You're Doing Risk Tolerance Backwards SB1894

Every brokerage account asks the same question: how comfortable are you with a 20% decline? Are you conservative, moderate, or aggressive? Joe and OG argue that's exactly the wrong place to start, and it's why so many people panic-sell at the worst possible moment. The real question isn't how you feel about risk. It's what rate of return your actual goals require, and whether you can stomach the volatility that comes with getting there. Once you flip the order, risk tolerance stops being a personality quiz and becomes a math problem you can actually solve. What You'll Walk Away With Why "risk" and "volatility" are two completely different things, and confusing them leads to bad investing decisionsThe real order of operations for building a portfolio: goal first, required return second, risk tolerance lastHow standard deviation can turn scary market swings into something you expected all along, instead of something that panics youWhy concentration risk quietly builds up in portfolios, even for people who think they're diversifiedA genuinely surprising take on why "getting more conservative as you age" often doesn't make sense, once you think in decades instead of birthdaysReal answers to listener questions on emergency fund sizing, late-start Roth conversions, disability insurance coverage, and whether the 4% retirement rule still holds upWhy This Matters Now A risk tolerance quiz can't tell you what you actually need your money to do. It just measures a feeling in the moment, and feelings change the second the market gets scary, which is exactly when a plan built on feelings falls apart. Building your investment strategy around your actual goals and time horizon, instead of a gut reaction to hypothetical losses, gives you something sturdier to hold onto when the inevitable rough year arrives. That's the difference between panic-selling at the bottom and staying the course long enough to actually reach the life you're investing for. From the Basement A Labor Day trivia detour into the 1916 origins of workers' compensation somehow spirals into a bit about an "employee named Al" being replaced by AI, which is either brilliant wordplay or a sign the basement crew needs a vacation. Possibly both. Resources Mentioned Stacking Benjamins Field Kit https://stackingbenjamins.com/fieldkit — the all-in-one budgeting and financial tracking toolYell Down the Stairs https://stackingbenjamins.com/yelldownstairs — submit a question for a future OG and Anna episode See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

• 0:00Speaker 00

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• 0:19Speaker 01

  Stacking Benjamins is not for everyone. Side effects may include euphoria, increased ability to meet your goals and aggression from people wondering, quote, what the hell your secret is. Stacking Benjamins may be habit forming, especially if you stick around for the entire episode, wink, wink. Please check with your doctor to see if stacking Benjamins is right for you.

• 0:40Speaker 02

  Live from Joe's mom's basement, it's the Stacking Benjamin Show.

• 0:55Speaker 02

  I'm Joe's mom's neighbor Doug, and yes, you're hearing correctly. We're working hard, just like you on Labor Day. I mean, isn't that why it's called Labor Day, right? I mean, the whole nation gets to work. Wait, what? They all, they all get the day off, but not us. All right, get the union rep in here. Well, while we're here risking ourselves for your entertainment on nearly everyone else's day off, let's talk risk. We've all seen the quizzes, but how do you actually gauge your own risk tolerance and create a portfolio that achieves your goals and lets you sleep at night? We'll help, but that's not all.

• 1:38Speaker 02

  We'll also throw in a money saving tip for Starbucks drinkers and OG and Anna are back. They'll kick off their new season of Money Basics by answering your questions. Of course, I'll share some incredible holiday themed trivia along the way. And now two guys who I can't believe also showered and showed up on a holiday. It's Joe and O J J J J G.

• 2:07Speaker 03

  I love how it goes from not even knowing it's a holiday to amazed that we showered. I think it's just amazed we showered, OG. Hey there, everybody. Happy Monday. Happy holiday Monday, if you're in the United States. Happy just generic Monday, if you're anywhere else. I am Joe Saul Sehi. Across the card table from me is my partner in crime. Partner in crime, when you're talking finance, not a good phrase, I guess. Partner in helping you with your money stuff. Mr. OG is here. How are you, man?

• 2:35Speaker 04

  I am fantabulous. Oh, I'm so excited to be here. Thank you for having me, Joe. First time caller, long time listener.

• 2:43Speaker 03

  I love how we finally get a week in Texas where there's not three digits in the.

• 2:47Speaker 04

  What part of Texas are you in, bro? Cause we are on day 40 of three digits.

• 2:52Speaker 03

  This side of the basement is now down to 98.

• 2:56Speaker 04

  Oh.

• 2:56Speaker 03

  Yeah, good stuff. And you know what? Being out in that type of weather, OG, is risky. We're going to talk about risk. We've even talked about how to create your risk tolerance, like how to gauge your risk. Not how to create it, but how to gauge your risk tolerance and how to gauge risk in a long, long time. I mean, we're always kind of talking around it, but to go right at it, this is a topic we haven't done in a while. So you buckled up, ready to go?

• 3:18Speaker 04

  Yes.

• 3:19Speaker 03

  Excellent. So in just a moment, OG and I, we're going to tackle risk tolerance. Get however you take notes ready, because we're going to help you do this the right way. A lot of people do it exactly the opposite of the way OG and I want you to do this. So get that ready. We are going to hear from a couple of sponsors who help us keep bringing this to you for the value price of free. We're going to hear from them and then OG and I diving into helping you figure out what risk is the appropriate level of risk and how to confront it. Remember Superman? It's a bird. It's a plane. It's Superman. We built the equivalent for your money stackers. It's a budgeting app. It cancels subscriptions. It protects and helps you build credit. It tracks your net worth.

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• 6:23Speaker 03

  Well, I'm sure if you've ever worked for, quote, the man, you've seen the questionnaire before. How comfortable are you, OG, with a 20% decline? I don't know anybody who's comfortable with 20%. I love a 20% decline.

• 6:37Speaker 04

  It's my favorite. It's like Christmas morning. Everybody loves seeing their net worth drop by 20%. So can we do it every week?

• 6:44Speaker 03

  I skip all the way to my Schwab account. Go look at my fidelity statement. Oh boy, I've got 20% less money. How about this one? I love this one too. Would you describe yourself as conservative, moderate or aggressive?

• 6:58Speaker 04

  If you were to sit in a movie theater, would you sit in the front of the room or the middle of the room? Have you heard those?

• 7:07Speaker 03

  No. Does that help you describe risk?

• 7:10Speaker 04

  Apparently, according to some risk tolerance questionnaires that I've seen.

• 7:14Speaker 03

  Yeah, well, if I sit in the front, does that mean I like the risk? Cause I want to pretend the shark's eating me.

• 7:19Speaker 04

  I don't know what it tells you.

• 7:20Speaker 03

  I don't know what that's all about. These risk tolerance quizzes do it all backwards. And today we're talking about something every brokerage firm asks you, and it always seems to be in the wrong order, risk tolerance. So instead of asking you to start off with how comfortable are we declines? Nobody is. Do you consider yourself conservative, moderate, aggressive? I had so many clients back when I was a planner, OG, that would tell me to my face, I'm super aggressive. Who were the first people that would call me every time the market went down? Every single time the market went down. In fact, I still know their names. There were three particular people who.

• 7:57Speaker 04

  Name and shame, Joe. Name and shame.

• 7:58Speaker 03

  It has been so long and I still remember their names. Cause I'm like, oh, I gotta call these three people first, because they said they were aggressive and they're not. Let's kick this off with this statement. Tell me what you think about this. I think you got to start with how much risk do I need to take to reach my goal? I mean, OG, isn't that, isn't that where this really, this conversation needs to start around risk?

