052R - Bring It

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Time Speaker Text Tags
0 - 6 Jonathan Mendonsa Welcome to the ultimate crowdsourced personal finance show. This is your Friday around.
6 - 47 Speaker You're listening to choose FI radio. The blueprint for financial independence lives here. If you're looking to unlock the secrets to financial independence and early retirement you're in the right place. Stay tuned and join a community of like minded people who are. Getting off the hamster wheel. And taking control of their lives in the pursuit of financial independence. Choose FI. Your home. For. Independence. online
47 - 58 Jonathan Mendonsa Alright guys congratulations you've made it to the weekend and this is your Friday roundup so today we're going to be talking about this past week's episode with Todd Trusseter and to help me with this I have my cohost Brad here with me today. How you doin buddy.
58 - 71 Brad Barrett I'm doing well. JONATHAN Yeah it's December already and it's kind of hard to believe the year is coming to a close. I got some vacation coming up here soon in about two weeks and the holidays thereafter family coming into town there's a lot going on.
families
71 - 72 Jonathan Mendonsa Are you going to Mexico.
72 - 82 Brad Barrett I am actually so I am doing the anti travel hacker plan here and I'm going to an all inclusive in Mexico with my family of four.
families, familytravel, travelrewards
82 - 86 Jonathan Mendonsa Sandals Resort. Here you come.
86 - 110 Brad Barrett It is not a sandle but it's not terribly dissimilar. So yeah my kids their school ends very early in this year just the way the weeks fell and we decided hey we're going to take a five night trip to Mexico and should be really really nice. So yeah not using any points other than some points I think off of our capital one Spark Miles car and so you know we defrayed some of the costs certainly but this wasn't like a real travel rewards plan.
travelrewards
110 - 118 Jonathan Mendonsa Well congrats to you and your family. So I went to go see Justice League the other night and it was amazing. How could anybody not love that movie.
families
118 - 128 Brad Barrett Very cool. I got the new Star Wars movie coming out soon so I'm excited about that I go to the movies basically once a year to see a Star Wars movie and that's about it. So I'm looking forward to it.
128 - 150 Jonathan Mendonsa I've been on a fast for a while just one. It's difficult when you have a newborn and two just life gets busy things fill in the cracks and I just There's nothing's really came out recently that I said to myself. Yes I have to go see that. But there's been a tidal wave of Epic Superhero movies and those are usually the ones that draw me back to the theater so Thor Ragnarok and Justice League I want to go check both of them out. And definitely worth the price of admission.
150 - 153 Brad Barrett Very cool. And you and Danny did a date night right.
153 - 188 Jonathan Mendonsa Yeah we did. We were one of these AMC dining theaters where you know there's a little bit more of a plush experience and frankly I'll be honest it was just based on Showtime we had to have a very specific time but we sat down and I decided to order a glass of a single glass of wine a 5 ounce glass of wine just to have at the dinner and I was trying really hard not to be price conscious. And so I didn't even look at it. She didn't show me the price of say yes I'll take one of those. I get the check at the end and it was ten dollars for each glass of wine and about had a heart attack. I had to reel it all back in as we were leaving the theater. I will never do this again. I will always be price aware.
188 - 191 Brad Barrett Wow. Yeah that's tough that's a lot of money for five ounces of liquid.
191 - 199 Jonathan Mendonsa So expensive how do you do this. I thought it was a bottom shelf wine.
199 - 201 Brad Barrett And they thought you were a sucker who wasn't looking at the price.
201 - 218 Jonathan Mendonsa Exactly right. You just make this number out of thin air. All right. Well let's go take a few minutes. Not just a few minutes probably the whole episode to talk about the episode on Monday with Todd Trusseter. I mean Brad. Our audience has been waiting for this Friday's show. You know they have what an epic episode.
218 - 232 Brad Barrett Yeah there's no question. Episode 52 was maybe our most commented episode of All Time. I know we had dozens of comments on the on the blog. We've had hundreds on Facebook and people are polarized and this episode I would say right.
232 - 276 Jonathan Mendonsa I think that's probably the right word. It's amazing to me this episode is one that I think to some degree may have brought people back to the fold. Then there's people that have enjoyed our podcast from the beginning but at the same time haven't been able to completely relate to our choices or the way that we present things. Yes they're tangentially tied to the FI community but they haven't been able to find enough common threads maybe because 1 they don't identify with index fund investing or maybe they think that we're just not being diverse enough with the way that we're presenting all these different ways that you can grow your wealth. Maybe it's the fact that they've rejected some aspects of frugality. For whatever reason there are people that identify with this message and identified with this episode more than they have with anything else that we presented up to this point.
