-Tarts or whether or not you want to make a better choice. And so I was asking Scott for his input on what it is that he's actually doing and he was listing his breakfast. Check this out breakfast eggs with Texas caviar so corn black beans red onion jalapeno garlic olive oil lemon and lime juice cilantro salt and pepper cumin and hot sauce. Does that not sound like literally the best breakfast you've ever heard of in your entire life like that is what I want my Monday and Friday to look like. So I'm actually going to hop on that bandwagon and going to get some of that stuff this week to pull the trigger on that. And then also just getting a couple of recipes for like lentils soups and a few other ways to consume black beans. I don't know. It's just something that's something that I'm trying as well so it was very interesting to me that he is on the exact same page. And that's one of the levers that he's pulling currently. So thanks for sharing Scott.
FWOTW, health
3867 - 3885 Brad Barrett And Jonathan from our Facebook group had a frugal one and he said Not huge but I sign up for the free trial version of audible so I can listen to the simple path to wealth and the Millionaire Next Door. So yeah. That's kind of cool. I've never used audible purslane but I know a lot of people swear by it. Jonathan you ever used it.
3885 - 3965 Jonathan Mendonsa I have purchased a couple of books off audible and just frankly I love the format just the same way. I love podcast. I love audio books as my preferred way to get a book if I can. So Tim Ferriss has the four hour body in audio book and I have not listened to JL Collins though maybe we could do a giveaway for that at some point an audiobook version. I want to look into that. So Samantha who by the way I should say is our resident expert on the instapot and ultimately is the one that ended up selling me on this. Over the course of like the last two to three weeks she has a frugal Win of the week and she says we went on vacation with the family a total of 10 of us. We went to Bryce Lake Powell antelope's slot canyons rented out on air B and B in a central location about an hour to an hour and a half in each place and they cooked all of their meals from home. The AirBnB was a lot cheaper than most hotels and it was much closer to the actual destination. Ate breakfast at home made lunch and took it with us and did cook ahead for dinner. We saved a lot of money and most of my family is vegetarian so we never find any good food at these national parks anyways. Needless to say we took two instapots and used them heavily. Honestly if I were in the instapot community I would try to hire her as a representative because she has sold so many people on the fact that this is a must have. In fact if the insta pot is the gadget of the FI community she is the reason why. So thanks for sharing your frugal win of the week with us.
FWOTW, cooking, families, mealplan
3965 - 3994 Brad Barrett All right. Andrew said 15 minutes from my front door. I have American Fork Canyon and the tympani Ogas caves. I've been living here six years and finally got up there with my 11 year old. We ran into dozens of locals that walked the four mile loop. Sixteen hundred feet of vertical and back down every morning. Even then an 80 year old guy on the way down. He is my new hero. Great work out beautiful surroundings and completely free. Make a little part of your day like fourth grade recess if you can.
3994 - 4095 Jonathan Mendonsa That is so valuable. You know I think we talk about this idea of the most important thing bein not stuff that you buy but experiences and I think that sometimes that gets conflated with spending money on experiences. But I think take the money out of it. Just like taking the money out of personal development it involves. Where are you going to put your time because you can't buy more time. You can't loan it or borrow it but you can invest your time you can invest your time in people and in relationships and that will pay dividends. That's for you FI guys out there I try to use numbers that you can relate to and that is ultimately valuable and so these ideas of instead of just going to the movie theater and I love movies. I'm not that I know I bash movies I love movies but I think that the problem is not that we don't watch enough TV. We don't watch another movies. All of us probably watched too much. What if you reclaim some of that and you put it into relationships you put it into experiences and they don't have to be expensive but they they can involve time. I think that is really powerful. Ok guys so unfortunately are 60 some odd minutes has come to an end. But we'd like to finish every episode by reading some feedback that we received on iTunes and we actually do a drawing for a copy of a book that we found very useful. Usually we do JL Collins book the simple path to wealth. We also currently have several copies of Dominics book design your future and if you would like to enter in this drawing all you need to do is just go to choose FI dot com slash iTunes. Just follow the instructions and It'll show you how to leave us a review and then once you've done that you would just let us know that you did it so we can match you up and you just send an email to feedback at Choose FI dot com. Just give us the screen name or leave the screenshot that you left it and every week we do a drawing for a copy of these books and we do one book for every five written reviews that we get. And Brad how many books are we doing this week.
relationships
4095 - 4134 Brad Barrett We are giving away two books this week. OK. All right. Our first winner is Scotty. And he said this is the first review I've ever written but felt compelled to do so. The show offers consistent quality week in and week out. They do an excellent job of exploring topics and I appreciate their humility. They don't claim to have all the answers but will present different viewpoints and have expanded my knowledge on various different topics. I listen to his podcast feeding my six week old daughter at 2 am it inspires me to be the best person I can for her and be more intentional. Thanks guys. Keep it up. I would request some guests who are high income earners like physician on fire. Great episode by the way white coat investor big law investor. Thanks.
testimonial
4134 - 4141 Jonathan Mendonsa Yeah that would be pretty cool. I wonder if we could get either white coat investor or big law investor on the show. I bet you. We should we should reach out to them and see what happens.
4141 - 4162 Brad Barrett Yeah I think we're going to have a Jeff from the happy philosipher on in the near future. He was actually just a guest on the mad fientist podcasts and he's actually a physician as well. So while we're going to talk about a lot of kind of life optimization hacks I know he can speak from a high income fi person. So I think that will add some value as well.
highincome
4162 - 4177 Jonathan Mendonsa We also need to get an uber frugal minimalist onboard like someone that's got it figured out for $10000 a year. Just like we need to see how far we can push the bar down. That would be very impressive. So someone should shoot us some recommendations. Maybe there's someone we can look into.
4177 - 4180 Brad Barrett And our final winner is Ryan.
4180 - 4252 Jonathan Mendonsa And Ryan says the ultimate financial hack podcast. A friend recommended this podcast to me about a month ago and I haven't been able to stop listening since the first episode. I'm 29 years old and never considered early retirement as a realistic option until listening to Brad and Jonathan unpack it. These guys are so selfless and are sharing this information for free. This podcast provides actionable tips in virtually every episode and I have been able to implement many of them at this point. I have changed my spending habits started budgeting increase my savings rate and am thinking about how I can minimize income taxes thanks to this podcast. I've got my fiance on board and we have a plan to accumulate our F-YOu money and retire years before our peers. Thanks for everything thus far and keep that great content coming. Yeah it's picking up steam guys. There's a lot of great content coming your way. A lot of doors are really opening and Brad and I when we decided we were going to do this and make this our number one focus for the next however long it takes. We decided that we wanted to constantly be positioning ourselves to learn something new and then take what we learned turn it into a conversation and share it with you guys. And we love that you appreciate it and that you're benefiting from it. That is honestly what makes it all worth it. So the fire is spreading my friends and we'll see you next time as we continue to go down the road less traveled.
Jonathan_Catchphrases, savings, tax, testimonial

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