• 8:23Speaker 04

  Well, I think that it might even need to start before then. With your permission, I would like to talk about just even that word, risk. I think we use it wrong. I think it's okay how we use it, because we are meaning what we mean. The reality of language is such that when you use certain words, they evoke certain emotions, even if you're using them incorrectly. And we've largely accepted that the incorrect version is the correct version. I think that there's an opportunity to clean up the language a little bit. And all of a sudden it changes the meaning, which then changes the emotion of the meaning, which now makes it a little bit less impactful, maybe.

• 9:04Speaker 04

  So risk on its own means chance of loss. When you're looking at an endeavor, whether it's an investment or it's a, you know, an activity that you're going to do, I'm going to climb Mount Everest. Well, there's a risk, right? The chance, there's some chance that you will lose, literally lose. You may fall off the mountain and you bang, somewhere in that journey, you realize you've lost.

• 9:29Speaker 03

  The final loss.

• 9:30Speaker 04

  Yeah. With investing, especially with how most people invest, which is broadly diversified, even if they're not broadly diversified, they do packaged products, right? A mutual fund, an ETF, you know, even if it's a single theme, it's still pretty diversified in that theme. Rarely do people have all of their net worth in one thing. Some business owners do. Some highly compensated executives have one stock position that incorporates a lot. That's different risk than your investment account that's in your Roth IRA that has three Vanguard funds.

• 10:08Speaker 03

  I am going to want to, by the way, and I know you're going away from this, which is why I want to just bring this up now. I do want to go over the, the different types of risk, because people generally are talking about the one, I think where you're going. But there's this laundry list of different risks that we don't think about because we're so obsessed with the one.

• 10:25Speaker 04

  Yeah. Well, I would submit to the court that what most people think is risk is merely volatility. And if you want to even a cheaper word than volatility or phrase, you could just say up and down. And all of a sudden that surely takes a lot of, a lot of stress out of that word. You know what I mean? Because if you know going into it that you own these companies and they're for good or for bad, priced every single nanosecond, virtually 24/7/365 now, they go up and down. Mostly they go up over long periods of time, but on occasion they go down.

• 11:07Speaker 04

  And frankly, on occasion they go down quite violently for a short period of time.

• 11:14Speaker 04

  But you've never lost anything. You know what I mean? If you own an individual company, which is a different type of risk that you like you talked about. But if you have a mutual fund or you have an ETF, I don't even care what it's invested in. The chance that Vanguard's total market index fund shows up as zero on your statement one day is zero. Because you're assuming that all the companies in all of the world all go out of business all at the same time.

• 11:43Speaker 04

  On the same day. That's just not realistic. And if it is, if that does happen, there's

• 11:52Speaker 04

  we've got all sorts of other problems coming up. If we're talking about what I think we're talking about, which is what is my tolerance for the ups and downs of my investment account? That's not risk. That's volatility or variability. And more specifically, it's just kind of some ups and downs. Risk, on the other hand, is a chance of loss. And to your point about the single stock exposure, there is a chance of risk there.

• 12:18Speaker 03

  Sure.

• 12:18Speaker 04

  That is risky. If you have, you know, if you work at ABC company, you've been getting stock options and you've been getting RCU's and you've got non-qualified options and you're a senior VP and you make 300 grand a year, but you have 7 million of your net worth of seven of your $8 million net worth is an ABC company stock. That is a risk because there is a chance that that single entity does go to zero.

• 12:43Speaker 03

  This is why when we're thinking about volatility, the main risk that people think about. This is why I think we start with the plan and what does the plan demand? Because often we don't think about all the levers. We think about the fact that, well, I don't like volatility or I do like volatility. So if I get rid of the volatility in my portfolio, the chance of a return goes away. So if my plan needs only modest growth and my risk in my portfolio right now has a lot of ups and downs, has a lot of volatility, I might be able to pull that back, OG, and not have any consequences. But if my plan needs these heroic returns to get the early retirement dream or the,

• 13:26Speaker 03

  you know, huge retirement dream that I want, or whatever the goal is, that creates a whole different set of conversations.

• 13:33Speaker 04

  Yeah. And recently, when you're talking about volatility, everyone likes the upside number of volatility. Everybody loves that part. Because, you know, when you're looking at the Monte Carlo simulation or you're doing the Excel spreadsheet or you're meeting with your planner and they say, oh, well, we've averaged, we're, you know, we're averaging 8% of return, you know, on your portfolio or we're forecasting, you know, this is what we're modeling out for our scenarios. And you get 10, everybody's like, high five, we said eight, we got 10, baby, let's rock and roll. Or in the last, you know, five years, it's more like you got 27, you got 19, you got 32. That is also volatility. That is the up part of the up and down.

• 14:18Speaker 04

  So I don't know who needs to hear this, but if you get that side, you gotta be kind of okay with the other side. And if you say, if the market averages 10

• 14:33Speaker 04

  and this year we got 12, I believe that you should understand that at some point in time, an eight's coming to get back to 10. You know, like if you believe that's gonna, you know, kind of even out over time. If you got a 32 one year,

• 14:50Speaker 04

  what might you expect to have happen? You might not be surprised if you get a minus 20 because then you are 10, you know, and I know it's simple, you know, some math person's gonna be like, well, that's not how I, I understand. I'm just trying to make an example here. But that's part of the trade. That's part of the trade of owning companies. And, you know, you alluded to this earlier. It's part of the, the all important decision that you're making, which is if I'm going to be an owner of companies because I need to have inflation protected growth so that I can make my financial goals happen. This is the trade that you make. You're going to have every so often, you're going to see a big minus.

• 15:34Speaker 04

  That's not a risk. It's not going to go to zero. That is not a zero. That is just normal ups and downs. If people educate themselves more about this sort of stuff, then it becomes more palatable. When we talk to clients about this, I'm like, look, there's never a scenario where we get to call, you know, for an annual review and go, hey, Joe, man, great news. Hey, we're down 19%, just like we told you.

• 16:01Speaker 03

  It's fantastic.

• 16:02Speaker 04

  High five, buddy. Woo hoo. Party on.

• 16:04Speaker 03

  Right in the range, right in the range.

• 16:06Speaker 04

  Just like what we thought. Ah, you know, the market itself's down 22, so you'd be down 19. By my math, we're plus three. Ha, ha, ha. No. Dude, listen, minus 19 sucks, minus 15 sucks, minus 10 sucks, minus five is like palatable, still kind of not great. If you see 10, 20, God forbid, 25 or even a 30 someday in your life,

• 16:32Speaker 04

  which happens, like, that is a crappy day. Like, that's a crappy year. What has to happen in the economy for the valuation of companies to go down so much? The future valuation of companies.

• 16:44Speaker 03

  You got employment numbers that suck. You might have interest rates that suck.

• 16:47Speaker 04

  Your buddies are getting laid off. Your job's in jeopardy. You know, somebody that is going through bankruptcy. Your dog is probably sick at the same time as this.

• 16:57Speaker 03

  Your life is a country music song. Right. Yeah.

• 17:00Speaker 04

  You know, like everything that can, the guy you, gal you wanted to be elected is not. So it's like literally everything that could go wrong is going wrong at the same time. And oh, by the way, your portfolio is down 30%. It's like, this is a crappy time.

• 17:14Speaker 03

  Just kick me.

• 17:15Speaker 04

  But that's the part, that's the trade. The trade that you make is that in order to get stock returns, in order to get those average of 10s that we all love to get. And, you know, even really love to get the 12s and the 16s and the 22s and the 31s. Those are really awesome, too. In order to get those, you have to stick through the minus 10s and the minus 20s and once in your lifetime of minus 30.