frugality, indexfunds
276 - 393 Brad Barrett Yeah and then there were those who just for whatever reason had a dislike for this episode. And frankly like I'm not 100 percent sure what it was other than maybe like presentation and tone which is somewhat unfair. Todd is a really smart guy. There's no question about it that comes across instantly the way that he talks. I mean he's very sure of himself and that is a very admirable quality certainly but I think that just slight tone might have turned people off. But in fairness like Todd was absolutely wonderful with us he was so gracious he would have spent five hours on the phone with us easily. He was having a ball and he's willing to come back anytime to answer people's questions if we want to have a AMA with with Todd. I can almost guarantee he'd be willing to come back. So you know I think just the way someone speaks sometimes maybe can turn people off. But again it's just because he's just so intelligent and sure he a little cagey with some of his answers. Yeah. And I think that was another slight criticism that people had. But I think Todd's mind works very differently. I don't think he was being a jerk with his answers to the hotseat questions with oh that's just my mind doesn't work in absolutes. I think that legitimately is how Todd operates right. Like we asked for the best and your favorite and he's just legitimately saying I don't think that way. And I I believe him. I genuinely do. I don't think he was being hoity toity about it or trying to be holier than thou or I'm better than you or it's just his mind doesn't work that way. So I found Todd a very engaging interview. I thought he was wonderful has a ton of information obviously he's extraordinarily intelligent so you know I want to say to the audience like maybe go back and listen to it again. Just keep that in mind and just listen to what he's actually trying to teach. I think there's a lot of value in it just for us for the FI community and for making us rethink how we approach financial independence to some degree.
393 - 513 Jonathan Mendonsa I love that. And so now since we've kind of talked about maybe how people may have perceived the tone maybe we actually do take a few minutes and talk about what he was actually saying in that episode and our takeaways our respective takeaways. There is so much from this episode. In my mind I think some people took it as crushing their hopes and dreams to some degree in my mind. It validated everything that we're about here. at Choose F.I.. Everything that we've been saying since episode 1 this essentially validated that was a different perspective and did it seem like it. The face that he agreed with everything I had to say no that would probably be fair to say. But on the flip side of that I may not agree completely with how he frames things and that's completely valid. The takeaway for me is Todd was taking it. This is not wrong approach but there's more to me that is empowering and that is where I want to position myself. Think about this show everything that we've been saying since day one is you don't know what you don't know until you do. And we've started with the basics we started with taking someone that maybe either just got to Debt free or maybe had no idea that financial independence was a thing had no single financial mentor in their life and they've suddenly got a focus they've started putting together 2018 goals and then starting to finally focus on their savings rate their crushing their debt. They're moving all of their money into these pre-tax accounts and they're finally starting to get that modicum of control over their life. If you just took this episode at Face Value and all you went with was the tone you heard someone say it's not enough and I could see how that would be discouraging. But no that's not what he's saying. What he's saying is there could be more. And I think it's incredibly valuable for you just initially lock on to how much progress you have potentially made over the last year and then get excited about how much more there is to learn. It doesn't invalidate anything that you've learned up to this point it doesn't tell you that you're doing anything wrong. It just tells you that this game is fun and you need to be able to position yourself to constantly be able to get the flow of good information and to figure out what's the next thing that I want to try. What's the next thing that I want to do.
debt, savings
513 - 706 Brad Barrett Yeah I agree completely. Jonathan that it doesn't invalidate anything. I mean really it's essence. What did Todd say. He said things are not as simple as people in the FI community make them out to be. That I think the quote was complexity better reflects reality. OK. That's certainly true. He said there are other asset classes other than just index funds or just paper assets or whatever you want to call it. We know that to be true. We know that there are real estate asset classes. We brought Chad Carson on. We've talked about house hacking we've talked about real estate investing. There are business asset classes as Todd calls it. Of course that's true. We can build blogs we can build businesses. We have Alan Donnegan on the phone any time we want to talk about creating businesses and basically creating equity out of nothing which is what's Todd said right like Todd uses very complex language because Todd is an incredibly intelligent guy right. And if you just can get through the language what is Todd saying that's revolutionary that that makes us rethink everything or that we had to rethink the state of fire. Nothing Tod's telling us what we know but he's telling us that we need to look at it more deeply. And I agree with him that is incredibly insightful thought and what else is Todd saying. There is no one size fits all cookie cutter answer. We know that to be true. Everybody has different life situations. Everybody has different risk tolerance. Everybody has different things that help them sleep at night. That's what. Todd was saying just in different language. Right. When you actually think about that can I. Brad Barrett sit here on this podcast and say every single one of the tens of thousands of people should invest in low cost passive index funds and that's it. No of course not. And if I ever gave that impression I really apologize because that is not my opinion at all. Do I think low cost passive index fund investing is an incredibly useful and valuable investing tool for a significant portion of people potentially. Yes I do. I think if people are going to invest in the stock market most people don't have the time or expertise or just dumb luck frankly to find someone who is brilliant at investing you know at the Edward Jones down the road from them or in their own lives write their own selves to beat the market. OK I believe that to be true most people in all likelihood are not going to beat the market. So if you take that as a given low cost passive index funds are a great way to invest because you're just trying to match the market you're not losing tons of money through expenses and paying for assets under management. at The local investment firm. So do I believe that low cost passive index fund investing is bad. No of course not. I think it's brilliant. I think it's a wonderful asset and tool for many of us to achieve financial independence. If I ever give the impression that that was the only way then again I really apologize because that was not my intention. So I don't think Todd is telling us anything that we don't know at our core. I think he's telling us that we need to think about it more and we need to talk about it more that many of us in the FI community are too simplistic and and that is a perfectly valid criticism.
househacking, indexfunds, stocks
706 - 834 Jonathan Mendonsa I would love to take just a couple of minutes and talk through almost each of the individual key points and riff off each one of those individually and just kind of hit Our takeaways. One was he highlighted the fact that there are bloggers that have created essentially businesses that are generating large amounts of revenue and he said we can't just gloss right over that. I mean that you have to highlight that and realize the value of that and I almost wanted to take a step back and say that we've highlighted two different general approaches to this game. I think both are valuable and I think you need to realize which one suits your unique characteristics as a person and realize that you can win with either and one is not better. No it's not better or worse. It doesn't matter but it's what suits you and so in my mind there's two different ways to pursue the income game or the entrepreneur game and the business asset class one. You get your W-2 income job you get your regular 9 to 5 and you crush it on that end and you hike up your savings rate 20 30 50 percent. You quickly get some serious margin between your earnings and your expenses and you use that to invest and create a small portfolio. I'm not saying that you necessarily get to FI but you get significant margin between your savings and the financial cliff. This buys you peace of mind it buys you freedom and it buys you the freedom to fail which then allows you to go pursue maybe this more creative path that maybe you were "scared" to do from the gate. You're not all in now. Now you have this long runway which you can explore your creative passions and if you end up making it to FI before you start that business how much more powerful is that. Because now you're totally doing this from this freedom to fail type place. That is that in my mind is scenario 1 and that is one path that we have and will continue to explore endlessly. The other side of that is the burn the boats you say while there are these real estate guy there are people in real estate there are people that are investing and business asset classes and by the way Brad. I'm going to start using that word. I didn't know what a business asset class or a paper asset class was until this episode. But from here on out I'm adding that to the official lexicon that is my new language I love it.
blogger, savings
834 - 835 Brad Barrett Fair enough.
835 - 841 Jonathan Mendonsa OK. I don't know what I expected from that. Thought you'd be so amazed by my new language.
841 - 846 Brad Barrett That is really brilliant Jonathan.
846 - 916 Jonathan Mendonsa The other half of that is this almost burn the boats type scenario and you just go all and you realize that if you can create a Mr. Money Mustache type blog with that massive amounts of traffic or you can find a little niche or you can find a business model that you can sell or you can you know you can develop a small business you can completely hijack the whole process and you don't need to do the part where you're working in the W2 job and you're creating the savings rate and all that stuff. Conversely if you decide to take the real estate lane and you get a process working for you that's based on the math because you followed you know everything that coach Carson is teaching or what you're learning here what you're learning over a bigger pockets you get in that lane. You can quickly get five or six apartments or five or six homes that are completely paid off that are cashflow in your life and you're now financial independent. There are so many different ways to pursue this game and Brad and I have taken the position that it's not our job to tell you which lane to follow but to go out and find people that have done it in each of these asset classes and then have them share their actionable points with you. So you can say wow this is a life that I can get excited about. I want to try that and that and that and that. Or maybe just this one thing. But the point is that you take action and you start.
savings, smallbusiness
916 - 1167 Brad Barrett Yeah there clearly are different lanes. There's no question about it and it's funny because as I'm reflecting on this I'm basically revealing my own bias in my brain and that's a kind of a cool perspective to realize like you have these hang ups that for whatever reason pass history past investing mistakes past difficulties starting a business whatever it may be those cloud your judgment to some degree because I still come back to saying if I were trying to teach someone to reach financial independence which I guess I am on this podcast my easiest way and if I were to do a state of the Union of fire it would be how would I reach FI. Cut your expenses save 50 percent of your income and put it in low cost passive index fund investing. I think that is the easiest way to reach FI. I think that's almost foolproof. I know that's probably a stupid statement. There are probably people yelling at their phones or their speakers or whatever right now and I get that I think saving 50 percent plus of your income. If you do that you're going to be successful at fi no matter what. Sure it might take you the difference in seven years 15 years 20 but realistically you're going to reach FI. I think that's that's the key. But my own bias is that real estate investing is difficult. There's a lot of risk and there is the liquidity risk that Todd talked about everything could plummet like it did 10 years ago. I have this inherent fear of real estate. If I viewed it as an actual asset class that I wanted to research and learn more about and find ways to dip my toes in I suspect there are many many ways. I know there are lots of these crowdfunding sites that I actually recently have started to dip my toes into. Through the help of Chad Carson and people like that just you got to educate yourself right. It's easy to say oh Real Estate Investing is scary but you have to get over that business asset class. As Tod says and I know Frank commenting on a blog saying his take on Mr. Money must send his blog as a business. Missed the mark as well. That business was a success for Mr. Money Mustache was a happy accident. It does not tell you anything about using a business intentionally to reach FI. And facts suggests that you should play it like a lottery ticket and just keep trying until you quote Get Lucky. It was also only because Mr. Money Mustache had already reached FI and therefore had credibility in the space. Similarly Chessiter's current business is not causing him to reach FI because he was there a long time ago. So there is a disconnect. I understood Frank's opinion completely and this was kind of my contention as well when Todd brought this up like the fact that Pete makes 400000 dollars from his blog is to me it doesn't mix the message at all. I mean Pete reach financial independence by saving and by investing in low cost index funds. Whether he literally won the lottery 20 years later or became Mr. Money Mustache and makes a decent bit of money from his blog to me is irrelevant to the actual message of how did I reach FI. That is the essence so I agree with Todd that the business asset class is an interesting one and should be pursued. But it's not a lottery ticket and frankly it's not something that everyone can just succeed in even if they try hard. Someone else asked on the blog about me talking about my own journey. I know I've kind of alluded to this in maybe the second episode on the podcast so 70 plus episodes ago but I was on a seven year journey basically of failure after failure after failure. Creating different websites and dropped shipping sites and passion's sites about like soccer which is my one of my loves in life. You know these things went nowhere and I did keep trying just because it was something that I enjoyed. But it wasn't some master plan of let me create a business to get to fi someday because no idiot would spend 7 years toiling away at night like writing Soccer Championship lists into the computer. Like an idiot. I mean it was crazy how many hours I spent on that and it came to nothing. So is that something that you can just roll up tomorrow and say hey I'm going to have a successful business and get to fi.