• 17:41Speaker 03

  Well, and here's what I like, beginning with the goal and beginning with the plan. It's because if I know what I'm spending the money for, and it's not just this nebulous bag of money. In fact, the more I, the more I research retirement, OG, the more I see these people that have just built a bag of money. They're frustrated all the time because they really don't know what they're chasing. But the people that have these much more concrete goals tend to have a happier retirement. They have a happier existence because a dollar doesn't equal this Scrooge McDuck pile of money. It equals a thing. It equals an experience that I get to have or, you know, a dream that I, I get to fulfill. When I start with the goal amount, what do I need? And I know what the time horizon is. The time horizon helps me pick the investment, right? I'm going to use something different if it's three years away than if it's 15 years away.

• 18:26Speaker 03

  So that will cut your risk right away. You're not going to go into a, you know, small company stock when it's three years away. You'll stick with your high yield savings account. When I know those things and I know how much I've already dedicated toward the goal, I know what my savings rate is. It creates this really simple formula, which is I need to still save so much money and get so much rate of return. And that rate of return that I need then becomes my number that I look at when I'm thinking about the volatility that I'm going to have to endure to get there. What I always liked doing was I go through that process and then I go, hey, Mr. Client or hey to me,

• 19:08Speaker 03

  I need an 8% rate of return. Here's the investments historically that have done that. Can you stomach that? Is that stomachable? And if the answer is, oh no, God, I can't do that. Well, then the cool thing is, we're not talking about risk tolerance anymore, OG. We're talking about figuring out your budget so you can save more money. Or we're talking about the goal, maybe push back the goal a couple of years so that you can, you know, be more conservative with the investment strategy. But you don't solve it with a risk tolerance quiz. Cause let's say that I just say that, oh yeah, I hate risk. I hate 20% down. To your point, the down comes with it. You gotta buy it. You, you gotta buy the down to get the up. So if you get rid of the down, well, then you're safely never reaching any of your goals.

• 19:52Speaker 03

  If you're, if your goal depends on it.

• 19:55Speaker 04

  Well, I mean, thinking of it this, I like to look at things as like wild extremes because I think it puts a lot of things in perspective.

• 20:04Speaker 04

  And it's easier to understand the decision matrix when you use like really obnoxious type of timelines or whatever. So if you said, I don't want to have any risk at all. Okay. I don't want any, and we can substitute from here on out, we can substitute the word risk when we might also mean volatility. So that's what I'm going to say. But you say, I don't want any risk. Awesome. We have a product for that. We have a tool. It's called treasuries and or your bank account, same thing, right? So we have a tool for this. If you added up all of like, if you took your living expenses and kind of forecast them out and say, okay, I'm 40 years old today and, you know, I spend $10,000 a month and

• 20:47Speaker 04

  I'm going to for, you know, do some inflation. So by the time I'm 60, it's this amount, right? So it's basically double. And then from 60 to 65 to 70 to 75 to 80, I think I'm going to live to be 90, like the average couple, you know, and you just add it up all those years. Think of it this way, you're going down the road of life. Every so often you got to pay a toll, right? So we can forecast what those tolls look like when, when you just add inflation to your living expenses, right? If you added up all of those toll booth expenses every year of retirement from 65 to 90, whatever, with inflation, and then you went back to your income today, you would not have enough money if you saved every

• 21:25Speaker 04

  dollar of your income from 40 to 65. No taxes, no savings, no living expenses, no nothing. It's just not physically possible or mathematically possible to save enough money with no return, no inflation adjusted return, to have enough money in the bank. So now you're left with, if that's off the table, that's that extreme, right? I can't take zero. The alternative is I can try to like, you know, lever my portfolio, invest in the most aggressive things in the universe, wild swings of my portfolio, plus minus 60% a year. Nobody wants that either. Kelsey, right? I can, and look, that's an option. I mean, like, we

• 22:09Speaker 04

  can play that stupid, you know, that, that, that extreme stupid game of saying, well, if I'm not going to be cash, maybe I'll just put $100,000 on the Lions to win the Super Bowl. Terrible bet. Never going to pay off.

• 22:20Speaker 03

  Great bet.

• 22:21Speaker 04

  Ever.

• 22:22Speaker 03

  Probably gonna win it all. This is the year, man. This is the year.

• 22:27Speaker 04

  You know, finally. So, you know, I love Lions. It's, you know, I hope they win. One of these years.

• 22:35Speaker 03

  But.

• 22:35Speaker 04

  One of these years, bro, is going to be the year. And there's going to be somebody that says, I knew it. I knew this was the year. I should have, you know, back in 26, I should have bet the farm on the 2035 Super Bowl.

• 22:47Speaker 03

  And just to be clear, Stackers, OG and I were talking about this over beers back in 1997. So this is the year.

• 22:54Speaker 04

  This is the year. I feel it. You know, so you got to accept some level, you got to get some level of return. And what you're saying from a planning standpoint, which I agree with wholeheartedly, is when you take random risk tolerance quizzes, it doesn't take into consideration the reality of what's going on. Look, if I had the opportunity to literally take no risk in my life with my money, I would do it. That's a better experience for me. But I don't have the luxury of making $30 million a year and only spending, you know, one, and being able to save a bunch into my treasury account and, and make it work. I got some philosophical differences with why you'd even do that, even if that

• 23:38Speaker 04

  was the case, but just on the math. So if I've got to take some, the next part of the plan is to say, okay, so if I can forecast what my income is going to, my income needs are going to be. So I know my living expenses and I can do all that calculation. I know that now you can add up all those cash flows and figure out, okay, well, how much do I need when I get to retirement? Like, what's the bucket size need to be? You know, it's $2 million. It's $5 million. It's $1.2 million because I got social, you know, whatever. Now you know what that is. Now you can say, okay, well, here's what I have to get to. Here's what I have today. Here's what I'm saving because you can't, just because the plan set, you know, what if the risk tolerance thing says, well, you just save 10,000 a month? Well, dude, I don't make 10,000 a month to save. That's a stupid thing to do,

• 24:23Speaker 04

  right? Here's how much I'm saving. Here's how much I have. Here's what I'm trying to get. The variable that you can solve then, which is what you're getting to all this, Joe, is now the rate of return. So how fast does my money have to grow? I know this bucket is the size I need. I know this is how much I have today. I'm saving X dollars per, per month. How fast does the money have to grow? And when you solve for that, it becomes more of a decision of what are the tools that are going to fill that bucket to get that number? Instead of, well, what's my risk tolerance? Or what, you know, how do I feel about this? It's like, how I feel about it is immaterial.

• 25:01Speaker 03

  It's so relevant.

• 25:02Speaker 04

  I'm solving for a, for an outcome. If I need 8% to reach my goals, I need to go fill my investment account with a bunch of stuff that gets 8%. Problem solved. You know, if my investment account says, or if my investment calculation says, I need 17%. Start shopping for 17% rate of return stuff. What you will find, that don't exist. Okay? Now you got to go back to the drawing board. Do I, well, I can't retire at 60. I got to retire at 65. I got to save $500 a month, not 300. I'm going to spend a little bit less money in retirement. I'm not going to spend 10,000. I'm going to spend 9,000. There's a lot of variables.

• 25:38Speaker 03

  Because now you're dealing with all the levers instead of just the one lever. How do I feel?

• 25:43Speaker 04

  And you're being realistic with what's going on in your life.

• 25:45Speaker 03

  Like it's in some type of a vacuum, you know? Your risk tolerance isn't in a vacuum. You're now, you're now achieving for the goal. You're going to get it.

• 25:52Speaker 04

  It gives you the power when you're looking at it through the eyes of, well, what do I have to do to reach my goal? Now, all of a sudden, you've taken all the stank off of that. You're, now you're just shopping for the thing that solves the thing, right? You're not going to look at treasuries because you go, well, hold on, what do treasuries do? Oh, three? No, no, I don't, I don't need three.