indexfunds, passiveincome, savings
1167 - 1321 Jonathan Mendonsa It's so worth highlighting the fact that he actually did take the time to walk through the disadvantages of each individual asset class. And this is something you need to highlight the disadvantage of the business asset class is that it is a time suck it will steal your life away from you in most cases. You know the the the tagline that I've seen enough started using myself as you know. Entrepreneurs are willing to work 80 hours themselves to avoid working 40 for the man writing a blog is not passive. Writing a blog may be passive at some point but it requires a lot of work. It requires a lot of dedication and we're actually going to bring on someone going to bring on Bobby for a millennial money man this upcoming Monday to actually talk to us specifically about what that process of building the blog looks like from scratch. I mean this is someone that did not reach FI before they started a blog and has done pretty well with it so that's going to be a very interesting story but when you're looking to these asset classes I love that he talked about the unique advantages and disadvantages of each. Once you pin down what those are you can start to say do those characteristics suit mylife. Does that sound like something I would be comfortable doing. And I love Alan Alan in our Facebook group basically says I'm lazy. That's why I do index investing. That's the perfect way of looking at that's the way that I look at it. So with how I want to approach this game. Personally I don't care if I beat the market. I just want to keep up with the market. I've decided for myself that I'm perfectly satisfied with what those returns look like over time especially if we have a long enough runway. And so instead of me trying to put all my extra energy into trying to cobble together my 2 or 3 or 4 percent or mitigate the risk the risk management instead I'm taking a lazy approach I'm doing the index investing in index that's a set and forget philosophy. And then now I'm looking at the other two asset classes. So like focusing on building a business we've had some success building this business over the last year. That's something that I continue to put all the extra time into. It's amazing how it's it's something that just started maybe a couple hours a week and quickly became something that I was working on 60 to 80 hours a week and now it's back down in the realm of reason. But I can firsthand identify with the fact that starting your own business can be a passion project. But if you're not careful it can run away with every free second in your life. So there are definitely disadvantages to that as well. But it also can be something that you need to consider. There may be room for it in your life. And then for the real estate. Brad I know that you're acutely aware of how bad real estate can go if you get it wrong. And also that there is a significant upside if you get it right.
indexfunds, passiveincome
1321 - 1425 Brad Barrett Yeah there's no question about something. I mean one of my biggest financial mistakes ever my single biggest financial mistake was buying real estate. Basically at the top of the bubble and I got caught up in the mania and I was not terribly intelligent and I didn't do my due diligence and I am still paying for that. So that was just something that you know we talk about biases that are in our own brains that has certainly clouded my judgment for real estate ever since. So for me real estate is something that gives me the shakes basically you know it just it freaks me out but that's because I had a terrible experience and it was it was because I didn't do any diligence and I didn't think of it as a business I just thought of it as a get rich quick scheme and of course you're going to fail in life if you look at things like that like I was just not terribly smart. So I know that I need to get over that and I'm trying to learn now. You know Chad Carson just came out with a real estate investing course that I'm going to take. I am like I said trying to learn more about the crowdfunding investing in ways that I can invest without getting that nervousness up which is really what it boils down to for me is that like for me owning my own rental real estate property is something that scares me. It would keep me up at night and it would not fit for my own personality at this point. Could I see investing a few thousand dollars in a hard money loan on pure street or multiple investment properties on fund rise or something like that. Like these are just crowdfunding sites that I've come across recently that are interesting right. So I don't know enough at this point to tell the audience out there if this is a good investment or bad but it's something I'm trying to overcome my own issues. So yeah I mean Jonathan that's a really good point.
1425 - 1500 Jonathan Mendonsa Dude. How about this. 2018 I'm setting a goal for myself. I have no real estate experience but I'm going to try and leverage my network and I'm going to try and learn from Coach Carson and maybe Scott trenchcoats at the 2018 and over to see if I can cobble together enough knowledge to get my first fourplex put a down payment on a fourplex. That's my goal for the end of 2018. If you remember the goal for the end of 2017 was to develop a podcast and a website and we said we're going to experiment this we may fall flat on our face but we're going to document the whole process for you. And you know our audience has been here with us for that ride. 2018 we're going to try to be upfront about looking into some of these other asset classes we're going bring coach Carson back on many times to kind of help walk us through this and my goal for the end of 2018 is to get a fourplex. I don't know if it'll be local here in Richmond or maybe somewhere else in the country but I'm going to kind of just stumble my way through this and hopefully get enough knowledge from mentors that are freely offering this information so that I can maybe take this next step in my own journey and hopefully share that with the people that are listening to this podcast episode if they're thinking. How do you go from knowing nothing about real estate to getting started on something and Brad if you want I'd be more than happy to let you tag team that that fourplex with me and you want in on that.
1500 - 1506 Brad Barrett Well then as usual you're sandbagging me with something that I've never heard of before.
1506 - 1509 Jonathan Mendonsa One a week guys once a week.
1509 - 1510 Brad Barrett But.
1510 - 1511 Jonathan Mendonsa Sorry Laura.
1511 - 1665 Brad Barrett It sounds interesting. It sounds very interesting. I am potentially interested so yeah let's let's go down that road. But you know more importantly it's these experiments in financial independence right Jonathan. That's when we first started this podcast a year ago. That was our our main tagline and that's where we thought the show would go. Now obviously in the intervening months it's turned into this true community. And I think that's what we've latched onto it's like we want this to be a place where we can all share thoughts share ideas crowdsource everything. And it's kind of stepped away from that experiments in financial independence to a degree but it's always there. We do need to experiment we do need to expand our horizons and any time we get dogmatic and as Todd called it the quote universal truth right it kind of sarcastically about index fund investing being the only way to invest. Like whenever we get dogmatic about things you know it's probably time to investigate other options like it's never a good idea to just shut your eyes and shut your ears and just say all right this is it. And this is how I'm going to invest forever. I think that is a big takeaway for me personally from this Todd episode is that like we just need to think we all need to try to learn try to broaden horizons and not be dogmatic if that means learning about risk management like Todd is talking about. I don't know the first thing about risk mitigation risk management on some systemic method. Todd evidently does right like that is so beyond my scope of knowledge that it's laughable. But as soon as he said that and then I immediately brought that Warren Buffett quote back into it on the Monday up he said OK you have a couple of smart people saying something hey maybe it's time to look into this. Maybe you can't just stick your head in the sand and say I'm just going to put all my money in a Vanguard Index Fund and let it ride like OK it's time for me to learn. So that's the big takeaway. And I hope everyone out there in this FI community like we are smart people we are obviously contrarians ourselves just by the sheer virtue of being in the FI community. So let's extend that let's all try to learn and let's share it like we can still crowdsource that here and choose FI. While everybody has their personal path and that's important we can crowdsource information we can bring anybody on this podcast even if they're aFI listener. If there's some worldwide expert we can try to get people on. So that's where we want to do it we want to crowdsource this we want to think we want to be contrarian and we need to move forward intelligently.
indexfunds
1666 - 1769 Jonathan Mendonsa So if you're over e-mail list you do get access to a forum to give us a suggestion or a possible guest for a future show. Actually it's more than that. First of all let me tell you how to get on the e-mail list just go to choose FI dot com slash vault that will give you an option to subscribe to the form which gives you access to all of our financial resources and calculators. There's so many different calculators and resources in the vault and you get free access when you subscribe. But then I think you get a second email from us within a week or so asking you if you want to suggest a topic or a guest for future show. And if you feel like you have something to add to that conversation please please we'd love to know. We'd love to get your feedback. All right guys we got some feedback on the website from Trent and he says I think the point is that stocks and bonds returns are hurt by inflation where real estate tends to be positively with inflation. I can't speak to the truth of his position but I would say his asset allocation and a safer draw rate rely on multiple variables and the length of retirement is a major one of them over a longer 40 to 60 year horizon. Equity returns are the highest. If your plan is well constructed to mitigate the volatility this is most people's best bet says I consider early retirement now safe withdrawal series as well as his earlier post tangentially related to these topics to be the absolute Bible on the matter. It really is unbelievable that he put that together and gave it for free. He said Jonathan I would love it if you guys would have big Ern on some time to react to some of these specific points since they have similar backgrounds and skill sets. To which I responded that is so interesting wouldn't it be a coincidence if two podcasters had a similar thought a couple of weeks ago and actually sent Big earn a requests to get his specific thoughts on this episode and I can tell you that big Ern did have thoughts on this episode and he sent it back to us and we're going to play it for you on the show today.
podcaster, stocks
1769 - 2245 Big Ern Hi. This is Ern from the early retirement now. blog Thanks for inviting me to comment on the episode with Todd. There was so much great material in this episode that I can talk about only a few items. So number one is the discussion about inflation risk just like Todd. I am concerned that the next recession and bear market will look very different from the last two. Over the last 35 years or so we have been spoiled as investors because you could use bonds as a diversifying asset and if stocks go down then bonds go up. But what happens if we have a different kind of recession next time something like the 1970s and early 80s. What happens if the Federal Reserve is too aggressive in tightening monetary policy. That would be bad for both stocks and bonds. And by the way just like Todd I'm not predicting when that next recession will happen and I'm not predicting that the next recession will indeed sink. Stocks and bonds. I'm just saying that my personal risk model should be aware of this risk. I don't want to become complacent and assume that bonds will forever behave the way they did over the last 30 years. Also by the way if you look at the detailed inflation data released every month What's one component that has been above average for the last five years or so it's rental inflation which brings us to item number two real estate investing. I agree with Todd that if you limit yourself to only liquid assets only stocks and bonds you could be missing out. Of course the caveat is that it's not for everybody if you're working 80 hour work weeks in your career. You're probably not going to go moonlighting as a landlord. But there are ways around it. Right you could hire a property manager or you could buy real estate through private equity funds. So real estate is an interesting asset class for building assets. For example you could do this as a sequence of house hacking transactions and coach Carson wrote a lot of interesting material on that and it's also a very attractive asset class in retirement because you generate an inflation protected cash flow. And if your portfolio is diversified enough it's a reliable and predictable income stream. So if someone has a real estate portfolio and it generates say 5 percent net rental income after subtracting all the costs for maintenance repairs property management vacancies and so on and that cash flow pays for your retirement expenses then you can retire with what is effectively a 5 percent withdrawal rate. Most importantly you