• 26:11Speaker 03

  Can't do it.

• 26:12Speaker 04

  What are the eights? Oh, large company stocks. Yeah, yeah, I'll take some of those. That, that gets eight. A small international, you're just shopping in the, in the area.

• 26:21Speaker 03

  Yeah, you're no longer going for what's the hot investment. You're going for, I have this goal. There's this wide world of investments. 85% of them no longer matter.

• 26:30Speaker 04

  Yeah.

• 26:31Speaker 03

  And now my decision-making process is so much cleaner. It's so much cleaner.

• 26:34Speaker 04

  We're right now finally replacing our dishwasher. Well, we're in the process of it. And, and we've, my wife, not me, has made a list of all the things she wants in the new dishwasher. You know, when you go to Nebraska Furniture Mart and you're like, I'm shopping for dishwashers. They're like, well, here's the 17 aisles of dishwashers. Which one do you want?

• 26:53Speaker 03

  Good luck with that.

• 26:54Speaker 04

  I don't have a frigging idea. Like, I guess maybe a silver one. They're like, okay, these are all silver. Now which one? Oh, I recognize that name. Is that a good one? Yeah, that's one. That one's great. Yeah, that was awesome. But instead, when you make a list of like, well, what do I want? I need something that does this. Here's a pain point that we're, we're trying to fix. Like, it doesn't clean bowls for crap in our existing ones. So this one has to have, we need comments on this one that's like, gets my bowl sparkling clean. Like, that's the one I'm after.

• 27:24Speaker 03

  Right. I want it to run quiet. I want to have the two different sprinklers, the one in the middle and the one on the top.

• 27:29Speaker 04

  Or whatever. She wants to be able to clean it. Like she wants big parts that are takeoutable so that we can clean it because, you know, it helps the longevity. She put all those things into chat GPT and chat goes, well, here are your two options. Which one of these two do you like the best? It's not like, which, we were talking to somebody earlier this week about their 401k allocation. And, you know, what does Fidelity do? They go, hey, great news. You can invest in anything you want. Literally anything. Not only is here's the list, which is two pages long of stuff, there's also this little line I have at the bottom. This is brokerage link. And when you click on that and you go, well, what's up? What do we got over there? Anything?

• 28:11Speaker 03

  The whole world.

• 28:13Speaker 04

  What do you mean anything? What do you want? It's like, it's like the street corner guy, right? Like, man, I need a little something. Like, well, what do you want? I got a little everything, you know?

• 28:23Speaker 03

  Hey, over here.

• 28:24Speaker 04

  Yeah, yeah. Just, just a little taste. I need a little taste of some, some AI, AI ETF. Give me a little taste of some AI ETF. You got a little SpaceX under there? I could be a little SpaceX.

• 28:37Speaker 03

  If you're wondering, by the way, how to measure volatility, there's lots of different ways. My favorite one looks at exactly what you're talking about, OG. And in your 401k statement at work and your brokerage account, you can dive into this with any of the funds out there. It is a metric called standard deviation. And standard deviation, I love standard deviation. When I was an advisor, I love standard deviation because.

• 29:04Speaker 04

  Okay, nerd.

• 29:05Speaker 03

  Well, a couple of weeks ago, I was coming back from Anchorage on my Alaska trip. And before we take off.

• 29:13Speaker 04

  As one does.

• 29:14Speaker 03

  Before we take off, the captain goes, hey, at the beginning of the flight and probably for the first 20 minutes, we're going to have the flight attendant stay in their seats because we're expecting some pretty serious bumps as we, as we go. So he tells me ahead of time that it's going to be a bumpy ride. So guess what? When he takes off and it's hella bumpy, OG, I mean, we are going back and forth. We got this crosswind. It's crazy. You know, this big old jet airliner just going left and right, up and down. And, and I didn't panic at all because he told me ahead of time. I knew ahead of time what it was going to be. That's why I like standard deviation. So if you dive into your mutual fund or your ETF and you find the line that says risk measurements, standard deviation

• 29:59Speaker 03

  and math nerds, again, I'm going to make this easy. I'm not going to make it 100% accurate in a mathematical sense, but let's say this fund has over the last 10 years a return of 12%.

• 30:17Speaker 03

  And its standard deviation is 15. This means on most normal years, again, we're just going to keep this easy for brand new people math. So please don't write me because I understand it's more complicated than this. That 10 year number could be 15 points either way, meaning you could get negative three. You could also have positive, positive 20, you know, add 15 to whatever I said, oh, 27. But generally it's going to be a fairly high number when you're looking at numbers like 12. It's going to be higher than that. Frankly, you could get numbers that are in the double digits. You've talked about before on the show where negative 14 happens fairly often in the stock market. It's a regular thing. It's within the realm of the standard deviation.

• 31:02Speaker 03

  So I like it when I pick a fund, I go look at standard deviation so that my panic when the market drops, and I look at the standard deviation, I'm like, oh, this is regular. Like this, this is just, it's what happens when you lift off from Anchorage. You have a little bumpiness as you're, you're leaving town. I really like diving into standard deviation. It's a great volatility measure for me, just so that I know what the bumpiness is. And when I was an advisor, I'd look at standard deviation people and I'd be, I would ask them. I'd say, you know, is this the type of ride you're looking for? And if it's not, if you can't handle the negative side of that standard deviation,

• 31:42Speaker 03

  only the upside, then we've got to figure out a way to do this in a different manner.

• 31:48Speaker 04

  Yeah, especially in the context of your overall goal, which is, you know, so what don't you? If you don't, and this is the tool that we're supposed to have, then we have to start changing, you know, then we have to start changing the goal.

• 32:03Speaker 03

  Yeah, because, because the real risk OG is not the market, to your point. The market isn't the real risk. The real risk, if you're broadly diversifying your goal, the real risk is you're going to blow up your plan and nobody ever blows up their plan at the optimal time. Like I never, I never saw somebody blow up their plan at the right time. It's always at the most horrible time when there's no, I just can't take anymore. I just, oh my God, I can't take anymore. I gotta dump it now. And you lock in these losses because you bailed on your plan. That's the big risk. Speaking of risk, because as you mentioned earlier, and I love that you reframed it volatility, because thinking about up and down is good. As we mentioned early on, there are several different risks. The one that we've been talking about is market risk.

• 32:47Speaker 03

  I want to talk about just three others that our stackers will see fairly often. And one that you mentioned briefly that you see a lot in portfolios, probably when you first meet with people OG, is concentration risk. Can you talk a little bit to concentration risk?

• 33:04Speaker 04

  Well, it's just, I mean, a broad definition here. It's the, you know, narrowing of your portfolio thesis to one particular idea. And this is very common, two ways. One is unintentionally where, you know, you're getting some stock options or you have the ESPP at work, your company matches in company stock. And it's just, you haven't really done anything with it. And now all of a sudden you wake up one day and you've got a bunch of company stock. It might even be a company you don't even work for anymore. It's just now it's a large portion of your portfolio and the stress. Or the tax bill associated with unraveling some of this gets a little high. And, you know, now we just got this decision of like, do I pay the tax man?

• 33:46Speaker 04

  Or do I accept the volatility and like, you know, or the risk, as you said, or how do I deal with this? And most people's way of dealing with it is I'll just put my head in the sand and hopefully it'll work out. Best wishes. So, you know, we want to develop a plan on that. That's tax smart as well. The other kind of concentration risk I think is more intentional. People don't see it as a risk, but it really is. It's where you start hearing things and you say, I heard that technology is doing pretty good. I should have some tech. And so you buy a tech fund. And then maybe, maybe that tech fund actually does pretty well this year. And so you buy a little bit more tech fund. And then on a podcast, somebody says, you know, Google's poised to do some pretty good stuff.