never touch your principal. So that solves the problem of sequence of returns risk. So having some of our assets not all of them in real estate should be a wise movement in retirement. Talking about retirement and withdrawal rates this brings me to item number three the safe withdrawal rate and at the end of the episode you discuss the 4 percent rule and I've obviously written a lot about that topic in my safe withdrawal rate series. It's now 21 parts law and the one key takeaway from that research is that the only thing more offensive than the 4 percent part is the word rule the safe withdrawal rate has to respond to both idiosyncratic characteristics and market conditions. Even over 30 years with capital depletion I found that the 4 percent rule was not safe in historical simulations. It's more like a three point seventy five percent drop and then over longer horizons 40 years 50 years 60 years which is what we are looking at in the community. You get down all the way into the low 3 percent range. And by the way I post how I do all the calculations on part 7 of the series has a link to a Google Sheet where you can run your own numbers. And again personally I cannot make the 4 percent rule work for me personally. The historical simulations even if I take into account a pension and Social Security personally I would never go up above three and a half percent in today's environment. The fourth and final issue I wanted to address can. The withdrawal strategy be improved during the 4 percent rule discussion Todd mentioned that he can increase the 4 percent withdrawal rate through what he calls smart portfolio allocation for reconstruction and risk management. I'm looking forward to some of the comments in the Facebook group because this claim rub some people the wrong way say the Bhogle heads of the world and in Todd's defense I have to say that he has a point. Just because actively picking stocks is likely a futile exercise and index investing is the way to go. Doesn't mean that you have to be passive in your investing decisions everywhere and all the time. So for example actively timing the weights across asset classes so not with within but across stocks versus bonds versus money market is something that could potentially reduce the drawdowns during recessions and it would alleviate some of the sequence of returns risk. So if we go into another recession and reduce the equity exposure and stocks and bonds have a negative correlation. So bonds are good diversifier then move into bonds and otherwise you go into cash. But it's very hard to get this market timing right. Obviously I wish Todd all the luck in the world but I personally think that doing this right is not easy. This takes more than just saying hey I used to work in finance. I'm smarter than everybody else and I'll beat the static asset allocation. And in fact even a lot of finance professionals doing this as a full time job don't get it right all the time. I know a lot of hedge fund guys that blew up in 2007 8 and 9. And believe me they all had risk models and they were still caught off guard and then you also get the flip side. I know a lot of hedge funds that failed afterwards. And you know why they were so good at risk management that they missed out on the upside and I'm being sarcastic here. So here's a fun fact. Since December 2012 the S&P 500 rose by more than 100 percent and the H.FRI index which is an index that tracks the performance of a large universe of hedge funds is up by only 25 percent through 2017. And you could say that hedge funds also have less risk than the S&P 500 but even a 60 40 portfolio is up 64 percent. That's way more than the average hedge fund that's done with a very static asset allocation. So again in theory timing the asset allocation to get lower drawdowns in the next recession is a great idea. But the implementation is hard. It's something that we should probably discuss more and maybe Todd can share these ideas and I can share my thoughts but it's not so easy. So in any case to wrap up this was a great episode as always this will generate a lot of good discussions in the Facebook group and in the community in general and there was a lot of thought provoking material and this is what we are about in the fire community and especially at ChooseFI. And there isn't one single path to succeed and the best way to find your personal path is to hear what others do and see what works for you and what doesn't. So have a great Friday. Have a great weekend everybody and spread the fire.
career, househacking, indexfunds, socialsecurity, stocks
2245 - 2420 Brad Barrett Wow I just absolutely love big Ern. Thank you so much for taking the time to do that. He's just I love his perspective. He is obviously so intelligent and knows the numbers inside and out but he focuses on what's realistic right and like he actually gets what drives people. And I think that's just such an important part that is often missing from the ultra math optimizer is and I really commend Ern for for taking that approach and seeing that what drives people is not just the math all the time and I think what he talked about there was the implementation right which is basically saying the devil is in the details. So sure it sounds great in theory that there are all these hedge fund guys out there who come up with these ultra complex theories on how to beat the market or at least do their risk mitigation risk management and. And that sounds good right. There are lots of Ph.D. who have come up with methods but in practice it's pretty darn difficult to do. And like he quoted and that reminds me of Warren Buffett's 10 year bet against any hedge fund manager and fund of funds of hedge funds who would take him basically including fees against the S&P 500 and the S&P 500 absolutely destroyed this handpicked best of the best hedge funds and that's people who are getting paid billions of dollars literally billions with a B to pay for their utter brilliance and their hedge fund management and they're just getting trounced by the S&P 500 now. Fees have a lot to do with that. That's where are we talking about here. So I'm not saying that the S&P 500 or Vanguard low cost index fund is the best for everybody but I think on the whole when you take fees into account when you take the fact that there's a lot of luck to this even for people who have these quote unquote brilliant models like they are not right all that often as evidenced by the actual results. They have great theories but sometimes it doesn't work. And frankly most people out there don't have the time to spend thousands of hours to come up with the expertise. And these random theories and then to see it through right like if you're just taking a bet an actual bet and not to bring it back to Mr. Buffett. But but that's how I look at life. Like what is my best bet going forward if this were just a street. I'm putting money on the outcome. I would put it on the S&P 500 or total stock market index fund. And especially when you take into account the amount of time or lack thereof that you need to include. So that's why I choose that from my own personal life. But I don't discount the fact that there are potentially models that can figure this out. But the devil is in the details and the implementation is the tough part.