• 34:29Speaker 04

  So then you go buy Google stock and then you can't have Google by itself. So you buy some Nvidia and Apple stock too. In addition to your, and now from an allocation perspective, your investment thesis has been kind of whittled down to US large tech stocks, you know, with a smattering of other things, because when you're rewarded for making those decisions, because sometimes it's, you know, it's bad to be punished for it. But sometimes it's also bad to be rewarded. When you're rewarded for it, especially if you were somebody who invested in some of these things as tech is an example, and it did really well, and then you invested more and it kept on doing really well. Now all of a sudden you have this same problem of like, a whole bunch of a percentage of my portfolio

• 35:12Speaker 04

  is in this one idea, and I've been rewarded for doing it. And so what's the emotion there? The emotion is like, why would I make a change here, dude?

• 35:20Speaker 03

  I gotta keep it. This is the engine.

• 35:23Speaker 04

  Yeah. So obviously there could be some tax issues with unwinding it. But the problem is, and what you have to kind of ask yourself is, do you feel lucky? Well, do you pal? No. The problem is, is like, I can't prove to you that that idea, whatever it is, you know, we kind of talking about tech, but like whatever your focus has been on your portfolio, I can't prove to you that you're wrong anymore than you can prove to me that you're right. No one knows what the future is going to be. And the risk is when you have that single idea, is that that single idea stops being the, the thing that's working. And the whole purpose of diversification is you never have to say you're sorry for anything.

• 36:07Speaker 04

  You have like one of everything. And so you have some tech and you have some industrials and you have some old companies that have been around a long time. And you have some brand new ones that are up and coming. And you have US based ones, there's non-US based ones. And whatever happens to be, you know, in vogue, you have a part of that, you know? But you're never, you're never making a killing, but you're never getting killed.

• 36:27Speaker 03

  Yeah, this concentration risk truly is a double edged sword. Like if you want to get rich quick, if you want to get rich quick, concentrate in one or two things, OG.

• 36:36Speaker 04

  And be right.

• 36:37Speaker 03

  And be right. Yes. And if you're wrong, you don't got to worry about it. Because, because all the money's gone. It becomes much more of a bet. Concentration risk is how people get rich off the stock market. It's also the vast majority of people go broke in the stock market. And I don't know about you, but I prefer to bring in my money other ways and then use the stock market to maintain it and to have it reach my goals. I'm not looking at the stock market to make me wealthy. I'm looking at the other things that I do in my life to, to make me wealthy. Number three is inflation risk. OG, you covered this one extensively. If your money's not beating inflation, you got to save dollar for dollar or even more what the goal is going to be. And that's just that math ain't mathin'. But number four.

• 37:21Speaker 03

  So those first three, market risk, concentration risk and inflation risk, those are all risks, which are, you know, market risks. The fourth one really is a planning risk OG. And this is one people don't think about a lot, but this was something that you think about. I know all the time, which is longevity risk. Longevity risk is something financial planners, I think, think about much more often than people just trying to get by and manage their portfolio on a day to day basis.

• 37:48Speaker 04

  I fully recognize that there's a game that we're all playing, which is try to exactly time out how much money I need for how long I'm going to live so that I can spend the exact amount. If you're hiring us to help you with that, I want to err on the side of having too much. That's, that is the side I want to.

• 38:09Speaker 03

  Predicted last month was going to end your life. I'm so sorry.

• 38:14Speaker 04

  Yes. Because, I mean, look, golly, the last three weeks, what are the two most mind boggling things science wise that have come out? Have you caught any of this, Joe?

• 38:25Speaker 03

  I was in the wilds of Alaska.

• 38:27Speaker 04

  Scoreboard. Moderna came out with something that ostensibly cures skin cancer. And some other company, I don't know which one it is, just got FDA approval on a drug that profoundly changes the life expectancy for pancreatic cancer.

• 38:44Speaker 03

  Wow. Oh, that's a big one.

• 38:45Speaker 04

  Yeah, absolutely it is. I have a friend who had a blood cancer. If he would have had it a year earlier, this is how he tells the story. If he would have had it a year earlier, they didn't have the medicine that cured him a year earlier. So the things that we know about today, you know, we just have no idea what's going to happen in the future. So I would rather err for you to, you know, live a little longer and have a few extra bucks. So I know that that's an issue, but the, the other part of it is more just kind of philosophical, which is, I just can't wrap my head around. And I was talking to somebody a couple of weeks ago about this. The question was, okay, you know, I'm 45, like, when do I start getting more conservative in my portfolio? I was like, never. Why would you ever do that?

• 39:30Speaker 04

  You're finally to the point. So you've saved your whole life, right? You've saved, you've invested, you lived through Y2K, you lived through the great recession. You lived through the COVID debacle, the market going down 35% in 17 days. You lived through 2022 and the market took a crap down 20%. You stayed the course. You've done all that. Now you've got this portfolio that's finally corpus that you can draw from for the rest of your life and never run out. It's fantastic. And now you go, now I'm good, brah. Like, you know, if you were the person that had three million bucks a year ago, today you have close to four million if you kept it invested, right? The difference of like, I'm retiring, I've got my lips above water. If everything works out, I'm good.

• 40:13Speaker 04

  The difference between that and having twice as much of that is night and day. Like in terms of your experience, the experience of the things around you that you care about, the people, the places, the things that you want to support in your life. Don't mistake this. You need to have money that's available for tomorrow. If you're going to retire at 65 and you're 63, you need age 65 money, a hundred percent. But the vast majority of your money is 68, 69, 70, 71, 72, 73, you know, like it's way

• 40:40Speaker 03

  Future you, future family.

• 40:42Speaker 04

  So why in the heck would you have any sort of different investment philosophy for that money that you're, you know, you're 65, you need money when you're 95, that's 30 year money. That's like asking a 35 year old, well, you know, I mean, you're almost to retirement, so you should probably be conservative. You know, like no 35 year old would look at 65 and say, well, I should be conservative today with that money. So inflation risk kind of ties into longevity risk, I think, which is the fact that your purchasing power loses value or your dollar loses purchasing power, I should say it better way. The only solution to that is owning companies. So own them forever.

• 41:21Speaker 03

  And think timeframe, not your age. I think that's the big point. 35 to 65 is a 30 year timeframe. 65 to 95 is a 30 year timeframe. Think about when I'm going to use the dollar, not my God, I'm 65 years old and everybody says this chart on BuzzFeed said I'm 65 years old, so I need

• 41:37Speaker 04

  BuzzFeed? I forgot about that company.

• 41:40Speaker 03

  I need 80% of my money in bonds or whatever it might be. I don't know. Let's package this up stackers into usable stuff. The order goes this way. Start off by defining your goal. Number one, you're not going to risk picking the wrong investment as much. Number two, you're going to be thinking about your timeframe. Number three, you're going to be happier because happier people are people that are planning for specific events, not just building a pile of indeterminate indiscriminate money. Number two, determine what return that plan needs. And then number three, look at the volatility that comes with

• 42:19Speaker 03

  that plan. And then if you can't handle that volatility, then make a change. Don't ask yourself whether I'm comfortable or not. I love OG when you said that's immaterial. It only matters after you know what the plan is. Can I stomach my plan? If you can't change the plan, don't try to change your personality, right? Then number five, look at the risks inside your portfolio, the market, the concentration, the inflation, the interest rate risk, longevity risk, those things. So I want to wrap with this. Build the plan first and then take only the risk the plan actually requires and that you can realistically stick with. That's the way to get your goal. Hey, I see Doug coming back to the table.

• 43:02Speaker 03

  I don't know where he's been this old. I think he's realized that it's Labor Day OG, so he's going to work as little as possible. It's about time you got back here, dude. Doug coming down to share today's trivia question. Afterwards, we're back with season three of OG and Anna. Can't wait to hear because they are tackling four of our stacker questions. You want to hang out and hear that right after Doug. Doug, what do you got today?

• 43:29Speaker 02

  Hey there, stackers. I'm Joe's mom's neighbor Doug. And man, this has been frustrating. Last week I sprained my vocal cord. Well, I mean, I could tell it was about to go. So I filed a claim as quickly as possible and it got denied. Maybe that's because six months ago, I also filed a claim a little prematurely. I heard some guy named Al was trying to take my job. So I filed for unemployment like right away. Got to set your sights on the future. Am I right? That said, today is the anniversary that rightfully ensured that if someone was injured on the job, they'd receive compensation. What type of claim is it that was instituted back in 1916 and still exists today? I'll be back right after I

• 44:10Speaker 02

  look into this guy Al. He's apparently got a can do attitude because they say he's coming for your job too, stacker. Maybe you should come with me to file for unemployment.

• 44:23Speaker 03

  Well, you may know the chaos is the name of the game here in mom's basement. What with guests coming in and out, Cooper the cat getting in the way, Doug being, well, being Doug. The holidays make it even worse because it's all about food and big meals. And the problem is prepping for those takes forever. But what about those between meals, right? The meals between those huge, huge, huge bookends. Well, that's where factor comes in. Factor is made with high quality ingredients that you recognize and trust with over 175 banned ingredients. You always know you're eating something that's good for you, even when you don't have time. It's ready in two minutes, whether it's lunch

• 45:03Speaker 03

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• 45:49Speaker 03

  I use factor and you should too. So let's eat real stackers. Head to factormeals.com/sb50off. Use code sb50off. And you know what? You're going to get 50% off and one free breakfast item per box for one year while supplies last until December 31st, 2026. That is code sb50off at factormeals.com, sb50off at factormeals.com. See website for more details. There is a financial conversation that's coming to millions of American families and there's a pretty good chance nobody wants to be the person who starts it. Inheritance.

• 46:29Speaker 03

  And here's why that matters. An estimated $124 trillion to heirs in charity is expected to be transferred by Americans over the next 20 years. It's an extraordinary amount of money, but Kiplinger's research found that 51% of adults and their parents, get this, never talk about money. And there's a pretty big disconnect. 47% of parents expect to leave a meaningful inheritance while only 24% of adult children expect to actually receive one. Nearly 30% of parents don't even have a will in place. Maybe it's time we talked. Kiplinger calls it the trillion dollar talk, a conversation about inheritance,

• 47:09Speaker 03

  estate planning, wills, and the questions families should be asking before those decisions become urgent. Because knowing what your family wants and having a plan for it can be one of the most important financial conversations you will ever have. Ready to start yours? Visit kiplinger.com to learn more about the trillion dollar talk and what this historic wealth transfer could mean for your family.

• 47:35Speaker 03

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• 49:02Speaker 03

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• 49:38Speaker 02

  Hey there, stacker. I'm Al lover and guy who apparently is ready to play alongside the robots, Joe's mom's neighbor Doug. Okay, so I asked Joe what the chances were of Al taking my job, and he said a little less than 100%. That's a great number, right? Actually, what he texted back was that it isn't Al who's going to take my job. Apparently, his name is A.I.? I always thought it was an L. Must be one of those Eastern European names, A.I. But nothing to worry about now, so I'll go on to the trivia question, which was this: On today's date back in 1916, an act was passed systematizing a claim system that workers could use to ensure that if they were hurt on the job, they'd receive

• 50:21Speaker 02

  some money. What is the name of this system? If you said workman's compensation, you got it right. Man, and on that note, I wonder if there's a claim form that lets you get out of washing the tailpipe at Joe's mom's Harley. I'm off to find out. See ya.

• 50:43Speaker 04

  All right, Anna, we are going to be back for an abbreviated season three, this session, this season, I guess. But no less hard hitting, high-quality work that you're expecting after our little summer hiatus. Did you have a nice summer?

• 50:58Speaker 05

  My summer was gorgeous. We did so much fun in the summer sun. How about you?

• 51:03Speaker 04

  Fun in the summer sun, yeah. Yeah, it feels like it's already fall. Weird. Pumpkin spice latte season.

• 51:09Speaker 05

  You just told me it was like 100 degrees.

• 51:11Speaker 04

  Yeah, but it's PSL season.

• 51:14Speaker 05

  Okay, that's true. You can get it iced, too.

• 51:19Speaker 04

  No, thanks. All right, so we are going to start today with a little Q and A. We kind of had piled up a number of questions that came in over the course of the summer and just some follow-ups and stuff that we had in seasons one and two, so we'll hit those. And the rest of the year, or the rest of this season, rather, we're going to dive into some of those retirement planning decisions that are pretty much one-time decision-making, right? So, social security choices in terms of timing and some planning scenarios around that. Talk a little bit about Medicare. Talk a little bit about retirement planning distributions, and maybe a little bit of long-term care insurance. Some of these kind of late, mid-50, early 50-type decision, and if you're thinking, well, I'm 38, what the heck do I got to learn

• 52:02Speaker 04

  about this stuff? It's just things to think about as you're building out your retirement plan. So, that's kind of the tentative schedule, anyway. I don't want to say it's 100% sure, but we're pretty confident.

• 52:12Speaker 05

  Nothing's 100% sure.

• 52:14Speaker 04

  Nothing is 100%, except your ability to answer these questions. So, here we go. First one is back to season one about emergency funds. I did the math. So, this is season one, episode three, if you want to recall that. I did the math on my cash reserve, my emergency funding, and it came up with that I needed nine months. That seems like a boatload of cash to just be sitting in a bank, not doing anything. Do I really need all this?

• 52:40Speaker 05

  Absolutely. You could get up to, so the whole framework is based off of anywhere from three to 11 months of expenses, monthly expenses, that then you're going to multiply by that number. If you are getting up to nine, 10, 11, it's just because you probably have some factors in your life that need this type of support and to make sure that if you get into a situation where you lose your job, you have high fixed expenses, you might have a lot of debt involved that you have to make payments on, that you can support yourself during that time. So, absolutely, like, yeah, it's a bummer. It's not going to be sitting in your investment account, in your brokerage, your 401K, whatever it

• 53:24Speaker 05

  is, but that's the price you pay so that you have that reassurance that if something were to happen, you would be okay to support yourself.

• 53:31Speaker 04

  Yeah, it's really around the decisions around, or the factors, like you said, around the risk that you have. Maybe a single income, maybe high fixed expenses, you already mentioned that, variable compensation, you know, if you're using up a lot of your bonus income or RSU income to fund your lifestyle, that's going to drive a higher number. And the interesting thing about this, people think it's a waste to have this money in cash, but the reality is, is it actually is what allows you to have the money invested. Because if you didn't have a bunch of cash, you'd have to have different types of investing, lower conservative investing type of accounts, to offset the fact that you might actually need this money or you have this big risk of having to draw. Because when are you going to lose your job?