indexfunds, stocks
2420 - 2589 Jonathan Mendonsa But I think it goes to where do you want to invest your time. And for me you know investing in yourself invest in knowledge invest in like what's the next thing that you want to do. There's so many different levers that we have talked about at the end of the day if you invest in yourself you're going to win. So I mean invest in your health invest in just a baseline knowledge of how to get your savings rate up frugality invest intentional living invest in just the time to actually track where your money is actually going get some baseline of savings. Start thinking about if I wanted to start a side hustle or business what would I like to do. If you wanted to dabble in real estate what would you like to do. But the bar to entry to all of these other avenues gets easier when you've locked down the pillars of fi that we talked about earlier. When you start locking down this intentional lifestyle it allows you to design a future and that's why it's exciting that so many of you have decided to join us twice a week for this show and that's why we're going to continue to go out and we're going explore all the different ways that people are tackling this game and we're going to continue to share that with you and get their actionable takeaway so that you can figure out what's the one thing that I want to do this next week. And I just have to finish this by sharing this. So Christian has been listening to this show for a little bit. He wanted to share with us his NEW 2018 goals and this is going to take a few seconds so I'm going to just just give me a little space here. I'm going to go through with you twenty 18 goals financial have a greater than 50 percent savings rate Max 401k times two max my IRAs. Time two learn the new tax bill to minimize taxes increase net worth by 20 percent. Learn how to do travel rewards health and fitness goals gain up to 168 pounds during the winter and then cut back down to 154 during the summer workout five days per week bike be able to do 10 consecutive muscle ups. Practice intermittent fasting five days a week. Switch to a plant based diet life balance and family stop accumulating stuff and learn to let go have a vacation in the Philippines for a month. Have a Europe vacation. Travel to Cuba visit Lake Tahoe come back to Catalina. Learn how to woodwork in carpentry. Create don't consume. This is what investing in yourself looks like this is inspiring. This is what lights you up in your life will be happier and ultimately we said you know FI in many cases is linked arm in arm to happiness and so find out what makes you happy and design a future that allows you to spend more time doing those things. Don't allow yourself to get so worked up into a state of perpetual anxiety that you end up drifting through life. Hopefully the tools that we're talking about on the show the stories that we're talking about on the show and the actionable tips that our guest are so selflessly giving away will help you design a life that you can get excited about living into. That's where this comes back to. That's what this all comes back to. It's all interwoven this is your life. What do you want to do with it. And I promise you that if you're just blowing through every evening watching a Grey's Anatomy rerun it's not going to get you there. Read rinse regurgitate repeat.
401k, fitness, frugality, health, hustle, savings, travel, travelrewards
2589 - 2745 Brad Barrett Yeah and Jonathan the important part is everybody needs to figure out what lights them up right and what they get value out of what their path looks like. There were a ton of people who listened to this episode with Todd Cester who said this was hands down our best episode. They loved it. Have more like this. I get that. I love that. I love that this episode was kind of polarizing to a degree but that so many people really loved it because they want the complexity. They want the nuance and I understand that there's a significant portion of her audience that is craving that. I do get it its funding like we all just work differently. Todd talked about Level 1 vs level 2 understanding what's funny. Again this reveals your own your own issues your own biases and I know in my life like I don't pursue level 2 understanding much of anything and that is a weakness. But that is something that I've built my life to create simplicity like that is what I'm going where I've set my life up. So except for this podcast and community which is now taking up a ton of time which is wonderful. But before then I'd set it up so my life was basically on autopilot. Everything was just optimized and running perfectly and I could try to dabble like Tim Ferriss kind of jokingly calls himself a professional Diliton and like that's similar like it's an 80 20 analysis and he focuses on the 80 percent rate. Like what will get me 80 percent of the results with just 20 percent of the inputs and that's kind of the tact that I've taken in my own life. And sure I can say that's a negative but it's been hugely positive. I've been able to make my life wonderfully happy. Focus on things that matter to me. Focus on my health and financial independence and creating value for people out there. If that means that the side effect is I can't or don't or don't want to focus on that level to understanding then that's just where it falls down. Right. But there are many people who want that deep dive that that 1 percent you know get to the 99 plus percent of knowledge on something. I suspect those are the people that love this episode and want more. I assure you out there we will bring it. So this is not just the grazing level 1 podcast. There is some of that because that appeals to a lot of people obviously but the level 2 dynamic nuance complex to quote Todd that stuff is coming. So there is something for everyone here and we are very aware of that. So please don't think this is for one segment of the population and not for the other. We're bringing everyone into the fold.
health
2745 - 2760 Jonathan Mendonsa Brad you remember that point time when you realized that we had officially gone past our comfort zone and we were in totally new territory and we were now on the side of with our audience no longer teaching stuff that we had to share specifically but now learning right alongside with them.
2760 - 2763 Brad Barrett For me was probably when we had big Ern on the first time. But I'd love to hear where you're going.
2763 - 2809 Jonathan Mendonsa I think that was it as well. But I mean that's when we start talking about this level 2 stuff. That's where we're placing ourself. I am no longer interviewing guest where I understand what they're telling me at this point. I am learning it right alongside our audience which kind of is it's probably useful for audience because I'm asking the questions that they're probably thinking but certainly we are so far outside of Brad and Jonathan's comfort zone that it's going to make 2018 and beyond. Very very interesting. Yeah I agree. This was a great way to get that kick started right here in December 2017 and beyond. So yeah I absolutely love this and I really love the conversation and the comments just continue to pour in. I mean literally as we're recording this on Tuesday morning dozens more comments just came in and it's kind of hard to keep up with.