• 54:14Speaker 04

  When the economy is doing really well, or when the economy is doing really poorly? When are you going to have a reduction in commission income? When the economy is doing really well, or when it's doing poorly? When is your RSU value is going to be crappy? When the, you know, and so it's like, all of these things, if they're going to hit, they're going to hit when things aren't going well anyway, you know? And so, you want to have this protection. The other thing is that it allows, having a big cash reserve allows other things. You can have higher deductibles on your insurance, car insurance, homeowner's insurance, that sort of thing. And sometimes, if you have debt, I'll tell you, for us, for example, we're in the middle of a refinance thing of a line of credit that we have, and because we have a cash reserve, we're actually getting a better rate because the bank says,

• 54:56Speaker 04

  oh, you have this higher relationship with us. Now, real quick, this doesn't mean this money has to be sitting in cash, like literally in a shoebox or in your checking account, high-yield savings, treasuries, money market fund, you know, you can be getting 3%, 4% interest or dividends on this. Not market rates, not market returns, I should say, but at least a little something, you know? So, if it's sitting in your checking account, I agree. Okay, let's talk about question number two. The question really centers around the tax control triangle. So, we talked about having money in different buckets, and it has different tax treatment going in, different tax treatment going out. And the question

• 55:39Speaker 04

  says, looking at my 401K, all I've done is pre-tax contributions. I got my employer match. 90% of my portfolio is on that side of the bucket. I'm 54 years old. Is it too late? Is it even worth trying to do anything here at 54? What do you think about that?

• 55:56Speaker 05

  It's never too late. Never say never.

• 55:59Speaker 04

  It's never too late.

• 56:00Speaker 05

  There's been a conversation I've had with a lot of clients this week about Roth conversions, and how if we look at the tax triangle today, maybe it doesn't look perfect, but we have time before we start getting into RMD time period, which is a long time horizon. We have time before we get into Medicare premiums, IRMA, coming and being involved in the planning picture. And so, we have, it doesn't have to just be that your savings right now is directed into Roth. It could be that the plan is, hey, I'm at the highest tax bracket right now. I'm going to do some pre-tax contributions, and then, once I retire, income drops down, I'm in a different tax bracket. That's when I'm going to prioritize Roth conversions

• 56:45Speaker 05

  and kind of try to redirect the pie chart of brokerage, pre-tax, and after-tax money.

• 56:55Speaker 04

  And there's some other decisions here, too. If you're starting this year, or certainly next year, if you're a highly compensated employee, over 150K this year, thanks, over 150K, and you're doing catch-up contributions, so over 150, and you make, and you are over 50, and you're doing that extra catch-up amount, that all has got to be Roth this year. So, you know, it's not, if you've got 90% of your net worth in pre-tax, you're not going to be making a lot of impact there, but there's some. And then, secondly, from a planning standpoint, this is where some of these other decisions come into play around charitable contributions, kind of timing of those charitable contributions. Maybe you hold off on it for a couple of years while your income's really high, wait for it to

• 57:39Speaker 04

  be a low-income year, bunch, a bunch, a bunch, a bunch, oh, boy, of charitable contributions, drive that income really low. You can do Roth conversions, like big chunks of Roth conversions, $100, $200,000 conversions at that time. There's a lot of planning decisions that go into this. But I also want to say this when it comes to the pre-tax versus brokers versus Roth side. I've never met anybody that's got a, you know, 3 million, or 5 million, or $30 million in their IRA, that goes, yeah, I'm really mad I got 30 million in my IRA. I got to pay taxes on all that.

• 58:11Speaker 05

  I messed up.

• 58:13Speaker 04

  You know, it's like, okay, you know, you still got all this money. And, right, if we could have gone back in time, maybe you might have built it a little differently. But if you've been saving, and you've been contributing, and the money's invested appropriately, you've had a good run, you know, and that's 90% of it, right? Like, 90% of your solution is investing money, not touching it, having a good asset allocation. The other 10% of planning, which does matter, but the other 10% is, you know, did I get the timing right? Is the tax bill exactly right? All that sort of stuff. So, don't beat yourself up too badly. And there's always some planning opportunities in the future. Okay, third question. This one's kind of interesting about insurance coverage. So,

• 58:56Speaker 04

  this is from number two, season two, episode two, calculating disability coverage. So, this is if you get sick or hurt at work, or get sick or hurt and can't work, I should say. Somebody writes in, we only have disability through work. 60%, that's good enough, right? I mean, if I'm saving some money and I get 60% of my income from group coverage, I'm good. Yes?

• 59:19Speaker 05

  Yes, I am glad that you have that. Yes, period, move to the next question. You're fine.

• 59:24Speaker 04

  Next question.

• 59:25Speaker 05

  I think that having 60%, if you get that offer through your employer, that's awesome. There's two things I would look at before considering anything else. Number one, is your benefit going to come out tax-free? That number, it being 60% of your income, changes if we can then make that benefit tax-free. It's not actually going to change when you do your open enrollment, but it's going to change if we do an actual calculation. You want to make sure that if your employer is paying the premiums on your disability policy, that you are paying the taxes. It's called imputed income. So you want to make sure that that's listed on your pay stub. It might be like $2, it might be $100, that you're paying the taxes on the premiums.

• 1:00:09Speaker 05

  This is going to ensure that the benefit comes out tax-free. So then it's actually covering a little bit more than 60% of your income.

• 1:00:15Speaker 04

  Yeah, and not all employers allow this sort of, you know.

• 1:00:19Speaker 05

  And some of them automatically do it, too. So you'll have to check that out when you do open enrollment. The other thing I would look into is, does your employer allow you to increase your disability policy, but you have to pay for it? This typically is going to be less expensive than going out and getting a private policy. They won't probably let you do more than 10, 20% on top of a 60% policy. Adding that in, it's gonna be worth it if you ever are in a disability situation and you are collecting the benefit. So highly recommend trying to max out as much as you can disability-wise and going through your employer first for that is definitely going to be more cost-effective than trying

• 1:01:04Speaker 05

  to find a private policy to cover you.

• 1:01:07Speaker 04

  Yeah, largely because all of the, you know, you're grouping all of the people together, and so you're sharing that risk pool, so to speak. I agree with the employer side, try to get as much as you can from your employer. And I think the other thing, this is kind of how I've always thought about this with disability coverage. If you're in a two-income household and one person gets sick or hurt, there's probably some fungibility and expenses and sort of thing that you're still going to put food on the table, right? You're probably not going to have to worry about a roof over your head. Now, maybe you got to sell the house, or maybe you got to make some upgrades, or you know, whatever, and that's some stress. But the thing that doesn't happen with disability insurance when you're at 60% coverage is you lose the ability to save.

• 1:01:50Speaker 04

  And so if you think about your income as 100%, and maybe you pay 20% in taxes, you know, and if you're living the dream, you're saving 20%, and you're living on the other 60, right? Well, if you're getting 60, you're living okay. You know, you're going to be about right, okay. But disability insurance ends. And what group coverage doesn't provide necessarily, unless you do some extra stuff, like you said, is that delta between what you're living on and what you are currently saving. So you can't put money in your 401K when you're on disability. You can't get an employer match when you're on disability. You're probably not getting RSUs and stuff when you're on disability. Not to mention, maybe your disability only covers your base salary, not benefits, and you know, all that other short stuff.

• 1:02:31Speaker 04

  But I would look at this and say, I'm insuring my income, but I also need to maybe consider insuring my savings rate. And that's that extra 10, 15, 20% that you're talking about. Worth exploring. Again, I think, you know, from a planning standpoint, all of these things are decisions that kind of all fold together as you're building out your, building out your financial plan. Okay, maybe one more, we'll go kind of quick, go quick with this one. Yeah, right. Is the 4% distribution rate, the 4% rule, is that still realistic, or is this outdated? I don't know if the person's referencing some new research, or if they're, or if they're referencing the market's up 20% a year, like, why do I have to still take 4? I'm not sure. I'll put you on the spot and ask you if you can do it in 30 seconds.

• 1:03:16Speaker 04

  I don't know that 30 seconds is a great timeframe. Here's what I would do, and what we were talking about here in this season and that calculation was how to calculate your retirement income, or what your portfolio need is to draw from for the rest of your life. And there's some research out there right now that suggests maybe that number can be as high as 5% or 5.3. But I think a lot of this is going to come down to, when are you using it? And how much margin of safety do you want? Look, at the end of the day, some of this is luck, and you can't predict luck. You know, if you're the person that retired January 1st of 2007, you're like, I got a million bucks, I'm going to live on 40 grand a year, 4% rule, life is good, I'm going to go on a cruise, I'm not going to look at any news or anything until January 1st

• 1:04:01Speaker 04

  of 2008. And you come back a year later, and you're like, so, how is everything going? My first year of retirement was awesome, how am I doing? Well, your portfolio went from a million bucks down to 960 because you took 40 grand out to live on, and then it went from 960 to about 650K, you know, by, by January 1st. The interesting thing is, is if you still took out that 40 grand the next year, by the time 2012, 2013 rolled around, you're back to about a million. Like, you came back. The risk that you run by taking too much out is if you get unlucky and you take money out and the market goes down, and you take money out and the market goes down, there's not enough juice left to recover it.

• 1:04:41Speaker 04

  And so what the 4% rule, or 5% rule, or whatever you want to call it is based on is, what's the highest probability that in the worst-case scenarios you can still draw money from? I don't think, Anna, this is true for you, too. We don't like to do one-and-done retirement income plans. They're very dynamic, based on what's really going on in your life, what's really going on in the world, and giving you a range of distribution possibilities, I think, allows for the flexibility that most people want. Very few people do I know, and do we talk to, that say, I can't wait to save all this money and not spend any of it, and like, be able to donate tens of millions of dollars to my kids, you know, when I'm 100 years old. You want to balance that out, right?

• 1:05:26Speaker 04

  You want to maybe leave some for the future, you also want to have a little fun today. There's, there's a balancing act. And I think part of our job is to balance out what's really going on. And when you have a sequence of events, like 2020 through 2026, like we're in right now, and the market's done really well, the economy is strong, and portfolios are growing faster than, than we project, or have projected, it's like, great, like, this is the time to have a little extra, just like in 2007, 2008, maybe it's the time to tighten the belt just a little. So 4% is a great number to use for a finger-in-the-wind guesstimation, but probably not great if you're going to base your entire retirement journey on.

• 1:06:12Speaker 04

  I think maybe we went a little too long, but you know, what is Joe going to do to me? You know, he's got to see me three times a week, so he might fire you, Anna, but he's not going to fire me. Next week, we've got social security on the agenda, timing and kind of thinking through, what are some risks about early retirement? This is really the angle that I want to look at this in, is early retirement, social security decisions. So you retire at 50, or 52, or 55, what is that going to do to your social security benefit, how to think through that?

• 1:06:38Speaker 05

  Yeah, this is a decision I'm currently in the middle of right now.

• 1:06:41Speaker 04

  You're going to retire at 50, and it's going to affect your...

• 1:06:43Speaker 05

  Oh, no, way earlier.

• 1:06:46Speaker 04

  Okay, well, I guess that's, on that note, we have other things to talk about. So, back to you guys in the studio.

• 1:06:53Speaker 06

  Hey, Nick Loper here from the Side Hustle Show. When I'm not helping people earn money outside of their day job, I'm stacking Benjamins.

• 1:07:00Speaker 03

  Nice job, season three, OG, good work.

• 1:07:03Speaker 04

  The star of the show is stackers, for sure.

• 1:07:06Speaker 03

  Well, let's keep stackers the star of the show, because I've got a couple things on the back porch. Number one was stacker Julie sent me a note, a lot of our stackers like to travel, a lot of our stackers also roll their eyes at the latte factor, OG. They're like, damn it, I'm going to have my latte, it's going to be okay. Well, if you are a Starbucks stacker, and you are somebody who also travels, Julie sent me a TikTok by Wes Keely, which I think is going to be really helpful, OG. Listen to Wes, check this out.

• 1:07:42Speaker 07

  All right, here's another quick hack. If you are a Starbucks person, like I am, and you use the app when you're traveling, and you have stars, save your stars when you're traveling, because in the airports, Starbucks can be like three, four, five, $10 more. But 200 stars, still is free drink. So save them, use them, that's a good tip. See ya.

• 1:08:06Speaker 03

  That's a great tip, if you like Starbucks.

• 1:08:08Speaker 04

  That's pretty good.

• 1:08:09Speaker 03

  I'm married to somebody who likes Starbucks. But hey, you've been to an airport and tried to order a Starbucks, it is, Starbucks is already expensive, it's so much more expensive at the airport, but 200 stars is 200 stars, no matter where you get it. So you get more of a value if you save your stars for the airport.

• 1:08:24Speaker 04

  If they use it, if they accept them there.

• 1:08:25Speaker 03

  If they accept it, yeah. Great stuff, thanks for that, Julie. If you've got something that you think we should be passing on, send that to us, [email protected]. Love to have you contribute to the show, like many of you did for OG and Anna's segment today. If you'd like to ask questions, it's stackingbenjamins.com/yelledownsstairs is a great way to be a part of a future show that we're building. All right, that's going to do it for today. Big thanks to you for hanging out with us today. Go back, look at your risk tolerance, look at how you determine your risk tolerance, go look up your standard deviation on your funds, ask yourself, can I handle this? Ask yourself, how much money do I need to save for my goals? I think all of that is very important as you're making your way toward financial security.

• 1:09:10Speaker 03

  We're going to help you there on Wednesday. Wednesday, Todd Havens joins us, and Todd wrote a phenomenal book about mindset. This is kind of the book that goes along with J.L. Collins, A Simple Path to Wealth. It is kind of a one-two punch between Todd and J.L. And man, when I read it, I'm like, I got to talk to Todd about some of the themes that he has. Todd found out that he had a cancer diagnosis, and it changed his viewpoint about the entire world. Luckily, he's okay, but we'll let him tell that story on Wednesday, you're going to want to hear it. All right, Doug, take it from here, man. What should we have learned on today's show?

• 1:09:47Speaker 02

  Well, Joe first, take some advice from Joe and OG. Don't begin your risk tolerance questions with, how much risk makes me nervous? Instead, start with, how much risk do I need to reach my goals? And then ask, can I handle it? That will ensure you sleep at night because your portfolio isn't making you nervous, and your ship is still headed in the right direction. Second, those Starbucks points, yeah, save them for the airport, cha-ching. But the big lesson? You might want to sit down for this one. It's not a person named AI, it's artificial intelligence. But the big lesson?

• 1:10:30Speaker 02

  Don't let Joe and OG know that there are a whole range of AI voices who can help make your podcast better. Wow, this is really cool. This program reads everything exactly as written and never asks for overtime pay? Brilliant.

• 1:10:45Speaker 02

  Wait, the robots are here? Right now? Okay, all right, okay, everybody calm down. I'm going to wash the tailpipe on the Harley, chill. Just make that AI voice go away, it's frightening.

• 1:10:59Speaker 02

  This show is the property of SB Podcast LLC, copyright 2026, and is created by Joe Saul Sehi. You'll find out about our awesome team at stackingbenjamins.com, along with the show notes, and how you can find us on YouTube, and all the usual social media spots. Come say hello. And oh yeah, before I go, not only should you not take advice from these nerds, don't take advice from people you don't know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I'm Joe's mom's neighbor Doug, and we'll see you next time, back here at the Stacking Benjamin Show.