2809 - 2828 Jonathan Mendonsa So personal thank you to Todd for coming on the show. Wonderful episode. Absolutely love it. It's providing content that we can riff off of for years and years so just thank you for coming on the show. All right so we do have a voicemail. We're going to go and play for you today and this is from Jason and I think it actually ties very well to this episode. So I'm excited to play this for you.
2828 - 2978 Jason - (voicemail contributor) Hey Brad and Jonathan just wrapped up episode 51 with Mrs. Mad Money Monster which is a heck of a coincidence. I just made a big change on Monday quite similar in fact she talked about F.I.O.R And I just started down a similar path inspired by Jillian Montana money adventures her blog and her mini retirement's class uh maybe we can call my path FIPR financial independence partial retirement. And here's how I pulled that off. I have a years worth of living expenses sitting in my bank as F-You money and I'm already about half of my F.I. number and have been for the better part of a year. I just gave notice on Monday and they're thrilled that I give them plenty of notice that I can stay on as a consultant part time. Knowing that now I hear my numbers and by working only 500 hours a year I can leave my F-You money alone. It's essentially a gigantic emergency fund now that means I get to work just 10 hours a week and I'm not on a salary. None of this working 60 hours a week. You know you know you're technically paid for 40 and every year that I do this my retirement savings continue to grow thanks to compound interest and all that magic. And in 20 years when I'm ready to eventually retire my savings will be there ready and waiting for me. In the meantime I can relax and enjoy life. Way more than before because only working 10 hours a week. Also if I decide I want to change things up a bit and work somewhere like say when my daughter who is now almost 11 graduate high school. What's to stop me. Nothing. In the meantime I could spend more time with her. I get to spend more time doing things I'm more interested in and you know just working a teeny bit on the side as it were and then to top it all off. This actually serves as a hell of a good object lesson for my daughter. She's almost 11 as I said and she's already onboard the FI train. She was saying to me a month or so ago how she noticed that almost every single grownup she knows really doesn't like their job very much and she's totally up for saving half of everything she makes. and Being able to retire in five to 10 years which is you know go her and let me just point out one other thing. I've made plenty of financial mistakes in my life but I'm 44. I'm a single dad. Every other week and so every other week and I'm still able to be three quarters retired as of January. That's what a few decisions. Good luck at that time of course and a lot of flexibility can get you. Thank you guys so much for the podcast. Here's hoping this helps someone else come up with a creative solution for their own weird unusual or out of their situation. Take care guys.
savings
2978 - 2992 Jonathan Mendonsa What I love about that is that it highlights the different paths that people take to FI and what I love about that is that that is what risk management looks like when it's done perfectly right and talk about implementation. If you if you take that approach you're just good to go.
2992 - 3013 Brad Barrett Yeah I love that say I a moment speechless. I don't really have anything to respond other than that is exactly what we've been talking about here on the podcast for an entire year is having these options implementing them figuring out what the path is for you for your family. Second generation FI I mean it covers everything. So thank you for the amazing voicemail.
2ndgenfi, families
3013 - 3054 Jonathan Mendonsa All right guys. That's it. Unfortunately that's going to bring this episode to a close as you guys know. We like to finish every episode by doing a drawing for a copy of a book that we found useful. We have two books. We have Dominic Quartuccio's book design your future and JL Collins book the simple path to wealth. We also just released our official choose F.I. T-shirt. So if you'd rather have a T-shirt instead just let us know we can make that happen. If you want to enter the drawing very simple the way it works just go to choose FI dot com slash iTunes. Follow the instructions there and leave us a short written review. And then just send us an e-mail to feedback at choose FI dot com just letting us know you left a review and what screen name you left it under and then every Friday on the Friday roundup we announce the winner. So Brad how many winners do we have today.
testimonial
3054 - 3081 Brad Barrett All right Jonathan we have one winner and the winner is Sean and actually talk about timely here. This is really interesting that he references Tod's episode already and it's great podcasts with timely releases. Choose FI is a great podcast. They released twice per week which is a perfect amount for my drive to and from work. Episode 52 so far is my favorite as it gives some examples of methods of reaching fi that challenges the traditional fire message.
3081 - 3136 Jonathan Mendonsa Wow that is so cool. I love the timely releases part. You know Brad I was looking at the calendar and Monday will fall on the 25th of December this year so we have to have a Christmas episode lined up. I think we got one and I think we're going to make it our year end review. I wonder if anybody's going to listen to it but it will be there for you guys. Timely as usual. All right guys. One quick favor before I let you go today if you got value from this show if you've been getting value from the weekly episodes and you haven't done it yet just take one second it presses subscribe button on the platform that you're listening to this on we're on iTunes Stitcher or on player FM Podcast Addict. We are on your player of choice. Take a second to press the subscribe button and just let the platforms know that you're getting value from the show helps us rank more highly and basically just says that I want to be there when they produce new content. We so appreciate you. Thank you for being here with us on this journey. The fire is spreading my friends. We'll see you next time as we continue to go down the road less traveled.
Jonathan_Catchphrases
3136 - 3143 Speaker You've been listening to choose FI radio podcast where we help middle class America build. wealth. One life hack at a time.

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